CIVIL LAW REVIEW 2 (CASES)
G.R. No. 194507 September 8, 2014
FEDERAL BUILDERS, INC., Petitioner,
vs.
FOUNDATION SPECIALISTS, INC., Respondent,
x-----------------------x
G.R. No. 194621
FOUNDATION SPECIALISTS, INC., Petitioner,
vs.
FEDERAL BUILDERS, INC., Respondent.
DECISION
PERALTA, J.:
Before the Court are two consolidated cases, namely: (1) Petition for
review on certiorari under Rule 45 of the Rules of Court, docketed as
G.R. No. 194507, filed by Federal Builders, Inc., assailing the
Decision1 and Resolution,2dated July 15, 2010 and November 23, 2010,
respectively, of the Court of Appeals (CA) in CA-G.R. CV No. 70849,
which affirmed with modification the Decision3 dated May 3, 2001 of the
Regional Trial Court (RTC) in Civil Case No. 92-075; and (2) Petition for
review on certiorari under Rule 45 of the Rules of Court,docketed as G.R.
No. 194621, filed by Foundation Specialists, Inc., assailing the same
Decision4 and Resolution,5 dated July 15, 2010 and November 23,
2010,respectively, of the CA in CA- G.R. CV No. 70849, which affirmed
with modification the Decision6 dated May 3, 2001 of the RTC in Civil
Case No. 92-075.
The antecedent facts are as follows:
On August 20, 1990, Federal Builders, Inc. (FBI) entered into an
agreement with Foundation Specialists, Inc. (FSI) whereby the latter, as
subcontractor, undertook the construction of the diaphragm wall, capping
beam, and guide walls of the Trafalgar Plaza located at Salcedo Village,
Makati City (the Project), for a total contract price of Seven Million Four
Hundred Thousand Pesos (₱7,400,000.00).7 Under the agreement,8 FBI
was to pay a downpayment equivalent to twenty percent (20%) of the
contract price and the balance, through a progress billing every fifteen
1|Page
(15) days, payable not later than one (1) week from presentation of the
billing.
On January 9, 1992, FSI filed a complaint for Sum of Money against FBI
before the RTC of Makati City seeking to collect the amount of One
Million Six Hundred Thirty-Five Thousand Two Hundred Seventy-Eight
Pesos and Ninety-One Centavos (₱1,635,278.91), representing Billings
No. 3 and 4, with accrued interest from August 1, 1991 plus moral and
exemplary damages with attorney’s fees.9 In its complaint,FSI alleged
that FBI refused to pay said amount despite demand and itscompletion of
ninety-seven percent (97%) of the contracted works.
In its Answer with Counterclaim, FBI claimed that FSI completed only
eighty-five percent (85%) of the contracted works, failing to finish the
diaphragm wall and component works in accordance with the plans and
specifications and abandoning the jobsite. FBI maintains that because of
FSI’s inadequacy, its schedule in finishing the Project has been delayed
resulting in the Project owner’s deferment of its own progress billings.10 It
further interposed counterclaims for amounts it spent for the remedial
works on the alleged defects in FSI’s work.
On May 3, 2001, after evaluating the evidence of both parties, the RTC
ruled in favor of FSI, the dispositive portion of its Decision reads:
WHEREFORE, on the basis of the foregoing, judgment is rendered
ordering defendant to pay plaintiff the following:
1. The sum of ₱1,024,600.00 representing billings 3 and 4, less
the amount of ₱33,354.40 plus 12% legal interest from August
30, 1991;
2. The sum of ₱279,585.00 representing the cost of undelivered
cement;
3. The sum of ₱200,000.00 as attorney’s fees; and
4. The cost of suit.
Defendant’s counterclaim is deniedfor lack of factual and legal basis.
SO ORDERED.11
CIVIL LAW REVIEW 2 (CASES)
On appeal, the CA affirmed the Decision of the lower court, but deleted
the sum of ₱279,585.00 representing the cost of undelivered cement and
reduced the award of attorney’s fees to ₱50,000.00. In its
Decision12 dated July 15, 2010, the CA explained that FSI failed to
substantiate how and in what manner it incurred the cost of cement by
stressing that its claim was not supported by actual receipts. Also, it
found that while the trial court did not err in awarding attorney’s fees, the
same should be reduced for being unconscionable and excessive. On
FBI’s rejection of the 12% annual interest rate on the amount of Billings 3
and 4, the CA ruled that the lower court did not err in imposing the same
in the following wise:
x x x The rule is well-settled that when an obligation is breached, and it
consists in the payment of a sum of money, the interest due shall itself
earn legal interest from the time it is judicially demanded (BPI Family
Savings Bank, Inc. vs. First Metro Investment Corporation, 429 SCRA
30). When there is no rate of interest stipulated, such as in the present
case, the legal rate of interest shall be imposed, pursuant to Article 2209
of the New Civil Code. In the absence of a stipulated interest rate on a
loan due, the legal rate of interest shall be 12% per annum.13
Both parties filed separate Motions for Reconsideration assailing different
portions of the CADecision, but to no avail.14 Undaunted, they
subsequently elevated their claims withthis Court via petitions for review
on certiorari.
On the one hand, FSI asserted that the CA should not have deleted the
sum of ₱279,585.00 representing the cost of undelivered cement and
reduced the award of attorney’s fees to ₱50,000.00, since it was an
undisputed fact that FBI failed to deliver the agreed quantity of cement.
On the other hand, FBI faulted the CA for affirming the decision of the
lower court insofar as the award of the sum representing Billings 3 and 4,
the interest imposed thereon, and the rejection of his counterclaim were
concerned. In a Resolution15 dated February 21, 2011, however, this
Court denied, with finality, the petition filed by FSI in G.R. No. 194621 for
having been filed late.
Hence, the present petition filed byFBI in G.R. No. 194507 invoking the
following arguments:
I.
2|Page
THE COURT OF APPEALS COMMITTED A CLEAR,
REVERSABLE ERROR WHEN IT AFFIRMED THE TRIAL
COURT’S JUDGMENT THAT FEDERAL BUILDERS, INC. WAS
LIABLE TO PAY THE BALANCE OF ₱1,024,600.00 LESS THE
AMOUNT OF ₱33,354.40 NOTWITHSTANDING THAT THE
DIAPHRAGM WALL CONSTRUCTED BY FOUNDATION
SPECIALIST, INC. WAS CONCEDEDLY DEFECTIVE AND OUT-
OF-SPECIFICATIONS AND THAT PETITIONER HAD TO REDO
IT AT ITS OWN EXPENSE.
II.
THE COURT OF APPEALS COMMITTED SERIOUS,
REVERSABLE ERROR WHEN IT IMPOSED THE 12% LEGAL
INTEREST FROM AUGUST 30, 1991 ON THE DISPUTED
CLAIM OF ₱1,024,600.00 LESS THE AMOUNT OF ₱33,354.40
DESPITE THE FACT THAT THERE WAS NO STIPULATION IN
THE AGREEMENT OF THE PARTIES WITH REGARD TO
INTEREST AND DESPITE THE FACT THAT THEIR
AGREEMENT WAS NOT A "LOAN OR FORBEARANCE OF
MONEY."
III.
THE COURT OF APPEALS COMMITTED GRAVE AND
SERIOUS REVERSABLE ERROR WHEN IT DISMISSED THE
COUNTERCLAIM OF PETITIONER NOTWITHSTANDING
OVERWHELMING EVIDENCE SUPPORTING ITS CLAIM OF
₱8,582,756.29 AS ACTUAL DAMAGES.
The petition is partly meritorious.
We agree with the courts below and reject FBI’s first and third arguments.
Well-entrenched in jurisprudence is the rule that factual findings of the
trial court, especially when affirmed by the appellate court, are accorded
the highest degree of respectand considered conclusive between the
parties, save for the following exceptional and meritorious circumstances:
(1) when the factual findings of the appellate court and the trial court are
contradictory; (2) whenthe findings of the trial court are grounded entirely
on speculation, surmises or conjectures; (3) when the lower court’s
inference from its factual findings is manifestly mistaken, absurd or
impossible; (4) when there is grave abuse of discretion in the
appreciation of facts; (5) when the findings of the appellate court go
CIVIL LAW REVIEW 2 (CASES)
beyond the issues of the case, or fail to notice certain relevant facts
which, if properly considered, will justify a different conclusion; (6) when
there is a misappreciation of facts; (7) when the findings of fact are
themselves conflicting; and (8) when the findings of fact are conclusions
without mention of the specific evidence on which they are based, are
premised on the absence of evidence, or are contradicted by evidence on
record.16
None of the aforementioned exceptions are present herein. In the
assailed Decision, the RTC meticulouslydiscussed the obligations of
each party, the degree of their compliance therewith, as well as their
respective shortcomings, all of which were properly substantiated with the
corresponding documentary and testimonial evidence.
Under the construction agreement, FSI’s scope of workconsisted in (1)
the construction of the guide walls, diaphragm walls, and capping beam;
and (2) the installation of steel props.17 As the lower courts aptly observed
from the records at hand, FSI had, indeed, completed ninety-seven
percent (97%) of its contracted works and the non-completion of the
remaining three percent (3%), as well as the alleged defects in the said
works, are actually attributable to FBI’s own fault such as, but not limited
to, the failure to deliver the needed cement as agreed upon in the
contract, to wit:
On March 8, 1991, plaintiff had finished the construction of the guide wall
and diaphragm wall (Exh. "R") but had not yet constructed the capping
beam as of April 22, 1991 for defendant’s failure to deliver the needed
cement in accordance with their agreement(Exhibit "I"). The diaphragm
wall had likewise been concrete tested and was found to have conformed
with the required design strength (Exh. "R").
Subsequently, plaintiff was paid the aggregate amount of ₱5,814,000.00.
But as of May 30, 1991, plaintiff’s billings numbers 3 and 4 had remained
unpaid (Exhs. "L", "M", and "M-1").
xxxx
On the misaligned diaphragm wall from top to bottom and inbetween
panels, plaintiff explained thatin the excavation of the soil where the rebar
cages are lowered and later poured with concrete cement, the
characteristics of the soil is not the same or homogenous all throughout.
Because of this property of the soil,in the process of excavation, it may
erode in some places that may cause spaces that the cement may fill or
3|Page
occupy which would naturally cause bulges, protrusions and
misalignment in the concrete cast into the excavated ground(tsn., June 1,
2000, pp 14-18). This, in fact was anticipated when the agreement was
executed and included as provision 6.4 thereof.
The construction of the diaphragm wall panel by panel caused
misalignment and the chipping off of the portions misaligned is
considered a matter of course. Defendant, as the main contractor of the
project, has the responsibility of chopping or chipping off of bulges(tsn.,
ibid, pp 20-21). Wrong location of rebar dowels was anticipated by both
contractor and subcontractor as the latter submitted a plan called "Detail
of Sheer Connectors" (Exh "T") which was approved.The plan provided
two alternatives by which the wrong location of rebar dowels may be
remedied. Hence, defendant, aware of the possibility of inaccurate
location of these bars, cannot therefore ascribe the same to the plaintiff
as defective work.
Construction of the capping beam required the use of cement. Records,
however, show that from September 14, 1990 up to May 30, 1991 (Exhs.
"B" to "L"), plaintiff had repeatedly requested defendant to deliver
cement. Finally, on April 22, 1991, plaintiff notified defendant of its
inability to construct the capping beam for the latter’s failure to deliver the
cement as provided in their agreement(Exh. "I"). Although records show
that there was mention of revision of design, there was no evidence
presented to show such revision required less amount of cement than
what was agreed on by plaintiff and defendant.
