G.R. Nos. 77042-43 February 28, 1990
RADIOWEALTH FINANCE CO., INC., et al., petitioners, vs. INTERNATIONAL CORPORATE BANK AND COURT OF APPEALS, respondents.

FACTS

Petitioners Radiowealth, Inc. (RWI) and Radiowealth Finance Company, Inc. (RFC) obtained credit facilities from respondent International Corporate Bank (Interbank), with petitioners Domingo Guevara and D.M.G., Inc. acting as sureties. Their loan agreements contained a stipulation for the payment of attorney’s fees and costs of collection of not less than 10% of the amount involved in case of default and the filing of a suit. Due to financial difficulties, petitioners defaulted. Interbank filed two collection suits with applications for writs of preliminary attachment. The parties subsequently entered into compromise agreements regarding the principal obligations, which the trial court approved. However, the issue of attorney’s fees was left for further determination.
The trial court, after proceedings, reduced the stipulated attorney’s fees from 10% to 8% of the principal obligations, amounting to P126,824.68 and P169,075.56 in the respective cases. Petitioners appealed, arguing the fees were unconscionable. The Court of Appeals affirmed the trial court’s order. Petitioners then elevated the case to the Supreme Court, contending the award was excessive and that the trial court denied them a hearing on supervening events, specifically alleged payments of interest and charges, which they claimed should reduce the base amount for computing fees.

ISSUE

Whether the award of attorney’s fees equivalent to 8% of the principal obligation is reasonable and valid.

RULING

The Supreme Court affirmed the appellate court’s decision, upholding the reasonableness of the 8% attorney’s fees. The legal logic is anchored on the validity of contractual stipulations for attorney’s fees and the court’s discretionary power to reduce them if found iniquitous. The Court emphasized that the contractual clause for attorney’s fees became operative upon petitioners’ default and Interbank’s necessary resort to judicial action. The complaints were not simple collection suits but involved complex matters like applications for preliminary attachment and allegations under the Trust Receipts Law. The fact that a compromise was reached after filing demonstrated that the legal action contributed to the settlement.
The reduction from the stipulated 10% to 8% by the trial court, which already deducted a 2% service charge component, was a proper exercise of judicial discretion to ensure the fees were not unconscionable. The Court found the awarded 8%, considering the nature of the services and counsel’s prestige, to be within reasonable bounds. Regarding the alleged supervening payments, the Court ruled that even if considered, these payments—comprising interest, service charges, and penalties—did not pertain to the principal debt which formed the base for computing attorney’s fees under the contract. Thus, they were insufficient to warrant a further reduction. Petitioners’ failure to pray for a specific reduced amount or percentage, beyond general allegations of unreasonableness, also weakened their position. The award was therefore sustained.