CECIL P. FLORESCA, PLAINTIFF-APPELLANT, VS. LIBERTY T. IGNACIO, DEFENDANT-APPELLEE.
ELBINIAS, J.:
Subject for disposition is an Appeal[1] filed under Rule 41 of the Rules of Court. The Appeal assails the Decision[2] dated November 16, 2009 of the Regional Trial Court, Branch 33 of Bauang, La Union (“lower court” for brevity) in Civil Case No. 1626-BG for “DECLARATORY RELIEF.”[3]
The pertinent facts are those as found in the lower court’s Decision[4] dated November 16, 2009, to wit:
“Petitioner (plaintiff-appellant here) is an American citizen residing at Central West, Bauang, La Union while defendant (defendant-appellee here) is residing at No. 664 Waling-waling St., Pangarap Village, Brgy. 181, Kalookan City.
In 1999, petitioner (plaintiff-appellant here) borrowed from respondent (defendant-appellee here) Php165,000.00. He (plaintiff-appellant) alleged the amount was actually an accumulation of several loans given or guaranteed by respondent. As collateral for the loan in August 1999, petitioner (plaintiff-appellant) executed a mortgage agreement in favor of respondent, (defendant-appellee), mortgaging his parcel of land at Bauang, La Union which is covered by TCT No. T-14647.
Under the second paragraph of the mortgage contract, the due date of the loan was within a period of one month with a seven per cent interest. Petitioner (plaintiff-appellant) had up to the month of September 1999 to fully pay his loan to respondent. However, as the finances of petitioner (plaintiff-appellant) at that time were insufficient, he anticipated that it would take up to December 25, 1999 for him to be able to pay fully his loan to respondent (defendant-appellee).
Petitioner (plaintiff-appellant) explained his predicament to respondent and the latter agreed to the extension. However, respondent (defendant-appellee) fixed the interest at seven per cent (7%) a month and further required that petitioner (plaintiff-appellant) issue post dated checks to cover the principal and interest.
Accordingly, petitioner (plaintiff-appellant) issued the following checks to respondent (defendant-appellee):
On August 22, 2005, petitioner (plaintiff-appellant) purposely sought respondent (defendant-appellee) to pay fully his obligation to the latter. During their meeting, however, when petitioner (plaintiff-appellant) inquired from respondent (defendant-appellee) how much was his obligation under the mortgage contract, the latter informed him that the latter’s account was Php9,553,410.00 to his shock and dismay.
Petitioner (plaintiff-appellant) vehemently disagreed with respondent (defendant-appellee) and contested the Php9,553,410.00, respondent (defendant-appellee) pointing to the provision of the real estate mortgage as his basis. Respondent (defendant-appellee) relented and revised her computation and reduced the amount to Php1,707,585.00, with ten per cent (10%) as monthly interest.
He (plaintiff-appellant) again protested and contested the second computation basing his protest on the provisions of the real estate mortgage agreement as nowhere therein was it stated that his loan will earn a seven or ten per cent monthly interest after 1999. According to him, he made it clear to respondent (defendant-appellee) his position that he was liable to pay her Php176,550.00 plus the agreed monthly interest thereon of Php13,200.00 up to December 25, 1999. His liability on the interest for the loan since there was no agreement, should only be the legal interest which is 12% per annum or one per cent a month.
Based on his computation, his total obligation from January 2000 up to September 12, 2005 is Php365,256.00 only, which he was willing to pay, but was not accepted by respondent (defendant-appellee).”[5] (Emphasis supplied)
On September 13, 2005, plaintiff-appellant Cecil Floresca (“plaintiff-appellant” for brevity) filed a Petition[6] for “DECLARATORY RELIEF” against defendant-appellee Liberty Ignacio (“defendant-appellee” for brevity). To this, defendant-appellee filed an “ANSWER TO PETITION”[7] dated January 5, 2007.
On November 16, 2009, the lower court rendered its assailed Decision[8] in favor defendant-appellee. The dispositive portion of the Decision decreed:
“WHEREFORE, premises considered, this Court decides:
No pronouncement as to costs.
SO ORDERED.”[9]
Plaintiff-appellant then filed the Appeal[10] at bench, praying that:
“PREMISES CONSIDERED, the petitioner, through counsel, respectfully prays that a new order be issued voiding the 1% monthly penalty or 12% annual penalty as without basis and constitutes a tremendous burden on the petitioner being in addition to the 12% per annum legal interest on the principal obligation decreed by the Court Aquo (sic) to be paid by the Petitioner from January 2000 to the present time;
PRAYING FURTHER for other remedies deemed just and equitous (sic) by the Honorable Court.”[11] (Emphasis was made in the original)
Plaintiff-appellant raised the following assignment of errors:
Contrary to plaintiff-appellant’s allegation in his assignment of errors 1 and 3, the lower court did not err in imposing a penalty of one percent (1%) a month on the principal obligation resulting from plaintiff-appellant’s failure to pay his obligation to defendant-appellee upon such obligation having become due and demandable.
