Case Summary (G.R. No. 87182)
Factual Background
Pacific Mills, Inc. purchased on credit several quantities of cottonlint, subsequently failing to pay within the agreed sixty-day period, leading to the execution of four promissory notes totaling P16,598,725.84. The notes carried a stipulated interest of 21% per annum and additional penalty charges upon default. Following Pacific's failure to meet its obligations, Philcotton initiated collection proceedings, leading to writs of preliminary attachment against Pacific's properties to secure the claimed amounts.
Judicial Proceedings and Initial Rulings
Philcotton filed two separate complaints against Pacific Mills, culminating in a consolidated case where the trial court ordered payment of the principal obligation along with interests and penalties. The court's decision was appealed to the Court of Appeals, which modified the interest and penalty terms, thereby reducing the penalty from what was initially stipulated.
Legal Issues Raised
Pacific Mills contested the appellate decision on two main points: the entitlement of Philcotton to attorney's fees, and the adequacy of penalty charges imposed. They argued that, being a government-owned entity, Philcotton should not be entitled to such fees. Furthermore, they proposed that the penalties should be adjusted based on different equitable considerations, including partial compliance and the nature of the loans which were for the benefit of the cotton industry.
Ruling on Attorney’s Fees
The Supreme Court found that legislation involving government-owned corporations allows for attorney’s fees provided certain circumstances are met. Under R.A. No. 6000, government corporations are indeed entitled to recover attorney's fees when involved in judicial proceedings. The court concluded that the award of fees initially stipulated at 25% and later modified to 10% was justified based on the existing legal framework, upholding the principle that government agencies should not be denied costs incurred while seeking judicial remedy against defaulting entities.
Ruling on Penalty Charges
Pacific's request to reduce penalties was also denied. The Supreme Court reaffirmed that the stipulations within the promissory notes concerning penalties must be honored. The appellate court's reduction from an agreed 29% to 14% was deemed reasonable. The court argued that the calculated penalties were justified as they reflect the actual damages incurred by executive defaults, emphasizing that those damages could include obligations Philcotton had towards its funding source.
Determination of Interest and Penalty Computation Dates
The Court criticized the appellate court's error in deciding that interest and penalties would only start accumulating from the date of a joint manifestation between the parties, rather than from the original due dates specified in the promissory notes. Noting the liquidated nature of the debts, the Supreme Court established that the obligations, interest, and penalties must be computed based on the specific ter
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Case Overview
- On various dates between April 1980 and October 1982, Pacific Mills, Inc. (Pacific) purchased cottonlint on credit from Philippine Cotton Corporation (Philcotton).
- The agreement stipulated that in cases of non-payment within sixty days post-delivery, Pacific would issue promissory notes.
- Due to non-payment, Pacific and its Executive Vice-President, George U. Lim, executed four promissory notes totaling P16,598,725.84, with specific terms regarding interest and penalties for late payments.
Promissory Notes Details
- The promissory notes were dated April 1, 1982; October 1, 1982; and two on December 1, 1982.
- Each note stated a 21% per annum interest rate, with provisions for additional interest and penalties based on the duration of arrears.
- Additional charges included a one-time service charge of 2% on advances, with an 8% penalty on overdue amounts after 30 days.
Legal Proceedings and Claims
- On June 23, 1983, Philcotton filed a suit for collection of P7,940,229.39 under two of the promissory notes, seeking a writ of preliminary attachment.
- A second complaint was filed on January 11, 1984, for P8,658,496.45 under the other two notes, also seeking a writ of preliminary attachment.
- The actions were consolidated, and after unsuccessful attempts to discharge the writs, Pacific filed for certiorari with the then Intermediate Appellate Court, which was dismissed.
Judgment by the Trial Court
- On December 27, 1985, the trial court ruled in favor of Philcotton, ordering Pacific and Lim to pay:
- P13,998,725.84 plus 21% interest per annum.
- 8% penalty charges on overdue amounts after 30 days.
- 25% of the total amo