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G.R. No. 162729 December 17, 2008 SUATENGCO vs Reyes

SOLEDAD LEONOR PEA SUATENGCO and ANTONIO ESTEBAN
SUATENGCO, complainants,
vs.
CARMENCITA O. REYES, respondent.
DECISION
LEONARDO-DE CASTRO, J.:
This resolves the petition for review on certiorari seeking the modification of
the Decision1 dated October 29, 2003 and the Resolution2 dated March 10, 2004
of the Court of Appeals (CA) in CA-G.R. CV No. 53185. The assailed decision
affirmed with modification the Decision3 of the Regional Trial Court (RTC) of
Marinduque, Branch 30 in Civil Case No. 95-4 in an action for collection of a
sum of money with damages commenced by herein respondent, Carmencita O.
Reyes against herein petitioners, spouses Soledad Leonor Pea Suatengco (also
known as Sylvia Pea Suatengco) and Antonio Esteban Suatengco.
The essential facts of the case, as recounted by the trial court, are as follows:
This is an action for Sum of Money with Damages filed by Carmencita
O. Reyes against defendants [petitioners] Spouses Soledad Leonor Pea
and Antonio Esteban Suatengco, wherein plaintiff (respondent) claimed
that sometime in the first quarter of 1994, defendant 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 for brevity). On May 31, 1994, plaintiff paid Philphos the
amount of P1,336,313.00 and by reason thereof defendants 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 defendants. 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
attorneys fees.
A perusal of the record showed that notwithstanding the leniency
graciously observed by this court in giving defendants several
extensions of time to file their answer with responsive pleading, they
failed to do the same thus, upon motion of plaintiffs counsel,
defendants were declared as in default on October 27, 1995 and the exparte reception of plaintiffs evidence was delegated to the Clerk of
Court.
At the ex-parte hearing, ATTY. EDMUNDO O. REYES, JR., a lawyer
by profession connected with the Siguion Reyna, Montecillo and
Ongsiako Law Offices, testified that he is the attorney-in-fact of his
mother Congresswoman Carmencita O. Reyes, herein plaintiff, to enter
into and execute, among other acts, any agreement with the defendant
Soledad Leonor Pea Suatengco to collect the amount of around P1.4
MILLION and to hold the same in trust for her as shown by a Special
Power of Attorney marked Exhibits A to A-2.
Confronted with a document styled as "Promissory Note" dated June 24,
1994 (Exhibit "B"), he identified the signatures of Soledad Pea
Suatengco (also known as Sylvia Pea Suatengco) (Exhs. B-1, B-5, B10 and B-13), Antonio Suatengco (Exhs. B-2, B-6, B-11 and B-14),
Atty. Domingo Ganuelas (Exhs. B-3, B-7, B-9 and B-15) and his own
signatures (Exhs. B-4, B-8, B-12 and B-16). That their signatures were
signed in his presence on June 24, 1994 at the Siguion Reyna,
Montecillo and Ongsiako Law Offices. Atty. Domingo Ganuelas was
there at the time to assist and advise defendants before executing the
Promissory Note.
He explained that defendants own and manage Goldfields Business
Development Corporation. Of the P1,336,313.00 paid by plaintiff to
Philphos on May 31, 1994, which defendants jointly and severally
assumed to pay plaintiff under the Promissory Note (Exh. B), only
P15,000.00 had been paid by them thereby leaving an outstanding
balance of P1,321,313.00 plus 12% interest per annum computed from
May 31, 1994 and attorneys fees equivalent to 20% of defendants total

outstanding balance inclusive of interest, which he believes to be

reasonable based on experience considering that the case will be
prosecuted outside Metro Manila and the long distance would entail
quite an amount of travel for retained counsel.
To corroborate the testimony of Atty. Edmundo O. Reyes, Jr. and to
prove the obligation due as well as the damages prayed for, plaintiff
Congresswoman CARMENCITA O. REYES representative of the lone
district of Marinduque testified that she has been a member of Congress
since 1978 until it was abolished in 1986 but after which re-elected in
1987, 1992 and 1995.
She identified her signature on Exhibit A Special Power of Attorney
(Exhs. A-1 and A-2) as well as her signature on the verification portion
of her complaint (page 8, Record) and affirmed that she had caused the
preparation of the same and that the contents thereof are true and
correct.
That on May 31, 1994, she paid Philphos the amount of P1,336,313.00
representing defendants obligation with Philphos. In return for the sum
she had advanced, defendants agreed to issue the Promissory Note (Exh.
B) for the total amount of indebtedness but out of the said amount of
P1,336,313.00 only P15,000.00 had been paid by them. As a result, her
feeling was hurt and wounded. She felt degraded because after helping
them to get out of their indebtedness without asking for any interest, it
would seem that they lost interest in paying their obligations. She was
even more deeply hurt when she found out that the sheriff of this court
who went to their place to take some actions regarding this case, was
even threatened exposing her constituent to such danger. Said amount is
substantial enough to help her constituents because as much as possible
she would not deny them everytime they come to her since it would
really be a matter of life and death for them. 4
As can be gleaned from the above narration, the RTC declared the petitioners in
default for failure to file their Answer to the complaint. Thereafter, trial ex parte
was delegated to the Clerk of Court to receive respondents evidence.
Testimonial and documentary evidence were all admitted.

