Title
Narra Integrated Corp. vs. Court of Appeals
Case
G.R. No. 137915
Decision Date
Nov 15, 2000
Narra failed to pay NC Industrial Trade for completed projects; defenses deemed sham. SC upheld summary judgment, affirming Narra's liability for unpaid balance.
summary judgment
dispute
payment

Case Summary (G.R. No. 137915)

Factual Background

Sometime in November 1991, Narra Integrated Corporation contracted with NC Industrial Trade, Inc. for manpower services and materials, including trader, tools, equipment, and supervision, for three distinct components of construction work for the factory of Kyung-Il Philippines, Inc., at the construction site in Dasmarinas, Cavite.

The undertakings were evidenced by sales invoices issued by NC Industrial Trade, Inc.: Invoice Nos. 106 and 107 for the first project, Invoice Nos. 105 and 108 for the second undertaking, and Invoice No. 103 for the third. The total unpaid balance claimed by the plaintiff was P1,485,776.93. The plaintiff sent a demand letter dated October 24, 1992 after Narra Integrated Corporation allegedly failed to pay the balance.

Narra Integrated Corporation answered that it merely hired the plaintiff as a subcontractor. It asserted that the plaintiff was aware that its payments depended on progress payments made by Kyung-Il to the general contractor, and that Narra Integrated Corporation had not been paid by Kyung-Il due to alleged defects in the works, including those allegedly done by the plaintiff. It further claimed that the plaintiff agreed that Narra Integrated Corporation should first pursue payment from Kyung-Il. On these grounds, it contended that there was no cause of action, and it sought dismissal and counterclaims.

Third-Party Complaint and Related Procedural Incidents

On the strength of its claimed outstanding balance from the project owner, Narra Integrated Corporation filed a third-party complaint against Kyung-Il Philippines, Inc. The trial court initially denied a motion to dismiss based on improper service of summons, while later dismissing the third-party complaint for the failure to attach the required certification of non-forum shopping. Upon a motion for reconsideration and compliance with Supreme Court Circular No. 28-91, the trial court reinstated the third-party complaint.

After denial of its motion for reconsideration, the third-party defendant filed an answer that specifically denied material allegations. As affirmative defenses, Kyung-Il Philippines, Inc. alleged that Narra Integrated Corporation violated the contracts it drew by failing to submit adequate performance bonds, incurring substantial delays, hiring subcontractors without prior approval, and submitting defective or substandard construction work. The third-party defendant sought dismissal and additional damages and attorney’s fees.

After the issues were joined, the case was set for pre-trial. The plaintiff then moved for summary judgment, contending that the defendant’s answer did not tender a genuine issue.

Trial Court’s Partial Summary Judgment

The plaintiff’s motion for summary judgment was granted by the trial court in a partial decision subject of the appeal. The trial court treated the dispute over the plaintiff’s principal claim for the unpaid balance as one fit for summary disposition. The Court of Appeals later affirmed the RTC’s approach and its resulting award of liability to the plaintiff in the sum of P1,485,776.93, plus attorney’s fees of P10,000.00 and costs of suit.

Issues Raised by the Petitioner on Appeal to the Supreme Court

In its petition, Narra Integrated Corporation argued that the Court of Appeals erred in affirming the RTC’s disposition allowing a judgment based on pleadings despite alleged genuine issues requiring trial. It also argued that the Court of Appeals disregarded contentious issues raised in its answer. Its theory was that the matter of completion of the project and acceptance—particularly the effect of alleged non-final acceptance by the project owner—remained part of the controversy and should have precluded summary judgment. It further contended that the trial court should have awaited the results of its third-party complaint against the project owner.

Summary Judgment versus Judgment on the Pleadings

The Supreme Court rejected the petitioner’s premise that the RTC rendered a judgment on the pleadings. The Court held that the trial court’s disposition was in fact a summary judgment. It explained the doctrinal difference: in a proper judgment on the pleadings under the governing rules, there are no ostensible issues because the answer fails to raise an issue. By contrast, in summary judgment, issues may appear from the pleadings but are sham, fictitious, contrived, set up in bad faith, or patently unsubstantial, as shown by the submissions such as affidavits, depositions, or admissions. Accordingly, even if an answer technically tenders issues, summary judgment may still be issued if the plaintiff shows that the asserted defenses are not genuine.

