Asian Construction v. Cathay Pacific
REITERATIONFacts
The Antecedents: Between June and July 1997, petitioner Asian Construction and Development Corp. (ACDC) purchased reinforcing steel bars from respondent Cathay Pacific Steel Corp. (CAPASCO) worth ₱2,650,916.40, evidenced by 12 invoices. ACDC made partial payments totaling ₱2,409,211.49, leaving a balance of ₱241,704.91. CAPASCO sent demand letters on May 12, 1998, and August 10, 1998, but ACDC made no further payment. Procedural History: CAPASCO filed a complaint for sum of money and damages. ACDC denied authorizing purchases, receiving demands, or receiving the steel bars, alleging the billed amount was bloated and payments were not deducted. The RTC, after ACDC's counsel and client failed to appear at a hearing, allowed an ex-parte presentation of evidence. The RTC ruled in favor of CAPASCO, ordering ACDC to pay ₱319,050.48 (inclusive of interest) plus 2% monthly interest, and attorney's fees. The Court of Appeals (CA) affirmed with modification, ordering ACDC to pay ₱241,704.91 plus 24% annual interest from May 12, 1998, and 10% of the total amount due as attorney's fees. ACDC's motion for reconsideration was denied. The Petition: ACDC filed a petition for review on certiorari, questioning its liability, the admissibility of photocopies of delivery receipts and the testimony of CAPASCO's vice president, the interest rate imposed, and the award of attorney's fees.
Issue(s)
Whether petitioner did not question its liability in its Answer. Whether the trial court and Court of Appeals erred in admitting the photocopies of the delivery receipts and the testimony of Mr. David Chua as admissible evidence. Whether the Court of Appeals erred in imposing 24% percent interest from May 12, 1998, until finality of decision. Whether respondent is entitled to attorney's fees.
Ruling
The petition is partly meritorious. The Supreme Court affirmed the CA decision with modification, fixing the attorney's fees at ₱60,426.23.
Ratio Decidendi
On the issue of whether petitioner did not question its liability in its Answer: The Court found that ACDC's Answer did not effectively dispute its liability. While ACDC denied authorizing purchases and receiving demands, its allegations regarding bloated amounts and uncredited payments implicitly acknowledged an existing transaction and an obligation, albeit disputed in amount. Furthermore, some payments made by ACDC were admitted in its Answer, which supported the existence of a contractual relationship and a balance due. The Court reiterated that factual findings of the trial court, especially when affirmed by the CA, are binding on the Supreme Court, and in this case, these findings were based on a preponderance of evidence not refuted by ACDC. On the admissibility of photocopies of delivery receipts and the testimony of Mr. David Chua: The Court held that the testimony of David O. Chua, as vice president of CAPASCO, was competent to testify on the sale of steel bars and the unpaid balance, especially since purchase orders were addressed to him and he signed demand letters, indicating personal knowledge. Regarding the delivery receipts, the Court found sufficient uncontroverted evidence showing the loss of the originals despite diligent efforts to locate them, thus making the copies admissible as secondary evidence. The Court emphasized that mere allegations of incompetence or inadmissibility cannot prevail over contrary evidence. On the imposition of 24% interest from May 12, 1998: The Court affirmed the imposition of 24% annual interest, citing Article 1306 of the Civil Code, which allows parties to stipulate convenient terms in contracts, provided they are not contrary to law, morals, good customs, public order, or public policy. The sales invoices expressly stipulated a 24% per annum interest on overdue accounts. The Court noted that sales invoices are contracts of adhesion, which are binding unless unconscionable. Given that ACDC is a large construction company, it was presumed to have full knowledge of the terms and was free to contract with another supplier if the terms were unacceptable. By not objecting, ACDC bound itself to the stipulated interest. On the entitlement to attorney's fees: The Court sustained the award of attorney's fees based on the stipulation in the invoices, which provided for 25% of the unpaid invoice for attorney's fees. Citing Titan Construction Corporation v. Uni-Field Enterprises, Inc., the Court explained that attorney's fees in such stipulations are in the nature of liquidated damages or a penal clause, which are binding if not contrary to law, morals, or public order. The stipulated amount of 25% of the overdue account (₱241,704.91), amounting to ₱60,426.23, was found not to be excessive or unconscionable.
Main Doctrine
Parties are bound by stipulations in contracts of adhesion, even those printed, provided they are not unconscionable, and they had the freedom to reject the contract entirely.