GR L 82282; (November, 1988) (Digest)
G.R. Nos. 82282-83 November 24, 1988
ANTONIO M. GARCIA, DYNETICS, INC., and MATRIX MANAGEMENT CORPORATION, petitioners, vs. COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents.
FACTS
Petitioners Antonio M. Garcia, Dynetics, Inc., and Matrix Management Corporation executed Indemnity Agreements in favor of respondent Security Bank and Trust Company (SBTC) to secure a P20 million credit line extended to Chemark Electric Motors, Inc. When Chemark defaulted on its promissory notes, SBTC demanded payment from the petitioners as indemnitors. The petitioners filed a complaint for declaratory relief and/or injunction, seeking a judicial declaration that they were not liable under the agreements. They raised multiple defenses, including lack of consideration, ultra vires acts, novation, abuse of right, and the application of the rebus sic stantibus principle due to alleged changed economic conditions. The Regional Trial Court granted SBTC’s motion for summary judgment, dismissing the complaint and ordering petitioners to pay the unpaid principal, interest, penalty charges, and attorney’s fees. The Court of Appeals affirmed this decision.
ISSUE
The primary issue is whether the trial court correctly rendered a summary judgment against the petitioners, and subsidiarily, whether the awarded penalty charges and attorney’s fees are valid.
RULING
The Supreme Court affirmed the propriety of the summary judgment. The petitioners’ defenses in their complaint were merely general denials and purported legal conclusions that did not tender any genuine, triable issue of fact. Their allegations of lack of consideration, ultra vires acts, and novation were unsupported by specific facts demonstrating a valid defense. Claims regarding economic difficulty and the rebus sic stantibus principle were insufficient to preclude summary judgment, as they did not present concrete evidence of issues requiring a full trial. Summary judgment is proper when, upon the pleadings and supporting affidavits, no genuine issue exists as to any material fact. The petitioners failed to substantiate their defenses with evidentiary facts, leaving only issues of law for the court’s determination.
However, the Court modified the award of penalty charges. While the promissory notes stipulated a 36% per annum penalty, the Court found this rate to be iniquitous and unconscionable. Penalty charges, being liquidated damages, are subject to equitable reduction under Articles 1229 and 2227 of the Civil Code when excessive. The records showed that the accrued penalty charges had ballooned to amounts several times the principal loans within a short period. The Court ruled that the stipulated interest rates were sufficient compensation for the delay, and thus deleted the award of penalty charges. The award of attorney’s fees equivalent to 10% of the obligation was upheld as justified and even lower than the contractual stipulation. The decision of the Court of Appeals was affirmed with the modification striking out the penalty charges.