When can creditor collect both penalty, interest?

The contract between the parties stipulated the following: 9. All charges made through the use of [the] card shall be paid by the UNICARD holder and/or co-obligor within twenty (20) days from the date of the said statement of account without the necessity of demand. These charges or balance thereof remaining unpaid after this 20-day period shall bear interest at the rate of 3% per month and a penalty equivalent to 5% of the amount due for every month or a fraction of a months delay In case it is necessary to collect the account by or thru an attorney-at-law or collection agency, the UNICARD holder and co-obligor shall pay 25% of the amount due which shall in no case be less than P1,000.00, as collection or attorneys fees, in addition to costs and other litigation expenses.
The CA was correct in applying the 3% interest on the principal amount owed by petitioners to respondent Unicard, as well as the penalty due thereon, for the following reasons:

One, Article 1226 of the Civil Code provides that in obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of noncompliance, if there is no stipulation to the contrary.

In other words, where the contract stipulates the rate of interest and the amount of penalty to be paid in case of failure to pay the obligation within a given period, both the penalty and the interest can be collected by the creditor.

Two, petitioners reliance on this Courts ruling in Medel v. Court of Appeals and Eastern Assurance and Surety, Corporation (EASCO) v. Court of Appeals is misplaced.

Contrary to petitioners assertion, it is only when the parties to a contract have failed to fix the rate of interest or when such amount is unwarranted that the Court will apply the 12% interest per annum on a loan or forbearance of money.

In Medel v. Court of Appeals, the 12% interest rate per annum was applied because this Court considered the stipulated rate of interest at 5.5% per month excessive and iniquitous.

Moreover, the case of Eastern Assurance and Surety, Corporation (EASCO) v. Court of Appeals reiterated the rules in fixing the rate of interest, thus:

With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed as follows:

1. When an obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing.

Hence, unless the stipulated amounts are exorbitant, the court will sustain the amounts agreed upon by the parties because, as stated in Pryce Corporation v. Philippine Amusement and Gaming Corporation, obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. If the terms of the contract clearly express the intention of the contracting parties, the literal meaning of the stipulations would be controlling. The court has to enforce the contractual stipulations in the manner that they have been agreed upon for as long as they are not unconscionable or contrary to morals and public policy.

With regard to the award of attorneys fees, the same is recoverable because petitioners signified their adherence to such an arrangement when they availed of the Unicard credit card. The 25% attorneys fees was, however, excessive, thus, the reduction of the amount was appropriate.(G.R. No. 160026; December 10, 2007)