G.R. No.

194507 September 8, 2014 (15) days, payable not later than one (1) week from presentation of the
billing.
FEDERAL BUILDERS, INC., Petitioner,
vs. On January 9, 1992, FSI filed a complaint for Sum of Money against FBI
FOUNDATION SPECIALISTS, INC., Respondent, before the RTC of Makati City seeking to collect the amount of One
Million Six Hundred Thirty-Five Thousand Two Hundred Seventy-Eight
x-----------------------x 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
G.R. No. 194621 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.
FOUNDATION SPECIALISTS, INC., Petitioner,
vs.
FEDERAL BUILDERS, INC., Respondent. 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
DECISION
specifications and abandoning the jobsite. FBI maintains that because of
FSI’s inadequacy, its schedule in finishing the Project has been delayed
PERALTA, J.: resulting in the Project owner’s deferment of its own progress billings.10 It
further interposed counterclaims for amounts it spent for the remedial
Before the Court are two consolidated cases, namely: (1) Petition for works on the alleged defects in FSI’s work.
review on certiorari under Rule 45 of the Rules of Court, docketed as
G.R. No. 194507, filed by Federal Builders, Inc., assailing the On May 3, 2001, after evaluating the evidence of both parties, the RTC
Decision1 and Resolution,2dated July 15, 2010 and November 23, 2010, ruled in favor of FSI, the dispositive portion of its Decision reads:
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
WHEREFORE, on the basis of the foregoing, judgment is rendered
Regional Trial Court (RTC) in Civil Case No. 92-075; and (2) Petition for
ordering defendant to pay plaintiff the following:
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, 1. The sum of ₱1,024,600.00 representing billings 3 and 4, less
2010,respectively, of the CA in CA- G.R. CV No. 70849, which affirmed the amount of ₱33,354.40 plus 12% legal interest from August
with modification the Decision6 dated May 3, 2001 of the RTC in Civil 30, 1991;
Case No. 92-075.
2. The sum of ₱279,585.00 representing the cost of undelivered
The antecedent facts are as follows: cement;

On August 20, 1990, Federal Builders, Inc. (FBI) entered into an 3. The sum of ₱200,000.00 as attorney’s fees; and
agreement with Foundation Specialists, Inc. (FSI) whereby the latter, as
subcontractor, undertook the construction of the diaphragm wall, capping 4. The cost of suit.
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 Defendant’s counterclaim is deniedfor lack of factual and legal basis.
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 SO ORDERED.11
contract price and the balance, through a progress billing every fifteen
On appeal, the CA affirmed the Decision of the lower court, but deleted THE COURT OF APPEALS COMMITTED A CLEAR,
the sum of ₱279,585.00 representing the cost of undelivered cement and REVERSABLE ERROR WHEN IT AFFIRMED THE TRIAL
reduced the award of attorney’s fees to ₱50,000.00. In its COURT’S JUDGMENT THAT FEDERAL BUILDERS, INC. WAS
Decision12 dated July 15, 2010, the CA explained that FSI failed to LIABLE TO PAY THE BALANCE OF ₱1,024,600.00 LESS THE
substantiate how and in what manner it incurred the cost of cement by AMOUNT OF ₱33,354.40 NOTWITHSTANDING THAT THE
stressing that its claim was not supported by actual receipts. Also, it DIAPHRAGM WALL CONSTRUCTED BY FOUNDATION
found that while the trial court did not err in awarding attorney’s fees, the SPECIALIST, INC. WAS CONCEDEDLY DEFECTIVE AND OUT-
same should be reduced for being unconscionable and excessive. On OF-SPECIFICATIONS AND THAT PETITIONER HAD TO REDO
FBI’s rejection of the 12% annual interest rate on the amount of Billings 3 IT AT ITS OWN EXPENSE.
and 4, the CA ruled that the lower court did not err in imposing the same
in the following wise: II.

x x x The rule is well-settled that when an obligation is breached, and it THE COURT OF APPEALS COMMITTED SERIOUS,
consists in the payment of a sum of money, the interest due shall itself REVERSABLE ERROR WHEN IT IMPOSED THE 12% LEGAL
earn legal interest from the time it is judicially demanded (BPI Family INTEREST FROM AUGUST 30, 1991 ON THE DISPUTED
Savings Bank, Inc. vs. First Metro Investment Corporation, 429 SCRA CLAIM OF ₱1,024,600.00 LESS THE AMOUNT OF ₱33,354.40
30). When there is no rate of interest stipulated, such as in the present DESPITE THE FACT THAT THERE WAS NO STIPULATION IN
case, the legal rate of interest shall be imposed, pursuant to Article 2209 THE AGREEMENT OF THE PARTIES WITH REGARD TO
of the New Civil Code. In the absence of a stipulated interest rate on a INTEREST AND DESPITE THE FACT THAT THEIR
loan due, the legal rate of interest shall be 12% per annum.13 AGREEMENT WAS NOT A "LOAN OR FORBEARANCE OF
MONEY."
Both parties filed separate Motions for Reconsideration assailing different
portions of the CADecision, but to no avail.14 Undaunted, they III.
subsequently elevated their claims withthis Court via petitions for review
on certiorari. THE COURT OF APPEALS COMMITTED GRAVE AND
SERIOUS REVERSABLE ERROR WHEN IT DISMISSED THE
On the one hand, FSI asserted that the CA should not have deleted the COUNTERCLAIM OF PETITIONER NOTWITHSTANDING
sum of ₱279,585.00 representing the cost of undelivered cement and OVERWHELMING EVIDENCE SUPPORTING ITS CLAIM OF
reduced the award of attorney’s fees to ₱50,000.00, since it was an ₱8,582,756.29 AS ACTUAL DAMAGES.
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 The petition is partly meritorious.
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
We agree with the courts below and reject FBI’s first and third arguments.
concerned. In a Resolution15 dated February 21, 2011, however, this
Well-entrenched in jurisprudence is the rule that factual findings of the
Court denied, with finality, the petition filed by FSI in G.R. No. 194621 for
trial court, especially when affirmed by the appellate court, are accorded
having been filed late.
the highest degree of respectand considered conclusive between the
parties, save for the following exceptional and meritorious circumstances:
Hence, the present petition filed byFBI in G.R. No. 194507 invoking the (1) when the factual findings of the appellate court and the trial court are
following arguments: contradictory; (2) whenthe findings of the trial court are grounded entirely
on speculation, surmises or conjectures; (3) when the lower court’s
I. 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
beyond the issues of the case, or fail to notice certain relevant facts occupy which would naturally cause bulges, protrusions and
which, if properly considered, will justify a different conclusion; (6) when misalignment in the concrete cast into the excavated ground(tsn., June 1,
there is a misappreciation of facts; (7) when the findings of fact are 2000, pp 14-18). This, in fact was anticipated when the agreement was
themselves conflicting; and (8) when the findings of fact are conclusions executed and included as provision 6.4 thereof.
without mention of the specific evidence on which they are based, are
premised on the absence of evidence, or are contradicted by evidence on The construction of the diaphragm wall panel by panel caused
record.16 misalignment and the chipping off of the portions misaligned is
considered a matter of course. Defendant, as the main contractor of the
None of the aforementioned exceptions are present herein. In the project, has the responsibility of chopping or chipping off of bulges(tsn.,
assailed Decision, the RTC meticulouslydiscussed the obligations of ibid, pp 20-21). Wrong location of rebar dowels was anticipated by both
each party, the degree of their compliance therewith, as well as their contractor and subcontractor as the latter submitted a plan called "Detail
respective shortcomings, all of which were properly substantiated with the of Sheer Connectors" (Exh "T") which was approved.The plan provided
corresponding documentary and testimonial evidence. two alternatives by which the wrong location of rebar dowels may be
remedied. Hence, defendant, aware of the possibility of inaccurate
Under the construction agreement, FSI’s scope of workconsisted in (1) location of these bars, cannot therefore ascribe the same to the plaintiff
the construction of the guide walls, diaphragm walls, and capping beam; as defective work.
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 Construction of the capping beam required the use of cement. Records,
percent (97%) of its contracted works and the non-completion of the however, show that from September 14, 1990 up to May 30, 1991 (Exhs.
remaining three percent (3%), as well as the alleged defects in the said "B" to "L"), plaintiff had repeatedly requested defendant to deliver
works, are actually attributable to FBI’s own fault such as, but not limited cement. Finally, on April 22, 1991, plaintiff notified defendant of its
to, the failure to deliver the needed cement as agreed upon in the inability to construct the capping beam for the latter’s failure to deliver the
contract, to wit: cement as provided in their agreement(Exh. "I"). Although records show
that there was mention of revision of design, there was no evidence
On March 8, 1991, plaintiff had finished the construction of the guide wall presented to show such revision required less amount of cement than
and diaphragm wall (Exh. "R") but had not yet constructed the capping what was agreed on by plaintiff and defendant.
beam as of April 22, 1991 for defendant’s failure to deliver the needed
cement in accordance with their agreement(Exhibit "I"). The diaphragm The seventh phase of the construction of the diaphragm wall is the
wall had likewise been concrete tested and was found to have conformed construction of the steel props which could be installed only after the soil
with the required design strength (Exh. "R"). has been excavated by the main contractor. When defendant directed
plaintiff to install the props, the latter requested for a site inspection to
Subsequently, plaintiff was paid the aggregate amount of ₱5,814,000.00. determine if the excavation of the soil was finished up to the 4th level
But as of May 30, 1991, plaintiff’s billings numbers 3 and 4 had remained basement. Plaintiff, however, did not receive any response.It later
unpaid (Exhs. "L", "M", and "M-1"). learned that defendant had contracted out that portion of work to another
sub-contractor (Exhs. "O" and "P"). Nevertheless, plaintiff informed
xxxx defendant of its willingness to execute that portion of its work.18