The seventh phase of the construction of the diaphragm wall is the
construction of the steel props which could be installed only after the soil
has been excavated by the main contractor. When defendant directed
plaintiff to install the props, the latter requested for a site inspection to
determine if the excavation of the soil was finished up to the 4th level
basement. Plaintiff, however, did not receive any response.It later
learned that defendant had contracted out that portion of work to another
sub-contractor (Exhs. "O" and "P"). Nevertheless, plaintiff informed
defendant of its willingness to execute that portion of its work.18
It is clear from the foregoing that contrary to the allegations of FBI, FSI
had indeed completed its assigned obligations, with the exception of
certain assigned tasks, which was due to the failure of FBI to fulfil its end
of the bargain.
CIVIL LAW REVIEW 2 (CASES)
It can similarly be deduced that the defects FBI complained of, such as
the misaligned diaphragm wall and the erroneous location of the rebar
dowels, were not only anticipated by the parties, having stipulated
alternative plans to remedy the same, but more importantly, are also
attributable to the very actions of FBI. Accordingly, considering that the
alleged defects in FSI’s contracted works were not so much due to the
fault or negligence of the FSI, but were satisfactorily proven to be caused
by FBI’s own acts, FBI’s claim of ₱8,582,756.29 representing the cost of
the measures it undertook to rectify the alleged defects must necessarily
fail. In fact, as the lower court noted, at the time when FBI had evaluated
FSI’s works, it did not categorically pose any objection thereto, viz:
Defendant admitted that it had paid ₱6 million based on its evaluation of
plaintiff’s accomplishments (tsn., Sept. 28, 2000, p. 17) and its payment
was made without objection on plaintiff’s works, the majority of which
were for the accomplishments in the construction of the diaphragm wall
(tsn., ibid, p. 70).
xxxx
While there is no evidence to show the scope of work for these billings, it
is safe to assume that these were also works in the construction of the
diaphragm wall considering that as of May 16, 1991, plaintiff had only the
installation of the steel props and welding works to complete (Exh. "H"). If
defendant was able to evaluate the work finished by plaintiff the majority
of which was the construction of the diaphragm wall and paid it about ₱6
million as accomplishment, there was no reason why it could not evaluate
plaintiff’s works covered by billings 3 and 4.In other words, defendants
did nothave to excavate in order to determine and evaluate plaintiff’s
works. Hence, defendant’s refusal to pay was not justified and the
alleged defects of the diaphragm wall (tsn, Sept. 28, 2000, p. 17) which it
claims to have discovered only after January 1992 were mere
afterthoughts.19
Thus, in the absence of any record to otherwise prove FSI’s neglect in
the fulfilment of its obligations under the contract, this Court shall refrain
from reversing the findings of the courts below, which are fully supported
by and deducible from, the evidence on record. Indeed, FBI failed to
present any evidence to justify its refusal to pay FSI for the works it was
contracted to perform. As such, We do not see any reason to deviate
from the assailed rulings.
4|Page
Anent FBI’s second assignment of error, however, We find merit in the
argument that the 12% interest rateis inapplicable, since this case does
not involve a loan or forbearance ofmoney. In the landmark case of
Eastern Shipping Lines, Inc. v. Court of Appeals,20 We laid down the
following guidelines in computing legal interest:
II. 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 the 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. Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand
under and subject to the provisions of Article1169 of the Civil
Code.
2. When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the rate
of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand
can be established with reasonable certainty. Accordingly, where
the demand is established with reasonable certainty, the interest
shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained).
The actual base for the computation of legal interest shall, in any
case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, whether
the case falls under paragraph 1 or paragraph 2, above, shall be
12% per annum from such finality until its satisfaction, this interim
period being deemed to be by then an equivalent to a
forbearance of credit.21
CIVIL LAW REVIEW 2 (CASES)
In line, however, with the recent circular of the Monetary Board of the
Bangko Sentral ng Pilipinas (BSP-MB) No. 799, we have modified the
guidelines in Nacar v. Gallery Frames,22 as follows:
I. When an obligation, regardless of itssource, i.e., law, contracts,
quasicontracts, delicts or quasi-delicts is breached, the
contravenor can be held liable for damages. The provisions under
Title XVIII on "Damages" of the Civil Code govern in determining
the measure of recoverable damages.
II. 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 the 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. Furthermore, the interest due
shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of
interest shall be 6% per annumto be computed from
default, i.e., from judicial or extrajudicial demand under
and subject to the provisions of Article 1169 of the Civil
Code.
2. When an obligation, not constituting a loan or
forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated
claims or damages, except when or until the demand can
be established with reasonable certainty. Accordingly,
where the demand is established with reasonable
certainty, the interest shall begin to run from the time the
claim is made judicially or extrajudicially(Art. 1169, Civil
Code), but when such certainty cannot be so reasonably
established at the time the demand is made, the interest
shall begin to run only from the date the judgment of the
court is made (at which time the quantification of
damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal
interest shall, in any case, be on the amount finally
adjudged. 3. When the judgment of the court awarding a
sum of money becomes final and executory, the rate of
5|Page
legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 6% per annumfrom such
finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of
credit.
And, in addition to the above, judgments that have become final and
executory prior to July 1, 2013, shall not be disturbed and shall continue
to be implemented applying the rate of interest fixed therein.23
It should be noted, however, that the new rate could only be applied
prospectively and not retroactively. Consequently, the twelve percent
(12%) per annum legal interest shall apply only until June 30, 2013.
Come July 1, 2013, the new rate of six percent (6%) per annum shall be
the prevailing rate of interest when applicable. Thus, the need to
determine whether the obligation involved herein is a loanand
forbearance of money nonetheless exists.
In S.C. Megaworld Construction and Development Corporation v. Engr.
Parada,24 We clarified the meaning of obligations constituting loans or
forbearance of money in the following wise:
As further clarified in the case of Sunga-Chan v. CA, a loan or
forbearance of money, goods or credit describes a contractual obligation
whereby a lender or creditor has refrained during a given period from
requiring the borrower or debtor to repay the loan or debt then due and
payable. Thus:
In Reformina v. Tomol, Jr., the Court held that the legal interest at 12%
per annum under Central Bank (CB) Circular No. 416 shall be adjudged
only in cases involving the loan or forbearance of money. And for
transactions involving payment of indemnities in the concept of damages
arising from default in the performance of obligations in general and/or for
money judgment not involving a loan or forbearance of money, goods, or
credit, the governing provision is Art. 2209 of the Civil Code prescribing a
yearly 6% interest. Art. 2209 pertinently provides:
Art. 2209. If the obligation consists in the payment of a sum of money,
and the debtor incurs in delay, the indemnity for damages, there being no
stipulation to the contrary, shall be the payment of the interest agreed
upon, and in the absence of stipulation, the legal interest, which is six per
cent per annum.
CIVIL LAW REVIEW 2 (CASES)
The term "forbearance," within the context of usury law, has been
described as a contractual obligation ofa lender or creditor to refrain,
during a given period of time, from requiring the borrower or debtor to
repay the loan or debt then due and payable.25
Note, however, that contrary to FBI’sassertion, We find no error in the
RTC’s ruling that the interest shall begin to run from August 30, 1991 as
this is the date when FSI extrajudicially made its claim against FBI
through a letter demanding payment for its services.35

Forbearance of money, goods or credits, therefore, refers to
arrangements other than loan agreements, where a person acquiesces to
the temporary use of his money, goods orcredits pending the happening
of certain events or fulfilment of certain conditions.26 Consequently, if
those conditions are breached, said person is entitled not only to the
return of the principal amount paid, but also to compensation for the use
of his money which would be the same rateof legal interest applicable to
a loan since the use or deprivation of funds therein is similar to a loan.27
This case, however, does not involve an acquiescence to the temporary
use of a party’s money but a performance of a particular service,
specifically the construction of the diaphragm wall, capping beam, and
guide walls of the Trafalgar Plaza.
A review of similar jurisprudence would tell us that this Court had
repeatedly recognized this distinction and awarded interest at a rate of
6% on actual or compensatory damages arising from a breach not only of
construction contracts,28 such as the one subject ofthis case, but also of
contracts wherein one of the parties reneged on its obligation to perform
messengerial services,29 deliver certain quantities of
molasses,30 undertake the reforestation of a denuded forest land,31 as well
as breaches of contracts of carriage,32 and trucking agreements.33 We
have explained therein that the reason behind such is that said contracts
do not partake of loans or forbearance of money but are more in the
nature of contracts of service.
In view of the foregoing, therefore, We find no compelling reason to
disturb the factual findings of the RTC and the CA, which are fully
supported by and deducible from, the evidence on record, insofar as the
sum representing Billings 3 and 4 is concerned. As to the rate of interest
due thereon, however, We note that the same should be reduced to 6%
per annum considering the fact that the obligation involved herein does
not partake of a loan or forbearance of money.
WHEREFORE, premises considered, the instant petition is DENIED. The
Decision and Resolution, dated July 15, 2010 and November 23, 2010,
respectively, of the Court of Appeals in CA-G.R. CV No. 70849 are
hereby AFFIRMED with MODIFICATION. Federal Builders, Inc. is
ORDERED to pay Foundation Specialists, Inc. the sum of Pl ,024,600.00
representing billings 3 and 4, less the amount of ₱33,354.40, plus
interest at six percent (6%) per annum reckoned from August 30, 1991
until full payment thereof.
SO ORDERED.

Thus, in the absence of any stipulation as to interest in the agreement

between the parties herein, the matter of interest award arising from the
dispute in this case would actually fall under the second paragraph of the
above-quoted guidelines inthe landmark case of Eastern Shipping Lines,
which necessitates the imposition of interestat the rate of 6%, instead of
the 12% imposed by the courts below.

The 6% interest rate shall further be imposed from the finality of the
judgment herein until satisfaction thereof, in light of our recent ruling in
Nacar v. Gallery Frames.34

6|Page
CIVIL LAW REVIEW 2 (CASES)
OLONGAPO CITY, Petitioner,
vs.
SUBIC WATER AND SEWERAGE CO., INC., Respondent.
DECISION
BRION, J.:
We resolve in this petition for certiorari1 under Rule 65 the challenge to
the July 6, 2005 decision2 and the January 3, 2006 resolution3 (assailed
CA rulings) of the Court of Appeals (CA) in CAG.R. SP No. 80947.
These assailed CA rulings annulled and set aside: a) the July 29, 2003
order4 of the Regional Trial Court of Olongapo, Br. 75 (RTC Olongapo ),
which directed the issuance of a writ of execution in Civil Case No. 582-0-
90, against respondent Subic Water and Sewerage Co., Inc. (Subic
Water); b) the July 31, 2003 writ of execution5subsequently issued by the
same court; and c) the October 7, 2003 order6 of R TC Olongapo,
denying Subic Water's special appearance with motion to reconsider
order dated July 29, 2003 and to quash writ of execution dated July 31,
2003.7
Factual Antecedents
On May 25, 1973, Presidential Decree No. 1988 (PD 198) took effect.
This law authorized the creation of local water districts which may
acquire, install, maintain and operate water supply and distribution
systems for domestic, industrial, municipal and agricultural uses.9
Pursuant to PD 198, petitioner Olongapo City (petitioner) passed
Resolution No. 161, which transferred all itsexisting water facilities and
assets under the Olongapo City Public Utilities Department Waterworks
Division, to the jurisdiction and ownership of the Olongapo City Water
District (OCWD).10
PD 198, as amended,11 allows local water districts (LWDs)which have
acquired an existing water system of a localgovernment unit (LGU) to
enter into a contract to pay the concerned LGU. In lieu of the LGU’s
share in the acquired water utility plant, it shall be paid by the LWD an
amount not exceeding three percent (3%) of the LWD’s gross receipts
from water sales in any year.12
7|Page
On October 24, 1990, petitioner filed a complaint for sum of money and
damages against OCWD. Among others, petitioner alleged that OCWD
failed to pay its electricity bills to petitioner and remit its payment under
the contract to pay, pursuant to OCWD’s acquisition of petitioner’s water
system. In its complaint, petitioner prayed for the following reliefs:
"WHEREOF, it is respectfully prayed of this Honorable Court that after
due hearing and notice, judgment be rendered in favor of plaintiff
ordering the defendant to:
(a) pay the amount of ₱26,798,223.70 plus legal interests from
the filing of the Complaint to actual full payment;
(b) pay the amount of its in lieu share representing three percent
of the defendant’s gross receipts from water sales starting 1981
up to present;
(c) pay the amount of ₱1,000,000 as moral damages; and
(d) pay the cost of suit and other litigation expenses."13
In its answer,14 OCWD posed a counterclaim against petitioner for unpaid
water bills amounting to ₱3,080,357.00.15
In the interim, OCWD entered into a Joint Venture Agreement16 (JVA) with
Subic Bay Metropolitan Authority (SBMA), Biwater International Limited
(Biwater), and D.M. Consunji, Inc. (DMCI) on November 24, 1996.
