THIRD DIVISION
[G.R. No. 138677.
TOLOMEO LIGUTAN and LEONIDAS DE LA LLANA, petitioners,
vs. HON. COURT OF APPEALS & SECURITY BANK & TRUST COMPANY, respondents.
D E C I S I O N
VITUG, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court, assailing the decision and resolutions of the Court of Appeals in CA-G.R. CV No. 34594, entitled "Security Bank and Trust Co. vs. Tolomeo Ligutan, et al."
Petitioners Tolomeo Ligutan
and Leonidas dela Llana obtained on
Despite several demands from the bank, petitioners failed to
settle the debt which, as of
After petitioners had filed a joint answer to the complaint, the
bank presented its evidence and, on
Two years later, or on
“WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants, ordering the latter to pay, jointly and severally, to the plaintiff, as follows:
"1. The sum of
P114,416.00 with interest thereon at the rate of 15.189% per annum, 2% service
charge and 5% per month penalty charge, commencing on
"2. To pay the further sum equivalent to 10% of the total amount of indebtedness for and as attorney’s fees; and
"3. To pay the costs of
the suit.”[2]
Petitioners interposed an appeal with the Court of Appeals, questioning
the rejection by the trial court of their motion to present evidence and
assailing the imposition of the 2% service charge, the 5% per month penalty
charge and 10% attorney's fees. In its
decision[3]
of
On
“We find merit in plaintiff-appellee’s claim that the principal sum of P114,416.00 with interest thereon must commence not on the date of filing of the complaint as we have previously held in our decision but on the date when the obligation became due.
“Default generally begins from the moment the creditor demands the performance of the obligation. However, demand is not necessary to render the obligor in default when the obligation or the law so provides.
“In the case at bar, defendants-appellants executed a promissory note where they undertook to pay the obligation on its maturity date 'without necessity of demand.' They also agreed to pay the interest in case of non-payment from the date of default.
“x x x x x x x x x
“While we maintain that defendants-appellants must be bound by the contract which they acknowledged and signed, we take cognizance of their plea for the application of the provisions of Article 1229 x x x.
“Considering that defendants-appellants partially complied with their obligation under the promissory note by the reduction of the original amount of P120,000.00 to P114,416.00 and in order that they will finally settle their obligation, it is our view and we so hold that in the interest of justice and public policy, a penalty of 3% per month or 36% per annum would suffice.
“x x x x x x x x x
“WHEREFORE, the decision sought to be reconsidered is hereby MODIFIED. The defendants-appellants Tolomeo Ligutan and Leonidas dela Llana are hereby ordered to pay the plaintiff-appellee Security Bank and Trust Company the following:
“1. The
sum of P114,416.00 with interest thereon at the rate of 15.189% per annum and
3% per month penalty charge commencing
“2. The
sum equivalent to 10% of the total amount of the indebtedness as and for
attorney’s fees.”[5]
On
Aggrieved by the decision and resolutions of the Court of Appeals, petitioners elevated their case to this Court on 9 July 1999 via a petition for review on certiorari under Rule 45 of the Rules of Court, submitting thusly -
“I. The respondent Court of Appeals seriously erred in not holding that the 15.189% interest and the penalty of three (3%) percent per month or thirty-six (36%) percent per annum imposed by private respondent bank on petitioners’ loan obligation are still manifestly exorbitant, iniquitous and unconscionable.
“II. The respondent Court of Appeals gravely erred in not reducing to a reasonable level the ten (10%) percent award of attorney’s fees which is highly and grossly excessive, unreasonable and unconscionable.
“III. The respondent Court of Appeals gravely erred in not admitting petitioners’ newly discovered evidence which could not have been timely produced during the trial of this case.
“IV. The respondent Court of Appeals
seriously erred in not holding that there was a novation
of the cause of action of private respondent’s complaint in the instant case
due to the subsequent execution of the real estate mortgage during the pendency of this case and the subsequent foreclosure of the
mortgage.”[8]
Respondent bank, which did not take an appeal, would, however,
have it that the penalty sought to be deleted by petitioners was even
insufficient to fully cover and compensate for the cost of money brought about
by the radical devaluation and decrease in the purchasing power of the peso,
particularly vis-a-vis the U.S. dollar,
taking into account the time frame of its occurrence. The Bank would stress that only the amount of
P5,584.00 had been remitted out of the entire loan of P120,000.00.[9]
A penalty clause, expressly recognized by law,[10]
is an accessory undertaking to assume greater liability on the part of an
obligor in case of breach of an obligation.