On the misaligned diaphragm wall from top to bottom and inbetween It is clear from the foregoing that contrary to the allegations of FBI, FSI
panels, plaintiff explained thatin the excavation of the soil where the rebar had indeed completed its assigned obligations, with the exception of
cages are lowered and later poured with concrete cement, the certain assigned tasks, which was due to the failure of FBI to fulfil its end
characteristics of the soil is not the same or homogenous all throughout. of the bargain.
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
It can similarly be deduced that the defects FBI complained of, such as Anent FBI’s second assignment of error, however, We find merit in the
the misaligned diaphragm wall and the erroneous location of the rebar argument that the 12% interest rateis inapplicable, since this case does
dowels, were not only anticipated by the parties, having stipulated not involve a loan or forbearance ofmoney. In the landmark case of
alternative plans to remedy the same, but more importantly, are also Eastern Shipping Lines, Inc. v. Court of Appeals,20 We laid down the
attributable to the very actions of FBI. Accordingly, considering that the following guidelines in computing legal interest:
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 II. With regard particularly to an award of interest in the concept of actual
by FBI’s own acts, FBI’s claim of ₱8,582,756.29 representing the cost of and compensatory damages, the rate of interest, as well as the accrual
the measures it undertook to rectify the alleged defects must necessarily thereof, is imposed, as follows:
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: 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
Defendant admitted that it had paid ₱6 million based on its evaluation of interest due should be that which may have been stipulated in
plaintiff’s accomplishments (tsn., Sept. 28, 2000, p. 17) and its payment writing. Furthermore, the interest due shall itself earn legal
was made without objection on plaintiff’s works, the majority of which interest from the time it is judicially demanded. In the absence of
were for the accomplishments in the construction of the diaphragm wall stipulation, the rate of interest shall be 12% per annum to be
(tsn., ibid, p. 70). computed from default, i.e., from judicial or extrajudicial demand
under and subject to the provisions of Article1169 of the Civil
xxxx Code.

While there is no evidence to show the scope of work for these billings, it 2. When an obligation, not constituting a loan or forbearance of
is safe to assume that these were also works in the construction of the money, is breached, an interest on the amount of damages
diaphragm wall considering that as of May 16, 1991, plaintiff had only the awarded may be imposed at the discretion of the court at the rate
installation of the steel props and welding works to complete (Exh. "H"). If of 6% per annum. No interest, however, shall be adjudged on
defendant was able to evaluate the work finished by plaintiff the majority unliquidated claims or damages except when or until the demand
of which was the construction of the diaphragm wall and paid it about ₱6 can be established with reasonable certainty. Accordingly, where
million as accomplishment, there was no reason why it could not evaluate the demand is established with reasonable certainty, the interest
plaintiff’s works covered by billings 3 and 4.In other words, defendants shall begin to run from the time the claim is made judicially or
did nothave to excavate in order to determine and evaluate plaintiff’s extrajudicially (Art. 1169, Civil Code) but when such certainty
works. Hence, defendant’s refusal to pay was not justified and the cannot be so reasonably established at the time the demand is
alleged defects of the diaphragm wall (tsn, Sept. 28, 2000, p. 17) which it made, the interest shall begin to run only from the date the
claims to have discovered only after January 1992 were mere judgment of the court is made (at which time the quantification of
afterthoughts.19 damages may be deemed to have been reasonably ascertained).
The actual base for the computation of legal interest shall, in any
Thus, in the absence of any record to otherwise prove FSI’s neglect in case, be on the amount finally adjudged.
the fulfilment of its obligations under the contract, this Court shall refrain
from reversing the findings of the courts below, which are fully supported 3. When the judgment of the court awarding a sum of money
by and deducible from, the evidence on record. Indeed, FBI failed to becomes final and executory, the rate of legal interest, whether
present any evidence to justify its refusal to pay FSI for the works it was the case falls under paragraph 1 or paragraph 2, above, shall be
contracted to perform. As such, We do not see any reason to deviate 12% per annum from such finality until its satisfaction, this interim
from the assailed rulings. period being deemed to be by then an equivalent to a
forbearance of credit.21
In line, however, with the recent circular of the Monetary Board of the legal interest, whether the case falls under paragraph 1 or
Bangko Sentral ng Pilipinas (BSP-MB) No. 799, we have modified the paragraph 2, above, shall be 6% per annumfrom such
guidelines in Nacar v. Gallery Frames,22 as follows: finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of
I. When an obligation, regardless of itssource, i.e., law, contracts, credit.
quasicontracts, delicts or quasi-delicts is breached, the
contravenor can be held liable for damages. The provisions under And, in addition to the above, judgments that have become final and
Title XVIII on "Damages" of the Civil Code govern in determining executory prior to July 1, 2013, shall not be disturbed and shall continue
the measure of recoverable damages. to be implemented applying the rate of interest fixed therein.23

II. With regard particularly to an award of interest in the concept It should be noted, however, that the new rate could only be applied
of actual and compensatory damages, the rate of interest, as well prospectively and not retroactively. Consequently, the twelve percent
as the accrual thereof, is imposed, as follows: (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
1. When the obligation is breached, and it consists in the the prevailing rate of interest when applicable. Thus, the need to
payment of a sum of money, i.e., a loan or forbearance of determine whether the obligation involved herein is a loanand
money, the interest due should be that which may have forbearance of money nonetheless exists.
been stipulated in writing. Furthermore, the interest due
shall itself earn legal interest from the time it is judicially In S.C. Megaworld Construction and Development Corporation v. Engr.
demanded. In the absence of stipulation, the rate of Parada,24 We clarified the meaning of obligations constituting loans or
interest shall be 6% per annumto be computed from forbearance of money in the following wise:
default, i.e., from judicial or extrajudicial demand under
and subject to the provisions of Article 1169 of the Civil As further clarified in the case of Sunga-Chan v. CA, a loan or
Code. forbearance of money, goods or credit describes a contractual obligation
whereby a lender or creditor has refrained during a given period from
2. When an obligation, not constituting a loan or requiring the borrower or debtor to repay the loan or debt then due and
forbearance of money, is breached, an interest on the payable. Thus:
amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum. No In Reformina v. Tomol, Jr., the Court held that the legal interest at 12%
interest, however, shall be adjudged on unliquidated per annum under Central Bank (CB) Circular No. 416 shall be adjudged
claims or damages, except when or until the demand can only in cases involving the loan or forbearance of money. And for
be established with reasonable certainty. Accordingly, transactions involving payment of indemnities in the concept of damages
where the demand is established with reasonable arising from default in the performance of obligations in general and/or for
certainty, the interest shall begin to run from the time the money judgment not involving a loan or forbearance of money, goods, or
claim is made judicially or extrajudicially(Art. 1169, Civil credit, the governing provision is Art. 2209 of the Civil Code prescribing a
Code), but when such certainty cannot be so reasonably yearly 6% interest. Art. 2209 pertinently provides:
established at the time the demand is made, the interest
shall begin to run only from the date the judgment of the Art. 2209. If the obligation consists in the payment of a sum of money,
court is made (at which time the quantification of and the debtor incurs in delay, the indemnity for damages, there being no
damages may be deemed to have been reasonably stipulation to the contrary, shall be the payment of the interest agreed
ascertained). The actual base for the computation of legal upon, and in the absence of stipulation, the legal interest, which is six per
interest shall, in any case, be on the amount finally cent per annum.
adjudged. 3. When the judgment of the court awarding a
sum of money becomes final and executory, the rate of
The term "forbearance," within the context of usury law, has been Note, however, that contrary to FBI’sassertion, We find no error in the
described as a contractual obligation ofa lender or creditor to refrain, RTC’s ruling that the interest shall begin to run from August 30, 1991 as
during a given period of time, from requiring the borrower or debtor to this is the date when FSI extrajudicially made its claim against FBI
repay the loan or debt then due and payable.25 through a letter demanding payment for its services.35

Forbearance of money, goods or credits, therefore, refers to In view of the foregoing, therefore, We find no compelling reason to
arrangements other than loan agreements, where a person acquiesces to disturb the factual findings of the RTC and the CA, which are fully
the temporary use of his money, goods orcredits pending the happening supported by and deducible from, the evidence on record, insofar as the
of certain events or fulfilment of certain conditions.26 Consequently, if sum representing Billings 3 and 4 is concerned. As to the rate of interest
those conditions are breached, said person is entitled not only to the due thereon, however, We note that the same should be reduced to 6%
return of the principal amount paid, but also to compensation for the use per annum considering the fact that the obligation involved herein does
of his money which would be the same rateof legal interest applicable to not partake of a loan or forbearance of money.
a loan since the use or deprivation of funds therein is similar to a loan.27
WHEREFORE, premises considered, the instant petition is DENIED. The
This case, however, does not involve an acquiescence to the temporary Decision and Resolution, dated July 15, 2010 and November 23, 2010,
use of a party’s money but a performance of a particular service, respectively, of the Court of Appeals in CA-G.R. CV No. 70849 are
specifically the construction of the diaphragm wall, capping beam, and hereby AFFIRMED with MODIFICATION. Federal Builders, Inc. is
guide walls of the Trafalgar Plaza. 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
A review of similar jurisprudence would tell us that this Court had interest at six percent (6%) per annum reckoned from August 30, 1991
repeatedly recognized this distinction and awarded interest at a rate of until full payment thereof.
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 SO ORDERED.
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.