Pursuant to this agreement, Subic Water– a new corporate entity – was
incorporated, withthe following equity participation from its shareholders:
SBMA 19.99% or 20%
OCWD 9.99% or 10%
Biwater 29.99% or 30%
DMCI 39.99% or 40%17
On November 24, 1996, Subic Water was granted the franchise to
operate and to carry on the businessof providing water and sewerage
services in the Subic BayFree Port Zone, as well as in Olongapo
CIVIL LAW REVIEW 2 (CASES)
City.18 Hence, Subic Water took over OCWD’s water operations in
Olongapo City.19
To finally settle their money claims against each other, petitioner and
OCWD entered into a compromise agreement20 on June 4, 1997. In this
agreement, petitioner and OCWD offset their respective claims and
counterclaims. OCWD also undertook to pay to petitioner its net
obligation amounting to ₱135,909,467.09, to be amortized for a period of
not exceeding twenty-five (25) years at twenty-fourpercent (24%) per
annum.21
The compromise agreement also contained a provision regarding the
parties’ requestthat Subic Water, Philippines,which took over the
operations of the defendant Olongapo City Water District be made the
co-makerfor OCWD’s obligations. Mr. Noli Aldip, then chairman of Subic
Water, acted as its representative and signed the agreement on behalf of
Subic Water.
Subsequently, the parties submitted the compromise agreement to RTC
Olongapo for approval. In its decision dated June 13, 1997,22 the trial
court approved the compromiseagreement and adopted it as its judgment
in Civil Case No. 580-0-90.
Pursuant to the compromise agreement and in payment of OCWD’s
obligations to petitioner,petitioner and OCWD executed a Deed of
Assignment onNovember 24, 1997.23 OCWD assigned all of its rights in
the JVA in favor of the petitioner, including but not limited to the
assignment of its shares, lease payments, regulatory assistance fees and
other receivables arising out of or related to the Joint Venture Agreement
and the Lease Agreement.24 On December 15,1998, OCWD was judicially
dissolved.25
On May 7, 1999, to enforce the compromise agreement, the petitioner
filed a motion for the issuance of a writ of execution26 with the trial court.
In its July 23, 1999 order,27 the trial court granted the motion, but did not
issue the corresponding writ of execution.
Almost four years later, on May 30, 2003, the petitioner, through its new
counsel, filed a notice of appearance with urgent
motion/manifestation28 and prayed again for the issuance of a writ of
execution against OCWD. A certain Atty. Segundo Mangohig, claiming to
be OCWD’s former counsel, filed a manifestation alleging that OCWD
8|Page
had already been dissolved and that Subic Water is now the former
OCWD.29
Because of this assertion, Subic Water also filed a manifestation
informing the trial court that as borne out by the articles of incorporation
and general information sheet of Subic Water x x x defendant OCWD is
not Subic Water.30The manifestation also indicated that OCWD was only
a ten percent (10%) shareholder of Subic Water; and that its 10% share
was already inthe process of being transferred to petitioner pursuant to
the Deed of Assignment dated November 24, 1997.31
The trial court granted the motion for execution and directed its issuance
against OCWD and/or Subic Water. Because of this unfavorable order,
Subic Water filed a special appearance with motion to: (1) reconsider
order dated July29, 2003; and (2) quash writ of execution dated July 31,
2003.32
The trial court denied Subic Water’s special appearance, motion for
reconsideration, and its motion to quash. Subic Water then filed a petition
for certiorari33 with the CA, imputing grave abuse of discretion amounting
to lack or excess of jurisdiction to RTC Olongapo for issuing its July 29,
2003 and October 7, 2003 orders aswell as the writ of execution dated
July 31, 2003. The CA’s Ruling
In its decision dated July 6, 2005,34 the CA granted Subic Water’s petition
for certiorariand reversed the trial court’s rulings.
The CA found that the writ ofexecution dated July 31, 200335 did not
comply with Section 6, Rule 39 of the Rules of Court, to wit:
Section 6. Execution by motion orby independent action. — A final and
executory judgment or order may be executed on motion within five (5)
years from the date of its entry. After the lapse of such time, and before it
is barred by the statute of limitations, a judgment may be enforced by
action. The revived judgment may also be enforced by motion within five
(5) years from the date of its entry and thereafter by action before it is
barred by the statute of limitations. (6a)[emphasis ours]
A judgment on a compromiseagreement is immediately executory and is
considered to have been entered on the date it was approved by the trial
court.36 Since the compromise agreement was approved and adoptedby
the trial court on June 13, 1997, this should be the reckoning date for the
CIVIL LAW REVIEW 2 (CASES)
counting of the period for the filing of a valid motion for issuance of a writ
of execution. Petitioner thus had until June 13, 2002, to file its motion.
The CA further remarked that whileit was true that a motion for execution
was filed by petitioner on May 7, 1999, and the same was granted by the
trial court in its July 23, 1999 order,37 no writ of execution was actually
issued.
As the CA looked at the case, petitioner, instead of following up with the
trial court the issuance ofthe writ of execution, did not do anything to
secure its prompt issuance. It waitedanother four years to file a second
motion for execution on May 30, 2003.38 By this time, the allowed period
for the filing of a motion for the issuance of the writ had already lapsed.
Hence, the trial court’s July 29, 2003 order granting the issuance of the
writ was null and void for having been issued by a court without
jurisdiction.
The CA denied petitioner’s subsequentmotion for reconsideration.
Petitioner is now before us on a petition for certiorari under Rule 65.
The Petition
The petitioner acknowledged the rule that the execution of a judgment
could no longer be made by mere motion after the prescribed five-year
period had already lapsed. However, it argued that the delay for the
issuance of the writ of execution was caused by OCWD and Subic Water.
The petitioner submitted that this Court had allowed execution by mere
motion even after the lapse ofthe five-year period, when the delay was
caused or occasioned by the actions of the judgment debtor.39
Also, the petitioner asserted that although Subic Water was not a party in
the case, it could still be subjected to a writ of execution, since it was
identified as OCWD’s co-maker and successor-in-interest in the
compromise agreement.40
Lastly, the petitioner contended that the compromise agreement was
signed by Mr. Noli R. Aldip,then Subic Water’s chairman, signifying Subic
Water’s consent to the agreement.
The Court’s Ruling
9|Page
We DISMISSthe petition for being the wrong remedy and, in any case, for
lack of merit; what we have before us is a final judgment that we can no
longer touch unless there is grave abuse of discretion.
A. Procedural Law Aspect
Certiorari is not a substitute for a lost appeal.
At the outset, we emphasize thatthe present petition, brought under Rule
65, merits outright dismissal for having availed an improper remedy.
The instant petition should havebeen brought under Rule 45 in a petition
for review on certiorari. Section 1 of this Rule mandates:
Section 1. Filing of petition with Supreme Court. — A party desiring to
appeal by certiorari from a judgment or final order or resolution of the
Court of Appeals, the Sandiganbayan, the Regional Trial Court or other
courts whenever authorized by law, may file with the Supreme Court a
verified petition for review on certiorari. The petition shall raise only
questions of law which must be distinctly set forth. (1a, 2a) [emphasis
supplied]
Supplementing Rule 45 are Sections 341 and 442 of Rule 56 which govern
the applicable procedure in the Supreme Court.
Appeals from judgmentsor final orders or resolutions of the CA should be
made through a verified petition for review on certiorari under Rule
45.43 In this case, petitioner questioned the July 6, 2005 decision44 and the
January 3, 2006 resolution45 of the CA which declared as null and void the
writ of execution issued by the trial court. Since the CA’s pronouncement
completely disposed of the case and the issues raised by the parties, it
was the proper subject of a Rule 45 petition. It was already a final order
that resolved the subject matter in its entirety, leaving nothing else to be
done.
A petition for certiorari under Rule 65 is appropriate only if there is no
appeal, or any plain, speedy, and adequate remedy in the ordinary
course of law available tothe aggrieved party. As we have distinctly
explained in the case of Pasiona v. Court of Appeals:46
The aggrieved party is proscribed from assailing a decision or final order
of the CA viaRule 65 because such recourse is proper only if the party
has no plain,speedy and adequate remedy in the course of law. In this
CIVIL LAW REVIEW 2 (CASES)
case, petitioner had an adequate remedy, namely, a petition for review
on certiorari under Rule 45 ofthe Rules of Court.A petition for review on
certiorari, not a special civil action for certiorari was, therefore, the correct
remedy.
xxxx
Settled is the rule that where appeal is available to the aggrieved party,
the special civil actionfor certiorari will not be entertained – remedies of
appealand certiorari are mutually exclusive, not alternative or successive.
Hence, certiorari is not and cannot be a substitute for a lost
appeal,especially if one's own negligence or error in one's choice of
remedy occasioned such loss or lapse.47 [emphasis ours]
The petitioner received the CA’s assailed resolution denying its motion
for reconsideration on January 9, 2006. Following Rule 45, Section 2 of
the Rules of Court,48 the petitioner had until January 24, 2006 to file its
petition for review. It could have even filed a motion for a 30-day
extension of time, a motion that this Court grants for justifiable
reasons.49 But all of these, it failed to do. Thus, the assailed CA rulings
became final and executory and could no longer be the subject of an
appeal.
Apparently, to revive its lost appeal, petitioner filed the present petition for
certiorari that – under Rule 65 – may be filed within sixty days from the
promulgation of the assailed CA resolution (on January 3, 2006). A Rule
65 petition for certiorari, however, cannot be a substitute for a lost
appeal. With the lapse of the prescribed period for appeal without an
action from the petitioner, the present petition for certiorari– a mere
replacement –must be dismissed.
But even without the procedural infirmity, the present recourse to us has
no basis on the merits and must be denied.
Execution by motion is only available within the five-year period from
entry of judgment.
Under Rule 39, Section 6, a judgment creditor has two modes in
50
enforcing the court’s judgment. Execution may be either through motion
or an independent action.
These two modes of execution are available depending on the timing
when the judgmentcreditor invoked its right to enforce the court’s
10 | P a g e
judgment. Execution by motion is only available if the enforcement of the
judgment was sought within five (5) years from the date of its entry. On
the other hand, execution by independent action is mandatory if the five-
year prescriptive period for execution by motion had already
elapsed.51 However, for execution by independent action to prosper – the
Rules impose another limitation – the action must be filed before it is
barred by the statute of limitations which, under the Civil Code, is ten (10)
years from the finality of the judgment.52
On May 7, 1999, within the five-year period from the trial court’s
judgment, petitioner filed its motion for the issuance of a writ of execution.
However, despite the grant of the motion, the court did not issue an
actual writ. It was only onMay 30, 2003 that petitioner filed a second
motion to ask again for the writ’s issuance. By this time, the allowed five-
year period for execution by motion had already lapsed.
As will be discussed below, since the second motion was filed beyond
the five-year prescriptive period set by the Rules, then the writ of
execution issued by the trial court on July 31, 2003 was null and void for
having been issued by a court already ousted ofits jurisdiction.
