G.R. No. 201001 - MCMP Construction Corp. vs. Monark Equipment Corp.

Case Summary (G.R. No. 201001)

Factual Background

Monark Equipment Corp. leased five pieces of heavy equipment to MCMP Construction Corp. under a Rental Equipment Contract in 2000. Delivery to MCMP project sites in Tanay, Rizal and Llavac, Quezon was evidenced by invoices and Document Acknowledgment Receipts Nos. 04667 and 5706, signed by MCMP representatives Jorge Samonte on December 5, 2000 and Rose Takahashi on January 29, 2001. The invoices contained payment and penalty stipulations including payment within thirty days, interest at 24% per annum, a collection fee of 1% compounded monthly, a 2% per month penalty for late payment, and stipulated attorney’s fees equal to 25% of any amount due. MCMP failed to pay within the thirty-day period and made partial payments of PhP100,000.00 on April 15, 2001 and PhP100,000.00 on August 15, 2001. As of April 30, 2002, the unpaid balance claimed by Monark totaled PhP1,282,481.83.

Trial Court Proceedings

On June 18, 2002, Monark Equipment Corp. filed a suit for sum of money against MCMP Construction Corp. in the RTC. MCMP answered and alleged premature suit and asserted an oral agreement limiting charges to actual equipment usage, an agreement not reflected in the written Contract. At trial, Monark presented Reynaldo Peregrino, its Senior Account Manager, who testified that one original copy of the Contract retained by Monark was lost and that a photocopy was offered. MCMP objected to secondary evidence but failed to produce its own copy of the Contract despite a court directive. On November 20, 2007, the RTC rendered judgment for Monark in the amount of PhP1,282,481.83 inclusive of interests, and awarded attorney’s fees equal to 25% of the total amount plus costs. By Order dated April 28, 2008, the RTC clarified that interest, charges, and fees accruing after April 30, 2002 should be computed in accordance with the invoice stipulations.

Appellate Proceedings

MCMP Construction Corp. appealed to the Court of Appeals. The CA, by Decision dated October 14, 2011, affirmed the RTC Decision and Order in toto. MCMP’s motion for reconsideration before the CA was denied in a Resolution dated March 9, 2012. Thereafter MCMP filed the petition for review under Rule 45 before the Supreme Court.

Issues Presented

The principal issue was whether the CA erred in admitting secondary evidence in lieu of the original Contract under the Best Evidence Rule as embodied in Rule 130, Sec. 3, 5, and 6. Ancillary issues included whether the equipment had been delivered to MCMP and whether the contractual stipulations on interest, penalty, collection fee, and attorney’s fees were unconscionable and subject to judicial reduction.

Petitioner's Contentions

MCMP Construction Corp. contended that the CA should have excluded the photocopied Contract under the Best Evidence Rule because Monark failed to show diligent search for the original. MCMP alleged that Monark did not present the document’s custodian, did not report the loss to management or the police, and only searched for the original for purposes of litigation. MCMP further disputed delivery of the equipment and denied that the Contract presented was the one it entered into.

Respondent's Position

Monark Equipment Corp. maintained that its original copy of the Contract was lost despite diligent efforts to locate it and that it properly presented a photocopy and other records to prove the transaction. Monark relied on the testimony of its witness Peregrino and on the invoices and receipts. Monark also stressed that MCMP failed to produce its own copy of the Contract despite the court’s directive.

Court's Findings on the Admissibility of Secondary Evidence

The Court applied Rule 130, Sec. 3, 5, and 6, and the requisites articulated in Country Bankers Insurance Corporation v. Lagman for the admissibility of secondary evidence. The requisites are proof of the existence or due execution of the original, proof of loss or valid reason for non-production, and lack of bad faith by the offeror. The Court found that the RTC and the CA properly credited Peregrino’s uncontroverted testimony that Monark’s original Contract was lost and that diligent efforts to locate it were futile. The Court declined to disturb the trial court’s credibility findings, observing that assessment of witness credibility is primarily for the trial court.

Court's Assessment of MCMP's Failure to Produce Its Copy and the Resulting Presumption

The Court noted that MCMP did not produce its copy of the Contract despite a trial court order. The Court held that MCMP’s failure not only justified Monark’s presentation of secondary evidence under Rule 130, Sec. 6, but also gave rise to the disputable presumption adverse to MCMP under Rule 131, Sec. 3(e) that willfully suppressed evidence would be unfavorable to the suppressing party.

