MCMP CONSTRUCTION CORP., Petitioner, vs. MONARK EQUIPMENT CORP.,
Respondent. G.R. No. 201001, November 10, 2014
DOCTRINE:
In a suit for the collection of money, the judge may equitably reduce the penalty when the debtor has partly or irregularly complied with the principal obligation. Further, even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.
FACTS:
Monark Equipment Corp. (respondent Monark) leased 5 pieces of heavy equipment to MCMP Construction Corporation (petitioner MCMP) covered by a Rental Equipment Contract.
In the invoice, it states that the customer agrees to the following: a) that the credit sales are payable within 30 days from the date of invoice, b) to pay interest at 24% p.a. on all amounts, c) to the collection fee of 1% compounded monthly and 2% per month penalty charge for late payment on amounts overdue d) to pay a sum equal to 25% of any amount due as attorney’s fees in case of suit, and expressly submit to the jurisdiction of the courts of Quezon City, Makati, Pasig or Manila, Metro Manila, for any legal action arising from, this transactions.
MCMP however failed to pay all the rental fees. Upon demands by Monark, MCMP was only able to pay P100,000.00 on April 15, 2001 and PhP100,000.00 on August 15, 2001. Further demands went unheeded. As of April 30, 2002, MCMP owed Monark the amount of PhP1,282,481.83.
On June 18, 2002, Monark filed a suit for a Sum of Money, the RTC issued a Decision in favor of the plaintiff, ordering MCMP to pay 1,282,481.83, as well as the 25% of the amount and the costs of suit.
ISSUE:
Can the Court reduce the penalty charges imposed?
HELD:
YES. The trial court imposed upon MCMP a 24% per annum interest on the rental fees as well as a collection fee of 1% per month compounded monthly and a 2% per month penalty charge. In all, the effective interest rate foisted upon MCMP is 60% per annum. On top of this, MCMP was assessed for attorney’s fees at the rate of 25% of the total amount due. The Court finds these exorbitant and unconscionable rates.
Article 1229 of the Civil Code states:
Art. 1229. 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. In exercising this power to determine what is iniquitous and unconscionable, courts must consider the circumstances of each case since what may be iniquitous and unconscionable in one may be totally just and equitable in another."
Also, respondent promised to pay 25% of his outstanding obligations as attorney’s fees in case of non-payment thereof. Attorney’s fees here are in the nature of liquidated damages. As long as said stipulation does not contravene law, morals, or public order, it is strictly binding upon respondent. Nonetheless, courts are empowered to reduce such rate if the same is iniquitous or unconscionable pursuant to the above-quoted provision. This sentiment is echoed in Article 2227 of the Civil Code, to wit:
Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable.
SOURCE: PALS 2016 (Prepared by: Dean Ma. Soledad Deriquito-Mawis and the students of Lyceum of the Philippines University)
DOCTRINE:
In a suit for the collection of money, the judge may equitably reduce the penalty when the debtor has partly or irregularly complied with the principal obligation. Further, even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.
FACTS:
Monark Equipment Corp. (respondent Monark) leased 5 pieces of heavy equipment to MCMP Construction Corporation (petitioner MCMP) covered by a Rental Equipment Contract.
In the invoice, it states that the customer agrees to the following: a) that the credit sales are payable within 30 days from the date of invoice, b) to pay interest at 24% p.a. on all amounts, c) to the collection fee of 1% compounded monthly and 2% per month penalty charge for late payment on amounts overdue d) to pay a sum equal to 25% of any amount due as attorney’s fees in case of suit, and expressly submit to the jurisdiction of the courts of Quezon City, Makati, Pasig or Manila, Metro Manila, for any legal action arising from, this transactions.
MCMP however failed to pay all the rental fees. Upon demands by Monark, MCMP was only able to pay P100,000.00 on April 15, 2001 and PhP100,000.00 on August 15, 2001. Further demands went unheeded. As of April 30, 2002, MCMP owed Monark the amount of PhP1,282,481.83.
On June 18, 2002, Monark filed a suit for a Sum of Money, the RTC issued a Decision in favor of the plaintiff, ordering MCMP to pay 1,282,481.83, as well as the 25% of the amount and the costs of suit.
ISSUE:
Can the Court reduce the penalty charges imposed?
HELD:
YES. The trial court imposed upon MCMP a 24% per annum interest on the rental fees as well as a collection fee of 1% per month compounded monthly and a 2% per month penalty charge. In all, the effective interest rate foisted upon MCMP is 60% per annum. On top of this, MCMP was assessed for attorney’s fees at the rate of 25% of the total amount due. The Court finds these exorbitant and unconscionable rates.
Article 1229 of the Civil Code states:
Art. 1229. 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. In exercising this power to determine what is iniquitous and unconscionable, courts must consider the circumstances of each case since what may be iniquitous and unconscionable in one may be totally just and equitable in another."
Also, respondent promised to pay 25% of his outstanding obligations as attorney’s fees in case of non-payment thereof. Attorney’s fees here are in the nature of liquidated damages. As long as said stipulation does not contravene law, morals, or public order, it is strictly binding upon respondent. Nonetheless, courts are empowered to reduce such rate if the same is iniquitous or unconscionable pursuant to the above-quoted provision. This sentiment is echoed in Article 2227 of the Civil Code, to wit:
Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable.
Following the above provisions, the interest and penalty charges as well as the stipulated
attorney’s fees and the collection charge must all be reduced by the Court.
Judgment is hereby rendered in favor of the plaintiff, and ordering the defendant to pay the former:
1. PhP 765,380.33 representing the unpaid rental fees;
2. Interest of 12% per annum on the unpaid rental fees to be computed from March 1, 200117 until payment;
3. Penalty and collection charge of 6% per annum on the unpaid rental fees to be computed from March 1, 2001;
4. Attorney's Fees of five percent (5%) of the total amount to be recovered; and,
5. The costs of suit.
Judgment is hereby rendered in favor of the plaintiff, and ordering the defendant to pay the former:
1. PhP 765,380.33 representing the unpaid rental fees;
2. Interest of 12% per annum on the unpaid rental fees to be computed from March 1, 200117 until payment;
3. Penalty and collection charge of 6% per annum on the unpaid rental fees to be computed from March 1, 2001;
4. Attorney's Fees of five percent (5%) of the total amount to be recovered; and,
5. The costs of suit.
SOURCE: PALS 2016 (Prepared by: Dean Ma. Soledad Deriquito-Mawis and the students of Lyceum of the Philippines University)
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