In Arambulo v. Court of First Instance of Laguna,53 we explained the rule
that the jurisdiction of a court to issue a writ of execution by motion is
only effective within the five-year period from the entry of judgment.
Outside this five-year period, any writ of execution issued pursuant to a
motion filed by the judgment creditor, is null and void. If no writ of
execution was issued by the court within the five-year period, even a
motion filed within such prescriptive period would not suffice. A writ
issued by the court after the lapse of the five-year period is already null
and void.54 The judgment creditor’s only recourse then is to file an
independent action, which must also be within the prescriptive period set
by law for the enforcement of judgments.
This Court subsequently reiterated its Arambuloruling in Ramos v.
Garciano,55 where we said:
There seems to be no serious dispute that the 4th alias writ of execution
was issued eight (8) daysafter the lapse of the five (5) year period from
the dateof the entry of judgment in Civil Case No. 367. As a general rule,
after the lapse of such period a judgment may be enforced only by
ordinary action, not by mere motion (Section 6, Rule 39, Rules of Court).
xxxx
CIVIL LAW REVIEW 2 (CASES)
The limitation that a judgment beenforced by execution within five years, the compromiseagreement. Also, the agreement merely labeled Subic
otherwise itloses efficacy, goes tothe very jurisdiction of the Court.A writ Water as a co-maker. It did not contain any provision where Subic Water
issued after such period is void, and the failure to object thereto does acknowledged its solidary liability with OCWD.
notvalidate it, for the reason that jurisdiction of courts is solely conferred
by law and not by express or implied will of the parties.56[emphasis Lastly, Subic Water did not voluntarily submit tothe court’s jurisdiction. In
supplied] fact, the motion it filed was only made as a special appearance, precisely
toavoid the court’s acquisition of jurisdiction over its person. Without any
To clearly restate these rulings, for execution by motion to be valid, the participation inthe proceedings below, it cannot be made liable on the writ
judgment creditor mustensure the accomplishment of two acts within the ofexecution issuedby the court a quo.
five-year prescriptive period. These are:a) the filing of the motion for the
issuance of the writ of execution; and b) the court’s actual issuance of the B. Substantive Law Aspect
writ.In the instanceswhen the Court allowed execution by motion even
after the lapse of five years, we only recognized one exception, i.e., when Solidary liability mustbe expressly stated.
the delay is caused or occasioned by actions of the judgment debtor
and/or is incurred for his benefit or advantage.57However, petitioner failed
The petitioner also argued that Subic Water could be held solidarily liable
toshow or cite circumstances showing how OCWD or Subic Water
under the writ of execution since it was identified as OCWD’s co-maker in
caused it to belatedly file its second motion for execution.
the compromise agreement.The petitioner’s basis for this is the following
provision of the agreement:
Strictly speaking, the issuance of the writ should have been a ministerial
duty on the partof the trial court after it gave its July 23, 1999 order,
4. Both parties also requestthat Subic Water,Philippines which took over
approving the first motion and directing the issuance of such writ. The
the operations of the defendant Olongapo City Water District be made as
petitioner could have easily compelled the court to actually issue the writ
co-makerfor the obligation herein abovecited.59 [emphasis supplied]
by filing a manifestation onthe existence of the July 23, 1999 order.
However, petitioner idly sat and waited for the five-year period to lapse
before it filed its second motion. Having slept on its rights, petitioner had As the rule stands, solidary liability is not presumed. This stems from Art.
no one to blame but itself. 1207 of the Civil Code, which provides:

A writ of execution cannot affect a non- party to a case.
Strangers to a case are not bound by the judgment rendered in it. Thus, a
writ of execution can only beissued against a party and not against one
who did not have his day in court.58
Subic Water never participated in the proceedings in Civil Case No. 580-
0-90, where OCWD and petitioner were the contending parties. Subic
Water only came into the picture when one Atty. Segundo Mangohig,
claiming to beOCWD’s former counsel, manifested before the trial court
that OCWD had already been judicially dissolved and thatSubic Water
assumed OCWD’s personality.
In the present case, the compromise agreement, although signed by Mr.
Noli Aldip, did not carry the express conformity of Subic Water. Mr. Aldip
was never given any authorization to conform to or bind Subic Water in
Art. 1207. x x x There is a solidary liability only when the obligation
expressly so states, or when the law orthe nature of the obligation
requiressolidarity. [emphasis supplied]
In Palmares v. Court of Appeals,60 the Court did not hesitate to rule that
although a party to a promissory note was onlylabeled as a comaker, his
liability was that ofa surety, since the instrument expressly provided for
his joint and several liabilitywith the principal.
In the present case, the joint and several liability of Subic Water and
OCWD was nowhere clear in the agreement. The agreement simply and
plainly stated that petitioner and OCWD were only requestingSubic Water
to be a co-maker, in view of its assumption of OCWD’s water operations.
No evidence was presented to show that such request was ever
approved by Subic Water’s board of directors.

11 | P a g e
CIVIL LAW REVIEW 2 (CASES)
Under these circumstances, petitioner cannot proceed after Subic Water
for OCWD’s unpaid obligations. The law explicitly states that solidary
liability is not presumed and must be expressly provided for. Not being a
surety, Subic Water is not an insurer of OCWD’s obligations under the
compromise agreement. At best, Subic Water was merely a guarantor
against whom petitioner can claim, provided it was first shown that: a)
petitioner had already proceeded after the properties of OCWD, the
principal debtor; b) and despite this, the obligation under the compromise
agreement, remains to be not fully satisfied.61 But as will be discussed
next, Subic Water could not also be recognized as a guarantorof
OCWD’s obligations.
An officer’s actions can only bind the corporation ifhe had been
authorized to do so.
An examination of the compromise agreement reveals that it was not
accompanied by any document showing a grant of authority to Mr. Noli
Aldip to sign on behalf of Subic Water.
Subic Water is a corporation. A corporation, as a juridical entity, primarily
acts through its board ofdirectors, which exercises its corporate powers.
In this capacity, the general rule is that, in the absence of authority from
the board ofdirectors, no person, not even its officers, can validly bind a
corporation.62 Section 23 of the Corporation Code provides:
Section 23. The board of directors or trustees.– Unless otherwise
provided in this Code, the corporate powers of all corporations formed
under this Code shall be exercised, all business conducted and all
property of such corporations controlled and held by the board of
directors or trusteesto be elected from among the holders of stocks, or
where there is no stock, from among the members of the corporation,
who shall hold office for one (1) year until their successors are elected
and qualified. (28a) [emphasis supplied]
In People’s Aircargo and Warehousing Co., Inc. v. Court of Appeals, we 63
held that under Section 23 of the Corporation Code, the power and
responsibility to decide whether a corporation can enter into a binding
contract is lodged with the board of directors, subject to the articles of
incorporation, by-laws, or relevant provisions of law. As we have clearly
explained in another case:
A corporate officer or agent may represent and bind the corporation in
transactions with third persons to the extent that [the] authority to do so
12 | P a g e
has been conferred upon him, and this includes powers which have been
intentionally conferred, and also such powers as, in the usual courseof
the particular business, are incidental to, or may be implied from, the
powers intentionally conferred, powers added bycustom and usage, as
usually pertaining to the particular officer or agent,and such apparent
powers as the corporation has caused persons dealing with the officer
oragent to believe that ithas conferred.64 [emphasis ours]
Mr. Noli Aldip signedthe compromise agreement purely in his own
capacity. Moreover, the compromise agreement did not expressly provide
that Subic Water consented to become OCWD’s co-maker. As worded,
the compromise agreement merely provided that both parties
[also]requestSubic Water, Philippines, which took over the operations of
Olongapo City Water District be made asco-maker [for the obligations
above-cited].This request was never forwarded to Subic Water’s board of
directors. Even if due notification had been made (which does not
appearin the records), Subic Water’s board does not appear to have
given any approval tosuch request. Nodocument such as the minutes of
Subic Water’s board of directors’ meeting or a secretary’s certificate,
purporting to be an authorization to Mr. Aldip to conform to the
compromise agreement, was everpresented. In effect, Mr. Aldip’s act of
signing the compromise agreement was outside of his authority to
undertake.
Since Mr. Aldip was never authorized and there was no showing that
Subic Water’s articles of incorporation or by-laws granted him such
authority, then the compromise agreement he signed cannot bind Subic
Water. Subic Water cannot likewise be made a surety or even a
guarantor for OCWD’s obligations. OCWD’s debts under the compromise
agreement are its own corporate obligations to petitioner.
OCWD and Subic Water are two separate and different entities.
Petitioner practically suggests that since Subic Water took over OCWD’s
water operations in OlongapoCity, it also acquired OCWD’s juridical
personality, making the two entities one and the same.
This is an interpretation that we cannot make or adopt under the facts
and the evidence of this case. Subic Water clearly demonstrated that it
was a separate corporate entity from OCWD. OCWD is just a ten percent
(10%) shareholder of Subic Water. As a mere shareholder, OCWD’s
juridical personality cannot be equated nor confused with that ofSubic
Water. It is basic in corporation law that a corporation is a juridical entity
CIVIL LAW REVIEW 2 (CASES)
vested with a legal personality separate and distinct from those acting for
and in its behalf and, in general, from the people comprising it.65 Under
this corporate reality, Subic Water cannot be held liable for OCWD’s
corporate obligations in the same manner that OCWD cannot be held
liable for the obligations incurred by Subic Water as a separate entity.
The corporate veilshould not and cannot be pierced unless it is clearly
established that the separate and distinct personality of the corporation
was used to justify a wrong, protect fraud, or perpetrate a deception.66
In Concept Builders, Inc. v. NLRC,67 the Court enumerated the possible
probative factors of identity which could justify the application of the
doctrine of piercing the corporate veil. These are:
(1) Stock ownership by one or common ownership of both
corporations;
(2) Identity of directors and officers;(3) The manner of keeping
corporate books and records; and(4) Methods of conducting the
business.68
The burden of proving the presence of any of these probative factors lies
with the one alleging it. Unfortunately, petitioner simply claimed that
Subic Water took over OCWD's water operations in Olongapo City. Apart
from this allegation, petitioner failed to demonstrate any link to justify the
construction that Subic Water and OCWD are one and the same.
Under this evidentiary situation, our duty is to respect the separate and
distinct personalities of these two juridical entities.
1âwphi1
We thus deny the present petition. The writ of execution issued by RTC
Olongapo, Br. 75, in favor of Olongapo City, is hereby confirmed to be
null and void. Accordingly, respondent Subic Water cannot be made
liable under this writ.
WHEREFORE, premises considered, we hereby DISMISS the petition.
The Court of Appeals' decision dated July 6, 2005 and resolution dated
January 3, 2006, annulling and setting aside the orders of the Regional
Trial Court of Olongapo, Branch 75 dated July 29, 2003 and October 7,
2003, and the writ of execution dated July 31, 2003, are hereby
AFFIRMED. Costs against the City of Olongapo.
SO ORDERED.
13 | P a g e
G.R. No. 207348 August 19, 2014
ROWENA R. SALONTE, Petitioner,
vs.
COMMISSION ON AUDIT, CHAIRPERSON MA. GRACIA PULIDO-
TAN, COMMISSIONER JUANITO G. ESPINO, JR., COMMISSIONER
HEIDI L. MENDOZA, and FORTUNATA M. RUBICO, DIRECTOR IV,
COA COMMISSION SECRETARIAT, in their official
capacities, Respondents.
DECISION
VELASCO, JR., J.:
The Case
This is a petition for review filed under Rule 64 assailing the February 15,
2008 Decision1 and November 5, 2012 Resolution,2 denominated as
Decision Nos. 2008-018 and 2012-190, respectively, of the Commission
on Audit (COA). The assailed issuances affirmed the Notice of
Disallowance No. (ND) 2000-002-101(97) dated November 14, 2001
issued by Rexy M. Ramos, COA State Auditor IV, pursuant to COA
Assignment Order No. 2000-63.3
The Facts
On April 26, 1989, the City of Mandaue and F.F. Cruz and Co., Inc. (F.F.