Court's Assessment of Delivery of the Equipment

The Court observed that MCMP’s own witnesses, Jorge Samonte and Engr. Horacio A. Martinez, Sr., acknowledged delivery of the equipment to the project sites. The Court concluded that MCMP’s denial of delivery was false and that the factual findings of the trial court on delivery were supported by the record.

Court's Assessment of Interest, Penalty, Collection Fee, and Attorney's Fees

The Court recognized that the invoice stipulations resulted in an effective interest and penalty burden of approximately 60% per annum together with attorney’s fees of 25% of the total debt. The Court found these rates to be exorbitant and unconscionable. Citing Macalinao v. Bank of the Philippine Islands and Pentacapital Investment Corporation v. Mahinay, the Court applied equitable reduction principles under Art. 1229 and Art. 2227 of the Civil Code. The Court reduced the stipulated interest from 24% per annum to 12% per annum. The Court reduced the combined penalty and collection charge from 3% per month (36% per annum) to 6% per annum. The Court reduced attorney’s fees from 25% to 5%. Interest and the reduced penalty and collection charge were ordered to be computed from March 1, 2001, thirty days after receipt of the second set of invoices.

Disposition

The petition was denied for lack of merit with modification of the RTC’s dispositive portion. The modified judgment ordered MCMP Construction Corp. to pay: PhP765,380.33 representing the unpaid rental fees; interest of 12% per annum on the unpaid rental fees from March 1, 2001 until payment; penalty and coll

Case Syllabus (G.R. No. 201001)

Parties and Procedural Posture

MCMP Construction Corp. filed a Petition for Review on Certiorari under Rule 45, Rules of Court, dated April 20, 2012, assailing the Court of Appeals' Decision dated October 14, 2011 and Resolution dated March 9, 2012.
Monark Equipment Corp. was the plaintiff-appellee in the action below, which originated as Civil Case No. Q-02-47092 before the Regional Trial Court, Branch 96, Quezon City.
The RTC rendered its Decision on November 20, 2007 and issued an Order on April 28, 2008 that modified its dispositive provisions regarding post-judgment charges.
The Court of Appeals affirmed the RTC in toto by Decision dated October 14, 2011 and denied reconsideration by Resolution dated March 9, 2012.
The Supreme Court resolved the petition by a decision denying the petition for lack of merit but modifying the monetary awards.

Key Factual Allegations

Monark Equipment Corp. leased five pieces of heavy equipment to MCMP Construction Corp. for various periods in 2000 under a Rental Equipment Contract.
Delivery of the equipment to MCMP’s project sites was evidenced by invoices and Documents Acknowledgment Receipt Nos. 04667 and 5706 signed by MCMP representatives Jorge Samonte on December 5, 2000 and Rose Takahashi on January 29, 2001.
The invoices contained stipulations that credit sales were payable within thirty days, that the customer agreed to pay interest at 24% per annum, a collection fee of 1% compounded monthly, a 2% per month penalty charge on overdue amounts, and attorney’s fees equal to 25% of any amount due.
MCMP defaulted on payment despite partial payments of PhP100,000.00 on April 15, 2001 and PhP100,000.00 on August 15, 2001.
As of April 30, 2002, Monark calculated MCMP’s indebtedness at PhP1,282,481.83 composed of principal PhP765,380.33, interest PhP253,226.17, 2% monthly penalty PhP253,226.17, and collection fee PhP10,649.16.
Monark filed suit on June 18, 2002 for the sum of money alleged to be due under the Contract.

Issues Presented

Whether the trial court erred in admitting a photocopy of the Contract as secondary evidence under the Best Evidence Rule in Rule 130, Rules of Court.
Whether Monark proved delivery of the leased equipment to MCMP.
Whether the stipulated interest, penalty, collection fee, and attorney’s fees were enforceable as written or whether they were excessive and subject to equitable reduction.

Contentions of Parties

MCMP Construction Corp. contended that Monark failed to make a diligent search for the original Contract and therefore secondary evidence should have been excluded under the Best Evidence Rule.
MCMP Construction Corp. further contended that there was an agreement to charge only for actual time used rather than for the entire period the equipment remained on site, which agreement was not reflected in the Contract.
Monark Equipment Corp. maintained that the original Contract held by it was lost despite diligent efforts to recover it and that a photocopy of the Contract and witness testimony properly proved its contents.

Trial Court Findings

The RTC found for Monark Equipment Corp., awarded PhP1,282,481.83 a