Plaintiff-appellant had argued that:
“That the mortgage loan agreement, signed by the parties, however, does not specify the rate of penalty in case of non-payment by the petitioner of the obligation on due date;
xxx
That in decreeing the imposition of a 7% interest on the principal from September 1999 to December 1999, the Court however erred in finding that the parties had agreed on a 1% monthly interest in addition to the 7% monthly interest for the period. xxx
That what the petitioner is assailing is the one per cent (1%) monthly penalty on the loan from January 2000 to the time the petitioner shall have fully paid his obligation.
That nowhere in the following reproduced relevant portion of the mortgage contract is there a stipulation of a monthly 1% penalty xxx.
That the petitioner maintains his position that the aforestated phrase in the Contract ‘failure to pay on due date, a penalty be imposed’ is ambiguous, unclear and not definite. The intent of the contracting parties cannot be fathomed. The respondent cannot use it to justify her prayer for a 1% monthly penalty;
That the petitioner likewise maintains its position that the award by the Court Aquo (sic) of 1% monthly penalty covering September 1999 to December 1999 is more than sufficient to cover the alleged liquidated damages respondent suffered as it is in addition to the 12% annual legal interest to be paid by petitioner from due date of the unpaid loan up to the time the petitioner can fully pay his entire obligation;
xxx
That in the instant case, the un-envisioned and unspecified one (1%) per cent monthly penalty or 12% per annum penalty when added to the 12% annual legal interest translates to an enormous 24% annual charges on the principal obligation which is a heavy financial burden to Petitioner;”[13] (Emphasis supplied)
Prevailing over plaintiff-appellant’s allegations however, is that plaintiff-appellant and defendant-appellee had agreed in the Real Estate Mortgage (“REM” for brevity)[14] they executed, that a penalty interest other than the monthly interest would have to be paid by plaintiff-appellant, the mortgagor, in the event that plaintiff-appellant failed to pay his obligation to defendant-appellee, the mortgagee, on the date such obligation became due. The REM specifically stated, as follows:
“That the MORTGAGOR is indebted unto the MORTGAGEE in the sum of ONE HUNDRED SIXTY FIVE THOUSAND PESOS (P165,000.00), Philippine Currency, receipt thereof is hereby acknowledged and, confessed, payable within a period of one (1) month with interest at the rate of 7%; failure to pay on due date, a penalty shall be imposed;”[15] (Emphasis supplied)
Plaintiff-appellant and defendant-appellee having agreed on the imposition of a penalty in addition to the seven percent (7%) monthly interest upon plaintiff-appellant’s failure to pay his obligation when it became due, was as also found by the lower court in its assailed Decision[16] dated November 16, 2009, to wit:
“Since the contract is very clear that a seven per cent (7%) monthly interest and penalty shall be imposed on the principal, then these provisions of the contract must stand. As can be gleaned from the agreement of the parties and the checks issued by petitioner to respondent (Exhibit 7 to 10), petitioner consented to the seven per cent (7%) monthly interest and the one per cent (1%) penalty.
‘When the terms of a contract are clear and unambiguous about the intention of the contracting parties, the literal meaning of its stipulation shall control.‘ (Cruz vs. Bancom Finance Corporation, 379 SCRA 490)”[17] (Emphasis supplied)
Here, the lower court’s imposition of the penalty interest at 1% per month on the principal obligation was proper and equitable, given the fact that such penalty interest was not shown to be unconscionable. The lower court found that:
“As respondent gave so much leeway to petitioner in the payment of his obligation, it is not proper that petitioner comes to Court now asking it to declare his agreement with respondent as unconscionable when in fact, he has consented to it in the first place and already benefited from it. He only came to court crying foul when he felt the agreement was to his disadvantage, without considering that it is him who has caused the non-payment of his obligation and thus, the principal plus the interests and penalties, have grown.
‘A person, in fairness to the other party concerned, cannot invoke his own misdeeds to exculpate himself, conformably with the basic principle in law that he who comes to court must come with clean hands.’ (Lim vs. Queensland Tokyo Commodities, Inc., 373 SCRA 31) ‘For a party to a contract cannot deny the validity thereof after enjoying its benefits without outrage to one’s sense of justice and fairness. (Ibid.)
‘While courts are not at liberty to ignore the freedom of the parties to agree on such terms and conditions as they see fit as long as they are not contrary to law, morals, good customs, public order or public policy, courts may equitably reduce a stipulated penalty if it is iniquitous or unconscionable, or if the principal obligation has been partly or irregularly complied with.‘ (Lo vs. Court of Appeals, 411 SCRA 523)
‘The question of whether a penalty is reasonable or iniquitous is addressed to the sound discretion of the court and on several factors.’ (Ibid.)
