Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 153874 March 1, 2007
TITAN CONSTRUCTION CORPORATION, Petitioner,
vs.
UNI-FIELD ENTERPRISES, INC., Respondent.
D E C I S I O N
CARPIO, J.:
The Case
This is a petition for review1 of the 7 January 2002 Decision2 and 20 May 2002 Resolution of the Court of Appeals in CA-G.R. CV No. 56816. The Court of Appeals affirmed the 9 September 1997 Decision3 of the Regional Trial Court of Quezon City, Branch 224 (trial court) in Civil Case No. Q-95-24170.
The Facts
Petitioner Titan Construction Corporation (petitioner) is engaged in the construction business, while respondent Uni-Field Enterprises, Inc.4 (respondent) is engaged in the business of selling various construction materials.
From 1990 to 1993, petitioner purchased on credit various construction supplies and materials from respondent. Petitioner’s purchases amounted to ₱7,620,433.12 but petitioner was only able to pay ₱6,215,795.70, leaving a balance of ₱1,404,637.42. On 19 October 1994, respondent sent a demand letter to petitioner.5 But the balance remained unpaid.
On 26 June 1995, respondent filed with the trial court a complaint for collection of sum of money with damages against petitioner.
In its Answer dated 18 August 1995, petitioner admitted the purchases but disputed the amount claimed by respondent. Petitioner also interposed a counterclaim and sought to recover ₱204,527.99 from respondent based on damaged vinyl tiles, non-delivery of materials, and advances for utility expenses, dues, and insurance premiums on the condominium unit turned over by petitioner to respondent.
On 9 September 1997, the trial court rendered judgment in favor of respondent. The 9 September 1997 Decision provides:
Accordingly, therefore, judgment is hereby rendered for the plaintiff [respondent] as against the defendant [petitioner] and ordering the latter to pay the plaintiff [respondent] the following:
1. The principal amount of ₱1,404,114.00;
2. Interest Charges in the amount of ₱504,114.00 plus accrued interest charges at 24% per annum compounded yearly reckoned from July, 1995 up to the time of full payment;
3. Liquidated Damages in the amount of ₱324,147.94;
4. Attorney’s Fees equivalent to 25% of whatever amount is due and payable and accumulated appearance fees at ₱1,000.00 per hearing; and
5. Costs of suits.
IT IS SO ORDERED.6
Petitioner appealed to the Court of Appeals. In its 7 January 2002 Decision, the Court of Appeals denied the appeal for lack of merit and affirmed the trial court’s 9 September 1997 Decision.
In its 20 May 2002 Resolution, the Court of Appeals denied petitioner’s motion for reconsideration. Hence, this petition.
The Ruling of the Court of Appeals
The 7 January 2002 Decision of the Court of Appeals reads:
A careful reading of the records of the case shows that in the answer to the complaint, the existence of the delivery receipts and invoices were not denied by appellant, rather, it admitted the transactions subject of the instant case. Clearly, if the damages alleged are liquidated or stipulated, they are deemed admitted when not specifically denied.
x x x x
Further, appellant cannot question the interest rate on overdue accounts as the same was provided for in the delivery receipts and sales invoices, which have not been denied by it. Therefore, the terms and conditions therein have become the law between the parties, and both are bound by said conditions. Failure of a party to contest the terms and conditions results in his admission thereof.
Appellant asserts that "nowhere is there any stipulation that plaintiff is entitled to a 24% interest". This is absurd. The Sales Invoices and Delivery Receipts, contained the provision that:
"This invoice is the written contract between Unifield Enterprises, [I]nc. and the above-named customer. This is payable on demand unless otherwise indicated hereinabove. Interest of 24% per annum will be charged on overdue accounts, compounded with the outstanding principal obligation as they accrue. Claims or corrections hereto or in the goods must be communicated in writing to Uni-field Enterprises within two (2) days from receipt of the goods. x x x Should Unifield Enterprises, Inc. be constrained to effect collection through Court action and proceedings before the Fiscal’s [sic], said customer agrees to pay the following additional sums: (1) 25% liquidated damages based on the outstanding total obligation; (2) 25% attorney’s fees based on the total claim including said liquidated damages; (3) appearance fees of counsel at ₱500.00 per hearing in addition to all other court costs and expenses. x x x"
It is emphasized that contracts are perfected by mere consent; the stipulations of the contract being the law between the parties, courts have no alternative but to enforce them as they are agreed upon and written, there being no law or public policy against the stipulated provisions.