Cruz) entered into a Contract of Reclamation4 in which F.F. Cruz, in
consideration of a defined land sharing formula thus stipulated, agreed to
undertake, at its own expense, the reclamation of 180 hectares, more or
less, of foreshore and submerged lands fromthe Cabahug Causeway in
that city. The timetables, i.e., commencement of the contract and project
completion, are provided in paragraphs 2 and 15 of the Contract which
state:
2. COMMENCEMENT. Work on the reclamation shall commence not
later than [July 1989], after thiscontract shall be ratified by the
Sanggunian Panlungsod;
xxxx
15. CONTRACT DURATION. The project is estimated to be completed in
six (6) years: (3 years for the dredge-filling and seawall construction and
CIVIL LAW REVIEW 2 (CASES)
3 years for the infrastructures completion). However, if all the
infrastructures within the OWNERS’ share of the project are already
completed within the six (6) year period agreed upon, any extension of
time for works to bedone within the share of the DEVELOPERS, shall be
at the discretion of the DEVELOPERS, as a growing city, changes in
requirements of the lot buyers are inevitable.
On a best effort basis, the construction of roadways, drainage system
and open spaces in the area designated as share of the City of Mandaue,
shall be completed not later than December 31, 1991. (emphasis
supplied)
Subsequently, the parties inked inrelation to the above project a
Memorandum of Agreement (MOA) dated October 24, 19895 whereby the
City of Mandaue allowed F.F. Cruz to put up structures on a portion of a
parcel of land owned by the city for the use of and to house F.F. Cruz
personnel assigned at the project site, subject to terms particularly
provided in paragraphs 3, 4 and 5 of the MOA:
3) That [F.F. Cruz] desires to use a portion of a parcel of land of
the [City of Mandaue] described under paragraph 1 hereof to the
extent of 495 square meters x x x to be used by them in the
construction of their offices to house its personnel to supervise
the Mandaue City Reclamation Project x x x.
xxxx
4) That the [City of Mandaue] agrees to the desire of [F.F. Cruz]
to use a portion of the parcel of land described under paragraph 1
by [F.F. Cruz] for the latter to use for the construction of their
offices to house its personnel to supervise the said Mandaue City
Reclamation Project with no rental to be paid by [F.F. Cruz] to the
[City of Mandaue].
5) That the [City of Mandaue] and [F.F. Cruz] have agreed that
upon the completion of the Mandaue City Reclamation Project, all
improvements introduced by [F.F. Cruz] to the portion of the
parcel of land owned by the [City of Mandaue]as described under
paragraph 3 hereof existing upon the completion of the said
Mandaue City Reclamation Project shall ipso facto belong to the
[City of Mandaue] in ownershipas compensation for the use of
said parcel of land by [F.F. Cruz] without any rental whatsoever.
(emphasis supplied)
14 | P a g e
Pursuant to the MOA, F.F. Cruz proceeded to construct the contemplated
housing units and other facilities which included a canteen and a septic
tank.
Later developments saw the City of Mandaue undertaking the Metro
Cebu Development Project II (MCDP II), part of which required the
widening of the Plaridel Extension Mandaue Causeway. However, the
structures and facilities built by F.F. Cruz subject of the MOA stood in the
direct path of the road widening project. Thus, the Department of Public
Works and Highways (DPWH) and Samuel B. Darza, MCDP II project
director, entered into an Agreement to Demolish, Remove and
Reconstruct Improvement dated July 23, 19976 with F.F. Cruz whereby
the latter would demolish the improvements outside of the boundary of
the road widening project and, in return, receive the total amount of PhP
1,084,836.42 in compensation.
Accordingly, petitioner Rowena B.Rances (now Rowena RancesSolante),
Human Resource Management Officer III, prepared and, with the
approval of Samuel B. Darza (Darza), then issued Disbursement Voucher
(DV) No. 102-07-88-97 dated July 24, 19977 for PhP 1,084,836.42 in
favor of F.F. Cruz. In the voucher, Solante certified that the expense
covered by it was "necessary, lawful and incurred under my direct
supervision."
Thereafter, Darza addressed a letter-complaint to the Office of the
Ombudsman, Visayas, inviting attention to several irregularities regarding
the implementation of MCDP II. The letter was referred to the COA which
then issued Assignment Order No. 2000-063 for a team to audit the
accounts of MCDP II. Following an audit, the audit team issued Special
Audit Office (SAO) Report No. 2000-28, par. 5 of which states:
F.F. Cruz and Company, Inc. was paid ₱1,084,836.42 for the cost of the
property affected by the widening of Plaridel Extension, Mandaue
Causeway. However, under Section 5 of its MOA with Mandaue City, the
former was no longer the lawful owner of the properties at the time the
payment was made.8
Based on the above findings, the SAO audit team, through Rexy Ramos,
issued the adverted ND 2000-002-101-(97)9 disallowing the payment of
PhP 1,084,836.42 to F.F. Cruz and naming that company, Darza and
Solante liable for the transaction. Therefrom, Solante sought
reconsideration, while F.F. Cruz appealed, but the motion for
reconsideration and the appeal were jointly denied in Legal and
CIVIL LAW REVIEW 2 (CASES)
Adjudication Office (LAO) Local Decision No. 2004-040 dated March 5,
2004, which F.F. Cruz in time appealed to COA Central.
In the meantime, the adverted letter-complaint of Darza was upgraded as
an Ombudsman case, docketed as OMB-V-C-03-0173-C, against
Solante, et al., albeit the Ombudsman, by Resolution of June 29,
2006,10 would subsequently dismiss the same for lack of merit.
The Ruling of the Commission on Audit
In its February 15, 2008 Decision,11 the COA, as indicated at the outset,
affirmed ND 2000-002-101-97 on the strength of the following premises:
From the above provision of the MOA, it is clear that the improvements
introduced by F.F. Cruz x x x would be owned by the City upon
completion of the project which under the Contract of reclamation should
have been in 1995. However, the project was not completed in 1995 and
even in 1997 when MDCP paid for these improvements. The fact that the
reclamation project had not yet been completed or turned over to the City
of Mandaue by F.F. Cruz in 1997 or two years after it should have been
completed, does not negate the right over such improvements by the City
x x x. Clearly, the intention of the stipulation is for F.F. Cruz x x x to
compensate the government for the use of the land on which the office,
pavement, canteen, extension shed, house and septic tank were erected.
Thus, to make the government pay for the cost of the demolished
improvements will defeat the intention of parties as regards
compensation due from the contractor for its use of [the] subject land.
Under Article 1315 of the Civil Code, from the moment a contract is
perfected, the parties are bound to the fulfillment to what has been
expressly stipulated and all the consequences which according to their
nature, may be in keeping with good faith, usage and law. Thus, even if
the contractual stipulations may turn out to be financially
disadvantageous to any party, such will not relieve any or both parties
fromtheir contractual obligations.12 (emphasis supplied)
From such decision, Solante filed a Motion for Reconsideration dated
June 28, 2010 purportedly with Audit Team Leader, Leila Socorro P.
Domantay. This motion was denied by the COA in a Resolution dated
November 5, 201213wherein the commission held:
x x x The arguments of Ms. Solante that as long as the Project has not
yet been turned over, the ownership of the said improvements would not
be acquired yet by the City would put the entire contract at the mercy of
15 | P a g e
F.F. Cruz & Co., Inc., thus, negating the mutuality of contracts principle
expressed in Article 1308 ofthe New Civil Code, which states:
Art. 1308. The contracts must bindboth contracting parties; its validity or
compliance cannot be leftto the will of one of them.
On February 15, 2013, Solante received a Notice of Finality of Decision
(NFD)14 stating that the COA Decision dated February 15, 2008 and
Resolution dated November 5, 2012 have become final and executory, a
copy of the Resolution having been served on the parties on November
9, 2012 by registered mail. Notably, Solante never received a copy of the
COA Resolution. She came to get one only on May 8, 2013 after
inquiring from the Cebu Central Post Office, which, in a Certification of
Deliverydated May 8, 2013,15 stated that the registered mail containing
said copy was in fact not delivered.
Hence, the instant petition.
The Issue
The resolution of the present controversy rests on the determination of a
sole issue: who between the City ofMandaue and F.F. Cruz owned during
the period material the properties that were demolished.
The Court’s Ruling
The petition is meritorious. The COA and its audit team obviously
misread the relevant stipulations of the MOA in relation to the provisions
on project completion and termination of contract of the Mandaue-F.F.
Cruz reclamation contract.
Essentially, the COA is alleging that the Contract of Reclamation
establishes an obligation on the part of F.F. Cruz to finish the project
within the allotted period of six (6) years from contract execution in
August 1989. Prescinding from this premise, the COA would conclude
that after the six (6)-year period, F.F. Cruz is automatically deemed to be
in delay, the contract considered as completed, and the ownership of the
structures built in accordance with the MOA transferred to the City of
Mandaue.
COA’s basic position and the arguments holding it together is untenable.
CIVIL LAW REVIEW 2 (CASES)
On this point, the Civil Code provision on obligations with a period is
relevant. Article 1193 thereof provides:
Article 1193. Obligations for whose fulfillment a day certain has been
fixed, shall be demandable only when that day comes.
Obligations with a resolutory period take effect at once, but terminate
upon arrival of the day certain.
A day certain is understood to bethat which must necessarily come,
although it may not be known when.
If the uncertainty consists in whether the day will come or not, the
obligation is conditional, and it shall be regulated by the rules of the
preceding Section. (emphasis supplied)
A plain reading of the Contract ofReclamation reveals that the six (6)-
year period provided for projectcompletion, or, with like effect, termination
of the contract was a mere estimateand cannot be considered a period or
a "day certain" inthe context of the aforequoted Art. 1193. To be clear,
par. 15 of the Contract of Reclamation states: "[T]he project is estimated
to be completed in six (6) years." As such, the lapse of six (6) years from
the perfection of the contract did not, by itself, make the obligation to
finish the reclamation project demandable, such as to put the obligor in a
state of actionable delay for its inability to finish. Thus, F.F. Cruz cannot
be deemed to be in delay. Parenthetically, the Ombudsman, in a
Resolution of June 29, 2006 in OMB-V-C-03-0173-C, espoused a similar
view in dismissing the complaint against Solante, thus:
A careful reading of the pertinent section of the Contract of Reclamation
between F.F. Cruz and Mandaue City, however, would confirm
respondents Rances-Solante[’s]and Sungahid’s view that herein
respondent Cruz was still the owner of the subject properties at the time
these were demolished. Indeed, the Contract specifies that the six (6)-
year period was no more than an estimate of the project completion. It
was not a fixed period agreed upon. Being so, the mere lapse of six (6)
years from the execution of the Contract, did not by itself deem the
reclamation project completed, muchless bring about the fulfillment of the
condition stipulated in the MOA (on the shift of ownership over the
demolished properties). Herein respondent Cruz, and/or his company, at
least on this particular regard, can be said to be still the owner of the
structures along Plaridel Extension x x x, when these were demolished to
give way to road widening. It was nothing but equitable that they get
16 | P a g e
compensated for the damages caused by the demolition.16 (emphasis
supplied)
Put a bit differently, the lapse of six (6) years from the perfection of the
subject reclamation contract, withoutmore, could not have automatically
vested Mandaue City, under the MOA, with ownership of the structures.
Moreover, even if we consider the allotted six (6) years within which F.F.
Cruz was supposed to completethe reclamation project, the lapse thereof
does not automatically mean thatF.F. Cruz was in delay. As may be
noted, the City of Mandaue never madea demand for the fulfillment of its
obligation under the Contract of Reclamation. Article 1169 of the Civil
Code on the interaction of demand and delay and the exceptions to the
requirement of demand relevantly states:
Article 1169. Those obliged to deliver orto do something incur in delay
from the time the obligeejudicially or extrajudicially demands from them
the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that
delay may exist:
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the obligation
it appears that the designation of the time when the thing is to be
delivered or the service is to be rendered was a controlling motive
for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has
rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is
incumbent upon him. From the momentone of the parties fulfills his
obligation, delay by the other begins.