The Court emphasized that the trial court may determine whether issues are genuine by examining the pleadings, admissions, documents, and affidavits submitted by the parties in support of the motion and opposition.

Whether the Petitioner Raised Genuine and Substantial Triable Issues

The Supreme Court examined the face of Narra Integrated Corporation’s answer. It noted that the answer ostensibly dealt with the material allegations of the complaint, by either specific denial, partial admission, or professed lack of knowledge or information, and it raised affirmative defenses. This, however, did not end the inquiry. The controlling question was whether the issues were sham or fictitious such that summary judgment remained proper.

The Court held that the RTC and Court of Appeals properly concluded that the petitioner’s pleaded defenses did not amount to genuine issues regarding the plaintiff’s claim. The Court relied on the fact that Narra Integrated Corporation did not deny entering into the November 6, 1991 letter-contract with NC Industrial Trade, Inc., did not specifically dispute the invoices showing amounts owed, and did not dispute the unpaid balance of P1,485,776.93. The Court treated the petitioner’s principal stance—its insistence that payment was contingent on progress payments from Kyung-Il, and that alleged defects prevented payment—as an unjustified reason, rather than a defense showing that NC Industrial Trade, Inc. had no actionable claim against Narra Integrated Corporation.

The Alleged Payment Scheme as a Defense

The Court agreed with the trial court and the Court of Appeals that paragraphs seven to ten of the answer did not tender genuine issues. The petitioner had alleged that, as subcontractors, it knew billing would be subject to inspection and certification and that progress payments by the principal contractor were subject to progress payments of the project owner; and it had asserted that the project owner continued to allege defects in works, including those of the plaintiff. The Court held that these allegations merely explained why the petitioner was not paying, but did not constitute a legally sufficient denial of privity or consent. As the plaintiff was not alleged to have consented to the alleged payment scheme in a manner that would negate privity, there was no sufficient basis to disturb the partial judgment.

The Supreme Court approved the Court of Appeals’ reliance on D.D. Comendador Construction Corp. vs. Sayo, where summary judgment was upheld when the defense was an asserted understanding that payment would proceed only from the defendant’s own collections, a claim found belied by the transaction documents sued upon.

Acceptance of Work and the Contractual Term on Termination and Release

The petitioner argued that it had raised a genuine issue as to whether there had been acceptance of the work by the petitioner, as general contractor. It pointed to XIII of the letter-contract, which stated that the contract would be terminated upon completion and acceptance of the work by the general contractor, and that partial payment did not waive the right to require correction of deficiencies or defects.

The Supreme Court acknowledged that the written contract required acceptance by the general contractor before payment. Yet it held that the issue of acceptance could be resolved without need for a lengthy trial because the contract did not specify the form of acceptance. The Court found evidentiary support for implied acceptance from the petitioner’s own admissions. In an affidavit of petitioner’s general manager, the petitioner admitted that the construction project had been fully completed since May 1992 and that Kyung-Il had been in full operation and use of all facilities constructed by Narra since that date. The Court reasoned that petitioner’s treatment of the project as fully complete and its turnover to Kyung-Il logically indicated acceptance of the relevant portions undertaken by the plaintiff.

On this basis, the Court held that petitioner could not avoid payment of the unpaid balance.

Acceptance by the Project Owner and the Release of Retention

The petitioner also contended that final acceptance by the project owner was required for the release of the ten percent (10%) retention. It invoked II(b) of the contract, which stated that the retention would be released sixty days after final acceptance of the project and after the subcontractor submitted the required affidavit or undertaking.

The Supreme Court rejected this argument for two principal reasons grounded in contract law. First, it reiterated the axiom that contracts take effect only between the parties who execute them. The cited paragraph referred to acceptance of the project and to the affidavit/undertaking as prerequisites before the release of retention. But the Court observed that the contract was between Narra Integrated Corporation and NC Industrial Trade, Inc., and did not mention the project owner, Kyung-Il, as a party to the condition affecting the subcontractor’s rights vis-à-vis the general contractor. Second, because petitioner had already accepted the project undertaken by the plaintiff and because the plaintiff had already submitted the required affidavit or undertaking, there was no reason for petitione

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