RIVERA VS SPOUSES CHUA requisites laid down by Section 1 of the
GR NO. 184458 Negotiable Instruments Law as the instrument
JANUARY 14, 2015
FACTS:
The parties were friends and kumpadres for a
long time already. Rivera obtained a loan from the
Spouses Chua evidenced by a Promissory Note. The
relevant parts of the note are the following:
(a) FOR VALUE RECEIVED, I, RODRIGO RIVERA
promise to pay spouses SALVADOR C. CHUA
and VIOLETA SY CHUA, the sum of One
Hundred Twenty Thousand Philippine Currency
(_120,000.00) on December 31, 1995.
(b) It is agreed and understood that failure on my
part to pay the amount of (_120,000.00) One
Hundred Twenty Thousand Pesos on December
31, 1995. I agree to pay the sum equivalent to
FIVEPERCENT (5%) interest monthly from the
date of default until the entire obligation is fully
paid for.
Three years from the date of payment stipulated
in the promissory note, Rivera, issued and delivered to
Spouses Chua two (2) checks drawn against his account
at Philippine Commercial International Bank (PCIB) but
upon presentment for payment, the two checks were
dishonored forthe reason account closed. As of 31 May
1999, the amount due the Spouses Chua was pegged at
P366,000.00 covering the principal of P120,000.00 plus
five percent (5%) interest per month from 1 January
1996 to 31 May 1999.
The Spouses Chua alleged that they have
repeatedly demanded payment from Rivera to no avail.
Because of Riveras unjustified refusal to pay, the
Spouses Chua were constrained to file a suit before the
MeTC, Branch 30, Manila.
The MeTC ruled against Rivera requiring him to
pay the spouses Chua P120,000.00 plus stipulated
interest at the rate of 5% per month from 1 January
1996, and legal interest at the rate of 12% percent per
annum fromn11 June 1999 and was affirmed by the RTC
of Manila. The Court of Appeals further affirmed the
decision upon appeal of the two inferior courts but with
modification of lowering the stipulated interest to 12%
per annum. Hence, a petition at the Supreme Court.
ISSUES:
1. Whether or not the Promissory Note executed
as evidence of loan falls under Negiotiable
Instruments Law.
2. Whether or not a demand from spouses Chua is
needed to make Rivera liable.
3. Whether or not the stipulated interest is
unconscionable and should really be lowered.
RULINGS:
1. NO, the Promissory Note executed as evidence
of loan does not fall under Negotiable
Instruments Law. The instrument is still
governed by the Civil Code as to interpretation
of their obligations. The Supreme Court held that
the Instrument was not able to meet the
was made out to specific persons, herein
respondents, the Spouses Chua, and not to
order or to bearer, or to the order of the Spouses
Chua as payees.
2. NO, a demand from spouses Chua is not
needed to make Rivera liable. Even if Riveras
Promissory Note is not a negotiable instrument
and therefore outside the coverage of Section
70 of the NIL which provides that presentment
for payment is not necessary to charge the
person liable on the instrument, Rivera is still
liable under the terms of the Promissory Note
that he issued. Article 1169 of the Civil Code
explicitly provides that the demand by the
creditor shall not be necessary in order that
delay may exist when the obligation or the law
expressly so declare. The clause in the
Promissory Note containing the stipulation of
interest (letter B in the above facts) which
expressly requires the debtor (Rivera) to pay a
5% monthly interest from the date of default
until the entire obligation is fully paid for.
Theparties evidently agreed that the maturity of
the obligation at a date certain, 31 December
1995, will give rise to the obligation to pay
interest.
3. YES, the stipulated interest is unconscionable
and should really be lowered. The Supreme
Court held that as observed by Rivera, the
stipulated interest of 5% per month or 60% per
annum in addition to legal interests and
attorneys fees is, indeed, highly iniquitous and
unreasonable and stipulated interest rates if
illegal and are unconscionable the Court is
allowed to temper interest rates when
necessary. Since the interest rate agreed upon
is void, the parties are considered to have no
stipulation regarding the interest rate, thus, the
rate of interest should be 12% per annum
computed from the date of judicial or
extrajudicial demand. However, the 12% per
annum rate of legal interest is only applicable
until 30 June 2013, before the advent and
effectivity of Bangko Sentral ng Pilipinas (BSP)
Circular No. 799, Series of 2013 reducing the
rate of legal interest to 6% per annum. Pursuant
to our ruling in Nacar v. Gallery Frames,30 BSP
Circular No. 799 is prospectively applied from 1
July 2013.
 SOCIAL SECURITY SYSTEM, petitioner,
vs.
MOONWALK DEVELOPMENT & HOUSING
CORPORATION, ROSITA U. ALBERTO, ROSITA U.
ALBERTO, JMA HOUSE, INC., MILAGROS SANCHEZ
SANTIAGO, in her capacity as Register of Deeds for
the Province of Cavite, ARTURO SOLITO, in his
capacity as Register of Deeds for Metro Manila
District IV, Makati, Metro Manila and the
INTERMEDIATE APPELLATE COURT, respondents.
FACTS:
1 Plaintiff SSS approved the application of Defendant
Moonwalk for a loan of P30, 000,000 for the purpose of developing
and constructing a housing project.
2. Out of P30, 000,000 approved loan, the sum of P9,
595,000 was released to respondent
3. A third Amendment Deed of Mortgage was executed for
the payment of the amount of P9, 595,000.
4. The respondent made a total payment of P23,
657,901.84 to petitioner for the loan principal of P12, 254,700.
5. After settlement of the account, SSS issued to Moonwalk
the release of Mortgage for Moonwalks Mortgaged properties.
6. In letter to respondent, petitioner alleged that it committed
an honest mistake in releasing respondent.
7. They claim that respondent has still 12% penalty for failure
to pay on time the amortization which is in the penal clause of the
contract.
8. The respondent counsel told petitioner that it had
completely paid its obligation to petitioner and therefore there is no
recovery of any penalty.
ISSUE: Whether or not the penalty is still demandable even after
the extinguishment of the principal obligation?
HELD:
1 The Supreme Court said No.
2. In the case at bar there has been a waiver of the penal
clause as it was not demanded before the full obligation was fully
paid and extinguished.
3. The law provides that default begins from the moment the
creditor demands the performance of the obligation.
In order that the debtor may be in default it is
necessary that the following requisites be
present: (1) that the obligation be demandable