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
OLONGAPO CITY, Petitioner, On October 24, 1990, petitioner filed a complaint for sum of money and
vs. damages against OCWD. Among others, petitioner alleged that OCWD
SUBIC WATER AND SEWERAGE CO., INC., Respondent. 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
DECISION system. In its complaint, petitioner prayed for the following reliefs:

BRION, J.: "WHEREOF, it is respectfully prayed of this Honorable Court that after
due hearing and notice, judgment be rendered in favor of plaintiff
We resolve in this petition for certiorari1 under Rule 65 the challenge to ordering the defendant 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. (a) pay the amount of ₱26,798,223.70 plus legal interests from
the filing of the Complaint to actual full payment;
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 ), (b) pay the amount of its in lieu share representing three percent
which directed the issuance of a writ of execution in Civil Case No. 582-0- of the defendant’s gross receipts from water sales starting 1981
90, against respondent Subic Water and Sewerage Co., Inc. (Subic up to present;
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, (c) pay the amount of ₱1,000,000 as moral damages; and
denying Subic Water's special appearance with motion to reconsider
order dated July 29, 2003 and to quash writ of execution dated July 31, (d) pay the cost of suit and other litigation expenses."13
2003.7
In its answer,14 OCWD posed a counterclaim against petitioner for unpaid
Factual Antecedents water bills amounting to ₱3,080,357.00.15

On May 25, 1973, Presidential Decree No. 1988 (PD 198) took effect. In the interim, OCWD entered into a Joint Venture Agreement16 (JVA) with
This law authorized the creation of local water districts which may Subic Bay Metropolitan Authority (SBMA), Biwater International Limited
acquire, install, maintain and operate water supply and distribution (Biwater), and D.M. Consunji, Inc. (DMCI) on November 24, 1996.
systems for domestic, industrial, municipal and agricultural uses.9 Pursuant to this agreement, Subic Water– a new corporate entity – was
incorporated, withthe following equity participation from its shareholders:
Pursuant to PD 198, petitioner Olongapo City (petitioner) passed
Resolution No. 161, which transferred all itsexisting water facilities and SBMA 19.99% or 20%
assets under the Olongapo City Public Utilities Department Waterworks
Division, to the jurisdiction and ownership of the Olongapo City Water OCWD 9.99% or 10%
District (OCWD).10
Biwater 29.99% or 30%
PD 198, as amended,11 allows local water districts (LWDs)which have
acquired an existing water system of a localgovernment unit (LGU) to
DMCI 39.99% or 40%17
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 On November 24, 1996, Subic Water was granted the franchise to
from water sales in any year.12 operate and to carry on the businessof providing water and sewerage
services in the Subic BayFree Port Zone, as well as in Olongapo
City.18 Hence, Subic Water took over OCWD’s water operations in had already been dissolved and that Subic Water is now the former
Olongapo City.19 OCWD.29

To finally settle their money claims against each other, petitioner and Because of this assertion, Subic Water also filed a manifestation
OCWD entered into a compromise agreement20 on June 4, 1997. In this informing the trial court that as borne out by the articles of incorporation
agreement, petitioner and OCWD offset their respective claims and and general information sheet of Subic Water x x x defendant OCWD is
counterclaims. OCWD also undertook to pay to petitioner its net not Subic Water.30The manifestation also indicated that OCWD was only
obligation amounting to ₱135,909,467.09, to be amortized for a period of a ten percent (10%) shareholder of Subic Water; and that its 10% share
not exceeding twenty-five (25) years at twenty-fourpercent (24%) per was already inthe process of being transferred to petitioner pursuant to
annum.21 the Deed of Assignment dated November 24, 1997.31

The compromise agreement also contained a provision regarding the The trial court granted the motion for execution and directed its issuance
parties’ requestthat Subic Water, Philippines,which took over the against OCWD and/or Subic Water. Because of this unfavorable order,
operations of the defendant Olongapo City Water District be made the Subic Water filed a special appearance with motion to: (1) reconsider
co-makerfor OCWD’s obligations. Mr. Noli Aldip, then chairman of Subic order dated July29, 2003; and (2) quash writ of execution dated July 31,
Water, acted as its representative and signed the agreement on behalf of 2003.32
Subic Water.
The trial court denied Subic Water’s special appearance, motion for
Subsequently, the parties submitted the compromise agreement to RTC reconsideration, and its motion to quash. Subic Water then filed a petition
Olongapo for approval. In its decision dated June 13, 1997,22 the trial for certiorari33 with the CA, imputing grave abuse of discretion amounting
court approved the compromiseagreement and adopted it as its judgment to lack or excess of jurisdiction to RTC Olongapo for issuing its July 29,
in Civil Case No. 580-0-90. 2003 and October 7, 2003 orders aswell as the writ of execution dated
July 31, 2003. The CA’s Ruling
Pursuant to the compromise agreement and in payment of OCWD’s
obligations to petitioner,petitioner and OCWD executed a Deed of In its decision dated July 6, 2005,34 the CA granted Subic Water’s petition
Assignment onNovember 24, 1997.23 OCWD assigned all of its rights in for certiorariand reversed the trial court’s rulings.
the JVA in favor of the petitioner, including but not limited to the
assignment of its shares, lease payments, regulatory assistance fees and The CA found that the writ ofexecution dated July 31, 200335 did not
other receivables arising out of or related to the Joint Venture Agreement comply with Section 6, Rule 39 of the Rules of Court, to wit:
and the Lease Agreement.24 On December 15,1998, OCWD was judicially
dissolved.25 Section 6. Execution by motion orby independent action. — A final and
executory judgment or order may be executed on motion within five (5)
On May 7, 1999, to enforce the compromise agreement, the petitioner years from the date of its entry. After the lapse of such time, and before it
filed a motion for the issuance of a writ of execution26 with the trial court. is barred by the statute of limitations, a judgment may be enforced by
In its July 23, 1999 order,27 the trial court granted the motion, but did not action. The revived judgment may also be enforced by motion within five
issue the corresponding writ of execution. (5) years from the date of its entry and thereafter by action before it is
barred by the statute of limitations. (6a)[emphasis ours]
Almost four years later, on May 30, 2003, the petitioner, through its new
counsel, filed a notice of appearance with urgent A judgment on a compromiseagreement is immediately executory and is
motion/manifestation28 and prayed again for the issuance of a writ of considered to have been entered on the date it was approved by the trial
execution against OCWD. A certain Atty. Segundo Mangohig, claiming to court.36 Since the compromise agreement was approved and adoptedby
be OCWD’s former counsel, filed a manifestation alleging that OCWD the trial court on June 13, 1997, this should be the reckoning date for the
counting of the period for the filing of a valid motion for issuance of a writ We DISMISSthe petition for being the wrong remedy and, in any case, for
of execution. Petitioner thus had until June 13, 2002, to file its motion. 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.
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 A. Procedural Law Aspect
trial court in its July 23, 1999 order,37 no writ of execution was actually
issued. Certiorari is not a substitute for a lost appeal.

As the CA looked at the case, petitioner, instead of following up with the At the outset, we emphasize thatthe present petition, brought under Rule
trial court the issuance ofthe writ of execution, did not do anything to 65, merits outright dismissal for having availed an improper remedy.
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 The instant petition should havebeen brought under Rule 45 in a petition
for the filing of a motion for the issuance of the writ had already lapsed. for review on certiorari. Section 1 of this Rule mandates:
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
Section 1. Filing of petition with Supreme Court. — A party desiring to
jurisdiction.
appeal by certiorari from a judgment or final order or resolution of the
Court of Appeals, the Sandiganbayan, the Regional Trial Court or other
The CA denied petitioner’s subsequentmotion for reconsideration. courts whenever authorized by law, may file with the Supreme Court a
Petitioner is now before us on a petition for certiorari under Rule 65. verified petition for review on certiorari. The petition shall raise only
questions of law which must be distinctly set forth. (1a, 2a) [emphasis
The Petition supplied]

The petitioner acknowledged the rule that the execution of a judgment Supplementing Rule 45 are Sections 341 and 442 of Rule 56 which govern
could no longer be made by mere motion after the prescribed five-year the applicable procedure in the Supreme Court.
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. Appeals from judgmentsor final orders or resolutions of the CA should be
The petitioner submitted that this Court had allowed execution by mere made through a verified petition for review on certiorari under Rule
motion even after the lapse ofthe five-year period, when the delay was 45.43 In this case, petitioner questioned the July 6, 2005 decision44 and the
caused or occasioned by the actions of the judgment debtor.39 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
Also, the petitioner asserted that although Subic Water was not a party in completely disposed of the case and the issues raised by the parties, it
the case, it could still be subjected to a writ of execution, since it was was the proper subject of a Rule 45 petition. It was already a final order
identified as OCWD’s co-maker and successor-in-interest in the that resolved the subject matter in its entirety, leaving nothing else to be
compromise agreement.40 done.

Lastly, the petitioner contended that the compromise agreement was A petition for certiorari under Rule 65 is appropriate only if there is no
signed by Mr. Noli R. Aldip,then Subic Water’s chairman, signifying Subic appeal, or any plain, speedy, and adequate remedy in the ordinary
Water’s consent to the agreement. course of law available tothe aggrieved party. As we have distinctly
explained in the case of Pasiona v. Court of Appeals:46
The Court’s Ruling
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
case, petitioner had an adequate remedy, namely, a petition for review judgment. Execution by motion is only available if the enforcement of the
on certiorari under Rule 45 ofthe Rules of Court.A petition for review on judgment was sought within five (5) years from the date of its entry. On
certiorari, not a special civil action for certiorari was, therefore, the correct the other hand, execution by independent action is mandatory if the five-
remedy. year prescriptive period for execution by motion had already
elapsed.51 However, for execution by independent action to prosper – the
xxxx 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)
Settled is the rule that where appeal is available to the aggrieved party, years from the finality of the judgment.52
the special civil actionfor certiorari will not be entertained – remedies of
appealand certiorari are mutually exclusive, not alternative or successive. On May 7, 1999, within the five-year period from the trial court’s
Hence, certiorari is not and cannot be a substitute for a lost judgment, petitioner filed its motion for the issuance of a writ of execution.
appeal,especially if one's own negligence or error in one's choice of However, despite the grant of the motion, the court did not issue an
remedy occasioned such loss or lapse.47 [emphasis ours] 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-
The petitioner received the CA’s assailed resolution denying its motion year period for execution by motion had already lapsed.
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 As will be discussed below, since the second motion was filed beyond
petition for review. It could have even filed a motion for a 30-day the five-year prescriptive period set by the Rules, then the writ of
extension of time, a motion that this Court grants for justifiable execution issued by the trial court on July 31, 2003 was null and void for
reasons.49 But all of these, it failed to do. Thus, the assailed CA rulings having been issued by a court already ousted ofits jurisdiction.
became final and executory and could no longer be the subject of an
appeal. 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
Apparently, to revive its lost appeal, petitioner filed the present petition for only effective within the five-year period from the entry of judgment.
certiorari that – under Rule 65 – may be filed within sixty days from the Outside this five-year period, any writ of execution issued pursuant to a
promulgation of the assailed CA resolution (on January 3, 2006). A Rule motion filed by the judgment creditor, is null and void. If no writ of
65 petition for certiorari, however, cannot be a substitute for a lost execution was issued by the court within the five-year period, even a
appeal. With the lapse of the prescribed period for appeal without an motion filed within such prescriptive period would not suffice. A writ
action from the petitioner, the present petition for certiorari– a mere issued by the court after the lapse of the five-year period is already null
replacement –must be dismissed. 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
But even without the procedural infirmity, the present recourse to us has by law for the enforcement of judgments.
no basis on the merits and must be denied.
This Court subsequently reiterated its Arambuloruling in Ramos v.
Execution by motion is only available within the five-year period from Garciano,55 where we said:
entry of judgment.
There seems to be no serious dispute that the 4th alias writ of execution
Under Rule 39, Section 6, a judgment creditor has two modes in
50 was issued eight (8) daysafter the lapse of the five (5) year period from
enforcing the court’s judgment. Execution may be either through motion the dateof the entry of judgment in Civil Case No. 367. As a general rule,
or an independent action. 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).
These two modes of execution are available depending on the timing
when the judgmentcreditor invoked its right to enforce the court’s xxxx
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. 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]
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 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
Subic Water never participated in the proceedings in Civil Case No. 580-
his joint and several liabilitywith the principal.
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 In the present case, the joint and several liability of Subic Water and
that OCWD had already been judicially dissolved and thatSubic Water OCWD was nowhere clear in the agreement. The agreement simply and
assumed OCWD’s personality. 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
In the present case, the compromise agreement, although signed by Mr.
approved by Subic Water’s board of directors.
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
Under these circumstances, petitioner cannot proceed after Subic Water has been conferred upon him, and this includes powers which have been
for OCWD’s unpaid obligations. The law explicitly states that solidary intentionally conferred, and also such powers as, in the usual courseof
liability is not presumed and must be expressly provided for. Not being a the particular business, are incidental to, or may be implied from, the
surety, Subic Water is not an insurer of OCWD’s obligations under the powers intentionally conferred, powers added bycustom and usage, as
compromise agreement. At best, Subic Water was merely a guarantor usually pertaining to the particular officer or agent,and such apparent
against whom petitioner can claim, provided it was first shown that: a) powers as the corporation has caused persons dealing with the officer
petitioner had already proceeded after the properties of OCWD, the oragent to believe that ithas conferred.64 [emphasis ours]
principal debtor; b) and despite this, the obligation under the compromise
agreement, remains to be not fully satisfied.61 But as will be discussed Mr. Noli Aldip signedthe compromise agreement purely in his own
next, Subic Water could not also be recognized as a guarantorof capacity. Moreover, the compromise agreement did not expressly provide
OCWD’s obligations. that Subic Water consented to become OCWD’s co-maker. As worded,
the compromise agreement merely provided that both parties
An officer’s actions can only bind the corporation ifhe had been [also]requestSubic Water, Philippines, which took over the operations of
authorized to do so. Olongapo City Water District be made asco-maker [for the obligations
above-cited].This request was never forwarded to Subic Water’s board of
An examination of the compromise agreement reveals that it was not directors. Even if due notification had been made (which does not
accompanied by any document showing a grant of authority to Mr. Noli appearin the records), Subic Water’s board does not appear to have
Aldip to sign on behalf of Subic Water. given any approval tosuch request. Nodocument such as the minutes of
Subic Water’s board of directors’ meeting or a secretary’s certificate,
Subic Water is a corporation. A corporation, as a juridical entity, primarily purporting to be an authorization to Mr. Aldip to conform to the
acts through its board ofdirectors, which exercises its corporate powers. compromise agreement, was everpresented. In effect, Mr. Aldip’s act of
In this capacity, the general rule is that, in the absence of authority from signing the compromise agreement was outside of his authority to
the board ofdirectors, no person, not even its officers, can validly bind a undertake.
corporation.62 Section 23 of the Corporation Code provides:
Since Mr. Aldip was never authorized and there was no showing that
Section 23. The board of directors or trustees.– Unless otherwise Subic Water’s articles of incorporation or by-laws granted him such
provided in this Code, the corporate powers of all corporations formed authority, then the compromise agreement he signed cannot bind Subic
under this Code shall be exercised, all business conducted and all Water. Subic Water cannot likewise be made a surety or even a
property of such corporations controlled and held by the board of guarantor for OCWD’s obligations. OCWD’s debts under the compromise
directors or trusteesto be elected from among the holders of stocks, or agreement are its own corporate obligations to petitioner.
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 OCWD and Subic Water are two separate and different entities.
and qualified. (28a) [emphasis supplied]
Petitioner practically suggests that since Subic Water took over OCWD’s
In People’s Aircargo and Warehousing Co., Inc. v. Court of Appeals, we 63 water operations in OlongapoCity, it also acquired OCWD’s juridical
held that under Section 23 of the Corporation Code, the power and personality, making the two entities one and the same.
responsibility to decide whether a corporation can enter into a binding
contract is lodged with the board of directors, subject to the articles of This is an interpretation that we cannot make or adopt under the facts
incorporation, by-laws, or relevant provisions of law. As we have clearly and the evidence of this case. Subic Water clearly demonstrated that it
explained in another case: was a separate corporate entity from OCWD. OCWD is just a ten percent
(10%) shareholder of Subic Water. As a mere shareholder, OCWD’s
A corporate officer or agent may represent and bind the corporation in juridical personality cannot be equated nor confused with that ofSubic
transactions with third persons to the extent that [the] authority to do so Water. It is basic in corporation law that a corporation is a juridical entity
vested with a legal personality separate and distinct from those acting for G.R. No. 207348 August 19, 2014
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 ROWENA R. SALONTE, Petitioner,
corporate obligations in the same manner that OCWD cannot be held vs.
liable for the obligations incurred by Subic Water as a separate entity. COMMISSION ON AUDIT, CHAIRPERSON MA. GRACIA PULIDO-
The corporate veilshould not and cannot be pierced unless it is clearly TAN, COMMISSIONER JUANITO G. ESPINO, JR., COMMISSIONER
established that the separate and distinct personality of the corporation HEIDI L. MENDOZA, and FORTUNATA M. RUBICO, DIRECTOR IV,
was used to justify a wrong, protect fraud, or perpetrate a deception.66 COA COMMISSION SECRETARIAT, in their official
capacities, Respondents.
In Concept Builders, Inc. v. NLRC,67 the Court enumerated the possible
probative factors of identity which could justify the application of the DECISION
doctrine of piercing the corporate veil. These are:
VELASCO, JR., J.:
(1) Stock ownership by one or common ownership of both
corporations; The Case

(2) Identity of directors and officers;(3) The manner of keeping This is a petition for review filed under Rule 64 assailing the February 15,
corporate books and records; and(4) Methods of conducting the 2008 Decision1 and November 5, 2012 Resolution,2 denominated as
business.68 Decision Nos. 2008-018 and 2012-190, respectively, of the Commission
on Audit (COA). The assailed issuances affirmed the Notice of
The burden of proving the presence of any of these probative factors lies Disallowance No. (ND) 2000-002-101(97) dated November 14, 2001
with the one alleging it. Unfortunately, petitioner simply claimed that issued by Rexy M. Ramos, COA State Auditor IV, pursuant to COA
Subic Water took over OCWD's water operations in Olongapo City. Apart Assignment Order No. 2000-63.3
from this allegation, petitioner failed to demonstrate any link to justify the
construction that Subic Water and OCWD are one and the same. The Facts

Under this evidentiary situation, our duty is to respect the separate and On April 26, 1989, the City of Mandaue and F.F. Cruz and Co., Inc. (F.F.
distinct personalities of these two juridical entities.
1âwphi1

Cruz) entered into a Contract of Reclamation4 in which F.F. Cruz, in

consideration of a defined land sharing formula thus stipulated, agreed to
We thus deny the present petition. The writ of execution issued by RTC undertake, at its own expense, the reclamation of 180 hectares, more or
Olongapo, Br. 75, in favor of Olongapo City, is hereby confirmed to be less, of foreshore and submerged lands fromthe Cabahug Causeway in
null and void. Accordingly, respondent Subic Water cannot be made that city. The timetables, i.e., commencement of the contract and project
liable under this writ. completion, are provided in paragraphs 2 and 15 of the Contract which
state:
WHEREFORE, premises considered, we hereby DISMISS the petition.
The Court of Appeals' decision dated July 6, 2005 and resolution dated 2. COMMENCEMENT. Work on the reclamation shall commence not
January 3, 2006, annulling and setting aside the orders of the Regional later than [July 1989], after thiscontract shall be ratified by the
Trial Court of Olongapo, Branch 75 dated July 29, 2003 and October 7, Sanggunian Panlungsod;
2003, and the writ of execution dated July 31, 2003, are hereby
AFFIRMED. Costs against the City of Olongapo. xxxx