It functions to strengthen the coercive force of the obligation[11]
and to provide, in effect, for what could be the liquidated damages resulting
from such a breach. The obligor would
then be bound to pay the stipulated indemnity without the necessity of proof on
the existence and on the measure of damages caused by the breach.[12]
Although a court may not at liberty ignore the freedom of the parties to agree
on such terms and conditions as they see fit that contravene neither law nor
morals, good customs, public order or public policy, a stipulated penalty,
nevertheless, may be equitably reduced by the courts if it is iniquitous or
unconscionable or if the principal obligation has been partly or irregularly
complied with.[13]
The question of whether a penalty is reasonable or iniquitous can
be partly subjective and partly objective.
Its resolution would depend on such factors as, but not necessarily
confined to, the type, extent and purpose of the penalty, the nature of the
obligation, the mode of breach and its consequences, the supervening realities,
the standing and relationship of the parties, and the like, the application of
which, by and large, is addressed to the sound discretion of the court. In Rizal Commercial Banking Corp. vs. Court of Appeals,[14]
just an example, the Court has tempered the penalty charges after taking into
account the debtor’s pitiful situation and its offer to settle the entire
obligation with the creditor bank. The
stipulated penalty might likewise be reduced when a partial or irregular
performance is made by the debtor.[15]
The stipulated penalty might even be deleted such as when there has been
substantial performance in good faith by the obligor,[16]
when the penalty clause itself suffers from fatal infirmity, or when
exceptional circumstances so exist as to warrant it.[17]
The Court of Appeals, exercising its good judgment in the instant case, has reduced the penalty interest from 5% a month to 3% a month which petitioner still disputes. Given the circumstances, not to mention the repeated acts of breach by petitioners of their contractual obligation, the Court sees no cogent ground to modify the ruling of the appellate court..
Anent the stipulated interest of 15.189% per annum, petitioners,
for the first time, question its reasonableness and prays that the Court reduce
the amount. This contention is a fresh
issue that has not been raised and ventilated before the courts below. In any event, the interest stipulation, on
its face, does not appear as being that excessive. The essence or rationale for the payment of
interest, quite often referred to as cost of money, is not exactly the same as
that of a surcharge or a penalty. A
penalty stipulation is not necessarily preclusive of interest, if there is an
agreement to that effect, the two being distinct concepts which may separately
be demanded.[18]
What may justify a court in not allowing the creditor to impose full surcharges
and penalties, despite an express stipulation therefor
in a valid agreement, may not equally justify the non-payment or reduction of
interest. Indeed, the interest
prescribed in loan financing arrangements is a fundamental part of the banking
business and the core of a bank's existence.[19]
Petitioners next assail the award of 10% of the total amount of indebtedness by way of attorney's fees for being grossly excessive, exorbitant and unconscionable vis-a-vis the time spent and the extent of services rendered by counsel for the bank and the nature of the case. Bearing in mind that the rate of attorney’s fees has been agreed to by the parties and intended to answer not only for litigation expenses but also for collection efforts as well, the Court, like the appellate court, deems the award of 10% attorney’s fees to be reasonable.
Neither can the appellate court be held to have erred in
rejecting petitioners' call for a new trial or to admit newly discovered
evidence. As the appellate court so held
in its resolution of
“Under Section 2, Rule 52 of the 1997 Rules of Civil Procedure, no second motion for reconsideration of a judgment or final resolution by the same party shall be entertained. Considering that the instant motion is already a second motion for reconsideration, the same must therefore be denied.
“Furthermore, it would appear from the records available to this court that the newly-discovered evidence being invoked by defendants-appellants have actually been existent when the case was brought on appeal to this court as well as when the first motion for reconsideration was filed. Hence, it is quite surprising why defendants-appellants raised the alleged newly-discovered evidence only at this stage when they could have done so in the earlier pleadings filed before this court.