Thus, in J Plus Asia Development Corporation v. Utility Assurance
Corporation,17 the Court has held:
In this jurisdiction, the following requisites must be present in order that
the debtor may be in default: (1) that the obligation be demandable and
already liquidated;(2) that the debtor delays performance; and (3) that the
CIVIL LAW REVIEW 2 (CASES)
creditor requires the performance judicially or extrajudicially. (emphasis
supplied)
In the instant case, the records are bereft of any document whence to
deduce that the City of Mandaue exactedfrom F.F. Cruz the fulfillment of
its obligation under the reclamation contract. And to be sure, not one of
the exceptions to the requisite demand under Art. 1169 is established, let
alone asserted. On the contrary, the then city mayor of Mandaue, no
less, absolved F.F. Cruz from incurring under the premises in delay. In
his affidavit dated July 9, 2004,18 then Mayor Ouano stated:
That although x x x the reclamation wasestimatedto be completed in six
years ending in 1995, the said project however, was not fully completed
when the demolition of the mentioned improvements of [F.F. Cruz] was
made x x x [and in fact] up to now the said Mandaue Reclamation Project
has not yet been fully completed and turned over to the City of Mandaue.
x x x [S]ince at the time of the demolition the said improvements actually
belonged to [F.F. Cruz] and the City of Mandaue has no claim
whatsoever on the said payment x x x for the demolished improvements.
(emphasis supplied)
As it were, the Mandaue-F.F.Cruz MOA states that the structures built by
F .F. Cruz on the property of the city will belong to the latter only upon the
completion of the project. Clearly, the completion of the project is a
suspensive condition that has yet to be fulfilled. Until the condition
1âwphi1
arises, ownership of the structures properly pertains to F .F. Cruz.
To be clear, the MOA does not state that the structures shall inure in
ownership to the City of Mandaue after the lapse of six ( 6) years from the
execution of the Contract of Reclamation. What the MOA does provide is
that ownership of the structures shall vest upon, or ipso facto belong to,
the City of Mandaue when the Contract of Reclamation shall have been
completed. Logically, before such time, or until the agreed reclamation
project is actually finished, F.F. Cruz owns the structures. The payment of
compensation for the demolition thereof is justified. The disallowance of
the payment is without factual and legal basis. COA then gravely abused
its discretion when it decreed the disallowance.
WHEREFORE, the instant petition is GRANTED. Accordingly, the
assailed February 15, 2008 Decision, November 5, 2012 Resolution, and
Notice of Disallowance No. 2000-002-101 (97) dated November 14, 2001
17 | P a g e
issued by the Commission on Audit are hereby REVERSED and SET
ASIDE.
No costs.
SO ORDERED.
G.R. No. 181983 November 13, 2013
CONSOLIDATED INDUSTRIAL GASES, INC., Petitioner,
vs.
ALABANG MEDICAL CENTER, Respondent.
DECISION
REYES, J.:
This is a petition for review on Certiorari1 under Rule 45 of the Rules of
Court seeking to annul and set aside the Amended Decision2 dated
March 4, 2008 of the Court of Appeals CA) in CA-G.R. CV No. 84988
which, among others, reversed the Decision3 dated June 30, 2004 of the
Regional Trial Court (RTC) of Mandaluyong City, Branch 213, finding
respondent Alabang Medical Center (AMC) to have breached its contract
with petitioner Consolidated Industrial Gases, Inc. (CIGI).
The Antecedents
CIGI is a domestic corporation engaged in the business of selling
industrial gases (i.e., oxygen, hydrogen and acetylene) and installing
centralized medical and vacuum pipeline system. Respondent AMC, on
the other hand, is a domestic corporation operating a hospital business.
On August 14, 1995, CIGI, as contractor and AMC, as owner, entered
into a contract4 whereby the former bound itself to provide labor and
materials for the installation of a medical gas pipeline system for the first,
second and third floors (Phase 1 installation project) of the hospital for
the contract price of Nine Million Eight Hundred Fifty-Six Thousand
Seven Hundred Twenty-Five Pesos and 18/100 (₱9,856,725.18) which
AMC duly paid in full.
CIVIL LAW REVIEW 2 (CASES)
The herein legal controversy arose after the parties entered into another
agreement on October 3, 1996 this time for the continuation of the
centralized medical oxygen and vacuum pipeline system in the hospital’s
fourth & fifth floors (Phase 2 installation project) at the cost of Two Million
Two Hundred Sixty-Seven Thousand Three Hundred Forty-Four Pesos
and 42/100 (₱2,267,344.42). This second contract followed the same
terms and conditions of the contract for the Phase 1 installation project.
CIGI forthwith commenced installation works for Phase 2 while AMC paid
the partial amount of One Million Pesos (₱1,000,000.00) with the
agreement that the balance shall be paid through progress billing and
within fifteen (15) days from the date of receipt of the original invoice sent
by CIGI.5
On August 4, 1997, CIGI sent AMC Charge Sales Invoice No. 125847 as
completion billing for the unpaid balance of ₱1,267,344.42 for the Phase
2 installation project. When the sales invoice was left unheeded, CIGI
sent a demand letter to AMC on January 7, 1998. AMC, however, still
failed to pay thus prompting CIGI to file a collection suit before the RTC
on September 15, 1998.6
CIGI claimed that AMC’s obligation to pay the outstanding balance of the
contract price for the Phase 2 installation project is already due and
demandable pursuant to Article II, page 4 of the contract stating that the
project shall be paid through progress billing within fifteen (15) days from
the date of receipt of original invoice.
In its Answer with Counterclaim,7 AMC averred that its obligation to pay
the balance of the contract price has not yet accrued because CIGI still
has not turned over a complete and functional medical oxygen and
vacuum pipeline system. AMC alleged that CIGI has not yet tested
Phases 1 and 2 which constitute one centralized medical oxygen and
vacuum pipeline system of the hospital despite substantial payments
already made. As counterclaim, AMC prayed for actual, moral and
exemplary damages, and attorney’s fees.
During trial, CIGI presented the testimonies of its officers, James
Rodriguez Gillego (Gillego), Credit Manager and Marcelino Tolentino
(Tolentino), Installation Manager. Gillego confirmed the unpaid balance of
AMC as well as its additional liabilities for interest and penalty charges at
17% per annum and 2% per month, respectively.8
Tolentino, on the other hand, declared that CIGI failed to test the installed
system because AMC did not supply the necessary electrical power.9 He
18 | P a g e
claimed that they finished the installation project in October 1997 or
within the period specified in the contract.10 CIGI verbally notified Dr. Anita
Ty (Dr. Ty), AMC’s Medical Director, on the need for electrical power for
the test run but she did not respond. On August 23, 1999, they put the
request in writing.11
Tolentino also stated that Phase 2 is an extension of the Phase 1
installation project such that both phases are not independent of each
other. If Phase 2 is not subjected to test run, Phase 1 will not run.12 It was
Mr. Gavino Pineda (Pineda), his supervisor, and not him, who personally
informed Dr. Ty that CIGI is ready to conduct a test run.13
Tolentino admitted that, contrary to what was agreed in the contract, CIGI
has not conducted commissioning and lecture on the proper operation
and preventive maintenance of the installed system and that the said
seminar/orientation does not require the use of electricity.14 However, the
seminar can only be conducted once they have already fully turned over
the system which can only happen after they have performed a test run,
which likewise did not materialize because AMC did not supply the
necessary electrical power.15
AMC presented Dr. Ty and Melinda Constantino (Constantino), account
and administrative officer of AMC. Dr. Ty testified that the payment of the
unpaid balance is not yet due because the project is incomplete,
defective and non-functional.16 She claimed that CIGI failed to comply
with its obligation under paragraph 12 of the October 3, 1996 contract for
Phase 2 installation project stating that the scope of CIGI’s work shall
include pressure drop, leak testing, painting/color coding and test run of
the installed centralized medical oxygen and vacuum pipeline
system.17On cross-examination, Dr. Ty asserted that as agreed, the
balance of the contract price shall be paid once CIGI finishes its work
under the contract.18 She denied receiving any request from CIGI
regarding the installation of electricity for purposes of test run. She
claimed that CIGI brought up the matter on electricity when it was already
collecting the unpaid balance but no such request was made prior to their
demand for payment.19 Before the hospital became operational, it was
equipped with electrical facilities for construction which can adequately
support the power need of a mere test run.20
Constantino testified on the total payments already made by AMC to CIGI
in the sum of ₱10,856,000.00 as shown by several Metropolitan Bank
(Metrobank) checks payable to CIGI marked as Exhibits "5" to "5-1".21
CIVIL LAW REVIEW 2 (CASES)
CIGI submitted in evidence photographs of allegedly defective and
incomplete parts of the installed medical oxygen and vacuum pipeline
system, such as: (a) a rusting pendant which is supposed to be stainless
and anti-rust; (b) incomplete assembly of alarm system; (c) incomplete
assembly of isolation valve; and (d) incomplete electrical wiring of
Pegasus and leaking oil.22
On June 11, 2003, AMC filed a Motion for Leave of Court to Admit
Amended Answer with Counterclaims23 seeking, in addition, the
rescission of the subject contracts, return of its payment of
₱10,856,000.00 for an unfinished project. AMC also asked that it be
recompensed in the sum of ₱17,220,084.90 for interest expense on the
loans obtained from Metrobank which were used to fund the installation
projects. It further averred that CIGI’s failure to complete the system is
shown not only in its failure to conduct the agreed test run and
orientation/seminar but also in the patently defective and incomplete
parts of the installation.
In its Order24 dated September 11, 2003, the RTC denied the motion
because its admission will compel CIGI to substantially alter the
presentation of its evidence and thus delay the resolution of the case.
The RTC further reasoned that AMC’s failure to amend its answer will not
affect the result of the trial.
Ruling of the RTC
After the parties have submitted their respective memorandum, the RTC
rendered its Decision25 dated June 30, 2004, wherein it adjudged AMC to
have breached the contract for failure to perform its obligation of paying
the remaining balance of the contract price. CIGI, on the other hand, was
found to have faithfully complied with its contractual obligations. In so
ruling, the RTC relied on Tolentino’s testimony that they were unable to
test run the installed system because AMC failed to provide the
necessary electrical power despite repeated requests made to Dr.
Ty.26 AMC’s counterclaim for damages was dismissed. Accordingly, the
decision disposed as follows:
Prescinding from the foregoing considerations, judgment is hereby
rendered in favor of the [petitioner] CONSOLIDATED INDUSTRIAL
GASES, INC., and against the [respondent] ALABANG MEDICAL
CENTER represented by its owner/Chairman of the Board Anita Ty. The
counterclaim is likewise, accordingly ordered D[IS]MISSED.
19 | P a g e
As PRAYED FOR, the [respondent] is hereby ordered:
[a] To pay the amount of ONE MILLION TWO HUNDRED
SIXTY[-]SEVEN THOUSAND THREE HUNDRED FORTY[-
]FOUR AND 42/100 [Php 1,267,344.42] Philippine Currency,
representing the balance of the principal obligations.
[b] To pay the corresponding legal interest until said obligation
shall have been paid and settled and cost of suit.