SO ORDERED. 15. CONTRACT DURATION. The project is estimated to be completed in

six (6) years: (3 years for the dredge-filling and seawall construction and
3 years for the infrastructures completion). However, if all the Pursuant to the MOA, F.F. Cruz proceeded to construct the contemplated
infrastructures within the OWNERS’ share of the project are already housing units and other facilities which included a canteen and a septic
completed within the six (6) year period agreed upon, any extension of tank.
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 Later developments saw the City of Mandaue undertaking the Metro
requirements of the lot buyers are inevitable. Cebu Development Project II (MCDP II), part of which required the
widening of the Plaridel Extension Mandaue Causeway. However, the
On a best effort basis, the construction of roadways, drainage system structures and facilities built by F.F. Cruz subject of the MOA stood in the
and open spaces in the area designated as share of the City of Mandaue, direct path of the road widening project. Thus, the Department of Public
shall be completed not later than December 31, 1991. (emphasis Works and Highways (DPWH) and Samuel B. Darza, MCDP II project
supplied) director, entered into an Agreement to Demolish, Remove and
Reconstruct Improvement dated July 23, 19976 with F.F. Cruz whereby
Subsequently, the parties inked inrelation to the above project a the latter would demolish the improvements outside of the boundary of
Memorandum of Agreement (MOA) dated October 24, 19895 whereby the the road widening project and, in return, receive the total amount of PhP
City of Mandaue allowed F.F. Cruz to put up structures on a portion of a 1,084,836.42 in compensation.
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 Accordingly, petitioner Rowena B.Rances (now Rowena RancesSolante),
provided in paragraphs 3, 4 and 5 of the MOA: Human Resource Management Officer III, prepared and, with the
approval of Samuel B. Darza (Darza), then issued Disbursement Voucher
3) That [F.F. Cruz] desires to use a portion of a parcel of land of (DV) No. 102-07-88-97 dated July 24, 19977 for PhP 1,084,836.42 in
the [City of Mandaue] described under paragraph 1 hereof to the favor of F.F. Cruz. In the voucher, Solante certified that the expense
extent of 495 square meters x x x to be used by them in the covered by it was "necessary, lawful and incurred under my direct
construction of their offices to house its personnel to supervise supervision."
the Mandaue City Reclamation Project x x x.
Thereafter, Darza addressed a letter-complaint to the Office of the
xxxx Ombudsman, Visayas, inviting attention to several irregularities regarding
the implementation of MCDP II. The letter was referred to the COA which
4) That the [City of Mandaue] agrees to the desire of [F.F. Cruz] then issued Assignment Order No. 2000-063 for a team to audit the
to use a portion of the parcel of land described under paragraph 1 accounts of MCDP II. Following an audit, the audit team issued Special
by [F.F. Cruz] for the latter to use for the construction of their Audit Office (SAO) Report No. 2000-28, par. 5 of which states:
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 F.F. Cruz and Company, Inc. was paid ₱1,084,836.42 for the cost of the
[City of Mandaue]. property affected by the widening of Plaridel Extension, Mandaue
Causeway. However, under Section 5 of its MOA with Mandaue City, the
5) That the [City of Mandaue] and [F.F. Cruz] have agreed that former was no longer the lawful owner of the properties at the time the
upon the completion of the Mandaue City Reclamation Project, all payment was made.8
improvements introduced by [F.F. Cruz] to the portion of the
parcel of land owned by the [City of Mandaue]as described under Based on the above findings, the SAO audit team, through Rexy Ramos,
paragraph 3 hereof existing upon the completion of the said issued the adverted ND 2000-002-101-(97)9 disallowing the payment of
Mandaue City Reclamation Project shall ipso facto belong to the PhP 1,084,836.42 to F.F. Cruz and naming that company, Darza and
[City of Mandaue] in ownershipas compensation for the use of Solante liable for the transaction. Therefrom, Solante sought
said parcel of land by [F.F. Cruz] without any rental whatsoever. reconsideration, while F.F. Cruz appealed, but the motion for
(emphasis supplied) reconsideration and the appeal were jointly denied in Legal and
Adjudication Office (LAO) Local Decision No. 2004-040 dated March 5, F.F. Cruz & Co., Inc., thus, negating the mutuality of contracts principle
2004, which F.F. Cruz in time appealed to COA Central. expressed in Article 1308 ofthe New Civil Code, which states:

In the meantime, the adverted letter-complaint of Darza was upgraded as Art. 1308. The contracts must bindboth contracting parties; its validity or
an Ombudsman case, docketed as OMB-V-C-03-0173-C, against compliance cannot be leftto the will of one of them.
Solante, et al., albeit the Ombudsman, by Resolution of June 29,
2006,10 would subsequently dismiss the same for lack of merit. On February 15, 2013, Solante received a Notice of Finality of Decision
(NFD)14 stating that the COA Decision dated February 15, 2008 and
The Ruling of the Commission on Audit Resolution dated November 5, 2012 have become final and executory, a
copy of the Resolution having been served on the parties on November
In its February 15, 2008 Decision,11 the COA, as indicated at the outset, 9, 2012 by registered mail. Notably, Solante never received a copy of the
affirmed ND 2000-002-101-97 on the strength of the following premises: 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
From the above provision of the MOA, it is clear that the improvements Deliverydated May 8, 2013,15 stated that the registered mail containing
introduced by F.F. Cruz x x x would be owned by the City upon said copy was in fact not delivered.
completion of the project which under the Contract of reclamation should
have been in 1995. However, the project was not completed in 1995 and Hence, the instant petition.
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 The Issue
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 The resolution of the present controversy rests on the determination of a
x x x. Clearly, the intention of the stipulation is for F.F. Cruz x x x to sole issue: who between the City ofMandaue and F.F. Cruz owned during
compensate the government for the use of the land on which the office, the period material the properties that were demolished.
pavement, canteen, extension shed, house and septic tank were erected.
Thus, to make the government pay for the cost of the demolished The Court’s Ruling
improvements will defeat the intention of parties as regards
compensation due from the contractor for its use of [the] subject land.
The petition is meritorious. The COA and its audit team obviously
Under Article 1315 of the Civil Code, from the moment a contract is
misread the relevant stipulations of the MOA in relation to the provisions
perfected, the parties are bound to the fulfillment to what has been
on project completion and termination of contract of the Mandaue-F.F.
expressly stipulated and all the consequences which according to their
Cruz reclamation contract.
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 Essentially, the COA is alleging that the Contract of Reclamation
fromtheir contractual obligations.12 (emphasis supplied) 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
From such decision, Solante filed a Motion for Reconsideration dated
that after the six (6)-year period, F.F. Cruz is automatically deemed to be
June 28, 2010 purportedly with Audit Team Leader, Leila Socorro P.
in delay, the contract considered as completed, and the ownership of the
Domantay. This motion was denied by the COA in a Resolution dated
structures built in accordance with the MOA transferred to the City of
November 5, 201213wherein the commission held:
Mandaue.
x x x The arguments of Ms. Solante that as long as the Project has not
COA’s basic position and the arguments holding it together is untenable.
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
On this point, the Civil Code provision on obligations with a period is compensated for the damages caused by the demolition.16 (emphasis
relevant. Article 1193 thereof provides: supplied)

Article 1193. Obligations for whose fulfillment a day certain has been Put a bit differently, the lapse of six (6) years from the perfection of the
fixed, shall be demandable only when that day comes. subject reclamation contract, withoutmore, could not have automatically
vested Mandaue City, under the MOA, with ownership of the structures.
Obligations with a resolutory period take effect at once, but terminate
upon arrival of the day certain. Moreover, even if we consider the allotted six (6) years within which F.F.
Cruz was supposed to completethe reclamation project, the lapse thereof
A day certain is understood to bethat which must necessarily come, does not automatically mean thatF.F. Cruz was in delay. As may be
although it may not be known when. noted, the City of Mandaue never madea demand for the fulfillment of its
obligation under the Contract of Reclamation. Article 1169 of the Civil
If the uncertainty consists in whether the day will come or not, the Code on the interaction of demand and delay and the exceptions to the
obligation is conditional, and it shall be regulated by the rules of the requirement of demand relevantly states:
preceding Section. (emphasis supplied)
Article 1169. Those obliged to deliver orto do something incur in delay
A plain reading of the Contract ofReclamation reveals that the six (6)- from the time the obligeejudicially or extrajudicially demands from them
year period provided for projectcompletion, or, with like effect, termination the fulfillment of their obligation.
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, However, the demand by the creditor shall not be necessary in order that
par. 15 of the Contract of Reclamation states: "[T]he project is estimated delay may exist:
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 (1) When the obligation or the law expressly so declares; or
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 (2) When from the nature and the circumstances of the obligation
be deemed to be in delay. Parenthetically, the Ombudsman, in a it appears that the designation of the time when the thing is to be
Resolution of June 29, 2006 in OMB-V-C-03-0173-C, espoused a similar delivered or the service is to be rendered was a controlling motive
view in dismissing the complaint against Solante, thus: for the establishment of the contract; or

A careful reading of the pertinent section of the Contract of Reclamation (3) When demand would be useless, as when the obligor has
between F.F. Cruz and Mandaue City, however, would confirm rendered it beyond his power to perform.
respondents Rances-Solante[’s]and Sungahid’s view that herein
respondent Cruz was still the owner of the subject properties at the time In reciprocal obligations, neither party incurs in delay if the other does not
these were demolished. Indeed, the Contract specifies that the six (6)- comply or is not ready to comply in a proper manner with what is
year period was no more than an estimate of the project completion. It incumbent upon him. From the momentone of the parties fulfills his
was not a fixed period agreed upon. Being so, the mere lapse of six (6) obligation, delay by the other begins.
years from the execution of the Contract, did not by itself deem the
reclamation project completed, muchless bring about the fulfillment of the
Thus, in J Plus Asia Development Corporation v. Utility Assurance
condition stipulated in the MOA (on the shift of ownership over the
Corporation,17 the Court has held:
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 In this jurisdiction, the following requisites must be present in order that
give way to road widening. It was nothing but equitable that they get 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
creditor requires the performance judicially or extrajudicially. (emphasis issued by the Commission on Audit are hereby REVERSED and SET
supplied) ASIDE.