and already liquidated; (2) that the debtor delays
performance; and (3) that the creditor requires
the performance judicially and extrajudicially. 12
Default generally begins from the moment the
creditor demands the performance of the
obligation.
4. In this case, although there were late amortizations there
was no demand made by petitioner for the payment of the penalty
hence respondent is not in delay in the payment of the penalty.
5. No delay occurred and there was no occasion when the
penalty became demandable and enforceable.
6. Since there was no default in the performance of the main
obligation payment of the loan to petitioner was never entitled to
recover any penalty.
7. Now, if the demand for the payment of the penalty was
made prior to the extinguishment of the obligation which are: 1. the
principal obligation 2. The interest of 12% on the principal obligation
3. The penalty of 12% for late payment for after demand,
respondent would be in delay and therefore liable for the penalty.
an unpaid balance on the principal loan agreement in the
amount of P7,053.77 and, also in not reflecting in its
statement or account an unpaid balance on the said
penalties for delayed payments in the amount of
P7,517,178.21 as of October 10, 1979.
Moonwalk made several payments on September 29,
October 9 and 19, 1979 respectively, all in all totalling
P15,004,905.74 which was a complete payment of its
obligation
the real estate mortgages given by Moonwalk were
released on October 9, 1979 and October 10, 1979
At the time of the payment made of the full obligation on
October 10, 1979 together with the 12% interest by
defendant-appellee Moonwalk, its obligation was
extinguished.
the demand for payment of the penal clause made by
plaintiff-appellant in its demand letter dated November
28, 1979 and its follow up letter dated December 17,
1979 (which parenthetically are the only demands for
payment of the penalties) are therefore ineffective as
there was nothing to demand.
Moonwalk has long been delinquent in meeting its
monthly arrears and in paying the full amount of the loan
itself as the obligation matured sometime in January,
1977.
A penal clause has been defined as an accessory
obligation which the parties attach to a principal
obligation for the purpose of insuring the performance
thereof by imposing on the debtor a special presentation
(generally consisting in the payment of a sum of money)
in case the obligation is not fulfilled or is irregularly or
inadequately fulfilled"
A penal clause is an accessory undertaking to assume
greater liability in case of breach. 6 It has a double
function: (1) to provide for liquidated damages, and (2) to
strengthen the coercive force of the obligation by the
threat of greater responsibility in the event of breach.
it is clear that a penal clause is intended to prevent the
obligor from defaulting in the performance of his
obligation. Thus, if there should be default, the penalty
may be enforced.
Now an accessory obligation has been defined as that
attached to a principal obligation in order to complete the
same or take its place in the case of breach (4 Puig
Pea Part 1 p. 76). Note therefore that an accessory
obligation is dependent for its existence on the existence
of a principal obligation. A principal obligation may exist
without an accessory obligation but an accessory
obligation cannot exist without a principal obligation.
In the present case, the principal obligation is the loan
between the parties. The accessory obligation of a penal
clause is to enforce the main obligation of payment of
the loan. If therefore the principal obligation does not
exist the penalty being accessory cannot exist.
A penalty is demandable in case of non performance or
late performance of the main obligation.
In other words in order that the penalty may arise there
must be a breach of the obligation either by total or
partial non fulfillment or there is non fulfillment in point of
time which is called mora or delay. The debtor therefore
violates the obligation in point of time if there is mora or
delay.
Now, there is no mora or delay unless there is a
demand.
"Now when is the penalty deemed demandable in
accordance with the provisions of the Civil Code? We
must make a distinction between a positive and a
negative obligation. With regard to obligations which are
positive (to give and to do), the penalty is demandable
when the debtor is in mora; hence, the necessity of
demand by the debtor unless the same is excused . . ." 8
When does delay arise? Under the Civil Code, delay
begins from the time the obligee judicially or
extrajudicially demands from the obligor the performance
of the obligation.
"Art. 1169. Those obliged to deliver or to do something
incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their
obligation."
There are only three instances when demand is not
necessary to render the obligor in default. These are the
following:
"(1) When the obligation or the law expressly so
declares;
(2) When from the nature and the circumstances of the
obligation it appears that the designation of the time
when the thing is to be delivered or the service is to be
rendered was a controlling motive for the establishment
of the contract; or
(3) When the demand would be useless, as when the
obligor has rendered it beyond his power to perform." 9
In order that the debtor may be in default it is necessary
that the following requisites be present: (1) that the
obligation be demandable and already liquidated; (2)
that the debtor delays performance; and (3) that the
creditor requires the performance judicially and
extrajudicially. 12 Default generally begins from the
moment the creditor demands the performance of the
obligation.
It is noteworthy that in the present case during all the
period when the principal obligation was still subsisting,
although there were late amortizations there was no
demand made by the creditor, plaintiff-appellant for the
payment of the penalty. Therefore up to the time of the
letter of plaintiff-appellant there was no demand for the
payment of the penalty, hence the debtor was no in mora
in the payment of the penalty.
However, on October 1, 1979, plaintiff-appellant issued
its statement of account (Exhibit F) showing the total
obligation of Moonwalk as P15,004,905.74, and forthwith
demanded payment from defendant-appellee. Because
of the demand for payment, Moonwalk made several
payments on September 29, October 9 and 19, 1979
respectively, all in all totalling P15,004,905.74 which was
a complete payment of its obligation as stated in Exhibit
F. Because of this payment the obligation of Moonwalk
