SUATENGCO VS.
REYES (2008) - Galang
LEONARDO-DE CASTRO, J.:
FACTS: This is an action for Sum of Money with Damages filed by Carmencita O. Reyes against
Spouses Soledad Leonor Peña and Antonio Esteban Suatengco, wherein Reyes claimed that
sometime in the first quarter of 1994, Sylvia (Soledad) approached her for the purpose of
borrowing a sum of money in order to pay her obligation to Philippine Phosphate Fertilizer
Corporation (Philphos). On May 31, 1994, plaintiff paid Philphos the amount of P1,336,313.00
and by reason thereof the Spouses Sylvia (Soledad) and Antonio executed on June 24, 1994 a
Promissory Note binding themselves jointly and severally to pay plaintiff the said amount in 31
monthly installments beginning June 30, 1994. Of the amount, however, only one (1) payment
in the amount of P15, 000.00 on July 27, 1994 have been made by the spouses.
That pursuant to a specific clause in the Promissory Note, defendants have unequivocally
waived the necessity of demand to be made upon them to pay as well as a Notice of Dishonor
and presentation with acceleration clause. As of March 31, 1995 defendants owe plaintiff
P1,321,313.00 exclusive of interest, other charges which is already due and demandable but
remains unpaid, hence this collection suit with prayer for moral damages and attorney’s fees.
Lower court rendered judgment in favor of Reyes ordering the spouses to pay actual damages
in the amount of P1,321,313.00 plus interest at 12% per annum from May 31, 1994
representing the total outstanding balance of defendants’ indebtedness to plaintiff by virtue of
the Promissory Note dated June 24, 1994, moral damages in the amount of P1,000,000.00,
attorney’s fees in the amount of 20% of the sum collected; and to pay costs of suit.
On October 29, 2003, the C.A. promulgated a decision affirming with modification the trial
court’s decision. It upheld the award of attorney’s fees equivalent to 20% of the balance of
petitioners’ obligation and modified the decision of the trial court by lowering the award of
moral damages from P1, 000,000.00 to P200,000.00.
ISSUES: WON the C.A. acted with grave abuse of discretion and committed a mistake of law in
awarding 20% attorney’s fees contrary to the 5% as stipulated in the promissory note.
HELD: YES. The C.A. decision is MODIFIED in that the amount of attorney’s fees is reduced to 5%
of the total balance of the outstanding indebtedness.
RATIO: The fifth paragraph of the Promissory Note executed by petitioners in favor of
respondent undeniably carried a stipulation for attorney’s fees and interest in case of the
latter’s default in the payment of any installment due.
Strictly speaking, the attorney’s fees herein litigated are in the nature of liquidated damages
and not the attorney’s fees recoverable as between attorney and client enunciated and
regulated by the Rules of Court. Liquidated damages are those agreed upon by the parties to a
contract to be paid in case of breach thereof. The stipulation on attorney’s fees contained in the
said Promissory Note constitutes what is known as a penal clause. A penalty clause, expressly
recognized by law, is an accessory undertaking to assume greater liability on the part of the
obligor in case of breach of an obligation. It functions to strengthen the coercive force of
obligation and to provide, in effect, for what could be the liquidated damages resulting from
such a breach. The obligor would then be bound to pay the stipulated indemnity without the
necessity of proof on the existence and on the measure of damages caused by the breach. It is
well-settled that so long as such stipulation does not contravene law, morals, or public order, it
is strictly binding upon the obligor. The attorney’s fees so provided are awarded in favor of the
litigant, not his counsel.
It is undeniable from the evidence submitted by respondent herself to the trial court that the
agreement of the parties with respect to attorney’s fees is only 5% of the total obligation and
the trial court granted the 20% rate based on the testimony of respondent’s counsel who
opined that the same is the reasonable amount of attorney’s fees, despite the unequivocal
agreement of the parties.
The court found it improper for both the RTC and the C.A. to increase the award of attorney’s
fees despite the express stipulation contained in the said Promissory Note which they deemed
to be proper under these circumstances, since it is not intended to be compensation for
respondent’s counsel but was rather in the nature of a penalty or liquidated damages.