On November 29, 1995, the lower court rendered its decision, the dispositive
portion of which reads as follows:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and
against defendants ordering defendants:
a) To pay plaintiff 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.
b) To pay plaintiff moral damages in the amount of P1,000,000.00;
c) To pay plaintiff attorneys fees in the amount of 20% of the sum
collected; and
d) To pay costs of suit.
SO ORDERED.5
In their appeal to the CA, petitioners did not question the amount of the
judgment debt for which they were held liable but limited the issue to the award
of attorneys fees.
On October 29, 2003, the CA promulgated a decision affirming with
modification the trial courts decision. It upheld the award of attorneys 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 One
Million Pesos (P1,000,000.00) to Two Hundred Thousand Pesos (P200,000.00).
Dispositively, the decision reads:
WHEREFORE, the assailed decision of Branch 30, of the Regional
Trial Court of Marinduque in Civil Case No. 95-4 is hereby
AFFIRMED with MODIFICATION. The defendant-appellants are
ordered to pay plaintiff-appellee moral damages in the amount of
P200,000.00. 6

Petitioners moved for the reconsideration of the CAs decision, but the same was
denied by the CA in its Resolution dated March 10, 2004.
Aggrieved, petitioners elevated the case to this Court via a petition for review
on certiorari under Rule 45 of the Rules of Court, submitting thusly
1. The Court of Appeals acted with grave abuse of discretion and
committed a mistake of law in awarding 20% attorneys fees contrary to
the 5% as stipulated in the promissory note, Exhibit "B."
2. The Court of Appeals acted with grave abuse of discretion and
committed a mistake of law in not reducing the award of the 12%
penalty interest.
Clearly from the foregoing formulation of the issues in the present petition,
petitioners do not dispute the amount of their indebtedness. They only seek a
modification of the decision of the CA insofar as it upheld the RTCs award of
attorneys fees equivalent to 20% of their total indebtedness/obligation and the
12% per annum interest of the said obligation.

According to respondent it was not surprising for the CA to focus on the issue of
reasonableness of the said attorneys fees because petitioners line of argument
was focused on the same.
The petition is partly meritorious.
The fifth paragraph of the Promissory Note executed by petitioners in favor of
respondent undeniably carried a stipulation for attorneys fees and interest in
case of the latters default in the payment of any installment due. It specifically
provided that:
Failure on the part of Sylvia and/or Antonio Suatengco to pay any
installment due will render the entire unpaid balance immediately, due
and demandable and Cong. Reyes becomes entitled not only for the
unpaid balance but also for 12% interest per annum of the outstanding
balance of P1,336,313.00 from May 31, 1994 until fully paid plus
attorneys fees equivalent to 5% of the total outstanding indebtedness.

In support of their contention that the award of attorneys fees was illegal or
erroneous, petitioners point to the unqualified rate of 5% stipulated in the
promissory note as the "stipulated amount" which was way lower than the 20%
as awarded by the RTC. Petitioners cited the case of Chua v. Court of Appeals7
where the Court ruled that is not the province of the court to alter a contract by
construction or to make a new contract for the parties; its duty is confined to the
interpretation of the one which they have made for themselves, without regard
to its wisdom or folly, as the court cannot supply material stipulations or read
into contract words which it does not contain. The testimony of Atty. Edmundo
O. Reyes that the attorneys fees should be 20% of the outstanding balance
cannot prevail over the 5% stipulated in the promissory note. Citing the case of
Baas v. Asia Pacific Finance Corporation,8 petitioners maintained that oral
evidence cannot prevail over the written agreement of the parties.

Strictly speaking, the attorneys fees herein litigated are in the nature of
liquidated damages and not the attorneys fees recoverable as between attorney
and client enunciated and regulated by the Rules of Court. 9 Liquidated damages
are those agreed upon by the parties to a contract to be paid in case of breach
thereof.10 The stipulation on attorneys 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. 11 It is wellsettled that so long as such stipulation does not contravene law, morals, or
public order, it is strictly binding upon the obligor. The attorneys fees so
provided are awarded in favor of the litigant, not his counsel. 12

On the other hand, respondent contend that petitioners have already waived their
rights to question the award for attorneys fees because in their Appellants Brief
filed before the CA, they stated that the stipulated attorneys fees was 20% (not
5%) of the total balance of the outstanding indebtedness. Respondent adds that
despite such stipulation, said attorneys fees are subject to judicial control.

