PASAY CITY vs CFI MANILA G.R. No.

L-32162 September 24, 1984 THE PASAY CITY GOVERNMENT, THE CITY MAYOR OF DEFENDANT PASAY CITY GOVERNMENT, THE MEMBERS OF THE MUNICIPAL BOARD OF PASAY ClTY and THE CITY TREASURER OF PASAY CITY GOVERNMENT, petitioners-appellants, vs. THE HONORABLE COURT OF FIRST INSTANCE OF MANILA, BRANCH X and VICENTE DAVID ISIP (doing business under the firm name V.D. ISIP SONS & ASSOCIATES), respondents-appellees. FACTS In August 1964, VD Isip and Sons, (VDIS) represented by Vicente Isip, entered into a Contract and Agreement with the Pasay City Govt (Pasay), represented by Mayor Pablo Cuneta, to construct a new Pasay City Hall. The said contract contemplated construction by stages where VDIS shall advance the amount needed for the construction and shall only proceed on the succeeding stage upon reimbursement of Pasay. VDIS accomplished about Php1.7M of the total contract price of Php 4.9M, representing various stages of work. Pasay City only paid Php 1.1M leaving a balance of Php 600k, which prompted VDIS to file an action for specific performance. During the litigation, the parties entered into a Compromise Agreement where VDIS shall be paid the balance, subject to VDIS furnishing Pasay a new performance bond in proportion to the remaining value of the unfinished construction as provided in subparagraph B of paragraph 1. Thereafter, VDIS applied for garnishment on the PNB funds of Pasay, which the latter is now assailing the validity. In its motion to set aside the garnishment, Pasay is questioning the order of the court on the submission of the performance bond furnished by VDIS. VDIS submitted a performance bond of Php60k which VDIS increased subsequently to Php100k which pertains to the 20% of the cost of the next stage of the construction to be undertaken. The court found the same reasonable and substantially compliant for the court deems it unreasonable to compel VDIS to submit a performance bond for the remaining cost of the project.

ISSUE:

Whether the amount of the performance bond should cover the whole unfinished project or only the next stage of work to be done HELD YES. Sub-paragraph B of paragraph 1 of the Compromise Agreement contemplated a DIVISIBLE OBLIGATION. Therefore, the performance bond should be in proportion to the uncompleted work. HELD/RATIO The said stipulation, if read together with the stage-by-stage construction and payment approach from the agreements, leads to the conclusion that parties contemplated a divisible obligation, which necessitates that the performance bond be in proportion to the uncompleted work. What is crucial in sub-paragraph B of paragraph 1 of the compromise agreement are the words "in proportion." If the parties really intended the performance bond to refer to the whole unfinished work, then the provision should have required the plaintiff contractor to submit and file a new performance bond to cover the remaining value cost of the unfinished work of the construction. Using the words in proportion then significantly changed the meaning of the paragraph to ultimately mean a performance bond equal to 20% of the next stage of work to be done.