was considered extinguished, and pursuant to said
extinguishment, the real estate mortgages given by
Moonwalk were released on October 9, 1979 and
October 10, 1979 (Exhibits G and H). For all purposes
therefore the principal obligation of defendant-appellee
was deemed extinguished as well as the accessory
obligation of real estate mortgage; and that is the reason
for the release of all the Real Estate Mortgages on
October 9 and 10, 1979 respectively.
Now, besides the Real Estate Mortgages, the penal
clause which is also an accessory obligation must also
be deemed extinguished considering that the principal
obligation was considered extinguished, and the penal
clause being an accessory obligation.
the demand for payment of the penal clause made by
plaintiff-appellant in its demand letter dated November
28, 1979 and its follow up letter dated December 17,
1979 (which parenthetically are the only demands for
payment of the penalties) are therefore ineffective as
there was nothing to demand.
Article 1226 of the Civil Code provides:
"Art. 1226. In obligations with a penal clause, the penalty
shall substitute the indemnity for damages and the
payment of interests in case of noncompliance, if there is
no stipulation to the contrary. Nevertheless, damages
shall be paid if the obligor refuses to pay the penalty or
is guilty of fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is
demandable in accordance with the provisions of this
Code."
A penal clause is an accessory undertaking to assume
greater liability in case of breach. 6 It has a double
function: (1) to provide for liquidated damages, and (2) to
strengthen the coercive force of the obligation by the
threat of greater responsibility in the event of breach.
it is clear that a penal clause is intended to prevent the
obligor from defaulting in the performance of his
obligation. Thus, if there should be default, the penalty
may be enforced.
"Now when is the penalty deemed demandable in
accordance with the provisions of the Civil Code? We
must make a distinction between a positive and a
negative obligation. With regard to obligations which are
positive (to give and to do), the penalty is demandable
when the debtor is in mora; hence, the necessity of
demand by the debtor unless the same is excused . . ." 8
When does delay arise? Under the Civil Code, delay
begins from the time the obligee judicially or
extrajudicially demands from the obligor the performance
of the obligation.
"Art. 1169. Those obliged to deliver or to do something
incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their
obligation."
There are only three instances when demand is not
necessary to render the obligor in default. These are the
following:
"(1) When the obligation or the law expressly so
declares;
(2) When from the nature and the circumstances of the
obligation it appears that the designation of the time
when the thing is to be delivered or the service is to be
rendered was a controlling motive for the establishment
of the contract; or
(3) When the demand would be useless, as when the
obligor has rendered it beyond his power to perform." 9
Moonwalk has long been delinquent in meeting its
monthly arrears and in paying the full amount of the loan
itself as the obligation matured sometime in January,
1977.
What the complaint itself showed was that SSS tried to
enforce the obligation sometime in September, 1977 by
foreclosing the real estate mortgages executed by
Moonwalk in favor of SSS. But this foreclosure did not
push through upon Moonwalk's requests and promises
to pay in full. The next demand for payment happened
on October 1, 1979 when SSS issued a Statement of
Account to Moonwalk. And in accordance with said
statement, Moonwalk paid its loan in full.
SSS, however, in buttressing its claim that it never
waived the penalties, argued that the funds it held were
trust funds and as trustee, the petitioner could not
perform acts affecting the funds that would diminish
property rights of the owners and beneficiaries thereof.
To support its claim, SSS cited the case of United
Christian Missionary Society v. Social Security
Commission. 14
We looked into the case and found out that it is not
applicable to the present case as it dealt not with the
right of the SSS to collect penalties which were provided
for in contracts which it entered into but with its right to
collect premiums and its duty to collect the penalty for
delayed payment or non-payment of premiums. The
Supreme Court, in that case, stated:
was the penalty provided for by law for non remittance of
premium for coverage under the Social Security Act.
The case at bar does not refer to any penalty provided
for by law nor does it refer to the non remittance of
premium. The case at bar refers to a contract of loan
entered into between plaintiff and defendant Moonwalk
Development and Housing Corporation. Note, therefore,
that no provision of law is involved in this case, nor is
there any penalty imposed by law nor a case about non-
remittance of premium required by law. The present
case refers to a contract of loan payable in installments
not provided for by law but by agreement of the parties.
Therefore, the ratio decidendi of the case of United
Christian Missionary Society vs. Social Security
Commission which plaintiff-appellant relies is not
applicable in this case; clearly, the Social Security
Commission, which is a creature of the Social Security
Act cannot condone a mandatory provision of law
providing for the payment of premiums and for penalties
for non remittance. The life of the Social Security Act is
in the premiums because these are the funds from which
the Social Security Act gets the money for its purposes
and the non-remittance of the premiums is penalized not
by the Social Security Commission but by law.
xxx xxx xxx
It is admitted that when a government created
corporation enters into a contract with private party
concerning a loan, it descends to the level of a private
person. Hence, the rules on contract applicable to
private parties are applicable to it. The argument
therefore that the Social Security Commission cannot
waive or condone the penalties which was applied in the
United Christian Missionary Society cannot apply in this
case. First, because what was not paid were
installments on a loan but premiums required by law to
be paid by the parties covered by the Social Security
Act. Secondly, what is sought to be condoned or waived
are penalties not imposed by law for failure to remit
premiums required by law, but a penalty for non payment
provided for by the agreement of the parties in the
contract between them . . ." 15

"No discretion or alternative is granted respondent

Commission in the enforcement of the law's mandate
that the employer who fails to comply with his legal
obligation to remit the premiums to the System within the
prescribed period shall pay a penalty of three (3%) per
month. The prescribed penalty is evidently of a punitive
character, provided by the legislature to assure that
employers do not take lightly the State's exercise of the
police power in the implementation of the Republic's
declared policy "to develop, establish gradually and
perfect a social security system which shall be suitable
to the needs of the people throughout the Philippines
and (to) provide protection to employers against the
hazards of disability, sickness, old age and death . . ."

Thus, We agree with the decision of the respondent

court on the matter which We quote, to wit:

"Note that the above case refers to the condonation of

the penalty for the non remittance of the premium which
is provided for by Section 22(a) of the Social Security Act
. . . In other words, what was sought to be condoned
 ANTONIO TAN, petitioner,
vs.
COURT OF APPEALS and the CULTURAL CENTER
OF THE PHILIPPINES, respondents.
FACTS:
1 On May 14, 1978 and July 6, 1978, petitioner
Antonio Tan obtained two (2) loans each in the principal
amount of Two Million Pesos (P2,000,000.00), or in the
total principal amount of Four Million Pesos
(P4,000,000.00) from respondent Cultural Center of the
Philippines with maturity dates on May 14, 1979 and July
6, 1979, respectively.
2. Petitioner defaulted but he had the loans
restructured by respondent and on August 31, 1979 in
the amount of (P3,411,421.32) payable in five (5)
installments.
3. But the petitioner failed to pay any instalment,
the last installment falling due on December 31, 1980.
4. The respondent wrote a letter dated May 30,
1984 to the petitioner demanding full payment, of the
petitioners restructured loan which as of April 30, 1984
amounted to (P6,088,735.03).
5. On August 29, 1984, respondent filed a
complaint for collection of a sum of money, against the
petitioner after the latter failed to settle his said
restructured loan obligation.
ISSUE: Whether or not there are contractual and legal
bases for the imposition of the penalty, interest on the
penalty and attorneys fees.
RULING:
1 The Supreme Court said Yes.
2. ART 1226 states that In obligations with a penal
clause, the penalty shall substitute the indemnity for
damages and the payment of interests in case of non-
compliance, if there is no stipulation to the contrary.
Nevertheless, damages shall be paid if the obligor
refuses to pay the penalty or is guilty of fraud in the
fulfillment of the obligation.
The penalty may be enforced only when it is
demandable in accordance with the provisions of this
Code.
3. In the case at bar, the promissory note expressly
provides for the imposition of both interest and penalties
in case of default on the part of the petitioner in the
payment of the subject restructured loan.
For value received, I/We jointly and severally
promise to pay to the CULTURAL CENTER OF
THE PHILIPPINES at its office in Manila, the
sum of THREE MILLION FOUR HUNDRED
ELEVEN THOUSAND FOUR HUNDRED +
PESOS (P3,411,421.32) Philippine Currency,
xxx.
With interest at the rate of FOURTEEN per cent
(14%) per annum from the date hereof until paid.
PLUS THREE PERCENT (3%) SERVICE
CHARGE.
In case of non-payment of this note at
maturity/on demand or upon default of payment
of any portion of it when due, I/We jointly and
severally agree to pay additional penalty
charges at the rate of TWO per cent (2%) per
month on the total amount due until paid,
payable and computed monthly. Default of
payment of this note or any portion thereof when
due shall render all other installments and all
existing promissory notes made by us in favor of
the CULTURAL CENTER OF THE PHILIPPINES
immediately due and demandable.
PENALTY CHARGE = penalty or compensatory
interest.
4. The stipulated fourteen percent (14%) per
annum interest charge until full payment of the loan
constitutes the monetary interest on the note is allowed
under the Civil Code. On the other hand, the stipulated
two percent (2%) per month penalty is in the form of
penalty charge which is separate and distinct from the
monetary interest on the principal of the loan is also
allowed in the Civil Code.
PENALTY IN MANY FORMS:
i If the parties stipulate penalty apart
monetary interest, two are different and distinct
from each other and may be demanded
separately.
ii. If stipulation about payment of an additional
interest rate partakes of the nature of a penalty
clause which is sanctioned by law:
5. Therefore there is No doubt petitioner is liable
for both the stipulated monetary interest and the
stipulated penalty charge. This penalty charge is called
penalty or compensatory interest.
2. WON interest may accrue on the penalty or
compensatory interest without violating ART
1959.
a. Penalty clauses can be in the form of
penalty or compensatory interest.
i. Thus, the compounding
of the penalty or compensatory interest is sanctioned by
and allowed pursuant to the above-quoted provision of
Article 1959 of the New Civil Code considering that:
1. There is an express stipulation in the promissory note
(Exhibit A) permitting the compounding of interest.
a. 5th paragraph of the said promissory note provides
that: Any interest which may be due if not paid shall be
added to the total amount when due and shall become
part thereof, the whole amount to bear interest at the
maximum rate allowed by law..
2. Therefore, any penalty interest not paid, when due, shall
earn the legal interest of twelve percent (12%) per
annum, in the absence of express stipulation on the
specific rate of interest, as in the case at bar.
b. ART 2212: Interest due shall earn legal
interest from the time it is judicially
demanded, although the obligation may
be silent upon this point.
c. CASE AT BAR: interest began to run on
the penalty interest upon the filing of the
 complaint in court by CCP.
i. Hence, the courts did not
err in ruling that the petitioner is bound to pay the
interest on the total amount of the principal, the
monetary interest and the penalty interest.
3. WON TAN can file reduction of penalty due to
made partial payments. YES. BUT NOT 10%
REDUCTION AS SUGGESTED BY
PETITIONER.
a. REDUCED TO 2% REDUCTION:
i. PARTIAL PAYMENTS
showed his good faith despite difficulty in complying with
his loan obligation due to his financial problems.
1. However, we are not unmindful of the respondents long
overdue deprivation of the use of its money collectible.
4. The petitioner also imputes error on the part of
the appellate court for not declaring the
suspension of the running of the interest during
period when the CCP allegedly failed to assist
the petitioner in applying for relief from liability
a. Alleges that his obligation to pay the
interest and surcharge should have
been suspended because the obligation
to pay such interest and surcharge has
become conditional
i. Dependent on a future
and uncertain event which consists of whether the
petitioners request for condonation of interest and
surcharge would be recommended by the Commission
on Audit.
1. Since the condition has not happened due to the private
respondents reneging on its promise, his liability to pay
the interest and surcharge on the loan has not arisen.
b. COURT ANSWER:
i. Running of the interest
and surcharge was not suspended.
ii. CCP correctly asserted
that it was the primary responsibility of petitioner to
inform the Commission on Audit of his application for
condonation of interest and surcharge.
Having clarified the same, the next issue to be resolved
is whether interest may accrue on the penalty or
compensatory interest without violating the provisions of
Article 1959 of the New Civil Code, which provides that:
Without prejudice to the provisions of Article
2212, interest due and unpaid shall not earn
interest. However, the contracting parties may
by stipulation capitalize the interest due and
unpaid, which as added principal, shall earn new
interest.
According to the petitioner, there is no legal basis for the
imposition of interest on the penalty charge for the
reason that the law only allows imposition of interest on
monetary interest but not the charging of interest on
penalty. He claims that since there is no law that allows
imposition of interest on penalties, the penalties should
not earn interest. But as we have already explained,
penalty clauses can be in the form of penalty or
compensatory interest. Thus, the compounding of the
penalty or compensatory interest is sanctioned by and
allowed pursuant to the above-quoted provision of Article
1959 of the New Civil Code considering that:
First, there is an express stipulation in the promissory
note (Exhibit "A") permitting the compounding of interest.
The fifth paragraph of the said promissory note provides
that: "Any interest which may be due if not paid shall be
added to the total amount when due and shall become
part thereof, the whole amount to bear interest at the
maximum rate allowed by law." 10 Therefore, any penalty
interest not paid, when due, shall earn the legal interest
of twelve percent (12%) per annum, 11 in the absence of
express stipulation on the specific rate of interest, as in
the case at bar.
Second, Article 2212 of the New Civil Code provides that
"Interest due shall earn legal interest from the time it is
judicially demanded, although the obligation may be
silent upon this point." In the instant case, interest
likewise began to run on the penalty interest upon the
filing of the complaint in court by respondent CCP on
August 29, 1984. Hence, the courts a quo did not err in
ruling that the petitioner is bound to pay the interest on
the total amount of the principal, the monetary interest
and the penalty interest.
The petitioner seeks the elimination of the compounded
interest imposed on the total amount based allegedly on
the case of National Power Corporation v. National
Merchandising Corporation,12 wherein we ruled that the
imposition of interest on the damages from the filing of
the complaint is unjust where the litigation was
prolonged for twenty-five (25) years through no fault of
the defendant. However, the ruling in the said National
Power Corporation (NPC) case is not applicable to the
case at bar inasmuch as our ruling on the issue of
interest in that NPC case was based on equitable
considerations and on the fact that the said case lasted
for twenty-five (25) years "through no fault of the
defendant." In the case at bar, however, equity cannot be
considered inasmuch as there is a contractual stipulation
in the promissory note whereby the petitioner expressly
agreed to the compounding of interest in case of failure
on his part to pay the loan at maturity. Inasmuch as the
said stipulation on the compounding of interest has the
force of law between the parties and does not appear to
be inequitable or unjust, the said written stipulation
should be respected.
The private respondents Statement of Account (marked
Exhibits "C" to "C-2")13 shows the following breakdown of
the petitioners indebtedness as of August 28, 1986:
Principal P2,838,454.68
Interest P 576,167.89
Surcharge P4,581,692.10

