Title
Arwood Industries Inc. vs. D.M. Consunji Inc.
Case
G.R. No. 142277
Decision Date
Dec 11, 2002
Arwood Industries failed to pay D.M. Consunji, Inc. P962,434.78 for completed construction. Courts upheld 2% monthly interest as per contract but deleted attorney’s fees due to lack of justification.
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Case Digest (G.R. No. 142277)

Facts:

Parties Involved:

  • Petitioner: Arwood Industries, Inc.
  • Respondent: D.M. Consunji, Inc.

Contractual Agreement:

  • The parties entered into a Civil, Structural, and Architectural Works Agreement on February 6, 1989, for the construction of Arwood Industries' Westwood Condominium in Greenhills, San Juan, Metro Manila.
  • The total contract price was P20,800,000.00.

Completion and Non-Payment:

  • Despite the completion of the condominium project, Arwood Industries failed to pay the remaining balance of P962,434.78.
  • D.M. Consunji, Inc. made repeated demands for payment, but Arwood Industries did not comply.

Legal Action:

  • On August 13, 1993, D.M. Consunji, Inc. filed a complaint (Civil Case No. 63489) in the Regional Trial Court (RTC) of Pasig City, seeking:
    • Payment of the unpaid balance of P962,434.78 with 2% monthly interest from November 1990 until full payment.
    • P250,000 as attorney’s fees and litigation expenses.
    • P150,000 as exemplary damages.
    • Costs of suit.

Trial Court Decision:

  • The RTC ruled in favor of D.M. Consunji, Inc., ordering Arwood Industries to pay:
    • The unpaid balance of P962,434.78 with 2% monthly interest from November 1990.
    • P150,000 as attorney’s fees.
    • Costs of suit.

Appeal to the Court of Appeals:

  • Arwood Industries appealed, specifically contesting the imposition of the 2% monthly interest.
  • The Court of Appeals affirmed the RTC’s decision but deleted the award of attorney’s fees, citing lack of justification in the body of the decision.

Petition to the Supreme Court:

  • Arwood Industries filed a petition for review, arguing that the 2% monthly interest was improperly imposed, as the amount claimed was not a "monthly progress billing" and the interest provision was not formally offered in evidence.

Issue:

  1. Propriety of Imposing 2% Monthly Interest:

    • Whether the trial court and the Court of Appeals correctly imposed a 2% monthly interest on the unpaid balance of P962,434.78.
    • Whether the amount claimed qualifies as a "monthly progress billing" under the contract.
  2. Formal Offer of Evidence:

    • Whether the provision on 2% monthly interest in the contract was properly introduced as evidence, given that it was not sub-marked or formally offered during the trial.
  3. Award of Attorney’s Fees:

    • Whether the Court of Appeals correctly deleted the award of attorney’s fees due to lack of justification in the body of the decision.

Ruling:

  1. On the 2% Monthly Interest:

    • The Supreme Court upheld the imposition of the 2% monthly interest, ruling that the amount claimed was part of the contract price and subject to the interest provision in the agreement.
    • The Court rejected Arwood Industries' argument that the amount was not a "monthly progress billing," stating that the term refers to any portion of the contract price payable based on work progress.
  2. On the Formal Offer of Evidence:

    • The Court ruled that the 2% interest provision in the contract was binding, even if not formally offered in evidence, as the contract itself was admitted and not objected to by Arwood Industries.
    • The Court emphasized that the contract is the best evidence of the parties' intentions, and its terms are enforceable.
  3. On the Award of Attorney’s Fees:

    • The Court affirmed the deletion of the attorney’s fees, as the trial court failed to provide a legal basis for the award in the body of its decision.

Ratio:

  1. Contract as the Law Between the Parties:

    • The Supreme Court reiterated that the contract is the formal expression of the parties' rights and obligations. Once reduced to writing, it contains all the terms agreed upon, and no extrinsic evidence is needed to interpret its provisions.
  2. Interest as Damages for Delay:

    • The Court held that the 2% monthly interest was a valid penalty for delay in payment, as stipulated in the contract. Delay in the performance of an obligation is disfavored, and the payment of interest compensates for the damages caused by such delay.
  3. Interpretation of "Monthly Progress Billings":

    • The Court interpreted "monthly progress billings" to include any portion of the contract price payable based on work progress. The unpaid balance of P962,434.78 was deemed part of these billings, making it subject to the 2% interest provision.
  4. Award of Attorney’s Fees Requires Justification:

    • The Court emphasized that the award of attorney’s fees must be explicitly justified in the body of the decision, not just in the dispositive portion. The trial court’s failure to do so warranted the deletion of the award.
  5. No Need for Formal Offer of Contract Provisions:

    • The Court ruled that the 2% interest provision did not need to be formally offered in evidence, as the contract itself was admitted and not contested. The provision was enforceable as part of the contract’s terms.

Final Decision:

  • The Supreme Court denied the petition, affirming the Court of Appeals' decision with modifications. The 2% monthly interest was upheld, but the award of attorney’s fees was deleted.


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