G.R. No. 220479 , August 17, 2016
PASDA, INCORPORATED, PETITIONER, VS. REYNALDO P. DIMAYACYAC, SR., SUBSTITUTED BY THE HEIRS, REPRESENTED BY ATTY. DEMOSTHENES D. C. DIMAYACYAC, RESPONDENT.

FACTS

In March 1999, petitioner PASDA, Incorporated (PASDA) and respondent Reynaldo P. Dimayacyac, Sr. (Dimayacyac) entered into a Contract of Lease for a unit in Quezon City. The contract stipulated a monthly rental plus VAT, a 2% monthly interest in case of default, and provisions for liquidated damages and attorney’s fees. Dimayacyac vacated the unit on July 16, 2005, leaving an outstanding arrearage of P340,071.00 for rentals, VAT, and utility costs. Pursuant to the lease contract, PASDA took possession of and inventoried Dimayacyac’s articles and equipment left in the unit. Despite demands, Dimayacyac failed to pay. PASDA filed a complaint for sum of money before the Metropolitan Trial Court (MeTC). The MeTC ruled in favor of PASDA but reduced the award to P16,271.00 after deducting the value of the retained items (P323,800.00), reduced the interest to 6% per annum, and awarded P20,000.00 as attorney’s fees. The Regional Trial Court (RTC) affirmed the MeTC decision. The Court of Appeals (CA) affirmed with modification, adding an award of P10,000.00 as liquidated damages but upholding the deduction, interest reduction, and attorney’s fees. PASDA appealed to the Supreme Court, arguing against the deduction of the retained items’ value, challenging their valuation, and contesting the reduction of the stipulated interest and attorney’s fees. During the proceedings, Dimayacyac died and was substituted by his heirs.

ISSUE

1. Whether the Court of Appeals erred in ruling that the value of the articles retained by PASDA should be deducted from Dimayacyac’s unpaid obligations.
2. Whether the Court of Appeals erred in its appreciation of the evidence on the valuation of the retained articles.
3. Whether the Court of Appeals erred in reducing the amount of attorney’s fees stipulated in the contract.
4. Whether the Court of Appeals erred in reducing the stipulated rate of interest on the unpaid obligations.

RULING

1. YES. The Court of Appeals erred in deducting the value of the retained articles. The Supreme Court held that the forfeiture clause (paragraph 23) of the lease contract, which authorized PASDA to retain and sell the lessee’s properties upon default and apply the proceeds to the obligation, was a penal clause. Citing Fort Bonifacio Development Corp. v. Yllas Lending Corp., the Court ruled that such a clause is valid but does not automatically result in the extinguishment of the obligation to the extent of the value of the retained items. The obligor (Dimayacyac) must pay the principal obligation, and the creditor (PASDA) must return the retained items. If the creditor chooses to enforce the penalty by appropriating the items, the obligation is extinguished to that extent, but this requires a clear act of appropriation. Here, PASDA merely retained the items and filed a case to collect the full amount, indicating it did not intend to appropriate them. Therefore, the value of the items should not have been deducted from the monetary obligation. PASDA is ordered to return the retained items to Dimayacyac’s estate.
2. The issue on valuation has been rendered moot by the ruling that the value should not have been deducted.
3. NO. The Court of Appeals did not err in reducing the attorney’s fees. The stipulated attorney’s fees (25% of the amount claimed) could be reduced by the court if found to be unconscionable. The CA’s reduction to P20,000.00 was upheld as reasonable.
4. NO. The Court of Appeals did not err in reducing the stipulated interest rate. The stipulated 2% monthly interest (24% per annum) was reduced to 6% per annum. The Court affirmed this reduction, citing its power to temper interest rates if found to be iniquitous or unconscionable.
ADDITIONAL RULING ON ENFORCEMENT AGAINST THE ESTATE: The Supreme Court further ruled that since Dimayacyac died during the proceedings, the judgment award constitutes a money claim that must be enforced against his estate under Rule 86 of the Revised Rules of Court, not against his heirs in their personal capacity. PASDA’s remedy is to file a claim against the estate of the deceased.
DISPOSITIVE PORTION: The CA decision was REVERSED and SET ASIDE. PASDA can recover the full amount of P340,071.00, plus interest at 6% per annum, P10,000.00 as liquidated damages, and P20,000.00 as attorney’s fees, from the Estate of Reynaldo P. Dimayacyac, Sr., less any amount recovered from sales of his assets. PASDA is ordered to return the retained items to the estate. The balance shall earn 6% interest per annum from the finality of the decision until fully paid.