However, this Court does not find the penalty of one per cent (1%) imposed by respondent on the loan of petitioner as not unconscionable (sic). Hence, there is no need to disturb this amount of penalty.
‘The New Civil Code permits an agreement upon a penalty apart from the monetary interest, and if the parties stipulate this kind of agreement, the penalty does not include the monetary interest, and as such, the two are different and distinct from each other and may be demanded separately.’ Tan vs. Court of Appeals, 367 SCRA 571) ‘Interests and penalties may both be awarded where the promissory note expressly provides for the imposition of both in cases of default.”’ (Ibid.)
This Court finds xxx the one per cent (1%) monthly penalty as just and reasonable. Besides, Central Bank Circular No. 905 which took effect on January 1, 1983 removed the ceiling on interest rates for secured and unsecured rates.”[18] (Emphasis supplied)
Moreover, the lower court’s imposition of penalty interest was in the nature of Liquidated Damages, contrary to plaintiff-appellant’s allegations in his assignment of errors 2 and 4. This is because such imposition of penalty interest was agreed upon and embodied in the REM[19] executed by plaintiff-appellant and defendant-appellee as an accessory undertaking which imposed a greater obligation on plaintiff-appellant in case he failed to comply with his obligation to defendant-appellee.
That an accessory undertaking in a contract, such as the REM[20] here, which imposes upon the obligor a greater liability in case of breach of his obligation, such as the imposition of a penalty interest here, is considered as Liquidated Damages – was as similarly declared by the Supreme Court in Heirs of Manuel Uy Ek Liong v. Castillo, et al., G.R. No. 176425, June 5, 2013, to wit:
“Our perusal of the Kasunduan also shows that it contains a penal clause which provides that a party who violates any of its provisions shall be liable to pay the aggrieved party a penalty fixed at P50,000.00, together with the attorney’s fees and litigation expenses incurred by the latter should judicial resolution of the matter becomes necessary. An accessory undertaking to assume greater liability on the part of the obligor in case of breach of an obligation, the foregoing stipulation is a penal clause which serves to strengthen the coercive force of the obligation and provides for liquidated damages for such breach. ‘The obligor would then be bound to pay the stipulated indemnity without the necessity of proof of the existence and the measure of damages caused by the breach.’ xxx
In the absence of a showing that they expressly reserved the right to pay the penalty in lieu of the performance of their obligation under the Kasunduan, respondents were correctly ordered by the RTC to execute and deliver a deed of conveyance over their 60% share in the subject parcels in favor of petitioners. Considering that the Kasunduan stipulated that respondents would retain a portion of their share consisting of 1,750 square meters, said disposition should, however, be modified to give full effect to the intention of the contracting parties. Since the parties also fixed liquidated damages in the sum of P50,000.00 in case of breach, we find that said amount should suffice as petitioners’ indemnity, without further need of compensation for moral and exemplary damages. In obligations with a penal clause, the penalty generally substitutes the indemnity for damages and the payment of interests in case of non-compliance. Usually incorporated to create an effective deterrent against breach of the obligation by making the consequences of such breach as onerous as it may be possible, the rule is settled that a penal clause is not limited to actual and compensatory damages.” (Emphasis supplied)
Indeed, the findings of the lower court are entitled to great weight and respect on appeal, and are in fact accorded finality when supported by sufficient evidence on the record,[21] as in this case.
After careful consideration of all the facts, arguments, and issues appearing on the records as well as of the pertinent laws and jurisprudence, and, in accordance with what is best determined to be proper under the circumstances, the following disposition is therefore made on these matters.
GIVEN ALL OF THESE, the Appeal is DENIED.
SO ORDERED.
Dicdican (Chairman) and Paredes, JJ., concur.
[1] Rollo, pp. 39-55.
[2] Rollo, pp. 16-26.
[3] Records, pp. 2-5.
[4] Rollo, pp. 16-26.
[5] Rollo, pp. 16-17.
[6] Records, pp. 2-5.
[7] Records, pp. 83-85.
[8] Rollo, pp. 16-26.
[9] Rollo, p. 26.
[10] Rollo, pp. 39-55.
[11] Rollo, p. 54.
[12] Rollo, p. 50.
[13] Rollo, pp. 51-53.
[14] Records, p. 7.
[15] Records, p. 7.
[16] Rollo, pp. 16-26.
[17] Rollo, p. 23.
[18] Rollo, pp. 23-24.
[19] Records, p. 7.
[20] Records, p. 7.
[21] Spouses Patricio and Myrna Bernales vs. Heirs of Julian Sambaan, et al., G.R. No. 163271, January 15, 2010.