Title
ACS Development and Property Managers, Inc. vs. Montaire Realty and Development Corp.
Case
G.R. No. 195552
Decision Date
Apr 18, 2016
Construction dispute: ADPROM halted work over unpaid billing; MARDC terminated contract, claimed overpayment. CIAC awarded ADPROM unpaid billings, denied MARDC's claims. CA modified, imposed liquidated damages on ADPROM. SC upheld CA, dismissed ADPROM's petition.
construction agreement
unpaid billings
termination

Case Summary (G.R. No. L-32042)

Factual Background

After execution of the agreement on April 25, 1996, ADPROM commenced work on May 2, 1996. MARDC fully satisfied Progress Billing Nos. 1 to 8 totaling P23,169,183.43. For Progress Billing No. 9, covering work performed in February 1997, ADPROM demanded P1,495,345.24, but ALA approved only P94,460.28 after disputing specific items in the billing, including cost additives. ADPROM refused to allow the reduction. In a letter dated March 14, 1997, ADPROM insisted that MARDC accept the accomplishments listed in Progress Billing No. 9 before ADPROM would proceed with further construction.

On March 18, 1997, when Progress Billing No. 9 remained unpaid, ADPROM decided to stop work. MARDC responded by serving ADPROM a notice of default on March 20, 1997. After meetings between the parties and ADPROM’s issuance of consolidated Progress Billing Nos. 9 and 10 meant to supersede the earlier contested billing, ALA still advised MARDC to defer payment of ADPROM’s demand. ADPROM’s consolidated billing of P1,778,682.06 remained higher than ALA’s approved amount of P1,468,348.60.

On June 5, 1997, MARDC decided to terminate the Construction Agreement. MARDC demanded that ADPROM return alleged overpayments amounting to P11,188,539.69, after it concluded from ALA’s evaluation that ADPROM’s actual work accomplishment was only 54.67%. A separate evaluation by TCGI Engineers allegedly gave ADPROM’s accomplishment as 46.98%.

CIAC Proceedings and Awards

ADPROM filed with the CIAC a case for sum of money against MARDC, and MARDC filed a counterclaim. On August 17, 1998, the CIAC rendered a decision awarding both parties monetary relief. The CIAC awarded ADPROM P1,468,348.60 for unpaid billings, added interest on billings, granted a refund of accumulated 10% retention in the amount of P2,806,814.00 and also awarded interest on retention, resulting in ADPROM’s total favorable award of P4,384,987.03 as net award. The CIAC also awarded MARDC P11,188,539.69 for refund of overpayment, interest on overpayment, and liquidated damages of P6,517,500.00, but the countervailing amounts resulted in MARDC’s net award of P0.00, subject to ADPROM receiving the net award of P4,384,987.03. The CIAC ordered MARDC to pay ADPROM P4,384,987.03 within fifteen days from receipt of notice, with twelve percent (12%) per annum interest charged on the amount or any balance from the time due until fully paid.

CA Review and Modified Disposition

Aggrieved, MARDC appealed to the CA, which reviewed the CIAC decision through a petition for review. On March 28, 2000, the CA modified the CIAC ruling by deleting the award of interest on unpaid billings and by holding ADPROM liable to MARDC for liquidated damages at P39,500.00 per calendar day, computed from March 20, 1997 until September 1, 1997, when MARDC contracted another contractor, Ulanday Contractors, Inc., to complete the project. The CA otherwise affirmed with modification that ADPROM was entitled to the unpaid billings and the refund of the retention, and it set aside the CIAC’s interest award on unpaid billings for lack of merit.

Both parties filed motions for reconsideration. The CA denied both motions in its Resolution dated November 9, 2010.

The Parties’ Contentions Before the Supreme Court

ADPROM thereafter filed with the Supreme Court a Petition for Certiorari, arguing that the CA gravely abused its discretion. Specifically, ADPROM contended that the CA erred in (a) deleting the award of interest on unpaid billings and (b) ordering it to pay liquidated damages. MARDC, as respondent, defended the CA’s modifications and maintained that the contractual framework and the parties’ circumstances warranted the CA’s disposition.

Legal Basis and Reasoning of the Supreme Court

The Supreme Court first addressed the procedural posture. It held that ADPROM availed of the wrong remedy when it filed a petition for certiorari to challenge the CA decision. The Court explained that the proper remedy against a CA decision is a petition for review under Rule 45, and that a special civil action under Rule 65 is an independent action based on specific grounds and cannot substitute for a lost appeal. Invoking the doctrine in Spouses Leynes v. Former Tenth Division of the CA, et al., 655 Phil. 25 (2011), the Court stated that when a party adopts an improper remedy, the petition may be dismissed outright.