In this case, there is a contractual stipulation in the Promissory Note that in case
of petitioners default on the terms and conditions of the said Promissory Note
by failing to pay any installment due, then this will render the entire balance of
the obligation immediately due and payable. The total obligation of petitioners
amounted to P1,321,313.00 (P1,336,313.00 less P15,000.00) plus the 12%

interest per annum of the said balance, as well as attorneys fees equivalent to
5% of the total outstanding indebtedness. The Promissory Note was signed by
both parties voluntarily, thus the stipulation therein has the force of law between
the parties and should be complied with by them in good faith.
The RTC and CA, in awarding attorneys fees equivalent to 20% of petitioners
total obligation, disregarded the stipulation expressly agreed upon in the
Promissory Note and instead increased the award of attorneys fees by giving
weight and value to the testimony of prosecution witness Atty. Reyes. In
agreeing to the reasonableness of the attorneys fees, the CA erroneously took
into account the time spent, the extent of the services rendered, as well as the
professional standing of the lawyer. Oral evidence certainly cannot prevail over
the written agreements of the parties. The courts need only to rely on the faces
of the written contracts to determine their true intention on the principle that
when the parties have reduced their agreements in writing, it is presumed that
they have made the writings the only repositories and memorials of their true
agreement.13
Moreover, it is undeniable from the evidence submitted by respondent herself to
the trial court that the agreement of the parties with respect to attorneys fees is
only 5% of the total obligation and the trial court granted the 20% rate based on
the testimony of respondents counsel who opined that the same is the
reasonable amount of attorneys fees, despite the unequivocal agreement of the
parties. Even granting that petitioners may have erroneously stated that the
stipulated attorneys fees is 20% in their appellants brief before the CA, they
have nonetheless squarely raised the matter of the lower rate of attorneys fees
agreed upon by the parties in the promissory note before that court in their
motion for reconsideration. In our mind, there was essentially no change in
petitioners theory of the case before the CA since in their appellants brief and
their motion for reconsideration, their main contention remains the same: that
the attorneys fees awarded by the trial court and affirmed by the CA were
unwarranted and contrary to law. Neither can we give credence to respondents
assertion that the 5% attorneys fees agreed upon in the promissory note were
intended only to be the minimum rate as the promissory note never mentioned a
minimum.
In sum, we find it improper for both the RTC and the CA to increase the award
of attorneys fees despite the express stipulation contained in the said
Promissory Note which we deem to be proper under these circumstances, since

it is not intended to be compensation for respondents counsel but was rather in

the nature of a penalty or liquidated damages.
On the matter of interest, we affirm the amount of interest awarded by the two
courts below, there being a written stipulation as to its rate. In Eastern Shipping
Lines, Inc. v. Court of Appeals,14 we laid down the following guidelines on the
imposition of legal interest:
xxx xxx xxx
II. With regard particularly to an award of interest in the concept of
actual and compensatory damages, the rate of interest, as well as the
accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a
sum of money, i.e., a loan or forbearance of money, the interest due is
that which may have been stipulated in writing. Furthermore, the
interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be
12% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169
of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money,
is breached, an interest on the amount of damages awarded may be
imposed at the discretion of the court at the rate of 6% per annum xxx
3. When the judgment of the court awarding a sum of money becomes
final and executory, the rate of legal interest, whether the case falls
under paragraph 1 or paragraph 2, above, shall be 12% per annum from
such finality until its satisfaction, this interim period being deemed to be
by then an equivalent to a forbearance of credit.
The stipulated interest in this case is 12% per annum. As of July 1994, the total
indebtedness of petitioners amounted to P1,321,313.00. From then on, the
P1,321,313.00 should have earned the stipulated interest of 12% per annum plus
attorneys fees equivalent to 5% of the total outstanding indebtedness. However,
once the judgment becomes final and executory and the amount adjudged is still
not satisfied, legal interest at the rate of 12% applies until full payment. The rate

of 12% per annum is proper because the interim period from the finality of
judgment, awarding a monetary claim and until payment thereof, is deemed to
be equivalent to a forbearance of credit. The actual base for the computation of
this 12% interest is the amount due upon finality of this decision. 15
WHEREFORE, the Decision dated October 29, 2003 of the Court of Appeals
is hereby MODIFIED in that the amount of attorneys fees is reduced to five
percent (5%) of the total balance of the outstanding indebtedness but the said
Decision is AFFIRMED in all other respects.
No costs.