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GARCIA v. CA G.R. Nos. L-82282-83. November 24, 1988. 167 SCRA 815 GUTIERREZ, JR., J. FACTS: Chemark Electric Motors, Inc. availed and was granted a credit line by Security Bank and Trust Company. Subsequently, Chemark defaulted on its payments when they became due and refused to pay despite repeated demands by SBTC. Antonio Garcia, on the other hand bound himself jointly and severally with Chemark to pay SBTC and like Chemark has failed and refused to pay his obligations despite demands made upon him by SBTC. The same is true with Dynetics and Matrix; they bound themselves jointly and severally with Chemark to pay SBTC and has failed and refused to do so. In an action to enforce the indemnity agreements executed by the above parties with SBTC, the latter prayed for a summary judgment which was consequently granted. In answer Dynetics, Inc., Matrix Management and Trading Corporation and Antonio Garcia sought a judicial declaration that they were not liable to Security Bank and Trust Company under said indemnity agreements they executed in favor of Chemark Electric Motors, Inc. which had been extended a credit accommodation of about 20, 000, 000.00 Php by SBTC. This was dismissed by the Court of Appeals ordering Dynetics, Matrix and Garcia to pay SBTC. Hence, the case was elevated to the SC where one of the assigned errors by the plaintiffs (Dynetics, Matrix and Garcia) to the appellate court's assailed decision is the awards of penalty charges claiming that such charges are excessive. ISSUES: Whether or not the penalty charges awarded were excessive exces sive and thus must be reduced. HELD: Yes, In the case at bar, the penalty charges are excessive and unconscionable and so the interest charges are enough punishment for the petitioners' f ailure to comply with their obligations. Penalty interests are in the nature of liquidated damages and may be equitably reduced by the courts if they are iniquitous and unconscionable. Article 1229 of the New Civil Code states that "The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable ."