Case Summary (G.R. No. 221147)
Key Dates and Procedural Posture
Relevant transaction dates in 1998: Construction Agreement between FCCC and Asiakonstrukt (Mar. 16, 1998); MERO’s Materials Only Proposal (Mar. 16, 1998) accepted by Asiakonstrukt (Mar. 17, 1998); bill of lading dated Apr. 5, 1998 evidencing shipment; Asiakonstrukt’s proposal to FCCC dated Jun. 16, 1998; FCCC approval dated Jun. 17–18, 1998. MERO’s final demand dated Sept. 21, 2000 and demand to be paid by FCCC dated Oct. 13, 1999; Asiakonstrukt’s response dated Nov. 8, 1999. MERO filed suit Feb. 21, 2002. RTC decision July 19, 2011; CA decision Feb. 18, 2015 (Resolution denying reconsideration Oct. 21, 2015); Supreme Court decision denying the petition (Sept. 29, 2021).
Applicable Law and Legal Authorities
Constitutional framework: 1987 Philippine Constitution (applicable due to decision date after 1990). Governing substantive law: Civil Code provisions on extinguishment and modification of obligations (Articles 1231, 1291–1293 cited in the decision). Controlling jurisprudence applied includes Nacar v. Gallery Frames (for tempering stipulated interest) and Garcia v. Llamas (for discussion of novation), and Arco Pulp and Paper Co. v. Dan T. Lim (cited on novation requirements).
Factual Background and Contracts
Two primary written instruments governed the transaction: (1) the Construction Agreement (FCCC — Asiakonstrukt, Mar. 16, 1998) and (2) MERO’s Materials Only Proposal (Mar. 16, 1998), accepted by Asiakonstrukt (Mar. 17, 1998). MERO’s proposal set the price for the spaceframe at US$570,000 with payment terms (20% upon award, remainder via letter of credit; shipping contingent on confirmation). MERO shipped the spaceframe (bill of lading Apr. 5, 1998). Asiakonstrukt thereafter sought and received FCCC’s approval for Asiakonstrukt to design, supply and install the flag structure using MERO’s spaceframe, subject to conditions including compliance with audit rules and certification by MERO.
Correspondence, Attempts at Direct Collection, and Payment Refusals
From March 1998 onward MERO repeatedly sought payment from Asiakonstrukt. After FCCC’s board approval and discussions about financing via NDC, Asiakonstrukt informed MERO (Jun. 18, 1998) that FCCC awarded the contract and would pay MERO after FCCC’s payment of materials. MERO continued demands, and on Oct. 13, 1999 MERO asked to be paid directly by FCCC; Asiakonstrukt responded Nov. 8, 1999 stating it interposed no objection to such direct collection. Despite these exchanges and MERO’s attempts to secure assistance from government agencies, payment was not obtained and FCCC’s new president indicated lack of knowledge of a contract between MERO and FCCC.
Trial Court Findings and Relief (RTC)
MERO filed a complaint for sum of money (Feb. 21, 2002). The RTC found in favor of MERO and against Asiakonstrukt and FCCC (but dismissed the complaint against NDC for lack of evidence). The RTC ordered Asiakonstrukt to pay the equivalent in pesos of US$570,000 (P25,650,000 at an exchange rate used by the court), imposed 6% legal interest per annum from date of decision and 12% per annum from finality until paid, and recognized MERO’s right to be reimbursed from FCCC without pronouncement as to costs. The RTC rejected Asiakonstrukt’s claim that a written agreement existed imposing 18% annual interest because the document asserting 1.5% monthly interest lacked signatures of the defendants and therefore was not a binding written stipulation.
Court of Appeals Ruling
Both MERO and Asiakonstrukt appealed. The CA denied both appeals but modified the RTC’s interest award. The CA found that, contrary to the RTC, there was a written stipulation as to 18% annual interest between MERO and Asiakonstrukt, yet applied the Court’s equitable tempering authority (per Nacar) and adjusted the interest treatment: 12% per annum applied from date of default (March 31, 1998) until June 30, 2013, and thereafter 6% per annum until fully paid. The CA agreed with the RTC in holding Asiakonstrukt accountable and treating the letters as insufficient to effect novation or extinguish Asiakonstrukt’s obligation.
Issues Raised in the Petition for Review
Asiakonstrukt’s principal assignments of error to the Supreme Court were: (1) that the CA erred in not treating MERO’s Oct. 13, 1999 letter and Asiakonstrukt’s Nov. 8, 1999 response as a new written contract effecting novation so that MERO would collect directly from FCCC, thereby extinguishing Asiakonstrukt’s obligation; and (2) that the CA erred by failing to exclude Novum Structures LLC (a foreign respondent after conversion) as a party because MERO had allegedly transferred interest or changed status.