SO ORDERED.27
Ruling of the CA
AMC appealed to the CA which in its Decision28 dated September 14,
2007 granted the appeal and reversed the RTC judgment. The CA ruled
that it was CIGI who breached the contract when it failed to complete the
project and to turn over a fully functional centralized medical oxygen and
vacuum pipeline system. Consequently, the CA declared the complaint
dismissed and ordered CIGI to correct/replace the defective parts
installed. AMC was adjudged entitled to attorney’s fees for CIGI’s
unfounded action. AMC’s counterclaim for ₱17,220,084.90 as actual
damages representing alleged interest payments on the loans it obtained
from Metrobank was denied for lack of factual and legal basis. The
decretal portion of the Decision reads:
WHEREFORE, the decision of the Regional Trial Court dated June 30,
2004 is hereby REVERSED and SET ASIDE. The complaint is hereby
dismissed and CIGI is hereby ordered to pay AMC the sum of
₱50,000.00 by way of attorney’s fees plus costs.
SO ORDERED.29
AMC moved for partial reconsideration raising the propriety of its
counterclaim for the refund of the ₱10,856,725.18 paid to CIGI since the
project never became operational.30
In its Comment31 and own Motion for Reconsideration32, CIGI countered
that a refund will amount to rescission, an issue which was denied
deliberation by the RTC. As such, the same cannot be raised and
threshed out for the first time on appeal. CIGI shifted the blame to AMC
and claims that it could have easily conducted a test run on the system if
the latter supplied the electricity needed in accordance with the contract.
CIVIL LAW REVIEW 2 (CASES)
Anent the alleged defective parts, CIGI asserted that it is highly suspect
for AMC to raise the same four years after the filing of the complaint. CIGI
also stated that being idle and exposed to various elements, the condition
of certain parts of the system will definitely deteriorate.
The CA re-examined its earlier decision and issued an Amended
Decision33 dated March 4, 2008. It took into consideration AMC’s
manifestation that it is willing to pay the balance of ₱1,267,344.42 on the
condition that CIGI will turn over a fully functional centralized medical
oxygen and vacuum pipeline system.34 The CA found that CIGI reneged
on its obligation under the contract when it failed to test run the installed
system. The Amended Decision disposed as follows, viz:
WHEREFORE, this Amended Decision is rendered [PARTIALLY]
GRANTING AMC’s Partial Motion for Reconsideration dated 25
September 2007. Accordingly, CIGI is given a reasonable period of sixty
(60) days from the finality of this Decision to correct and/or replace the
defective parts mentioned in this Decision and turn over a fully functional
centralized medical oxygen and vacuum pipeline system. AMC, in turn, is
directed to provide the required facilities such as water and electricity
during installation free of charge and to pay within five (5) days from the
turn over the unpaid balance in the sum of ₱1,267,344.42 to CIGI. Failure
of CIGI to turn over a fully functional centralized medical oxygen and
vacuum pipeline system will result to the rescission of the contract. As a
legal consequence, within ten (10) days from the rescission of the
contract CIGI should return the sum of ₱10,856,725.18 to AMC and
remove the materials and equipments it installed at AMC within ninety
(90) days from the rescission of the contract, at its own expense. The
motion for reconsideration dated 08 October 2007 filed by CIGI is
DENIEDfor lack of merit. The Decision dated 30 June 2004 of the
Regional Trial Court is hereby REVERSED and SET ASIDE. The
complaint is dismissed and CIGI is ordered to pay AMC the sum of
₱50,000.00 by way of attorney’s fees plus costs.
SO ORDERED.35
Dismayed, CIGI interposed the present recourse alleging, in the main,
that the CA committed misapprehension of facts. CIGI maintained that
AMC refused to provide the necessary electrical facilities for the test run
and that under the contract, CIGI was merely required to provide labor
and materials. CIGI averred that the CA erred in relying on the testimony
of Tolentino because he never specifically declared that CIGI did not
complete the project. CIGI prayed that the decision of the RTC ordering
AMC to pay the balance of the contract price be reinstated.
20 | P a g e
The Issue
The core issue for resolution is whether or not CIGI’s demand for
payment upon AMC is proper.
Ruling of the Court
Primarily, the arguments proffered by CIGI involve questions of fact which
are beyond the scope of the Court’s judicial review under Rule 45 of the
Rules of Court. It is a settled rule that the Court examines only questions
of law on appeal and not questions of facts. However, jurisprudence has
recognized several exceptions in which factual issues may be resolved
by the Court, such as when the factual findings of the courts a quo are
conflicting,36 as in this case.
The incongruity in the findings of the RTC and CA is conspicuous. On
one hand, the RTC granted CIGI’s complaint for sum of money and
adjudged AMC as the defaulting party. On the other hand, the CA, while
sustaining AMC’s liability for CIGI’s monetary claim, held the latter as the
party who breached the installation contracts. A review of the
contradicting findings of the courts a quo is thus in order so as to finally
settle the conflicting claims of the parties.
The subject installation contracts
bear the features of reciprocal
obligations.
"Reciprocal obligations are those which arise from the same cause, and
in which each party is a debtor and a creditor of the other, such that the
obligation of one is dependent upon the obligation of the other. They are
to be performed simultaneously, so that the performance of one is
conditioned upon the simultaneous fulfillment of the other."37 In reciprocal
obligations, neither party incurs in delay if the other does not comply or is
not ready to comply in a proper manner with what is incumbent upon him.
From the moment one of the parties fulfils his obligation, delay by the
other begins.38
Under the subject contracts, CIGI as contractor bound itself to install a
centralized medical oxygen and vacuum pipeline system for the first to
fifth floors of AMC, which in turn, undertook to pay the contract price
therefor in the manner prescribed in the contract. Being reciprocal in
nature, the respective obligations of AMC and CIGI are dependent upon
the performance of the other of its end of the deal such that any claim of
CIVIL LAW REVIEW 2 (CASES)
delay or non-performance can only prosper if the complaining party has
faithfully complied with its own obligation.
Here, CIGI complains that AMC refused to abide by its undertaking of full
payment. While AMC does not dispute its liability to pay the balance of
₱1,267,344.42 being claimed by CIGI, it asserts, however that the same
is not yet due because CIGI still has not turned over a complete and
functional medical oxygen and vacuum pipeline system. CIGI is yet to
conduct a test run of the installation and an orientation/seminar of AMC
employees who will be involved in the operation of the system. CIGI, on
the other hand, does not deny that it failed to conduct the agreed
orientation/seminar and test run but it blames AMC for such omission and
asserts that the latter failed to heed CIGI’s request for electrical facilities
necessary for the test run. CIGI also contends that its obligation is merely
to provide labor and installation.
The Court has painstakingly evaluated the records of the case and based
thereon, there can be no other conclusion than that CIGI’s allegations
failed to muster merit. The Court finds that CIGI did not faithfully complete
its prestations and hence, its demand for payment cannot prosper based
on the following grounds: (a) under the two installation contracts, CIGI
was bound to perform more prestations than merely supplying labor and
materials; and (b) CIGI failed to prove by substantial evidence that it
requested AMC for electrical facilities as such, its failure to conduct a test
run and orientation/seminar is unjustified.
A. Under the installation
contracts, CIGI was bound to
perform more prestations than
merely supplying labor and
materials.
It is hornbook doctrine in the law on contracts that the parties are bound
by the stipulations, clauses, terms and conditions they have agreed to
provided that such stipulations, clauses, terms and conditions are not
contrary to law, morals, public order or public policy.39 In the present case,
we find no legal proscription infringed by the terms and conditions of the
contracts between AMC and CIGI. As such, the said terms and conditions
must be held to be the law between them40 and the parties are bound to
fulfill what has been stipulated.
Both of the installation contracts clearly show that CIGI undertook to carry
out more prestations than merely supplying labor and materials for the
21 | P a g e
medical oxygen and vacuum pipeline system. CIGI agreed also: (a) to
perform a pressure drop, leak testing, test run, painting/color coding of
the installed centralized medical oxygen, vacuum and nitrous oxide
pipeline system; and (b) to conduct orientation, seminars and training for
the AMC employees who will be involved in the operation of the
centralized pipeline system before the formal turnover of the project. This
is evident from the herein reproduced provisions of the installation
contracts.
Article I of the Phase 1 installation contract enumerates the following
undertakings of CIGI, viz:
1.1 Preparation and delivery of materials, tools and equipment
from CIGI, Mandaluyong, to Alabang Medical Center’s site of
installation.
1.2 Degreasing and proper cleaning of deoxidized hard seamless
copper tubes, fittings, valves and other parts prior to installations.
1.3 Supply, fabrication and installation of necessary brackets and
clamps to comply with the standard Medical gas pipeline and
other equipment installation.
1.4 Chiseling, boring and re-plastering of affected concrete walls
for pipeline route.
[1.5 -1. 23 Supply and installation of various structures and parts
of the medical oxygen and vacuum pipeline system].
1.24 Pressure drop, leak testing, test-run, painting/color coding of
the installed centralized medical oxygen, vacuum and nitrous
oxide pipeline system.41 (Emphasis ours)
Meanwhile, Phase 2 installation contract, which follows the same terms
and conditions of the Phase 1 installation contract, itemizes the
prestations due from CIGI as follows:
1. Preparation and delivery of materials, tools and equipment
from CIGI-Head Office to Alabang Medical Center site of
installation.
2. Degreasing and proper cleaning of deoxidized hard seamless
copper tubes, fittings, valves and other parts prior to installation.
CIVIL LAW REVIEW 2 (CASES)
3. Chiselling, boring and replastering of affected concrete walls
for pipeline route.
4. Supply, fabrication and installation necessary brackets and
clamps to comply with the standard medical gases pipeline and
other equipment installation.
5. Supply, layout and installation of deoxidized hard seamless
copper tubes and fittings and to be tapped from the existing riser
of medical oxygen and vacuum pipeline system installed at third
floor.
6. Supply and installation of two (2) units OHMEDA flush mount
wall type isolation valve panel, each equipped with shut-off valve
for oxygen and vacuum pipeline with corresponding pressure
indicator.
7. Supply and installation of sixty[-]nine (69) sets OHMEDA flush
mount wall type medical Oxygen and Vacuum Outlets, each
consist of rough-in and finish assembly.
xxxx
8. Supply and installation of sixty[-]nine (69) sets MEDAES DISS
III flush mount wall type medical vacuum outlets, each consists of
rough in and finish assembly.
9. Supply and installation of sixty[-]nine (69) sets MEDAES
stainless steel surface mount wall type vacuum bottle slides each
complete with stainless mounting screw.
10. Supply and installation of two (2) sets MEDAES Area Line
Pressure Alarm for Oxygen and Vacuum Pipeline System, each
equipped with pressure switch, pressure indicator, lights indicator
for each gas supply status and necessary electrical wiring
materials which are to be installed at the Nurses station of Fourth
Floor.
11. Supply of [certain] secondary equipments.
xxxx
22 | P a g e
12. Pressure drop, leak testing, painting/color coding and test run
of the installed centralized medical oxygen and vacuum pipeline
system.42 (Emphasis ours)
Anent the conduct of orientation/seminar on the operation of the
centralized medical oxygen and vacuum pipeline system, both contracts
state:
Article 10 of Phase 1 installation contract:
10. SEMINARS/TRAINING:
The CONTRACTOR shall conduct orientation, seminars and training to
the center’s employees involved in the operation of the centralized
pipeline system before the formal turn-over of the project. Such training
includes proper operation and preventive maintenance of the system.43
Articles VI(c) and VII(3) of Phase 2 installation contract:
c. Seminars/Training
CIGI shall conduct orientation, seminars and training to AMC’s
employees involved in the operation of the centralized pipeline system
before the formal turn-over of the project. Such training includes proper
operation and preventive [sic]
xxxx
3. CIGI to execute all necessary commissioning and lecture re-proper
operation and preventive maintenance of the installed system and shall
hand-over to Alabang Medical Center fully operational.44
Clearly, CIGI’s reciprocal obligation was not merely to supply labor and
materials for the project. It is unmistakable from the foregoing contractual
provisions that CIGI agreed to carry out a test run of the installation as
well as to conduct an orientation/seminar of AMC employees who will be
involved in its operation. CIGI cannot be permitted to disregard the
binding effect of the contracts it voluntarily assumed by conveniently
renouncing its above-mentioned contractual commitments. Otherwise,
the sanctity of its contracts with AMC will be defiled.