P7,996,314.67
The said statement of account also shows that the
above amounts stated therein are net of the partial
payments amounting to a total of Four Hundred Fifty-
Two Thousand Five Hundred Sixty-One Pesos and
Forty-Three Centavos (P452,561.43) which were made
during the period from May 13, 1983 to September 30,
1983.14 The petitioner now seeks the reduction of the
penalty due to the said partial payments. The principal
amount of the promissory note (Exhibit "A") was Three
Million Four Hundred Eleven Thousand Four Hundred
Twenty-One Pesos and Thirty-Two Centavos
(P3,411,421.32) when the loan was restructured on
August 31, 1979. As of August 28, 1986, the principal
amount of the said restructured loan has been reduced
to Two Million Eight Hundred Thirty-Eight Thousand Four
Hundred Fifty-Four Pesos and Sixty-Eight Centavos
(P2,838,454.68). Thus, petitioner contends that
reduction of the penalty is justifiable pursuant to Article
1229 of the New Civil Code which provides that: "The
judge shall equitably reduce the penalty when the
principal obligation has been partly or irregularly
complied with by the debtor. Even if there has been no
performance, the penalty may also be reduced by the
courts if it is iniquitous or unconscionable." Petitioner
insists that the penalty should be reduced to ten percent
(10%) of the unpaid debt in accordance with Bachrach
Motor Company v. Espiritu.15
There appears to be a justification for a reduction of the
penalty charge but not necessarily to ten percent (10%)
of the unpaid balance of the loan as suggested by
petitioner. Inasmuch as petitioner has made partial
payments which showed his good faith, a reduction of
the penalty charge from two percent (2%) per month on
the total amount due, compounded monthly, until paid
can indeed be justified under the said provision of Article
1229 of the New Civil Code.
In other words, we find the continued monthly accrual of
the two percent (2%) penalty charge on the total amount
due to be unconscionable inasmuch as the same
appeared to have been compounded monthly.
Considering petitioners several partial payments and the
fact he is liable under the note for the two percent (2%)
penalty charge per month on the total amount due,
compounded monthly, for twenty-one (21) years since
his default in 1980, we find it fair and equitable to reduce
the penalty charge to a straight twelve percent (12%) per
annum on the total amount due starting August 28, 1986,
the date of the last Statement of Account (Exhibits "C" to
"C-2"). We also took into consideration the offers of the
petitioner to enter into a compromise for the settlement
of his debt by presenting proposed payment schemes to
respondent CCP. The said offers at compromise also
showed his good faith despite difficulty in complying with
his loan obligation due to his financial problems.
However, we are not unmindful of the respondents long
overdue deprivation of the use of its money collectible
from the petitioner.
The petitioner also imputes error on the part of the
appellate court for not declaring the suspension of the
running of the interest during that period when the
respondent allegedly failed to assist the petitioner in
applying for relief from liability. In this connection, the
petitioner referred to the private respondents letter 16
dated September 28, 1988 addressed to petitioner which
partially reads:
Dear Mr. Tan:
xxx xxx xxx
With reference to your appeal for condonation of
interest and surcharge, we wish to inform you
that the center will assist you in applying for
relief of liability through the Commission on Audit
and Office of the President xxx.
While your application is being processed and
awaiting approval, the center will be accepting
your proposed payment scheme with the
downpayment of P160,000.00 and monthly
remittances of P60,000.00 xxx.
xxx xxx xxx
The petitioner alleges that his obligation to pay the
interest and surcharge should have been suspended
because the obligation to pay such interest and
surcharge has become conditional, that is dependent on
a future and uncertain event which consists of whether
the petitioners request for condonation of interest and
surcharge would be recommended by the Commission
on Audit and the Office of the President to the House of
Representatives for approval as required under Section
36 of Presidential Decree No. 1445. Since the condition
has not happened allegedly due to the private
respondents reneging on its promise, his liability to pay
the interest and surcharge on the loan has not arisen.
This is the petitioners contention.
It is our view, however, that the running of the interest
and surcharge was not suspended by the private
respondents promise to assist the petitioners in applying
for relief therefrom through the Commission on Audit and
the Office of the President.
First, the letter dated September 28, 1988 alleged to
have been sent by the respondent CCP to the petitioner
is not part of the formally offered documentary evidence
of either party in the trial court. That letter cannot be
considered evidence pursuant to Rule 132, Section 34 of
the Rules of Court which provides that: "The court shall
consider no evidence which has not been formally
offered xxx." Besides, the said letter does not contain
any categorical agreement on the part of respondent
CCP that the payment of the interest and surcharge on
the loan is deemed suspended while his appeal for
condonation of the interest and surcharge was being
processed.
Second, the private respondent correctly asserted that it
was the primary responsibility of petitioner to inform the
Commission on Audit and the Office of the President of
his application for condonation of interest and surcharge.
It was incumbent upon the petitioner to bring his
administrative appeal for condonation of interest and
penalty charges to the attention of the said government
offices.
On the issue of attorneys fees, the appellate court ruled
correctly and justly in reducing the trial courts award of
twenty-five percent (25%) attorneys fees to five percent
(5%) of the total amount due.
WHEREFORE, the assailed Decision of the Court of
Appeals is hereby AFFIRMED with MODIFICATION in
that the penalty charge of two percent (2%) per month
on the total amount due, compounded monthly, is hereby
reduced to a straight twelve percent (12%) per annum
starting from August 28, 1986. With costs against the
petitioner.
SO ORDERED.
J PLUS ASIA DEVELOPMENT CORPORATION
VS
UTILITY ASSURANCE CORPORATION
FACTS:
Petitioner J Plus Asia Development Corporation and
Martin E. Mabunay entered into a Construction
Agreement on December 24, 2007 whereby the latter
undertook to build the formers 72-room
condominium/hotel located in Boracay Island.
The project, costing P42M, was to be completed within
one year or 365 days reckoned from the first calendar
day after signing of the Notice of Award and Notice to
Proceed and receipt of down payment (20% of contract
price). The P8.4M down payment was fully paid on
January 14, 2008. Payment of the balance of the
contract price will be based on actual work finished
within 15 days from receipt of the monthly progress
billings. Per the agreed work schedule, the completion
date of the project was December 2008. Mabunay also
submitted the required Performance Bond issued by
Respondent Utility Assurance Corporation in the amount
equivalent to 20% down payment or P8.4M.
Mabunay commenced work at the project site on
January 7, 2008. Petitioner paid up to the 7th monthly
progress billing sent by Mabunay. As of September 16,
2008, Petitioner had paid the total amount of P15.98M
inclusive of the 20% down payment. However, as of
said date, Mabunay had accomplished only 27.5% of the
project. It was later found out by the joint inspection and
evaluation by the Petitioner and Mabunay that, as of
November 14, 2008, the project was only 31.39%
complete and that the uncompleted portion was 68.61%.
On November 19, 2008, Petitioner terminated the
contract and sent Demand Letters to Mabunay and
Respondent surety. As its demands went unheeded,
Petitioner filed a Request for Arbitration before the
Construction Industry Arbitration Commission (CIAC).
In his Answer, Mabunay claimed that the delay was
caused by retrofitting and other revision works ordered
by Petitioner. He asserted that he actually had until April
30, 2009 to finish the project since the 365 days period
of completion started only on May 2, 2008 after clearing
the retrofitted old structure. Hence, the termination of
the contract by Petitioner was premature and the filing of
the Complaint against him was baseless, malicious and
in bad faith.
Respondent, on the other hand, filed a Motion to
Dismiss on the ground that Petitioner has no cause of
action and the complaint states no cause of action
against it. The CIAC denied the Motion to Dismiss.
In its Answer Ex Abundante Ad Cautelam with
Compulsory Counterclaims and Cross-claims,
Respondent argued that the Performance Bond merely
guaranteed the 20% down payment and not the entire
obligation of Mabunay under the Construction
Agreement. Since the value of the projects
accomplishment already exceeded the said amount,
Respondents obligation under the Performance Bond
had been fully extinguished. As to the claim for alleged
overpayment to Mabunay, Respondent contended that it
should not be credited against the 20% down payment
which was already exhausted and such application by
Petitioner is tantamount to reviving an obligation that had
been legally extinguished by payment. Respondent also
set up a cross-claim against Mabunay who executed in
its favor an Indemnity Agreement whereby Mabunay
undertook to indemnify Respondent for whatever
amounts it may be adjudged liable to pay Petitioner
under the surety bond.
On February 2, 2010, CIAC rendered its Decision and
made Awards in favor of Petitioner. CIAC ruled that
Mabunay had incurred delay which entitled Petitioner to
the stipulated liquidated damages and unrecouped down
payment.
Dissatisfied, Respondent filed in the CA a Petition for
Review under Rule 43 of the 1997 Rules of Civil
Procedure, as amended, which reversed the CIACs
ruling.
Hence, the present Petition for Review on Certiorari
under Rule 45 seeking to reverse the CA insofar as it
denied its claims under the Performance Bond and to
reinstate in its entirety the February 2, 2010 CIAC
Decision.
ISSUE:
Whether or not the Alternative Dispute Resolution Act of
2004 and the Special ADR Rules have stripped the CA
of jurisdiction to review arbitral awards?
ARGUMENT:
Petitioner contends that that with the institutionalization
of alternative dispute resolution under RA No. 9285,
otherwise known as the Alternative Dispute Resolution
Act of 2004, the CA was divested of jurisdiction to review
the decisions or awards of the CIAC.
RULING:
NO. The Petitioners contention is without merit.
Petitioner erroneously relied on the provision in RA No.
9285 allowing any party to a domestic arbitration to file in
the RTC a petition either to confirm, correct or vacate a
domestic arbitral award.
The Petition is GRANTED. The assailed decision of the
CA is REVERSED and SET ASIDE. The Award made in
the Decision rendered by CIAC dated February 2, 2010
is REINSTATED with MODIFICATIONS.
RATIO DECIDENDI:
SC holds that RA No. 9285 did not confer on RTCs
jurisdiction to review awards or decisions of the CIAC in
construction disputes. On the contrary, Section 40
thereof expressly declares that confirmation by the RTC
is NOT required, thus:

SEC. 40. Confirmation of Award. The confirmation of a

domestic arbitral award shall be governed by Section 23
of R.A. 876.

A domestic arbitral award when confirmed shall be

enforced in the same manner as final and executory
decisions of the Regional Trial Court.

The confirmation of a domestic award shall be made by

the regional trial court in accordance with the Rules of
Procedure to be promulgated by the Supreme Court.

A CIAC arbitral award need not be confirmed by the

regional trial court to be executory as provided under
E.O. No. 1008. (Emphasis supplied.)

EO No. 1008 vests upon the CIAC original and exclusive

jurisdiction over disputes arising from, or connected with,
contracts entered into by parties involved in construction
in the Philippines, whether the dispute arises before or
after the completion of the contract, or after the
abandonment or breach thereof. By express provision of
Section 19 thereof, the arbitral award of the CIAC is final
and unappealable, except on questions of law, which are
appealable to the Supreme Court. With the amendments
introduced by RA No. 7902 and promulgation of the
1997 Rules of Civil Procedure, as amended, the CIAC
was included in the enumeration of quasi- judicial
agencies whose decisions or awards may be appealed
to the CA in a Petition for Review under Rule 43. Such
review of the CIAC award may involve either questions
of fact, of law, or of fact and law.

Petitioner misread the provisions of A.M. No. 07-11-08-

SC (Special ADR Rules) promulgated by the SC and
which took effect on October 30, 2009. Since RA No.
9285 explicitly excluded CIAC awards from domestic
arbitration awards that need to be confirmed to be
executory, said awards are therefore not covered by
Rule 11 of the Special ADR Rules, as they continue to
be governed by EO No. 1008, as amended and the rules
of procedure of the CIAC. The CIAC Revised Rules of
Procedure Governing Construction Arbitration provide for
the manner and mode of appeal from CIAC decisions or
awards in Section 18 thereof, which reads:

SECTION 18.2 Petition for review. A petition for review

from a final award may be taken by any of the parties
within fifteen (15) days from receipt thereof in
accordance with the provisions of Rule 43 of the Rules
of Court.
 height of absurdity for petitioner to attribute to a
fortuitous event its delayed

payment. Petitioners explanation is clearly a gr

atuitous assertion that borderscallousness.