Verily, this Court finds no reason to go against the findings of the lower court considering that the assailed decision was arrived at "after a careful review and perusal of the evidence presented by both parties in their pleadings filed before the" lower court.7 (Citations omitted)
The Issues
Petitioner raises the following issues:
1. THE COURT OF APPEALS ERRED IN FINDING LEGAL BASIS FOR [AWARDING] LIQUIDATED DAMAGES, ATTORNEY’S FEES AND INTEREST IN FAVOR OF RESPONDENT; and
2. THE COURT OF APPEALS ERRED BY OVERLOOKING CERTAIN FACTS OR CIRCUMSTANCES OF WEIGHT AND INFLUENCE WHICH IF CONSIDERED WOULD ALTER THE RESULTS OF THE CASE.8
The Ruling of the Court
Factual Findings of the Trial Court and the Court of Appeals
Bind the Court
Petitioner asks the Court to review the records of the case and re-examine the evidence presented before the trial court and the Court of Appeals.
As a rule, only questions of law may be appealed to the Court by petition for review. The Court is not a trier of facts, its jurisdiction being limited to errors of law.9 Moreover, factual findings of the trial court, particularly when affirmed by the Court of Appeals, are generally binding on this Court.10 In this case, the factual findings of the trial court and the Court of Appeals were based on substantial evidence which were not refuted with contrary proof by petitioner. We thus find no reason to disturb the factual findings of the trial court and the Court of Appeals.
On the Award of Interests, Liquidated Damages, and Attorney’s Fees
Petitioner insists that the trial court and the Court of Appeals had no legal basis to award interest, liquidated damages, and attorney’s fees because the delivery receipts and sales invoices, which served as the basis for the award, were not formally offered as evidence by respondent. Petitioner also alleges that the delivery receipts and sales invoices were in the nature of contracts of adhesion and petitioner had no option but to accept the conditions imposed by respondent.
While the delivery receipts and sales invoices did not form part of respondent’s formal offer of evidence,11 records show that the delivery receipts and sales invoices formed part of petitioner’s formal offer of evidence.12 The delivery receipts and sales invoices expressly stipulated the payment of interest, liquidated damages, and attorney’s fees in case of overdue accounts and collection suits. Petitioner did not only bind itself to pay the principal amount, it also promised to pay (1) interest of 24% per annum on overdue accounts, compounded with the principal obligations as they accrue; (2) 25% liquidated damages based on the outstanding total obligation; and (3) 25% attorney’s fees based on the total claim including liquidated damages. Since petitioner freely entered into the contract, the stipulations in the contract are binding on petitioner. Thus, the trial court and the Court of Appeals did not err in using the delivery receipts and sales invoices as basis for the award of interest, liquidated damages, and attorney’s fees.
On the allegation that the delivery receipts and sales invoices are in the nature of contracts of adhesion, the Court has repeatedly held that contracts of adhesion are as binding as ordinary contracts.13 Those who adhere to the contract are in reality free to reject it entirely and if they adhere, they give their consent.14 It is true that on some occasions the Court struck down such contract as void when the weaker party is imposed upon in dealing with the dominant party and is reduced to the alternative of accepting the contract or leaving it, completely deprived of the opportunity to bargain on equal footing.15
Considering that petitioner and respondent have been doing business from 1990 to 1993 and that petitioner is not a small time construction company, petitioner is "presumed to have full knowledge and to have acted with due care or, at the very least, to have been aware of the terms and conditions of the contract."16 Petitioner was free to contract the services of another supplier if respondent’s terms were not acceptable. Moreover, petitioner failed to show that in its transactions with respondent it was the weaker party or that it was compelled to accept the terms imposed by the respondent. In fact, petitioner only questioned the terms of the contract after the trial court issued its 9 September 1997 Decision. The Court, therefore, upholds the validity of the contract between petitioner and respondent.
