G.R. No. 116285 - Tan vs. Court of Appeals

May 14 and July 6, 1978: Petitioner Antonio Tan obtained two loans of ₱2,000,000 each (total ₱4,000,000) from the Cultural Center of the Philippines (CCP), evidenced by promissory notes due May 14 and July 6, 1979.
After default and partial payments, on August 31, 1979, petitioner executed a restructured promissory note (Exhibit A) for ₱3,411,421.32, payable in five installments, last due December 31, 1980.

Petitioner failed to pay any installment on the restructured note. On January 26, 1982 and October 20, 1983 he sent letters proposing revised payment schemes; CCP did not consent.
May 30, 1984: CCP, through counsel, demanded full payment of ₱6,088,735.03 as of April 30, 1984. August 29, 1984: CCP filed Civil Case No. 84-26363 in the RTC of Manila for collection.
Petitioner defended that he merely accommodated a friend (Wilson Lucmen) and later offered compromises (down payment of ₱140,000 plus checks), which CCP rejected.

May 8, 1991 (RTC): Rendered judgment ordering payment of ₱7,996,314.67 (principal, interest, surcharges), plus 25% attorney’s fees, ₱50,000 exemplary damages; dismissed counterclaims.
August 31, 1993 (CA): Affirmed but deleted exemplary damages and reduced attorney’s fees to 5%. July 13, 1994: Denied motion for reconsideration.
Petitioner filed SC petition assigning errors on compounding interest, suspension of interest, deletion of fees, and penalty reduction.

Do the promissory note’s stipulations and the New Civil Code furnish a contractual and legal basis for the imposition of penalties, interest on penalties, and attorney’s fees?
May interest be compounded on penalty charges (surcharges) under the promissory note and applicable Civil Code provisions?
Was petitioner’s obligation to pay interest and surcharges suspended by CCP’s alleged promise to assist in applying for condonation through the Commission on Audit and Office of the President?
Should the penalty charge be equitably reduced in view of petitioner’s partial payments and the unconscionability of a compounded 2% per month penalty over many years?