MANILA INTERNATIONAL AIRPORT AUTHORITY VS.

ALA INDUSTRIESCORPORATIONG.R. NO. 147349.
FEBRUARY 13, 2004

FACTS: The contract for the structural repair and

waterproofing of the IPT and ICTbuilding of the NAIA
airport was awarded, after a public bidding, to
respondent ALA.Respondent made the necessary repair
and waterproofing. After submission of its progress
billings to the petitioner, respondent receivedpartial
payments. Progress billing remained unpaid despite
repeated demands by therespondent. Meanwhile
petitioner unilaterally rescinded the contract on the
ground thatrespondent failed to complete the project
within the agreed completion date.Respondent objected
to the rescission made by the petitioner and reiterated
itsclaims. The trial court directed the parties to proceed
to arbitration. Both partiesexecuted a compromise
agreement and jointly filed in court a motion for
judgmentbased on the compromise agreement. The
Court a quo rendered judgment approvingthe
compromise agreement.

For petitioners failure to pay within the period stipulated,

respondent filed a

motion for execution to enforce its claim. Petitioner filed

a comment and attributed the

delays to its being a government agency. The trial court

denied the respondents

motion. Reversing the trial court, the CA ordered it to

issue a writ of execution toenforce

respondents claim. The appellate court ratiocinated that

a judgment rendered

in accordance with a compromise agreement was

immediately executory, and that adelay was not
substantial compliance therewith.ISSUES:1) Whether or
not decision based on compromise agreement is final
andexecutory.2) Whether or not delay by one party on a
compromise justifies execution.HELD:1. A compromise
once approved by final orders of the court has the force
of res judicata between the parties and should not be
disturbed except for vices of consent or forgery. Hence,
a decision on a compromise agreement is final and
executory. Suchagreement has the force of law and is
conclusive between the parties. It transcends itsidentity
as a mere contract binding only upon the parties thereto,
as it becomes a judgment that is subject to execution in
accordance with the Rules. Judges thereforehave the
ministerial and mandatory duty to implement and enforce
it.2. The failure to pay on the date stipulated was clearly
a violation of the Agreement. Thus, non-fulfilment of the
terms of the compromise justified execution. It isthe
 5.
failure to comply fully with her obligation was not
motivated by ill will or malice. The partial payments she
made were manifestations of her good faith. Hence the
attorneys fees were reduced to 10% of the total due and
payable.
The Facts
The CA summarized the facts of the case in this wise:
RESTITUTA M. IMPERIAL, petitioner,
vs.
ALEX A. JAUCIAN, respondent.
FACTS:
1.. Petitioner obtained six (6) separate loans
amounting to P 320,000.00 from the respondent. In the
written agreement, they agreed upon the 16% interest
per month plus penalty charge of 5% per month and the
25% attorneys fee, failure to pay the said loans on the
stipulated date.
2. Petitioner executed six (6) separate promissory
notes and issued several checks as guarantee for
payment. When the said loans become overdue and
unpaid, especially when the petitioners checks issued
were dishonored, respondent made repeated oral and
written demands for payment.
3. The petitioner was able to pay only P 116,540.00
as found by the RTC. Although she alleged that she had
already paid the amount of P 441,780.00 and the excess
of P 121,780.00 is more than the interest that could be
legally charged, the Court affirms the findings of RTC
that petitioner is still indebted to the respondent.
ISSUE: Whether or not the stipulated interest of 16% per
month, 5% per month for penalty charge and 25%
attorneys fee are usurious.
HELD:
1 YES. The rate must be equitably reduced for
being iniquitous, unconscionable and exorbitant. While
the Usury Law ceiling on interest rates was lifted by C.B.
Circular No. 905, nothing in the said circular grants
lenders authority to raise interests rates to levels which
will either enslave their borrowers or lead to a
haemorrhaging of their assets.
2. The Court held that when the agreed rate is
iniquitous or unconscionable, it considered contrary to
morals, if not against the law. Such stipulation is void.
Since the stipulation is void, it is as if there was no
express contract thereon. Hence, courts may reduce the
interest rate as reason and equity demand.
3. The interest rate of 16% per month was reduced
to 1.167% per month or 14% per annum and the penalty
charge of 5% per month was also reduced to 1.167%
per month or 14% per annum.
4. The attorneys fees here are in the nature of
liquidated damages and the stipulation therefor is aptly
called a penal clause. So long as the stipulation does not
contravene the law, morals, public order or public policy,
it is binding upon the obligor.
Nevertheless, in the case at bar, petitioners
"The present controversy arose from a case for
collection of money, filed by Alex A. Jaucian
against Restituta Imperial, on October 26, 1989.
The complaint alleges, inter alia, that defendant
obtained from plaintiff six (6) separate loans for
which the former executed in favor of the latter
six (6) separate promissory notes and issued
several checks as guarantee for payment. When
the said loans became overdue and unpaid,
especially when the defendants checks were
dishonored, plaintiff made repeated oral and
written demands for payment.
"Specifically, the six (6) separate loans obtained
by defendant from plaintiff on various dates are
as follows:
(a) November 13, 1987 P 50,000.00
(b) December 28, 1987 40,000.00
(c) January 6, 1988 30,000.00
(d) January 11, 1988 50,000.00
(e) January 12, 1988 50,000.00
(f) January 13, 1988 100,000.00
Total P320,000.00
"The loans were covered by six (6) separate
promissory notes executed by defendant. The
face value of each promissory notes is bigger
[than] the amount released to defendant
because said face value already include[d] the
interest from date of note to date of maturity.
Said promissory notes, which indicate the
interest of 16% per month, date of issue, due
date, the corresponding guarantee checks
issued by defendant, penalties and attorneys
fees, are the following:
1. Exhibit D for loan of P40,000.00 on
December 28, 1987, with face value of
P65,000.00;
2. Exhibit E for loan of P50,000.00 on
January 11, 1988, with face value of
P82,000.00;
3. Exhibit F for loan of P50,000.00 on
January 12, 1988, with face value of
P82,000.00;
4. Exhibit G for loan of P100,000.00
on January 13, 1988, with face value of
P164,000.00;
5. Exhibit H This particular
promissory note covers the second
renewal of the original loan of
P50,000.00 on November 13, 1987,
which was renewed for the first time on
March 16, 1988 after certain payments,
and which was renewed finally for the
second time on January 4, 1988 also
after certain payments, with a face value
of P56,240.00;
6. Exhibit I This particular promissory
note covers the second renewal of the
 original loan of P30,000.00 on January d. Exhibit 27 Receipt
6, 1988, which was renewed for the first
time on June 4, 1988 after certain
Total
payments, and which was finally