In the instant case, the records are bereft of any document whence to No costs.
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 SO ORDERED.
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:
G.R. No. 181983 November 13, 2013
That although x x x the reclamation wasestimatedto be completed in six
years ending in 1995, the said project however, was not fully completed CONSOLIDATED INDUSTRIAL GASES, INC., Petitioner,
when the demolition of the mentioned improvements of [F.F. Cruz] was vs.
made x x x [and in fact] up to now the said Mandaue Reclamation Project ALABANG MEDICAL CENTER, Respondent.
has not yet been fully completed and turned over to the City of Mandaue.
DECISION
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 REYES, J.:
whatsoever on the said payment x x x for the demolished improvements.
(emphasis supplied) 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
As it were, the Mandaue-F.F.Cruz MOA states that the structures built by March 4, 2008 of the Court of Appeals CA) in CA-G.R. CV No. 84988
F .F. Cruz on the property of the city will belong to the latter only upon the which, among others, reversed the Decision3 dated June 30, 2004 of the
completion of the project. Clearly, the completion of the project is a Regional Trial Court (RTC) of Mandaluyong City, Branch 213, finding
suspensive condition that has yet to be fulfilled. Until the condition
1âwphi1
respondent Alabang Medical Center (AMC) to have breached its contract
arises, ownership of the structures properly pertains to F .F. Cruz. with petitioner Consolidated Industrial Gases, Inc. (CIGI).

To be clear, the MOA does not state that the structures shall inure in The Antecedents
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 CIGI is a domestic corporation engaged in the business of selling
that ownership of the structures shall vest upon, or ipso facto belong to, industrial gases (i.e., oxygen, hydrogen and acetylene) and installing
the City of Mandaue when the Contract of Reclamation shall have been centralized medical and vacuum pipeline system. Respondent AMC, on
completed. Logically, before such time, or until the agreed reclamation the other hand, is a domestic corporation operating a hospital business.
project is actually finished, F.F. Cruz owns the structures. The payment of
compensation for the demolition thereof is justified. The disallowance of On August 14, 1995, CIGI, as contractor and AMC, as owner, entered
the payment is without factual and legal basis. COA then gravely abused into a contract4 whereby the former bound itself to provide labor and
its discretion when it decreed the disallowance. 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
WHEREFORE, the instant petition is GRANTED. Accordingly, the the contract price of Nine Million Eight Hundred Fifty-Six Thousand
assailed February 15, 2008 Decision, November 5, 2012 Resolution, and Seven Hundred Twenty-Five Pesos and 18/100 (₱9,856,725.18) which
Notice of Disallowance No. 2000-002-101 (97) dated November 14, 2001 AMC duly paid in full.
The herein legal controversy arose after the parties entered into another claimed that they finished the installation project in October 1997 or
agreement on October 3, 1996 this time for the continuation of the within the period specified in the contract.10 CIGI verbally notified Dr. Anita
centralized medical oxygen and vacuum pipeline system in the hospital’s Ty (Dr. Ty), AMC’s Medical Director, on the need for electrical power for
fourth & fifth floors (Phase 2 installation project) at the cost of Two Million the test run but she did not respond. On August 23, 1999, they put the
Two Hundred Sixty-Seven Thousand Three Hundred Forty-Four Pesos request in writing.11
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. Tolentino also stated that Phase 2 is an extension of the Phase 1
CIGI forthwith commenced installation works for Phase 2 while AMC paid installation project such that both phases are not independent of each
the partial amount of One Million Pesos (₱1,000,000.00) with the other. If Phase 2 is not subjected to test run, Phase 1 will not run.12 It was
agreement that the balance shall be paid through progress billing and Mr. Gavino Pineda (Pineda), his supervisor, and not him, who personally
within fifteen (15) days from the date of receipt of the original invoice sent informed Dr. Ty that CIGI is ready to conduct a test run.13
by CIGI.5
Tolentino admitted that, contrary to what was agreed in the contract, CIGI
On August 4, 1997, CIGI sent AMC Charge Sales Invoice No. 125847 as has not conducted commissioning and lecture on the proper operation
completion billing for the unpaid balance of ₱1,267,344.42 for the Phase and preventive maintenance of the installed system and that the said
2 installation project. When the sales invoice was left unheeded, CIGI seminar/orientation does not require the use of electricity.14 However, the
sent a demand letter to AMC on January 7, 1998. AMC, however, still seminar can only be conducted once they have already fully turned over
failed to pay thus prompting CIGI to file a collection suit before the RTC the system which can only happen after they have performed a test run,
on September 15, 1998.6 which likewise did not materialize because AMC did not supply the
necessary electrical power.15
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 AMC presented Dr. Ty and Melinda Constantino (Constantino), account
demandable pursuant to Article II, page 4 of the contract stating that the and administrative officer of AMC. Dr. Ty testified that the payment of the
project shall be paid through progress billing within fifteen (15) days from unpaid balance is not yet due because the project is incomplete,
the date of receipt of original invoice. 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
In its Answer with Counterclaim,7 AMC averred that its obligation to pay Phase 2 installation project stating that the scope of CIGI’s work shall
the balance of the contract price has not yet accrued because CIGI still include pressure drop, leak testing, painting/color coding and test run of
has not turned over a complete and functional medical oxygen and the installed centralized medical oxygen and vacuum pipeline
vacuum pipeline system. AMC alleged that CIGI has not yet tested system.17On cross-examination, Dr. Ty asserted that as agreed, the
Phases 1 and 2 which constitute one centralized medical oxygen and balance of the contract price shall be paid once CIGI finishes its work
vacuum pipeline system of the hospital despite substantial payments under the contract.18 She denied receiving any request from CIGI
already made. As counterclaim, AMC prayed for actual, moral and regarding the installation of electricity for purposes of test run. She
exemplary damages, and attorney’s fees. 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
During trial, CIGI presented the testimonies of its officers, James demand for payment.19 Before the hospital became operational, it was
Rodriguez Gillego (Gillego), Credit Manager and Marcelino Tolentino equipped with electrical facilities for construction which can adequately
(Tolentino), Installation Manager. Gillego confirmed the unpaid balance of support the power need of a mere test run.20
AMC as well as its additional liabilities for interest and penalty charges at
17% per annum and 2% per month, respectively.8 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
Tolentino, on the other hand, declared that CIGI failed to test the installed (Metrobank) checks payable to CIGI marked as Exhibits "5" to "5-1".21
system because AMC did not supply the necessary electrical power.9 He
CIGI submitted in evidence photographs of allegedly defective and As PRAYED FOR, the [respondent] is hereby ordered:
incomplete parts of the installed medical oxygen and vacuum pipeline
system, such as: (a) a rusting pendant which is supposed to be stainless [a] To pay the amount of ONE MILLION TWO HUNDRED
and anti-rust; (b) incomplete assembly of alarm system; (c) incomplete SIXTY[-]SEVEN THOUSAND THREE HUNDRED FORTY[-
assembly of isolation valve; and (d) incomplete electrical wiring of ]FOUR AND 42/100 [Php 1,267,344.42] Philippine Currency,
Pegasus and leaking oil.22 representing the balance of the principal obligations.

On June 11, 2003, AMC filed a Motion for Leave of Court to Admit [b] To pay the corresponding legal interest until said obligation
Amended Answer with Counterclaims23 seeking, in addition, the shall have been paid and settled and cost of suit.
rescission of the subject contracts, return of its payment of
₱10,856,000.00 for an unfinished project. AMC also asked that it be SO ORDERED.27
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
Ruling of the CA
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 AMC appealed to the CA which in its Decision28 dated September 14,
parts of the installation. 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
In its Order24 dated September 11, 2003, the RTC denied the motion
vacuum pipeline system. Consequently, the CA declared the complaint
because its admission will compel CIGI to substantially alter the
dismissed and ordered CIGI to correct/replace the defective parts
presentation of its evidence and thus delay the resolution of the case.
installed. AMC was adjudged entitled to attorney’s fees for CIGI’s
The RTC further reasoned that AMC’s failure to amend its answer will not
unfounded action. AMC’s counterclaim for ₱17,220,084.90 as actual
affect the result of the trial.
damages representing alleged interest payments on the loans it obtained
from Metrobank was denied for lack of factual and legal basis. The
Ruling of the RTC decretal portion of the Decision reads:

After the parties have submitted their respective memorandum, the RTC WHEREFORE, the decision of the Regional Trial Court dated June 30,
rendered its Decision25 dated June 30, 2004, wherein it adjudged AMC to 2004 is hereby REVERSED and SET ASIDE. The complaint is hereby
have breached the contract for failure to perform its obligation of paying dismissed and CIGI is hereby ordered to pay AMC the sum of
the remaining balance of the contract price. CIGI, on the other hand, was ₱50,000.00 by way of attorney’s fees plus costs.
found to have faithfully complied with its contractual obligations. In so
ruling, the RTC relied on Tolentino’s testimony that they were unable to
SO ORDERED.29
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 AMC moved for partial reconsideration raising the propriety of its
decision disposed as follows: counterclaim for the refund of the ₱10,856,725.18 paid to CIGI since the
project never became operational.30
Prescinding from the foregoing considerations, judgment is hereby
rendered in favor of the [petitioner] CONSOLIDATED INDUSTRIAL In its Comment31 and own Motion for Reconsideration32, CIGI countered
GASES, INC., and against the [respondent] ALABANG MEDICAL that a refund will amount to rescission, an issue which was denied
CENTER represented by its owner/Chairman of the Board Anita Ty. The deliberation by the RTC. As such, the same cannot be raised and
counterclaim is likewise, accordingly ordered D[IS]MISSED. 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.
Anent the alleged defective parts, CIGI asserted that it is highly suspect The Issue
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 The core issue for resolution is whether or not CIGI’s demand for
of certain parts of the system will definitely deteriorate. payment upon AMC is proper.