However, the Court will reduce the amount of attorney’s fees awarded by the trial court and the Court of Appeals. In this case, aside from the award of ₱324,147.94 as liquidated damages, the trial court and the Court of Appeals also ordered petitioner to pay respondent attorney’s fees "equivalent to 25% of whatever amount is due and payable."17
The law allows a party to recover attorney’s fees under a written agreement.18 In Barons Marketing Corporation v. Court of Appeals, the Court ruled that:
[T]he attorney’s fees here are in the nature of liquidated damages and the stipulation therefor is aptly called a penal clause. It has been said that so long as such stipulation does not contravene law, morals, or public order, it is strictly binding upon defendant. The attorney’s fees so provided are awarded in favor of the litigant, not his counsel.19
On the other hand, the law also allows parties to a contract to stipulate on liquidated damages to be paid in case of breach.20 A stipulation on liquidated damages is a penalty clause where the obligor assumes a greater liability in case of breach of an obligation.21 The obligor is bound to pay the stipulated amount without need for proof on the existence and on the measure of damages caused by the breach.22
Articles 122923 and 222724 of the Civil Code empower the courts to reduce the penalty if it is iniquitous or unconscionable. The determination of whether the penalty is iniquitous or unconscionable is addressed to the sound discretion of the court and depends on several factors such as the type, extent, and purpose of the penalty, the nature of the obligation, the mode of breach and its consequences.25
The Court notes that respondent had more than adequately protected itself from a possible breach of contract because of the stipulations on the payment of interest, liquidated damages, and attorney’s fees. The Court finds the award of attorney’s fees "equivalent to 25% of whatever amount is due and payable" to be exorbitant because it includes (1) the principal of ₱1,404,114.00; (2) the interest charges of ₱504,114.00 plus accrued interest charges at 24% per annum compounded yearly reckoned from July 1995 up to the time of full payment; and (3) liquidated damages of ₱324,147.94. Moreover, the liquidated damages and the attorney’s fees serve the same purpose, that is, as penalty for breach of the contract. Therefore, we reduce the award of attorney’s fees to 25% of the principal obligation, or ₱351,028.50.
WHEREFORE, we AFFIRM the appealed Decision dated 7 January 2002 of the Court of Appeals in CA-G.R. CV No. 56816 with MODIFICATION as regards the award of attorney’s fees. Petitioner Titan Construction Corporation is ordered to pay respondent Uni-Field Enterprises, Inc. attorney’s fees of ₱351,028.50.
SO ORDERED.
ANTONIO T. CARPIO
Associate Justice
WE CONCUR:
LEONARDO A. QUISUMBING
Associate Justice
Chairperson
CONCHITA CARPIO MORALES
Associate Justice |
DANTE O. TINGA
Asscociate Justice |
PRESBITERO J. VELASCO, JR.
Associate Justice
A T T E S T A T I O N
I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.
LEONARDO A. QUISUMBING
Associate Justice
Chairperson
C E R T I F I C A T I O N
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.
REYNATO S. PUNO
Chief Justice
Footnotes
1 Under Rule 45 of the Rules of Court.
2 Penned by Associate Justice Eugenio S. Labitoria with Associate Justices Teodoro P. Regino and Rebecca De Guia Salvador, concurring.
3 Penned by Judge Emilio L. Leachon, Jr.
4 Sometimes appears in the records as Unifield Enterprises, Inc.
5 Records, pp. 16-17.
6 Rollo, pp. 45-49.
7 Id. at 42-A-43.
8 Id. at 30.
9 Tirol, Jr. v. Commission on Audit, 391 Phil. 897 (2000).
10 Fuentes v. Court of Appeals, G.R. No. 109849, 26 February 1997, 268 SCRA 703.
11 Records, pp. 65-66.
12 Id. at 104-105, 135-139.
13 Ermitaño v. Court of Appeals, 365 Phil. 671 (1999); Rizal Commercial Banking Corp. v. CA, 364 Phil. 947 (1999); Ayala Corp. v. Ray Burton Devt. Corp., 355 Phil. 475 (1998).
14 Ermitaño v. Court of Appeals, supra.
15 Radio Communications of the Philippines, Inc. v. Verchez, G.R. No. 164349, 31 January 2006, 481 SCRA 384; Rizal Commercial Banking Corp. v. CA, supra.
16 South Pachem Development Inc. v. Court of Appeals, G.R. No. 126260, 16 December 2004, 447 SCRA 85, 96.
17 Rollo, p. 49.
18 Civil Code, Article 2208.
19 349 Phil. 769, 780 (1998), citing Polytrade v. Blanco, 140 Phil. 604 (1969).
20 Civil Code, Article 2226.
21 H.L. Carlos Construction Inc. v. Marina Properties Corporation, G.R. 147614, 29 January 2004, 421 SCRA 428.
22 Ligutan v. Court of Appeals, 427 Phil. 42 (2002).
23 Article 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.
24 Article 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable.
25 Pryce Corporation v. Philippine Amusement and Gaming Corporation, G.R. No. 157480, 6 May 2005, 458 SCRA 164; Ligutan v. Court of Appeals, supra.
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