Case Summary (G.R. No. 159648)
Factual Background
Fluor Daniel, Inc.-Philippines was the project manager and general contractor for the Fairways & Bluewater, Newcoast Island Resort in Boracay Island under a contract with Fil-Estate Properties, Inc. In 1997 E.B. Villarosa & Partners Co., Ltd. contracted with petitioner to perform civil structure and architecture work, plumbing and fire protection, and millworks. Fil-Estate failed to pay petitioner its monthly progress billings. Petitioner notified Fil-Estate and its contractors, including respondent, that the project would be suspended. Petitioner issued notices of suspension of work; respondent treated the contracts as terminated, demanded payment for suspension costs and work performed, and filed a complaint for sum of money and damages in the Regional Trial Court of Makati City.
Trial Court Proceedings
Petitioner moved to dismiss the complaint for failure to state a cause of action. The trial court denied that motion in its November 19, 1998 Order and denied reconsideration in its March 24, 1999 Order, ordered the parties to pretrial, and admitted respondent’s amended complaint filed on May 7, 1999. The trial court also denied petitioner’s motion to suspend proceedings and directed petitioner to answer the amended complaint.
Proceedings in the Court of Appeals
Petitioner filed a special civil action for certiorari with the Court of Appeals, seeking annulment of the trial court’s November 19, 1998 and March 24, 1999 Orders and praying for injunctive relief. The Court of Appeals affirmed the trial court’s denial of the motion to dismiss and denial of reconsideration, and lifted a previously issued temporary restraining order. Costs were imposed against petitioner.
Issues Presented to the Supreme Court
Petitioner raised four main issues: whether the complaint stated a sufficient cause of action against Fluor Daniel, Inc.-Philippines under controlling jurisprudential tests; whether the annexes to the complaint should be considered in assessing sufficiency of the complaint; whether the Court of Appeals erred in refusing to consider the annexes that respondent allegedly used to admit that payment of its billings was conditioned upon petitioner’s timely receipt of payments from Fil-Estate; and whether the Court of Appeals failed to appreciate respondent’s alleged failure to satisfy criteria required to justify payment under its monthly progress billings.
Parties' Contentions
Petitioner argued that the complaint failed to plead operative facts that would establish a cause of action and that the contracts annexed to the complaint demonstrated that respondent’s right to payment was subject to a condition precedent — timely receipt by petitioner of like payments from Fil-Estate — which respondent did not allege had occurred. Petitioner contended that the Court of Appeals erred in not considering those annexes. Respondent countered that the complaint sufficiently alleged the three elements of a cause of action: a legal right to demand payment, an obligation of petitioner to pay, and petitioner’s failure to pay; respondent maintained that the annexes were not admitted by stipulation and were therefore irrelevant to the sufficiency determination.
Legal Standard on Sufficiency of a Cause of Action
The Court restated Section 2, Rule 2, Rules of Civil Procedure, which defines a cause of action as the act or omission by which a party violates a right of another and enumerates its three essential elements: a right in favor of the plaintiff, an obligation on the defendant not to violate that right, and an act or omission constituting breach. The Court reiterated the governing test: admitting the facts pleaded, could the court render a valid verdict in accordance with the complaint’s prayer. The Court acknowledged authority establishing that the trial court, in appropriate cases, may examine documents annexed to the complaint in determining sufficiency of a cause of action, citing Swagman Hotels and Travel, Inc. v. Court of Appeals, Misamis Occidental II Cooperative, Inc. v. David, Jimenez, Jr. v. Jordana, and Alberto v. Court of Appeals.
Supreme Court Ruling
The Supreme Court granted the petition. The Court held that the three contracts annexed to the complaint contained an express provision making payment to respondent subject to petitioner’s timely receipt of similar payments from Fil-Estate. The provision stated that "Payment of the billings shall be subject to the timely receipt of similar payments from the client by Fluor Daniel" and that prolonged delay by Fluor Daniel authorized suspension of activities by respondent after notice. Because respondent’s complaint failed to allege that the condition precedent — timely receipt of payments by petitioner from Fil-Estate — had occurred, the complaint, read together with its annexed contracts, did not allege facts sufficient to establish the third element of a cause of action, namely an act or omission constituting breach by petitioner. The Court concluded that dismissal for failure to state a cause of action was appropriate.
Legal Basis and Reasoning
The Court explained that a cause of action accrues only upon the occurrence of the last essential e
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Parties and Procedural Posture
- Fluor Daniel, Inc.-Philippines was the petitioner and a domestic corporation providing construction and program management services.
- E.B. Villarosa & Partners Co., Ltd. was the respondent and one of the contractors engaged by Fluor Daniel for the Boracay Island project.
- The respondent filed a complaint in the Regional Trial Court of Makati City, Branch 58, docketed as Civil Case No. 98-1342, for a sum of money and damages.
- The trial court denied petitioner’s Motion to Dismiss in an order dated November 19, 1998 and denied petitioner’s Motion for Reconsideration in an order dated March 24, 1999.
- The trial court admitted respondent’s amended complaint and denied petitioner’s motion to suspend proceedings in an order dated May 7, 1999.
- Petitioner sought relief by filing a special civil action for certiorari with the Court of Appeals, which affirmed the trial court’s November 19, 1998 and March 24, 1999 orders in a Decision dated October 24, 2002 and a Resolution dated August 25, 2003.
- Petitioner elevated the case by certiorari to the Supreme Court in G.R. No. 159648, which rendered the present decision.
Key Factual Allegations
- Fluor Daniel, Inc.-Philippines contracted with Fil-Estate Properties, Inc. for construction of the Fairways & Bluewater, Newcoast Island Resort in Boracay Island.
- E.B. Villarosa & Partners Co., Ltd. executed separate contracts with petitioner on May 6, 1997 for civil structure and architecture, for plumbing and fire protection, and for millworks.
- Fil-Estate failed to satisfy petitioner’s monthly progress billings, which caused petitioner to withhold payment to its contractors, including respondent.
- Petitioner notified Fil-Estate of the need to suspend the project and issued notices of suspension of work to its contractors, including respondent.
- Respondent declared the contracts terminated, demanded payment for suspension costs and work performed, and filed the complaint against petitioner.
Issues Presented
- Whether the complaint sufficiently stated a cause of action against FDIP in light of jurisprudential tests and guidelines.
- Whether the annexes attached to the complaint should be considered in determining sufficiency of the cause of action.
- Whether the Court of Appeals erred in refusing to consider the annexes that allegedly showed respondent’s admission that payment was subject to petitioner’s timely receipt of payments from Fil-Estate.
- Whether the Court of Appeals failed to appreciate respondent’s alleged failure to satisfy criteria justifying payment under its monthly progress billings.
Contentions of the Parties
- Petitioner contended that the complaint failed to allege operative facts constituting a cause of action and that the annexed contracts, which conditioned payment on petitioner’s timely receipt of payments from Fil-Estate, required dismissal.
- Petitioner further contended that the Court o