The CA re-examined its earlier decision and issued an Amended Ruling of the Court
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 Primarily, the arguments proffered by CIGI involve questions of fact which
condition that CIGI will turn over a fully functional centralized medical are beyond the scope of the Court’s judicial review under Rule 45 of the
oxygen and vacuum pipeline system.34 The CA found that CIGI reneged Rules of Court. It is a settled rule that the Court examines only questions
on its obligation under the contract when it failed to test run the installed of law on appeal and not questions of facts. However, jurisprudence has
system. The Amended Decision disposed as follows, viz: 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
WHEREFORE, this Amended Decision is rendered [PARTIALLY] conflicting,36 as in this case.
GRANTING AMC’s Partial Motion for Reconsideration dated 25
September 2007. Accordingly, CIGI is given a reasonable period of sixty The incongruity in the findings of the RTC and CA is conspicuous. On
(60) days from the finality of this Decision to correct and/or replace the one hand, the RTC granted CIGI’s complaint for sum of money and
defective parts mentioned in this Decision and turn over a fully functional adjudged AMC as the defaulting party. On the other hand, the CA, while
centralized medical oxygen and vacuum pipeline system. AMC, in turn, is sustaining AMC’s liability for CIGI’s monetary claim, held the latter as the
directed to provide the required facilities such as water and electricity party who breached the installation contracts. A review of the
during installation free of charge and to pay within five (5) days from the contradicting findings of the courts a quo is thus in order so as to finally
turn over the unpaid balance in the sum of ₱1,267,344.42 to CIGI. Failure settle the conflicting claims of the parties.
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
The subject installation contracts
legal consequence, within ten (10) days from the rescission of the
bear the features of reciprocal
contract CIGI should return the sum of ₱10,856,725.18 to AMC and
obligations.
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 "Reciprocal obligations are those which arise from the same cause, and
DENIEDfor lack of merit. The Decision dated 30 June 2004 of the in which each party is a debtor and a creditor of the other, such that the
Regional Trial Court is hereby REVERSED and SET ASIDE. The obligation of one is dependent upon the obligation of the other. They are
complaint is dismissed and CIGI is ordered to pay AMC the sum of to be performed simultaneously, so that the performance of one is
₱50,000.00 by way of attorney’s fees plus costs. 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.
SO ORDERED.35
From the moment one of the parties fulfils his obligation, delay by the
other begins.38
Dismayed, CIGI interposed the present recourse alleging, in the main,
that the CA committed misapprehension of facts. CIGI maintained that
Under the subject contracts, CIGI as contractor bound itself to install a
AMC refused to provide the necessary electrical facilities for the test run
centralized medical oxygen and vacuum pipeline system for the first to
and that under the contract, CIGI was merely required to provide labor
fifth floors of AMC, which in turn, undertook to pay the contract price
and materials. CIGI averred that the CA erred in relying on the testimony
therefor in the manner prescribed in the contract. Being reciprocal in
of Tolentino because he never specifically declared that CIGI did not
nature, the respective obligations of AMC and CIGI are dependent upon
complete the project. CIGI prayed that the decision of the RTC ordering
the performance of the other of its end of the deal such that any claim of
AMC to pay the balance of the contract price be reinstated.
delay or non-performance can only prosper if the complaining party has medical oxygen and vacuum pipeline system. CIGI agreed also: (a) to
faithfully complied with its own obligation. perform a pressure drop, leak testing, test run, painting/color coding of
the installed centralized medical oxygen, vacuum and nitrous oxide
Here, CIGI complains that AMC refused to abide by its undertaking of full pipeline system; and (b) to conduct orientation, seminars and training for
payment. While AMC does not dispute its liability to pay the balance of the AMC employees who will be involved in the operation of the
₱1,267,344.42 being claimed by CIGI, it asserts, however that the same centralized pipeline system before the formal turnover of the project. This
is not yet due because CIGI still has not turned over a complete and is evident from the herein reproduced provisions of the installation
functional medical oxygen and vacuum pipeline system. CIGI is yet to contracts.
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 Article I of the Phase 1 installation contract enumerates the following
the other hand, does not deny that it failed to conduct the agreed undertakings of CIGI, viz:
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 1.1 Preparation and delivery of materials, tools and equipment
necessary for the test run. CIGI also contends that its obligation is merely from CIGI, Mandaluyong, to Alabang Medical Center’s site of
to provide labor and installation. installation.

The Court has painstakingly evaluated the records of the case and based 1.2 Degreasing and proper cleaning of deoxidized hard seamless
thereon, there can be no other conclusion than that CIGI’s allegations copper tubes, fittings, valves and other parts prior to installations.
failed to muster merit. The Court finds that CIGI did not faithfully complete
its prestations and hence, its demand for payment cannot prosper based 1.3 Supply, fabrication and installation of necessary brackets and
on the following grounds: (a) under the two installation contracts, CIGI clamps to comply with the standard Medical gas pipeline and
was bound to perform more prestations than merely supplying labor and other equipment installation.
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
1.4 Chiseling, boring and re-plastering of affected concrete walls
run and orientation/seminar is unjustified.
for pipeline route.
A. Under the installation
[1.5 -1. 23 Supply and installation of various structures and parts
contracts, CIGI was bound to
of the medical oxygen and vacuum pipeline system].
perform more prestations than
merely supplying labor and
materials. 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)
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 Meanwhile, Phase 2 installation contract, which follows the same terms
contrary to law, morals, public order or public policy.39 In the present case, and conditions of the Phase 1 installation contract, itemizes the
we find no legal proscription infringed by the terms and conditions of the prestations due from CIGI as follows:
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 1. Preparation and delivery of materials, tools and equipment
fulfill what has been stipulated. from CIGI-Head Office to Alabang Medical Center site of
installation.
Both of the installation contracts clearly show that CIGI undertook to carry
out more prestations than merely supplying labor and materials for the 2. Degreasing and proper cleaning of deoxidized hard seamless
copper tubes, fittings, valves and other parts prior to installation.
3. Chiselling, boring and replastering of affected concrete walls 12. Pressure drop, leak testing, painting/color coding and test run
for pipeline route. of the installed centralized medical oxygen and vacuum pipeline
system.42 (Emphasis ours)
4. Supply, fabrication and installation necessary brackets and
clamps to comply with the standard medical gases pipeline and Anent the conduct of orientation/seminar on the operation of the
other equipment installation. centralized medical oxygen and vacuum pipeline system, both contracts
state:
5. Supply, layout and installation of deoxidized hard seamless
copper tubes and fittings and to be tapped from the existing riser Article 10 of Phase 1 installation contract:
of medical oxygen and vacuum pipeline system installed at third
floor. 10. SEMINARS/TRAINING:

6. Supply and installation of two (2) units OHMEDA flush mount The CONTRACTOR shall conduct orientation, seminars and training to
wall type isolation valve panel, each equipped with shut-off valve the center’s employees involved in the operation of the centralized
for oxygen and vacuum pipeline with corresponding pressure pipeline system before the formal turn-over of the project. Such training
indicator. includes proper operation and preventive maintenance of the system.43

7. Supply and installation of sixty[-]nine (69) sets OHMEDA flush Articles VI(c) and VII(3) of Phase 2 installation contract:
mount wall type medical Oxygen and Vacuum Outlets, each
consist of rough-in and finish assembly. c. Seminars/Training