“The propriety or acceptability of such a second motion for
reconsideration is not contingent upon the averment of 'new' grounds to assail
the judgment, i.e., grounds other than those theretofore presented and
rejected. Otherwise, attainment of
finality of a judgment might be stayed off indefinitely, depending on the
party’s ingenuousness or cleverness in conceiving and formulating 'additional
flaws' or 'newly discovered errors' therein, or thinking up some injury or
prejudice to the rights of the movant for
reconsideration.”[20]
At any rate, the subsequent execution of the real estate mortgage as security for the existing loan would not have resulted in the extinguishment of the original contract of loan because of novation. Petitioners acknowledge that the real estate mortgage contract does not contain any express stipulation by the parties intending it to supersede the existing loan agreement between the petitioners and the bank.[21] Respondent bank has correctly postulated that the mortgage is but an accessory contract to secure the loan in the promissory note.
Extinctive novation requires, first, a previous valid obligation; second, the agreement of all the parties to the new contract; third, the extinguishment of the obligation; and fourth, the validity of the new one.[22] In order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligation be on every point incompatible with each other.[23] An obligation to pay a sum of money is not extinctively novated by a new instrument which merely changes the terms of payment or adding compatible covenants or where the old contract is merely supplemented by the new one.[24] When not expressed, incompatibility is required so as to ensure that the parties have indeed intended such novation despite their failure to express it in categorical terms. The incompatibility, to be sure, should take place in any of the essential elements of the obligation, i.e., (1) the juridical relation or tie, such as from a mere commodatum to lease of things, or from negotiorum gestio to agency, or from a mortgage to antichresis,[25] or from a sale to one of loan;[26] (2) the object or principal conditions, such as a change of the nature of the prestation; or (3) the subjects, such as the substitution of a debtor[27] or the subrogation of the creditor. Extinctive novation does not necessarily imply that the new agreement should be complete by itself; certain terms and conditions may be carried, expressly or by implication, over to the new obligation.
WHEREFORE, the petition is DENIED.
SO ORDERED.
Melo, (Chairman), Panganiban,
Sandoval-Gutierrez, and Carpio, JJ., concur.
[1] Rollo,
p. 114.
[2] Rollo,
pp. 117-118.
[3] Rollo,
p. 39.
[4] Rollo,
pp. 55, 58.
[5] Rollo,
pp. 48-49.
[6] Rollo,
p. 67.
[7] Rollo,
p. 52.
[8] Rollo,
pp. 17-18.
[9] Memorandum for
Respondent.
[10] 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.
(1152a)
[11] SSS vs. Moonwalk
Development and Housing Corporation, 221 SCRA 119.
[12] Article 1228, Civil
Code;
[13] Article 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable.
Article 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.
[14] 289 SCRA 292.
[15] Insular Bank of
Asia and America vs. Spouses Salazar (159 SCRA 111), for instance, the
Court reduced the penalty charge of 2% a month to 1% a month, considering that,
on a loan of P42,050.00, the debtor spouses paid a total of P68,676.75 which
was applied by the creditor to satisfy the penalty and interest charges.
[16] Art. 1234. If the obligation has been substantially
performed in good faith, the obligor may recover as though there had been a
strict and complete fulfillment, less damages suffered by the obligee.
[17] Garcia vs.
Court of Appeals, 167 SCRA 815; See Palmares vs. Court of Appeals, 288 SCRA 423;
Ibarra vs. Aveyro, 37 Phil. 278.
[18] Insular Bank of Asia
and America vs. Spouses Salazar, 159 SCRA 133; GSIS vs. Court of
Appeals, 145 SCRA 311; Equitable Banking Corporation vs. Liwanag, 32 SCRA 293.
[19] Rizal Commercial
Banking Corporation vs. Court of Appeals, 289 SCRA 292.
[20] Rollo,
p. 53.
[21] Memorandum for
Petitioners, Rollo, p. 196.
[22] Velasquez vs. Court of Appeals,
309 SCRA 539; Ong
vs. Court of Appeals, 310 SCRA 1; Bautista vs. Pilar
Development Corporation, 312 SCRA 611.
[23] See Article 1292,
Civil Code; Pacific Mills, Inc. vs. Court of Appeals, 206 SCRA 317; Quinto vs. People,
305 SCRA 708; Cruz vs. Court of
Appeals, 293 SCRA 239.
[24] Magdalena Estates,
Inc. vs. Rodriguez, 18 SCRA 967, as reiterated in Velasquez vs.
Court of Appeals, 309 SCRA 539.
[25] Jagunap
vs. Mirasol, [CA], 48 O.G. 3911.
[26] Soncuya
vs. Azarraga, 65 Phil. 635.
[27] Azarraga
vs. Rodriquez, 9 Phil. 637.