Supreme Court Analysis on Novation and Extinguishment
The Supreme Court denied the petition. It held there was no new contract or novation arising from the exchanged letters. The Court applied Civil Code principles: novation requires either an express declaration that the old obligation is extinguished or that the old and new obligations are incompatible on every point (Articles 1291–1293). The Court reiterated the requisites of novation (previous valid obligation; agreement to a new contract; extinction of the old contract; a valid new contract) and cited Garcia v. Llamas on express versus implied novation and the need for creditor consent where substitution or subrogation is concerned. The Court found: (a) the letters did not unequivocally state extinguishment of Asiakonstrukt’s obligation; (b) the letters merely showed Asiakonstrukt’s non-objection to MERO attempting to collect from FCCC, which is not incompatible with Asiakonstrukt’s continuing obligation; and (c) FCCC’s consent was absent — a necessary component if substitution or subrogation were intended — because FCCC was not party to those letters. Consequently, the obligation of Asiakonstrukt to MERO remained valid and enforceable.
Allocation of Risk and Liability Between Contractor and Project Owner
The Supreme Court emphasized that Asiakonstrukt, as the primary contractor who subcontracted a component to MERO, assumed the risk of FCCC’s nonpayment. The fulfillment of FCCC’s obligation to Asiakonstrukt was not shown to be a condition precedent to Asiakonstrukt’s obligation to pay MERO. Therefore Asiakonstrukt remained the primary obligor to MERO; FCCC and NDC could not be held primarily liable based on the record
...continue readingCase Syllabus (G.R. No. 221147)
Case Title, Citation, and Procedural Posture
- Case identified as SECOND DIVISION [ G.R. No. 221147, September 29, 2021 ].
- Petition for Review on Certiorari filed with the Supreme Court seeking to set aside the Court of Appeals Decision dated February 18, 2015 and Resolution dated October 21, 2015 in CA-G.R. CV No. 98844 (Rollo references: pp. 9-48; 49-65; 66-69).
- Parties:
- Petitioner: Asian Construction and Development Corporation (Asiakonstrukt).
- Respondents: MERO Structures, Inc. (substituted by Novum Structures LLC, Inc.), First Centennial Clark Corporation (FCCC), and National Development Company (NDC).
- Case culminated in a Supreme Court Decision authored by Justice Hernando, with the Petition denied and the Court of Appeals decisions affirmed (Rollo references throughout; final disposition stated: "Petition for Review on Certiorari is DENIED. The February 18, 2015 Decision and October 21, 2015 Resolution of the Court of Appeals in CA-G.R. CV No. 98844 are hereby AFFIRMED. SO ORDERED.").
Factual Background — Project Genesis and Contracts
- Project context: FCCC was created in relation to the Philippine centennial celebration of independence in 1998 to design, construct, operate, and manage the National Centennial Exposition at Clark Special Economic Zone (CSEZ), Clark Field, Pampanga (Rollo, p. 51).
- March 16, 1998: FCCC and Asiakonstrukt entered into a Construction Agreement for finalizing architectural concept, design, storyline, and to undertake construction works for the Exposition Theme Park (Records, pp. 73-85).
- March 16, 1998: MERO (an American corporation) submitted a Materials Only Proposal to Asiakonstrukt for supplying the MERO KK System Spaceframe for a special Philippine flag structure to be used at Expo Filipino’s grand opening on July 19, 1998 (Records, pp. 203-206).
- Proposal terms included: manufacture and supply of spaceframe for US$570,000.00; 20% of contract price to be paid upon award with remainder payable via letter of credit; materials to be shipped on April 4, 1998 if transaction confirmed by March 18, 1998 (Records, pp. 203-206).
- March 17, 1998: Asiakonstrukt accepted MERO’s Materials Only Proposal (Records, p. 203).
- April 5, 1998: Bill of lading shows MERO shipped the spaceframe to "Philippine Centennial Exposition c/o Asiakonstrukt." (Records, pp. 219-223).
- June 16, 1998: Asiakonstrukt proposed to FCCC the design, supply, and installation of the flag structure utilizing MERO’s spaceframe, with terms:
- full payment of imported MERO spaceframe upon on-site delivery;
- 50% payment of installation and lighting upon notice to proceed and remaining 50% on progress billing;
- completion of project by June 28, 1998 (Rollo, p. 52; Records, pp. 227-228).