xxxx CIGI shall conduct orientation, seminars and training to AMC’s

employees involved in the operation of the centralized pipeline system
8. Supply and installation of sixty[-]nine (69) sets MEDAES DISS before the formal turn-over of the project. Such training includes proper
III flush mount wall type medical vacuum outlets, each consists of operation and preventive [sic]
rough in and finish assembly.
xxxx
9. Supply and installation of sixty[-]nine (69) sets MEDAES
stainless steel surface mount wall type vacuum bottle slides each 3. CIGI to execute all necessary commissioning and lecture re-proper
complete with stainless mounting screw. operation and preventive maintenance of the installed system and shall
hand-over to Alabang Medical Center fully operational.44
10. Supply and installation of two (2) sets MEDAES Area Line
Pressure Alarm for Oxygen and Vacuum Pipeline System, each Clearly, CIGI’s reciprocal obligation was not merely to supply labor and
equipped with pressure switch, pressure indicator, lights indicator materials for the project. It is unmistakable from the foregoing contractual
for each gas supply status and necessary electrical wiring provisions that CIGI agreed to carry out a test run of the installation as
materials which are to be installed at the Nurses station of Fourth well as to conduct an orientation/seminar of AMC employees who will be
Floor. involved in its operation. CIGI cannot be permitted to disregard the
binding effect of the contracts it voluntarily assumed by conveniently
11. Supply of [certain] secondary equipments. renouncing its above-mentioned contractual commitments. Otherwise,
the sanctity of its contracts with AMC will be defiled.
xxxx
B. CIGI failed to prove by 2. Alabang Medical Center to allow CIGI personnel/technicians to utilize
substantial evidence that it the required facilities such as water and power during installation free of
requested AMC for electrical charge.48
facilities as such, its failure to
conduct a test run and It is thus highly improbable for AMC to deny CIGI personnel and
orientation/seminar is unjustified. technicians mere access to already existing electrical facilities and
thereby jeopardize the operations of the hospital.
CIGI failed to amply support its allegation that it requested for electrical
facilities from AMC. Tolentino, CIGI’s installation manager, testified that From the foregoing, it is clear
on August 23, 1999 they requested in writing for the electrical facilities that AMC’s obligation to pay
but no evidence of such document was submitted. It is but a self-serving and CIGI’s right to demand the
allegation, which by law is not equivalent to proof.45 In addition, Pineda, unpaid balance for the Phase 2
the one who actually sent the request was not presented as witness installation project have not yet
thereby making Tolentino’s statement mere hearsay evidence bearing no accrued.
probative value.
For failure to prove that it requested for electrical facilities from AMC, the
Settled is the rule that a witness can testify only to those facts which he undisputed matter remains – CIGI failed to conduct the stipulated test run
knows of his personal knowledge, which means those facts which are and seminar/orientation. Consequently, the dismissal of CIGI’s collection
derived from his own perception. A witness may not testify as to what he suit is imperative as the balance of the contract price is not yet
merely learned from others either because he was told or read or heard demandable. For having failed to perform its correlative obligation to
the same. Such testimony is considered hearsay and may not be AMC under their reciprocal contract, CIGI cannot unilaterally demand for
received as proof of the truth of what he has learned.46 the payment of the remaining balance by simply sending an invoice and
billing statement to the former. Its right to demand for and collect
While Tolentino’s testimony may be considered as independently payment will only arise upon its completion of ALL its prestations under
relevant statement and may be admitted as to the fact that Pineda made the subject contracts.
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 In reciprocal obligations, before a party can demand the performance of
facilities. Admissibility of testimony should not be equated with its weight the obligation of the other, the former must also perform its own
and sufficiency. Admissibility of evidence depends on its relevance and obligation.49 For its failure to turn over a complete project in accordance
competence, while the weight of evidence pertains to evidence already with the terms and conditions of the installation contracts, CIGI cannot
admitted and its tendency to convince and persuade.47 Here, the Court demand for the payment of the contract price balance from AMC, which,
finds no reason to doubt and overturn the CA’s evaluation of Tolentino’s in turn, cannot legally be ordered to pay. Otherwise, AMC will be
testimony. effectively forced to accept an incomplete performance contrary to Article
1248 of the Civil Code which states that "(u)nless there is an express
Even assuming that CIGI indeed made such request, it is unbelievable stipulation to that effect, the creditor cannot be compelled partially to
for AMC not to furnish electrical facilities. As correctly observed by the receive the prestations in which the obligation consists."
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 Considering that AMC’s obligation to pay the balance of the contract
vacuum pipeline system. Further, the language of Article VII(2) of the price did not accrue, the stipulated interest thereon also did not begin to
Phase 2 installation contract, which embodies AMC’s duty to provide run.
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:
CIGI also failed to fully comply The Court, however, finds that AMC has no legal basis to demand the
with its prestations under the rescission of the installation contracts. "[R]escission of a contract will not
Phase 1 installation contract. 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
It must be noted that, although Phases 1 and 2 installation projects are in making the agreement. Whether a breach is substantial is largely
covered by separate contracts, they nonetheless comprise one determined by the attendant circumstances."53 The provisions on the test
centralized medical oxygen system such that the agreed test run and run of and seminar on the medical oxygen system are not essential parts
seminar/orientation under the Phase 1 contract cannot be performed of the installation contracts as they do not constitute a vital fragment/part
unless and until the Phase 2 installation project is finished and of the centralized medical oxygen system.
completed.50 In other words, both phases will have to undergo a single
and simultaneous test run and orientation on their manner of operation. Further, the allegedly defective and incomplete parts cannot substantiate
rescission. The photographs submitted by AMC are not adequate to
As such, while the subject of the herein complaint for sum of money establish that certain parts of the installed system are indeed defective or
pertained only to the Phase 2 installation contract, the violations incomplete especially so that the installation never became operational.
committed by CIGI that prevented its cause of action to accrue broadly Unless and until the medical oxygen and vacuum pipeline actually runs,
affected the initially non-issue Phase 1 contract. 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
It having been established that CIGI’s avowed but infringed duty to whether the alleged defects and incomplete components were caused by
perform a test run and orientation/seminar was contained in both Phases factory defect, negligence on the part of CIGI or ordinary wear and tear.
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 At any rate, the parties have specified clauses in the subject contracts to
contract as well so as to arrive at an absolute and comprehensive answer for such contingency. Article VI(b) of the Phase 2 installation
1aw p++i1

resolution of the impasse between the parties. contract provides:

Hence, regardless of whether or not the Phases 1 and 2 installation VI. CONDITIONS:
projects are independent of each other, CIGI violated the terms of the
individual contracts for both. b. Warranty
The foregoing pronouncement
notwithstanding, the Court finds CIGI guarantees all materials involved against factory defect for one (1)
that the breach committed by CIGI year period from the date of project completion. CIGI shall also provide
does not justify the rescission of the maintenance services for this pipeline project after the one (1) year
installation contracts. warranty period provided that Alabang Medical Center shall purchase its
Medical Gases requirements exclusively to CIGI. [sic]
The denial of AMC’s amended counterclaim specifically praying for
rescission does not bar a discussion of such issue on appeal. Rescission During the lifetime of the Supply of Medical Gases Contract, CIGI shall
was pleaded in AMC’s original Answer with Counterclaim when it undertake the maintenance of the system on a semi-annual basis which
implored the RTC for "other reliefs and remedies consistent with law and shall include visual leak testing and minor repairs and spare parts for
equity are prayed for."51 The standing rule is that "[t]he prayer in the replacement shall be "Free of Charge". Major repairs and spare parts for
complaint for other reliefs equitable and just in the premises justifies the replacement shall be charged to [A]labang Medical Center on a cost plus
grant of a relief not otherwise specifically prayed for."52 This rule conveys basis.54 [sic]
the inference that reliefs not specifically pleaded but included in a general
prayer for other equitable reliefs may be threshed out by the courts. Article 4.1 of the Phase 1 installation contract contains similar terms, viz:
4.1 The CONTRACTOR guarantees all materials involved against factory AMC failed to prove by substantial evidence any direct correlation
defect for one (1) year period from the date of project completion. between the interest charges on its loan and CIGI’s failure to perform a
CONTRACTOR shall also provide maintenance services for this pipeline test run of, conduct seminar on and turn over the oxygen system. AMC
project after the one (1) year warranty period provided that the ‘OWNER" presented no evidence except bare allegations, which by law, do not
shall purchase its Medical gases requirements exclusively to the amount to competent proof of actual pecuniary loss.57 What is actually
CONTRACTOR. [sic] 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
During the lifetime of the SUPPLY CONTRACT, the CONTRACTOR shall installation projects.
undertake the maintenance of the system on semi-annual basis which
shall include visual leak testing and minor repairs which shall be "Free of Moreover, the CA was correct in finding that such loan was not
Charge". Major repairs and spare parts for replacement shall be charged exclusively devoted to the installation projects but was also utilized in
to Customer on a cost plus basis.55 financing the construction and air-conditioning system of AMC. It would
be certainly unfair to reimburse AMC for such interest payments absent
Since, as discussed above, the agreed test run and orientation/seminar any factual proof of its fraction that pertains to the installation projects
for both Phases 1 and 2 installation projects were yet to be performed, themselves. "[O]ne is entitled to an adequate compensation only for such
both projects are not yet complete and the one year warranty period has pecuniary loss suffered by him as he has duly proved."58
not yet commenced to run.
WHEREFORE, all the foregoing considered, the Amended Decision
In view of the fact that rescission is not permissible, the installation dated March 4, 2008 of the Court of Appeals in CA-G.R. CV No. 84988 s
contracts of the parties stand and the terms thereof must be duly fulfilled. SET ASIDE. Consolidated Industrial Gases, Inc. is hereby ORDERED to
CIGI is obliged to comply with its undertakings to conduct a test run and faithfully comply, within a period of sixty (60) days, with ALL its
hold a seminar/orientation of concerned AMC employees, after which, obligations under the installation contracts, including but not limited to the
turn over the system fully functional and operational to AMC. following: (a) perform a pressure drop, leak testing, test run,
Simultaneously with the turnover, AMC shall pay the remaining balance painting/color coding of the installed centralized medical oxygen, vacuum
of ₱1,267,344.42 to CIGI. and nitrous oxide pipeline system; (b) conduct orientation, seminars and
training of Alabang Medical Center employees who will be involved in the
Also, the Court finds it proper that after CIGI has turned over a complete operation of the centralized medical oxygen, vacuum and nitrous oxide
and functional medical oxygen and vacuum pipeline system, it must be pipeline system; and (c) turn over a fully functional and fully operational
given the opportunity to inspect the allegedly defective and incomplete centralized medical oxygen, vacuum and nitrous oxide pipeline system to
parts. The results of such inspection will in turn determine which part of Alabang Medical Center.
the aforementioned warranty clauses shall govern.
Alabang Medical Center is hereby ORDERED to (a) allow the
AMC is not entitled to actual damages. AMC is not entitled to actual personnel/technicians of Consolidated Industrial Gases, Inc. to access
damages representing interest payments on the loan it obtained from and utilize, free of charge, the hospital's electrical facilities in such a
Metrobank in order to fund the installation projects. For damages to be manner and quantity necessary for he complete performance of its
recovered, the best evidence obtainable by the injured party must be above-enumerated undertakings, and (b) pay the balance of
presented. Actual or compensatory damages cannot be presumed, but ₱1,267,344.42 upon and simultaneously with the turnover of a fully
must be proved with reasonable degree of certainty. The Court cannot functional and fully operational centralized medical oxygen, vacuum and
rely on speculation, conjecture or guesswork as to the fact and amount of nitrous oxide pipeline system by Consolidated Industrial Gases, Inc.
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 The award of attorney's fees in favor of Alabang Medical Center is
unsubstantial, no damages will be awarded.56 deleted.