G.R. No. L-26540 December 28, 1981
MUTUAL PAPER INC., petitioner, vs. EASTERN SCOTT PAPER COMPANY, respondent.

FACTS

Respondent Eastern Scott Paper Company filed a collection suit against petitioner Mutual Paper Inc. for the unpaid value of paper products sold, amounting to P782,566.58. The complaint included a prayer for the appointment of a receiver, which was granted, due to petitioner’s shortened corporate existence. During the pendency of the action, petitioner made a partial payment and subsequently confessed judgment to a recomputed unpaid balance of P398,902.00. The trial court initially entered judgment for this amount without awarding attorney’s fees.
Respondent moved for reconsideration, invoking a contractual stipulation in the purchase documents providing for attorney’s fees equivalent to 25% of the amount due in case of litigation. The trial court granted the motion, amending its decision to award respondent P20,000.00 as attorney’s fees, considering the nature of the services, the amount involved, and respondent’s condonation of interest. Petitioner opposed, arguing the award was exorbitant since counsel’s services were limited due to the confession of judgment, and offered to pay only P3,000.00.

ISSUE

Whether the award of P20,000.00 as attorney’s fees is reasonable.

RULING

The Supreme Court affirmed the award, ruling it was not unconscionable or unreasonable. The attorney’s fees in question are not those between lawyer and client but are liquidated damages agreed upon by the contracting parties, fixed at 25% of the amount due under their contract. While such stipulated amounts control under the Rules of Court, they are subject to equitable reduction if found iniquitous under Article 2227 of the Civil Code.
The Court found respondent was compelled to litigate to protect its interests, as evidenced by its need to file suit and secure a receiver after petitioner’s corporate dissolution. The institution of the action hastened settlement, which still took over a year. The stipulated 25% fee, if applied to the original claim or even the confessed amount, would have yielded sums far exceeding P20,000.00 (P195,641.64 or P99,725.50, respectively). The trial court and the Court of Appeals exercised their discretion to reduce this stipulated amount to P20,000.00, which is approximately 5% of the confessed judgment. The Supreme Court found no abuse of this discretion, noting the services rendered included not just filing the complaint but also securing a receiver, court appearances, and settlement discussions. The award was therefore sustained.