- June 16–17, 1998: FCCC board approved Asiakonstrukt’s proposal subject to Commission on Audit rules, reimbursement from sponsorships, and certification from MERO that Asiakonstrukt was the only certified installer in the Philippines; FCCC approved Asiakonstrukt’s proposal in a letter dated June 17, 1998, subject to Asiakonstrukt’s proposal terms and MERO’s Materials Only Proposal (Records, pp. 227-230; Rollo, p. 52).
- June 18, 1998: Asiakonstrukt informed MERO that FCCC awarded Asiakonstrukt the contract and that Asiakonstrukt would pay MERO after FCCC’s payment for the materials not later than June 26, 1998 (Records, p. 225).
Post-Delivery, Demand for Payment, and Correspondence
- Asiakonstrukt requested payment from FCCC on August 10, 1998 for the delivered spaceframe and 50% downpayment for installation and lighting, both due since June 17, 1998 (Records, p. 225).
- MERO repeatedly sought payment from Asiakonstrukt via letters beginning March 19, 1998 (Records, pp. 211-214 and 221).
- October 13, 1999: MERO requested that FCCC pay MERO directly and asked Asiakonstrukt to notify FCCC that work was complete and satisfactory and that full payment should be made (Rollo, pp. 20-21; Records, p. 24).
- November 8, 1999: Asiakonstrukt replied it had no objection to MERO’s request to collect payment directly from FCCC (Records, pp. 25 and 226).
- MERO sought assistance from the Department of Trade and Industry (DTI) and Department of Finance (DOF) in a series of letters without success (Records, pp. 26-28 and 234-237).
- May 3, 2000: Newly appointed FCCC President Manuel R. Pamaran informed MERO he had not seen a contract between FCCC and MERO and requested a conference; a meeting on May 22, 2000 yielded no payment for MERO (Records, pp. 29-31 and 238-240).
- September 21, 2000: MERO’s counsel made a final demand on Asiakonstrukt for US$570,000.00 plus 1.5% interest per month (18% annually) (Records, p. 30).
Pleadings, Parties’ Contentions, and Counterclaims
- MERO instituted a Complaint for sum of money before the Regional Trial Court on February 21, 2002, seeking US$1,033,990.00 (including interest), litigation expenses, and moral and exemplary damages, and asked NDC to furnish FCCC with advances for payment (Records, pp. 2-10).
- NDC’s Answer with Counterclaim:
- Challenged MERO’s capacity to sue in the Philippines and validity of verification and certification against forum shopping (Records, pp. 50-57).
- Argued MERO had no cause of action against NDC because NDC was only a member of an Oversight Committee and FCCC failed to comply with conditions for loan drawdowns (Rollo, p. 54).
- Interposed counterclaims for attorney’s fees and exemplary damages (Rollo, pp. 54-57).
- FCCC’s Answer with Counterclaim and Cross-claim:
- Argued no privity of contract existed between FCCC and MERO; transaction was between MERO and Asiakonstrukt (Records, pp. 60-66; Rollo, p. 54).
- Stated FCCC’s approval of Asiakonstrukt’s proposal was subject to conditions never met; asserted the MERO flag was not utilized (Rollo, p. 54).
- Asserted cross-claim against Asiakonstrukt for reimbursement of any award made in favor of MERO and sought attorney’s fees and exemplary damages (Rollo, pp. 54-56).
- Asiakonstrukt’s Answer with Cross-claim:
- Admitted MERO’s claim for value of spaceframe but objected to imposition of 18% annual interest as not stipulated in writing (Records, pp. 69-72; Rollo, p. 54).
- Expressed willingness to pay, explaining delay was due to FCCC and NDC’s refusal to pay; maintained that as a contractor Asiakonstrukt had no liability for amount collected and project owners should be accountable (Rollo, pp. 54-55).
- Claimed entitlement to P1,000,000.00 in attorney’s fees from FCCC and NDC by cross-claim (Rollo, p. 55).
Change of MERO’s Corporate Status and RTC Procedural Ruling
- MERO manifested that it converted from a Delaware Corporation to a Delaware Limited Liability Company and changed its name from "MERO Structures, Inc." to "Novum Structures LLC" on March 31, 2006 (Records, pp. 427-437).
- RTC granted MERO’s Manifestation and Motion after hearing in an Order dated October 20, 2006 (Records, p. 456).
Regional Trial Court Decision (July 19, 2011) and Post-Trial Order
- RTC Decision (July 19, 2011) found in favor of MERO and against Asiakonstrukt and FCCC:
- Ordered Asiakonstrukt to pay MERO P25,650,000.00 (eq