MCMP CONSTRUCTION CORP. vs. MONARK
EQUIPMENT CORP., G.R. No. 201001, November 10, 2014
“x x x.
In Macalinao v. Bank of the Philippine Islands,15 the
Court reduced the interest imposed by the
bank of 36% for being excessive and unconscionable:
"x
x x Nevertheless, it should be noted that this is not the first time that this
Court has considered the interest rate of 36% per annum as excessive and
unconscionable. We held in Chua vs. Timan:
The stipulated interest rates of 7% and 5% per
month imposed on respondents’ loans must be equitably reduced to 1% per month
or 12% per annum. We need not unsettle
the principle we had affirmed in a plethora of cases that stipulated interest rates of 3% per month and higher are excessive,
iniquitous, unconscionable and exorbitant. Such stipulations are void for
being contrary to morals, if not against the law. While C.B. Circular No.
905-82, which took effect on January 1, 1983, effectively removed the ceiling
on interest rates for both secured and unsecured loans, regardless of maturity,
nothing in the said circular could possibly be read as granting carte blanche
authority to lenders to raise interest rates to levels which would either enslave their borrowers or lead to a
hemorrhaging of their assets. (Emphasis supplied.)
Since the stipulation on
the interest rate is void, it is as if there was no express contract thereon.
Hence, courts may reduce the interest rate as reason and equity demand.
The same is true with
respect to the penalty charge. Notably,
under the Terms and Conditions Governing
the Issuance and Use of the BPI Credit Card, it was also stated therein
that respondent BPI shall impose an additional penalty charge of 3% per month.
Pertinently, 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."
In the more recent case
of Pentacapital Investment Corporation v.
Mahinay,16 the
Court reduced the interest and penalties
imposed in a contract as follows:
"Aside
from the payment of the principal obligation of P1,936,800.00, the
parties agreed that respondent pay interest at the rate of 25% from February
17, 1997 until fully paid. Such rate, however, is excessive and thus, void. Since the stipulation on the interest
rate is void, it is as if there was no express contract thereon. To be sure,
courts may reduce the interest rate as reason and equity demand. In this case,
12% interest is reasonable.
The
promissory notes likewise required the payment of a penalty charge of 3% per month or 36% per annum. We find such rates
unconscionable. This Court has recognized a penalty clause as an accessory
obligation which the parties attach to a principal obligation for the purpose
of ensuring the performance thereof by imposing on the debtor a special
prestation (generallyconsisting of the payment of a sum of money) in case the
obligation is not fulfilled or is irregularly or inadequately fulfilled. However, a penalty charge of 3% per month is
unconscionable; hence, we reduce it to1% per month or 12% per annum, pursuant
to Article 1229 of the Civil Code which 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.
Lastly,
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.
Hence,
we reduce the stipulated attorney's fees from 25% to 10%."
Following the above
principles previously laid down by the Court, the interest and penalty charges
imposed upon MCMP must also be considered as iniquitous, unconscionable and,
therefore, void. As such, the rates may validly be reduced. Thus, the interest rate of 24% per annum is
hereby reduced to 12% per annum. Moreover, the interest shall start to
accrue thirty (30) days after receipt of the second set of invoices on January
21, 2001, or March 1, 2001 in accordance with the provisions in the invoices
themselves.
Additionally, the penalty and collection charge of 3% per
month, or 36% per annum, is also reduced to 6% per annum. And the amount of
attorney's fees is reduced from 25% of
the total amount due to 5%.
X x x.”