renewed for the second time on August
6, 1988, also after certain payments, Less:
with [a] face value of P12,760.00;
"The particulars about the postdated checks,
Excess Payment
i.e., number, amount, date, etc., are indicated in
each of the promissory notes. Thus, for Exhibit "Defendant contends that from all perspectives
D, four (4) PB checks were issued; for Exhibit the above excess payment of P121,780.00 is
E four (4) checks; for Exhibit F four (4) checks; more than the interest that could be legally
for Exhibit G four (4) checks; for Exhibit H one charged, and in fact as of January 25, 1989, the
(1) check; for Exhibit I one (1) check; total releases have been fully paid.
"The arrangement between plaintiff and "On 31 August 1993, the trial court rendered the
defendant regarding these guarantee checks assailed decision."6
was that each time a check matures the
defendant would exchange it with cash. RULING
"Although, admittedly, defendant made several Second Issue:
payments, the same were not enough and she Rate of Interest
always defaulted whenever her loans mature[d]. The trial court, as affirmed by the CA, reduced the
As of August 16, 1991, the total unpaid amount, interest rate from 16 percent to 1.167 percent per month
including accrued interest, penalties and or 14 percent per annum; and the stipulated penalty
attorneys fees, [was] P2,807,784.20. charge, from 5 percent to 1.167 percent per month or 14
"On the other hand, defendant claims that she percent per annum.
was extended loans by the plaintiff on several Petitioner alleges that absent any written stipulation
occasions, i.e., from November 13, 1987 to between the parties, the lower courts should have
January 13, 1988, in the total sum of imposed the rate of 12 percent per annum only.
P320,000.00 at the rate of sixteen percent (16%) The records show that there was a written agreement
per month. The notes mature[d] every four (4) between the parties for the payment of interest on the
months with unearned interest compounding subject loans at the rate of 16 percent per month. As
every four (4) months if the loan [was] not fully decreed by the lower courts, this rate must be equitably
paid. The loan releases [were] as follows: reduced for being iniquitous, unconscionable and
(a) November 13, 1987 P 50,000.00 exorbitant. "While the Usury Law ceiling on interest rates
was lifted by C.B. Circular No. 905, nothing in the said
(b) December 28, 1987 40,000.00 circular grants lenders carte blanche authority to raise
interest rates to levels which will either enslave their
(c) January 6, 1988 30,000.00 borrowers or lead to a hemorrhaging of their assets." 13
14
(d) January 11, 1988 50,000.00 In Medel v. CA, the Court found the stipulated interest
rate of 5.5 percent per month, or 66 percent per annum,
(e) January 12, 1988 50,000.00 unconscionable. In the present case, the rate is even
more iniquitous and unconscionable, as it amounts to
(f) January 13, 1988 100,000.00 192 percent per annum. When the agreed rate is
iniquitous or unconscionable, it is considered "contrary to
15
Total P320,000.00 morals, if not against the law. [Such] stipulation is void."
Since the stipulation on the interest rate is void, it is as if
"The loan on November 13, 1987 and January 6, there were no express contract thereon.16 Hence, courts
1988 ha[d] been fully paid including the usurious may reduce the interest rate as reason and equity
interests of 16% per month, this is the reason demand. We find no justification to reverse or modify the
why these were not included in the complaint. rate imposed by the two lower courts.
"Defendant alleges that all the above amounts Third and Fourth Issue:
were released respectively by checks drawn by Penalties and Attorneys Fees
the plaintiff, and the latter must produce these Article 1229 of the Civil Code states thus:
checks as these were returned to him being the "The judge shall equitably reduce the penalty
drawer if only to serve the truth. The above when the principal obligation has been partly or
amount are the real amount released to the irregularly complied with by the debtor. Even if
defendant but the plaintiff by masterful there has been no performance, the penalty may
machinations made it appear that the total also be reduced by the courts if it is iniquitous or
amount released was P462,600.00. Because in unconscionable."
his computation he made it appear that the true In exercising this power to determine what is iniquitous
amounts released was not the original amount, and unconscionable, courts must consider the
since it include[d] the unconscionable interest for circumstances of each case.17 What may be iniquitous
four months. and unconscionable in one may be totally just and
"Further, defendant claims that as of January 25, equitable in another. In the present case, iniquitous and
1989, the total payments made by defendants unconscionable was the parties stipulated penalty
[were] as follows: charge of 5 percent per month or 60 percent per annum,
a. Paid releases on November 13, 1987 of in addition to regular interests and attorneys fees. Also,
P50,000.00 and January 6, 1988 of P30,000.00 there was partial performance by petitioner when she
remitted P116,540 as partial payment of her principal
these two items were not included in the complaint
affirming the fact that these were paid obligation of P320,000. Under the circumstances, the
trial court was justified in reducing the stipulated penalty
b. Exhibit 26 Receipt charge to the more equitable rate of 14 percent per
c. Exhibit 8-25 Receipt annum.
The Promissory Note carried a stipulation for attorneys
fees of 25 percent of the principal amount and accrued
interests. Strictly speaking, this covenant on attorneys
fees is different from that mentioned in and regulated by
the Rules of Court.18 "Rather, the attorneys fees here
are in the nature of liquidated damages and the
stipulation therefor is aptly called a penal clause."19 So
long as the stipulation does not contravene the law,
morals, public order or public policy, it is binding upon
the obligor. It is the litigant, not the counsel, who is the
judgment creditor entitled to enforce the judgment by
execution.
Nevertheless, it appears that petitioners failure to
comply fully with her obligation was not motivated by ill
will or malice. The twenty-nine partial payments she
made were a manifestation of her good faith. Again,
Article 1229 of the Civil Code specifically empowers the
judge to reduce the civil penalty equitably, when the
principal obligation has been partly or irregularly
complied with. Upon this premise, we hold that the
RTCs reduction of attorneys fees -- from 25 percent to
10 percent of the total amount due and payable -- is
reasonable.
Fifth Issue:
Non-Inclusion of Petitioners Husband
Petitioner contends that the case against her should
have been dismissed, because her husband was not
included in the proceedings before the RTC.
We are not persuaded. The husbands non-joinder does
not warrant dismissal, as it is merely a formal
requirement that may be cured by amendment.20 Since
petitioner alleges that her husband has already passed
away, such an amendment has thus become moot.
WHEREFORE, the Petition is DENIED. Costs against
petitioner.
SO ORDERED.