CIVIL LAW REVIEW 2 (CASES)
B. CIGI failed to prove by
substantial evidence that it
requested AMC for electrical
facilities as such, its failure to
conduct a test run and
orientation/seminar is unjustified.
CIGI failed to amply support its allegation that it requested for electrical
facilities from AMC. Tolentino, CIGI’s installation manager, testified that
on August 23, 1999 they requested in writing for the electrical facilities
but no evidence of such document was submitted. It is but a self-serving
allegation, which by law is not equivalent to proof.45 In addition, Pineda,
the one who actually sent the request was not presented as witness
thereby making Tolentino’s statement mere hearsay evidence bearing no
probative value.
Settled is the rule that a witness can testify only to those facts which he
knows of his personal knowledge, which means those facts which are
derived from his own perception. A witness may not testify as to what he
merely learned from others either because he was told or read or heard
the same. Such testimony is considered hearsay and may not be
received as proof of the truth of what he has learned.46
While Tolentino’s testimony may be considered as independently
relevant statement and may be admitted as to the fact that Pineda made
utterances to him about the request for electricity, it is still inadequate to
support the claim that AMC reneged on its obligation to provide electrical
facilities. Admissibility of testimony should not be equated with its weight
and sufficiency. Admissibility of evidence depends on its relevance and
competence, while the weight of evidence pertains to evidence already
admitted and its tendency to convince and persuade.47 Here, the Court
finds no reason to doubt and overturn the CA’s evaluation of Tolentino’s
testimony.
Even assuming that CIGI indeed made such request, it is unbelievable
for AMC not to furnish electrical facilities. As correctly observed by the
CA, it is unlikely for AMC not to spend minimal amount for the test run
and risk the completion of its multi-million peso medical oxygen and
vacuum pipeline system. Further, the language of Article VII(2) of the
Phase 2 installation contract, which embodies AMC’s duty to provide
electrical facilities for the test run, indicates the availability of electrical
facilities in the installation site such that AMC needed only to allow CIGI
personnel/technicians to use or access the same, viz:
23 | P a g e
2. Alabang Medical Center to allow CIGI personnel/technicians to utilize
the required facilities such as water and power during installation free of
charge.48
It is thus highly improbable for AMC to deny CIGI personnel and
technicians mere access to already existing electrical facilities and
thereby jeopardize the operations of the hospital.
From the foregoing, it is clear
that AMC’s obligation to pay
and CIGI’s right to demand the
unpaid balance for the Phase 2
installation project have not yet
accrued.
For failure to prove that it requested for electrical facilities from AMC, the
undisputed matter remains – CIGI failed to conduct the stipulated test run
and seminar/orientation. Consequently, the dismissal of CIGI’s collection
suit is imperative as the balance of the contract price is not yet
demandable. For having failed to perform its correlative obligation to
AMC under their reciprocal contract, CIGI cannot unilaterally demand for
the payment of the remaining balance by simply sending an invoice and
billing statement to the former. Its right to demand for and collect
payment will only arise upon its completion of ALL its prestations under
the subject contracts.
In reciprocal obligations, before a party can demand the performance of
the obligation of the other, the former must also perform its own
obligation.49 For its failure to turn over a complete project in accordance
with the terms and conditions of the installation contracts, CIGI cannot
demand for the payment of the contract price balance from AMC, which,
in turn, cannot legally be ordered to pay. Otherwise, AMC will be
effectively forced to accept an incomplete performance contrary to Article
1248 of the Civil Code which states that "(u)nless there is an express
stipulation to that effect, the creditor cannot be compelled partially to
receive the prestations in which the obligation consists."
Considering that AMC’s obligation to pay the balance of the contract
price did not accrue, the stipulated interest thereon also did not begin to
run.
CIVIL LAW REVIEW 2 (CASES)
CIGI also failed to fully comply
with its prestations under the
Phase 1 installation contract.
It must be noted that, although Phases 1 and 2 installation projects are
covered by separate contracts, they nonetheless comprise one
centralized medical oxygen system such that the agreed test run and
seminar/orientation under the Phase 1 contract cannot be performed
unless and until the Phase 2 installation project is finished and
completed.50 In other words, both phases will have to undergo a single
and simultaneous test run and orientation on their manner of operation.
As such, while the subject of the herein complaint for sum of money
pertained only to the Phase 2 installation contract, the violations
committed by CIGI that prevented its cause of action to accrue broadly
affected the initially non-issue Phase 1 contract.
It having been established that CIGI’s avowed but infringed duty to
perform a test run and orientation/seminar was contained in both Phases
1 and 2 installation contracts, it is imperative to declare that it is liable not
only for the herein subject Phase 2 contract but under the Phase 1
contract as well so as to arrive at an absolute and comprehensive
resolution of the impasse between the parties.
Hence, regardless of whether or not the Phases 1 and 2 installation
projects are independent of each other, CIGI violated the terms of the
individual contracts for both.
The foregoing pronouncement
notwithstanding, the Court finds
that the breach committed by CIGI
does not justify the rescission of the
installation contracts.
The denial of AMC’s amended counterclaim specifically praying for
rescission does not bar a discussion of such issue on appeal. Rescission
was pleaded in AMC’s original Answer with Counterclaim when it
implored the RTC for "other reliefs and remedies consistent with law and
equity are prayed for."51 The standing rule is that "[t]he prayer in the
complaint for other reliefs equitable and just in the premises justifies the
grant of a relief not otherwise specifically prayed for."52 This rule conveys
the inference that reliefs not specifically pleaded but included in a general
prayer for other equitable reliefs may be threshed out by the courts.
24 | P a g e
The Court, however, finds that AMC has no legal basis to demand the
rescission of the installation contracts. "[R]escission of a contract will not
be permitted for a slight or casual breach, but only for such substantial
and fundamental violations as would defeat the very object of the parties
in making the agreement. Whether a breach is substantial is largely
determined by the attendant circumstances."53 The provisions on the test
run of and seminar on the medical oxygen system are not essential parts
of the installation contracts as they do not constitute a vital fragment/part
of the centralized medical oxygen system.
Further, the allegedly defective and incomplete parts cannot substantiate
rescission. The photographs submitted by AMC are not adequate to
establish that certain parts of the installed system are indeed defective or
incomplete especially so that the installation never became operational.
Unless and until the medical oxygen and vacuum pipeline actually runs,
there is no way of conclusively verifying that some of its parts are
defective or incomplete. In addition, AMC failed to allege much less show
whether the alleged defects and incomplete components were caused by
factory defect, negligence on the part of CIGI or ordinary wear and tear.
At any rate, the parties have specified clauses in the subject contracts to
answer for such contingency. Article VI(b) of the Phase 2 installation
1aw p++i1
contract provides:
VI. CONDITIONS:
b. Warranty
CIGI guarantees all materials involved against factory defect for one (1)
year period from the date of project completion. CIGI shall also provide
maintenance services for this pipeline project after the one (1) year
warranty period provided that Alabang Medical Center shall purchase its
Medical Gases requirements exclusively to CIGI. [sic]
During the lifetime of the Supply of Medical Gases Contract, CIGI shall
undertake the maintenance of the system on a semi-annual basis which
shall include visual leak testing and minor repairs and spare parts for
replacement shall be "Free of Charge". Major repairs and spare parts for
replacement shall be charged to [A]labang Medical Center on a cost plus
basis.54 [sic]
Article 4.1 of the Phase 1 installation contract contains similar terms, viz:
CIVIL LAW REVIEW 2 (CASES)
4.1 The CONTRACTOR guarantees all materials involved against factory
defect for one (1) year period from the date of project completion.
CONTRACTOR shall also provide maintenance services for this pipeline
project after the one (1) year warranty period provided that the ‘OWNER"
shall purchase its Medical gases requirements exclusively to the
CONTRACTOR. [sic]
During the lifetime of the SUPPLY CONTRACT, the CONTRACTOR shall
undertake the maintenance of the system on semi-annual basis which
shall include visual leak testing and minor repairs which shall be "Free of
Charge". Major repairs and spare parts for replacement shall be charged
to Customer on a cost plus basis.55
Since, as discussed above, the agreed test run and orientation/seminar
for both Phases 1 and 2 installation projects were yet to be performed,
both projects are not yet complete and the one year warranty period has
not yet commenced to run.
In view of the fact that rescission is not permissible, the installation
contracts of the parties stand and the terms thereof must be duly fulfilled.
CIGI is obliged to comply with its undertakings to conduct a test run and
hold a seminar/orientation of concerned AMC employees, after which,
turn over the system fully functional and operational to AMC.
Simultaneously with the turnover, AMC shall pay the remaining balance
of ₱1,267,344.42 to CIGI.
Also, the Court finds it proper that after CIGI has turned over a complete
and functional medical oxygen and vacuum pipeline system, it must be
given the opportunity to inspect the allegedly defective and incomplete
parts. The results of such inspection will in turn determine which part of
the aforementioned warranty clauses shall govern.
AMC is not entitled to actual damages. AMC is not entitled to actual
damages representing interest payments on the loan it obtained from
Metrobank in order to fund the installation projects. For damages to be
recovered, the best evidence obtainable by the injured party must be
presented. Actual or compensatory damages cannot be presumed, but
must be proved with reasonable degree of certainty. The Court cannot
rely on speculation, conjecture or guesswork as to the fact and amount of
damages, but must depend upon competent proof that they have been
suffered and on evidence of the actual amount. If the proof is flimsy and
unsubstantial, no damages will be awarded.56
25 | P a g e
AMC failed to prove by substantial evidence any direct correlation
between the interest charges on its loan and CIGI’s failure to perform a
test run of, conduct seminar on and turn over the oxygen system. AMC
presented no evidence except bare allegations, which by law, do not
amount to competent proof of actual pecuniary loss.57 What is actually
borne out by the records is that the interest charges are imposed on the
loan and were payable by AMC regardless of the progress of the
installation projects.
Moreover, the CA was correct in finding that such loan was not
exclusively devoted to the installation projects but was also utilized in
financing the construction and air-conditioning system of AMC. It would
be certainly unfair to reimburse AMC for such interest payments absent
any factual proof of its fraction that pertains to the installation projects
themselves. "[O]ne is entitled to an adequate compensation only for such
pecuniary loss suffered by him as he has duly proved."58
WHEREFORE, all the foregoing considered, the Amended Decision
dated March 4, 2008 of the Court of Appeals in CA-G.R. CV No. 84988 s
SET ASIDE. Consolidated Industrial Gases, Inc. is hereby ORDERED to
faithfully comply, within a period of sixty (60) days, with ALL its
obligations under the installation contracts, including but not limited to the
following: (a) perform a pressure drop, leak testing, test run,
painting/color coding of the installed centralized medical oxygen, vacuum
and nitrous oxide pipeline system; (b) conduct orientation, seminars and
training of Alabang Medical Center employees who will be involved in the
operation of the centralized medical oxygen, vacuum and nitrous oxide
pipeline system; and (c) turn over a fully functional and fully operational
centralized medical oxygen, vacuum and nitrous oxide pipeline system to
Alabang Medical Center.
Alabang Medical Center is hereby ORDERED to (a) allow the
personnel/technicians of Consolidated Industrial Gases, Inc. to access
and utilize, free of charge, the hospital's electrical facilities in such a
manner and quantity necessary for he complete performance of its
above-enumerated undertakings, and (b) pay the balance of
₱1,267,344.42 upon and simultaneously with the turnover of a fully
functional and fully operational centralized medical oxygen, vacuum and
nitrous oxide pipeline system by Consolidated Industrial Gases, Inc.
The award of attorney's fees in favor of Alabang Medical Center is
deleted.
CIVIL LAW REVIEW 2 (CASES)

26 | P a g e