Even assuming a liberal approach and treating the petition as a petition for review, the Court found no cogent ground to reverse the CA. It held that the CA sufficiently explained its modification of the CIAC’s monetary awards.

On the deletion of interest on unpaid billings, the Court agreed with the CA’s reasoning that the contract conditions required ALA approval before MARDC became obligated to pay. It emphasized the contract provisions under Article III and Article IV. Under Article III, Section 3.1, MARDC was to make payments directly to ADPROM based on progress billing “as approved by ALA.” Under Article IV, Section 4.2.3, MARDC was to pay within seven working days from receipt of progress billing submitted and “duly approved by ALA.” Under Article IV, Section 4.2.5, payments were to be made strictly in accordance with the scope and cost breakdown annexes and also upon ADPROM’s certification and accompanying documentation, subject to the recommendation for approval by ALA. Given ADPROM’s consent to these approval conditions, the Court held ADPROM could not compel MARDC to satisfy the unpaid billings unless and until its progress billings had been approved by ALA, and MARDC could not be considered in delay absent such approval.

The Court further stated that records showed that as of May 9, 1997, ALA recommended payment only of the reduced amount of P1,468,348.60, pending settlement of disputed matters. The Court rejected ADPROM’s assertion that ALA approved the consolidated billings on April 4, 1997, noting that meeting minutes indicated that the consolidated billings remained subject to evaluation on that date and that contested items were still identified by ALA as of May 9, 1997. Therefore, the CA’s deletion of interest on unpaid billings was sustained because no delay attributable to MARDC could be established under the contract’s billing-approval mechanism.

On the liquidated damages, the Court held that the CA had substantial basis to impose them. It agreed that ADPROM’s unjustified decision to cease working caused MARDC a clear disadvantage. The Court noted that the pending dispute over unpaid billings did not justify ADPROM’s work stoppage. It cited the agreement’s directive that the parties should attempt to settle disputes amicably, referring to Article XIII, Section 13.1 of the Construction Agreement, and found that ADPROM’s action ran against that contractual requirement.

The Court then anchored liability on the liquidated damages clause, Article IX. Under Article IX, Section 9.1, ADPROM acknowledged time was of the essence and that any unexcused day of delay would cause MARDC injury. The parties agreed that for every calendar day of unexcused delay in completion, ADPROM would pay MARDC P39,500.00 per calendar day, equivalent to 1/10 of 1% of the total contract price. The clause also authorized MARDC to deduct liquidated damages from the contract price or progress billings.

The Court connected this to the project completion period stated in the agreement and the agreed extensions. It noted that Section 5.1 (Article V) provided completion within 180 calendar days, and that the parties agreed on an extension of the period to complete the project until April 30, 1997. The Court held there was unexcused delay because ADPROM’s work stoppage, begun on March 18, 1997 even without ALA approval of full payment, led to delay in completion. It stressed that given the contractual terms, ADPROM had no authority to terminate the contract or to unilaterally discontinue performance after MARDC had not defaulted, especially since ADPROM’s billing dispute had not yet been resolved through ALA approval.

The Court further reasoned that MARDC had been prompt in paying Progress Billing Nos. 1 to 8 for June 1996 to January 1997, totaling P23,169,183.43, and that the dispute arose from the February 1997 billing. It thus upheld the CA’s computation of liquidated damages from March 20, 1997 until September 1, 1997, when MARDC secured a substitute contractor.

To reinforce enforcement of the liquidated damages clause, the Court reiterated the rule under Article 2226 of the Civil Code as explained in Philippine Charter Insurance Corporation v. Petroleum Distributors & Services Corporation, 686 Phil. 154 (2012). It stated that liquidated damages are allowed by law when parties stipulate for breach; such stipulations serve a dual function: to provide for damages and to strengthen the coercive force of the obligation.

The Court also addressed ADPROM’s arguments about subsequent modifications to the project. It recognized that the parties later varied the project by reducing units and the contract price. However, it found no indication that the parties reduced or modified the liquidated damages obligation in the event of ADPROM’s unexcused delay. The Court also clarified that these circumstances did not disturb ADPROM’s entitlement to the unpaid billings of P1,468,348.60 after those work accomplishments were established before the CIAC and affirmed by the CA.

Finally, the Cour

...continue reading

Analyze Cases Smarter, Faster
Jur helps you analyze cases smarter to comprehend faster, building context before diving into full texts. AI-powered analysis, always verify critical details.

About Privacy Terms