Mutual Paper Inc. v. Eastern Scott Paper Company
REITERATIONFacts
The Antecedents: Respondent Eastern Scott Paper Company filed an action against petitioner Mutual Paper Inc. for the collection of P782,566.58, representing the unpaid value of paper products sold on credit. The respondent also prayed for the appointment of a receiver to preserve petitioner's properties, as petitioner had shortened its corporate existence. Petitioner made a partial payment of P280,000.00 and later confessed judgment for the recomputed unpaid balance of P398,902.00. Procedural History: The trial court initially entered judgment for the confessed amount without pronouncement as to attorney's fees. Upon respondent's motion for reconsideration, invoking a stipulation for 25% attorney's fees and Article 2208 of the Civil Code, the trial court amended its decision to award P20,000.00 for attorney's fees and P1,520.00 for costs. Petitioner's motion for reconsideration, arguing the award was exorbitant given the lack of trial, was denied. The Court of Appeals affirmed the trial court's decision, finding the P20,000.00 award reasonable due to counsel's services in securing a receiver, court appearances, settlement discussions, and considering the original claim amount and condonation of interest. The Petition: Petitioner filed a Petition for Review with the Supreme Court, assigning errors to the Court of Appeals for not holding that there was no factual or legal basis for the award, that it was unreasonable and unjustified, and that only the P3,000.00 offered by petitioner should have been awarded.
Issue(s)
Whether the award of P20,000.00 as attorney's fees is reasonable and justified. Whether the Court of Appeals committed an error of law in affirming the award of attorney's fees, considering the services rendered by counsel and the specific circumstances of the case.
Ruling
The Supreme Court affirmed the judgment of the Court of Appeals, dismissing the Petition for Review. The award of P20,000.00 as attorney's fees was upheld as reasonable.
Ratio Decidendi
On the reasonableness of the award of attorney's fees: The Court clarified that the attorney's fees in question were not those between a lawyer and client, but rather those agreed upon between contracting parties as liquidated damages in case of litigation. Under Section 24, Rule 138, a written contract for services controls the amount unless found unconscionable or unreasonable. Article 2227 of the Civil Code allows for equitable reduction of liquidated damages if iniquitous or unconscionable. The Court found the P20,000.00 award not unconscionable or unreasonable. Respondent was compelled to litigate to protect its interests, as evidenced by the filing of the collection suit and the prayer for a receiver, especially since petitioner had shortened its corporate existence. Although petitioner eventually confessed judgment, the institution of the action hastened the settlement of its obligation, which took nearly eleven months for initial payment and over a year for the balance to be admitted. The stipulated attorney's fees were 25% of the amount due. Technically, 25% of the original claim of P782,566.58 would be P195,641.64, and 25% of the confessed balance of P398,902.00 would be P99,725.50. The trial court and the Court of Appeals, in their discretion, reduced this to P20,000.00, which is approximately 5% of the confessed amount. This reduction, being within the discretionary power of the lower courts and not showing grave abuse of discretion, was not disturbed by the Supreme Court. On the Court of Appeals' affirmation of attorney's fees: The Court of Appeals also considered the services rendered by counsel, including securing a receiver, court appearances, and settlement discussions, as well as the social standing of the counsel and the condonation of interest by the plaintiff, in deeming the award reasonable.
Main Doctrine
The award of attorney's fees, even if stipulated as a percentage of the amount due, may be equitably reduced by the courts if found to be unconscionable or unreasonable, considering the nature of the services rendered and the circumstances of the case. The determination of reasonableness is largely discretionary with the trial court and will not be disturbed absent a showing of grave abuse of discretion.