Suatengco v. Reyes
REITERATIONFacts
The Antecedents: Respondent Carmencita O. Reyes filed an action for collection of a sum of money with damages against petitioners, spouses Soledad Leonor Peña Suatengco and Antonio Esteban Suatengco. Respondent claimed that Soledad approached her for a loan to pay an obligation to Philippine Phosphate Fertilizer Corporation (Philphos). On May 31, 1994, respondent paid Philphos P1,336,313.00. In return, petitioners executed a Promissory Note on June 24, 1994, binding themselves jointly and severally to pay respondent the said amount in 31 monthly installments starting June 30, 1994. Only one payment of P15,000.00 was made on July 27, 1994. The Promissory Note contained a clause waiving the necessity of demand and notice of dishonor, with an acceleration clause. As of March 31, 1995, the outstanding balance was P1,321,313.00, exclusive of interest and other charges. Procedural History: Petitioners failed to file an answer despite extensions, leading to their declaration in default on October 27, 1995. The Regional Trial Court (RTC) delegated the ex parte reception of evidence to the Clerk of Court. The RTC rendered a decision on November 29, 1995, ordering petitioners to pay actual damages of P1,321,313.00 plus 12% interest per annum from May 31, 1994, P1,000,000.00 in moral damages, 20% of the sum collected as attorney's fees, and costs. The Court of Appeals (CA) affirmed with modification on October 29, 2003, upholding the 20% attorney's fees but reducing moral damages to P200,000.00. The CA denied petitioners' motion for reconsideration on March 10, 2004. The Petition: Petitioners filed a petition for review on certiorari, questioning the CA's award of 20% attorney's fees, contrary to the 5% stipulated in the Promissory Note, and the 12% penalty interest. They argued that oral evidence of attorney's fees could not prevail over the written agreement.
Issue(s)
Whether the Court of Appeals erred in awarding attorney's fees equivalent to 20% of the total obligation when the Promissory Note stipulated for 5%. Whether the Court of Appeals erred in not reducing the award of 12% penalty interest.
Ruling
The Supreme Court modified the decision of the Court of Appeals by reducing the award of attorney's fees to five percent (5%) of the total balance of the outstanding indebtedness. The decision was affirmed in all other respects.
Ratio Decidendi
On the award of attorney's fees: The Court held that the stipulation for attorney's fees in the Promissory Note, which was 5% of the total outstanding indebtedness, was in the nature of liquidated damages or a penal clause. Such clauses are binding between the parties as long as they do not contravene law, morals, or public order. The RTC and CA erred in disregarding the express stipulation in the Promissory Note and increasing the award to 20% based on the testimony of respondent's counsel. The Court emphasized that oral evidence cannot prevail over a written agreement, citing the principle that written contracts are presumed to be the sole repositories of the parties' true agreement. The Court found it improper for the lower courts to increase the award despite the express stipulation, as the attorney's fees were intended as a penalty or liquidated damages, not as compensation for the counsel. On the penalty interest: The Court affirmed the award of 12% per annum interest as stipulated in the Promissory Note. The Court reiterated the guidelines on the imposition of legal interest, stating that when the obligation is a loan or forbearance of money, the stipulated interest rate applies. The 12% per annum interest was deemed proper based on the written stipulation in the Promissory Note. The Court noted that once a judgment becomes final and executory, the legal interest rate of 12% per annum applies until satisfaction, as this period is considered an equivalent to a forbearance of credit.
Main Doctrine
Stipulations on attorney's fees in a promissory note, when in the nature of liquidated damages or a penal clause, are binding and enforceable as the law between the parties, provided they do not contravene law, morals, or public order. Oral testimony cannot prevail over a clear written stipulation.