G.R. No. 229106 - Tiong Bi, Inc. vs. Philippine Health Insurance Corp.

Ara Security & Surveillance Agency, Inc., represented by Theresa C. Mamaed, President and General Manager

A Contract of Guards Services was executed on May 30, 1994, effective from May 25, 1994, and to remain in force until May 25, 1995.
The contract provided for Ara to supply thirty (30) security guards to Multinational in exchange for a monthly fee of P107,500.00, payable on the 15th and at the end of each month without need of demand.
Specific provisions included:

A mode of payment outlining the terms for non-payment and the consequent right for Ara to terminate the contract on account of delayed payment.
A clause (paragraph 5) referring to billing every fifteen (15) days and mentioning potential contract extension “after three (3) months of satisfactory performance” without any express provision allowing for contract termination due to unsatisfactory performance.

On August 29, 1994, Danilo F. Cuneta terminated the contract effective August 31, 1994, alleging that the guards’ performance was unsatisfactory.
Grounds for termination included:

Repeated violations of the Security Guards Code of Ethics and Conduct by the guards.
Total disregard for orders affecting the confidence in the guards’ ability to comply with contractual obligations.

Ara, upon receiving the termination notice, requested a reconsideration of Multinational’s decision; however, the request was ignored.

Ara filed a suit seeking injunction relief (including preliminary injunction, preliminary mandatory injunction, and temporary restraining order) with damages.
On September 15, 1994, a temporary restraining order was issued to enjoin Multinational from enforcing the termination and replacing Ara.
Multinational filed an Answer opposing the injunction, contending that it had the contractual right to terminate the agreement based on a clause (paragraph 5) that they argued implicitly allowed pre-termination under conditions of unsatisfactory performance.
The trial court ruled in favor of Ara, awarding actual, exemplary damages, attorney’s fees, and costs.
Unsatisfied with the trial court’s decision, petitioners appealed, leading to the Court of Appeals’ (CA) review and subsequent modification of damages awarded.

The CA held that the petitioners had breached the contract by pre-terminating it, noting that:

Paragraph 5 did not provide for a unilateral termination option or resolutory condition based on unsatisfactory performance.
The evidence submitted by petitioners was largely hearsay and lacked probative value.

The CA reduced the actual damages to P591,250.00 (payment for five and a half months of service), deleted the exemplary damages, and affirmed the trial court’s findings.

Petitioners elevated the matter via a Petition for Review under Rule 45, challenging both the CA decision and the findings regarding their pre-termination of the contract.

Did the contract permit petitioners to pre-terminate the agreement on the basis of unsatisfactory performance of the security guards?
Is paragraph 5 to be read as containing a resolutory condition that would allow unilateral termination similar to the provision allowing termination for non-payment?

Whether the lower courts erred in concluding that petitioners breached the contract by pre-terminating it without a valid contractual basis.
Whether the documentary evidence tendered by petitioners sufficiently established respondent’s non-compliance or unsatisfactory performance warranting rescission.

Whether the evidence (notably, the Letter-Complaints) was admissible and credible in proving the alleged breach by respondent.
How the contract’s provisions, particularly paragraph 5, should be interpreted in light of the principle that “a contract constitutes the law between the parties.”