GR 194781; (June, 2012) (Digest)
G.R. No. 194781 ; June 27, 2012
RGM INDUSTRIES, INC., Petitioner, vs. UNITED PACIFIC CAPITAL CORPORATION, Respondent.
FACTS
Respondent United Pacific Capital Corporation, a financing company, granted petitioner RGM Industries, Inc. a short-term credit facility. Petitioner issued a consolidated promissory note for ₱27,852,075.98 with a 32% per annum interest and an 8% per month penalty charge for default. Petitioner defaulted. Respondent filed a collection suit. Petitioner did not dispute the principal obligation but contested the interest rate, claiming the agreed rate was only 15.5% per annum and that the increases violated the principle of mutuality.
The Regional Trial Court (RTC) ruled for respondent, ordering petitioner to pay the outstanding principal plus the stipulated 32% interest and 8% monthly penalty. The Court of Appeals (CA) affirmed the RTC’s finding of liability but modified the monetary awards. It reduced the interest to 12% per annum, the penalty to 2% per month, and attorney’s fees to 10% of the obligation, finding the original rates excessive.
ISSUE
Whether the Court of Appeals correctly determined the applicable interest rate, penalty charge, and attorney’s fees.
RULING
The Supreme Court partially granted the petition, affirming the CA with further modifications. On the interest rate, the Court upheld the CA’s reduction to 12% per annum. Citing precedent, the Court held that stipulated interest rates, while generally binding, can be tempered by courts if found unconscionable. The circumstances did not warrant a reduction to 10% as petitioner argued, since unlike in cited cases, petitioner here did not make regular payments.
However, the Court further reduced the penalty charge from 2% per month (24% per annum) to 1% per month (12% per annum). This equitable reduction was justified by two factors: (1) respondent had already received a substantial sum (₱7,504,522.27) in penalty charges from petitioner’s partial payments, and (2) the loan was a short-term credit facility. The attorney’s fees were also reduced from 10% to 1% of the unpaid obligation. The Court reasoned that attorney’s fees are not a core cost of borrowing but a collection incident, and the original rate was onerous, especially considering petitioner’s partial payments. The award was treated as a liquidated damage subject to equitable reduction under Article 2227 of the Civil Code. The Court affirmed the factual finding on the application of partial payments, noting this was not a proper subject of a Rule 45 petition limited to questions of law.