Asian Construction and Development Corp. vs. Cathay Pacific Steel Corp.

Stipulations in a contract of adhesion, including interest rates and attorney's fees, are binding on the adhering party provided they are not excessive, unconscionable, or contrary to law, and the adhering party is free to reject the contract entirely.

Petitioner Asian Construction and Development Corp. purchased reinforcing steel bars from respondent Cathay Pacific Steel Corp. between June and July 1997, covered by 12 invoices. Partial payments were made in November 1997 and March 1998, leaving a balance. Respondent sent demand letters in May and August 1998, but petitioner failed to pay, prompting the filing of a complaint for sum of money and damages.

• Purchases and Invoices: Between June and July 1997, petitioner purchased reinforcing steel bars worth ₱2,650,916.40 from respondent, covered by 12 invoices. The invoices expressly stipulated: "Interest at 24% per annum is to be charged to all accounts overdue plus 25% additional on unpaid invoice for attorney's fees aside from court cost..."
• Partial Payments: Petitioner made partial payments on November 21, 1997 (₱2,159,211.49) and March 2, 1998 (₱250,000), leaving an outstanding balance of ₱241,704.91 as computed by the CA.
• Demand and Ex-Parte Hearing: Respondent sent demand letters on May 12, 1998, and August 10, 1998. Petitioner failed to pay, prompting the filing of a complaint. During trial, petitioner and its counsel were absent on November 22, 1999, despite notice. The trial court granted an ex-parte hearing before a designated commissioner, where respondent's vice president, David O. Chua, testified as the sole witness.

• Liability: Petitioner denied authorizing the purchases, receiving the steel bars, or receiving demand letters, and claimed the billed amount was bloated for failing to deduct payments.
• Admissibility of Evidence: Petitioner argued that photocopies of the delivery receipts were inadmissible and that witness David O. Chua was incompetent to establish the admissibility of secondary evidence.
• Interest Rate: Petitioner contended that the CA erred in imposing 24% interest, arguing a departure from the precedent set in Eastern Shipping Lines v. Court of Appeals.
• Attorney's Fees: Petitioner maintained that respondent was not entitled to an award of attorney's fees.

• Admission of Obligation: Respondent countered that petitioner's affirmative defenses were inconsistent and effectively revealed an admission of petitioner's obligation.
• Admissibility of Evidence: Respondent argued that the claim was proven by preponderance of evidence, the originals of the invoices were presented during the hearing, and the loss of the delivery receipts was properly established, justifying the admission of secondary evidence.
• Interest and Attorney's Fees: Respondent submitted that the 24% per annum interest rate and 25% attorney's fees were expressly stipulated in the invoices and should govern the computation.

• Liability: Whether petitioner disputed its liability and whether respondent failed to prove its affirmative allegations.
• Admissibility of Evidence: Whether the trial court and CA erred in admitting the photocopies of delivery receipts and the testimony of David O. Chua.
• Interest Rate: Whether the CA erred in imposing 24% interest from May 12, 1998, until the finality of the decision.
• Attorney's Fees: Whether respondent is entitled to attorney's fees.

• Liability: Factual findings of the trial court and CA, based on preponderance of evidence, are binding and conclusive. Petitioner's partial payments and the invoices established the obligation.
• Admissibility of Evidence: Chua was competent to testify as head of Marketing and Finance with personal knowledge of the transactions. Secondary evidence of the delivery receipts was admissible because the loss of the originals was sufficiently established without bad faith, pursuant to Section 3, Rule 130 of the Rules of Court.
• Interest Rate: The 24% per annum interest was validly stipulated in the invoices. Contracts of adhesion are binding as ordinary contracts. Petitioner, a major construction firm, was free to reject the terms if unacceptable. The stipulation does not contravene law, morals, or public policy under Article 1306 of the Civil Code.
• Attorney's Fees: The stipulated 25% of the unpaid invoice for attorney's fees constitutes a valid penal clause or liquidated damages. The amount (₱60,426.23) is neither excessive nor unconscionable, binding petitioner without need of proof of actual damages.

• Contracts of Adhesion — Contracts of adhesion are as binding as ordinary contracts. Adhering parties are free to reject the contract entirely; adherence signifies consent. Such contracts are void only when the weaker party is imposed upon by the dominant party and deprived of the opportunity to bargain on equal footing. Because petitioner was a major construction firm presumed to have full knowledge of the terms, the stipulations in the invoices were binding.
• Attorney's Fees as Liquidated Damages / Penal Clause — Stipulated attorney's fees are in the nature of liquidated damages, and the stipulation constitutes a penal clause. It is strictly binding upon the obligor if not contrary to law, morals, or public order, and is awarded to the litigant, not counsel. Proof of the existence and measure of damages is unnecessary.

• "Parties would do well to always be conscious of their freedom to accept or reject printed stipulations supplied by only one party that form part of the contract they enter into. Failure to object to such stipulations, which are not excessive or unconscionable, will bind them to its performance."
• "The court has repeatedly held that contracts of adhesion are as binding as ordinary contracts. Those who adhere to the contract are in reality free to reject it entirely and if they adhere, they give their consent."

• Eastern Shipping Lines v. Court of Appeals, G.R. No. 97412, July 12, 1994 — Cited by petitioner regarding the computation of interest, but not applied because the parties expressly stipulated the interest rate in the contract.
• Titan Construction Corporation v. Uni-Field Enterprises, Inc., G.R. No. 153874, March 1, 2007 — Followed regarding the binding nature of contracts of adhesion on parties free to reject the terms, and the nature of stipulated attorney's fees as liquidated damages.
• Barons Marketing Corporation v. Court of Appeals — Followed regarding the principle that stipulated attorney's fees are in the nature of liquidated damages and penal clauses.

• Article 1306, Civil Code — Contracting parties may establish stipulations provided they are not contrary to law, morals, good customs, public order, or public policy. Applied to uphold the stipulated 24% interest and 25% attorney's fees.
• Section 3, Rule 130, Rules of Court — Original document must be produced except when lost or destroyed without bad faith on the part of the offeror. Applied to justify the admission of secondary evidence for the lost delivery receipts.

Chief Justice Renato C. Corona (Chairperson), Associate Justice Presbitero J. Velasco, Jr., Associate Justice Teresita J. Leonardo-De Castro, Associate Justice Jose Portugal Perez.