G.R. No. 79156 - Animos vs. Philippine Veterans Affairs Office

On December 8, 2003, Fermida Construction Services entered into a contract agreement with Ultra Mar Aqua Resource, Inc. for constructing a warehouse in Wawandue, Subic, Zambales, with a contract price of PhP1,734,740.
The contract provided for variations during construction. At Ultra Mar’s request, modifications were made regarding roof coverage, drainage canals, painting, and electrical work.

After completing the project on January 17, 2004, Fermida submitted a billing statement exclusive of the costs for variation orders and extra work orders.
Ultra Mar expressed discontent concerning certain aspects of the work, alleging substandard performance, delay in project completion, and non-submission of requisite documents (FDT Report and Building Permits).
While Fermida asserted that Ultra Mar had requested variations, Ultra Mar contended that any extra works were merely for rectification of deficient performance.

Fermida filed a Complaint for Collection of Sum of Money with Prayer for Injunction before the RTC. The court conducted an ocular inspection, including an inspection by an independent engineer, and set the case for pre-trial conference.
Despite several resettings of the pre-trial conference (initially August 9, then August 17, and finally September 7, 2004), Ultra Mar’s counsel repeatedly failed to appear and did not file the required pre-trial brief.
Owing to these repeated failures, the RTC declared Ultra Mar in default, allowing Fermida to present its evidence ex parte.

On September 8, 2004, Ultra Mar, through counsel, filed an Omnibus Motion to Lift the Default Order, admit the attached pre-trial brief, and set the case for pre-trial conference. The motion cited the counsel’s intermittent nausea due to a drop in blood sugar level but was conditioned on the submission of a supporting Medical Certificate.
Ultra Mar’s counsel failed to provide the required Medical Certificate timely, resulting in the RTC denying the motion.
The RTC rendered its decision on October 7, 2004, ordering Ultra Mar to pay Fermida PhP1,106,000.38, with additional awards for attorney’s fees, litigation expenses, and nominal damages.

Ultra Mar elevated the case to the Court of Appeals (CA), challenging the RTC’s handling of its Omnibus Motion and alleging that its counsel’s gross negligence deprived it of the opportunity to present evidence.
The CA found that Ultra Mar’s counsel had failed to provide a plausible justification for not submitting the pre-trial brief, even after being conditionally given the opportunity to comply with the order by submitting a Medical Certificate.
On the merits, the CA confirmed that Fermida had sufficiently demonstrated the existence of a binding construction agreement and that Ultra Mar’s failure to pay was evident despite the pending defects noted in the independent engineer’s report.
The CA modified the RTC decision by ordering Ultra Mar to pay PhP1,106,038.82 with legal interest – initially subject to a 10% retention – and deleted the awards for nominal damages, attorney’s fees, and litigation expenses.

Ultra Mar further argued that its failure to present evidence was attributable to the gross negligence of its counsel, who allegedly failed to notify Ultra Mar despite taking certain dilatory actions.
The CA rejected this claim, noting that a client is bound by the acts and omissions of his counsel, and that issues not raised in the lower proceedings could not be revived on appeal.
Ultimately, the Supreme Court, in its decision rendered on April 17, 2017, resolved to deny Ultra Mar’s petition and affirmed the CA decision with modification by removing the 10% retention condition.

Whether the RTC erred in declaring Ultra Mar in default for failing to appear at the pre-trial conferences and for not filing the required pre-trial brief.
Whether the denial of Ultra Mar’s Omnibus Motion—citing counsel’s health issues and failure to submit a Medical Certificate—was proper under the Rules of Civil Procedure.

Whether Ultra Mar can be relieved from the adverse effects of default on the basis of its counsel’s alleged gross negligence.
Whether the evidence presented, notably the independent engineer’s report on construction defects, supports ordering Ultra Mar to pay Fermida the contractual amount subject to any retention clause.

Whether issues not raised in the lower courts (particularly, the alleged gross negligence of counsel) may be reconsidered on appeal.
Whether the modifications made by the CA to the RTC decision, especially on monetary awards and retention conditions, were in full compliance with contractual stipulations and applicable legal standards.