Case Summary (G.R. No. 207340)
Facts of the Case
Pan Pacific Service Contractors, Inc. is engaged in mechanical contracting and entered into a contract on November 24, 1989, with the respondent bank for a total project cost of PHP 23,311,410.30 for mechanical works on the PCIB Tower II extension in Makati City. The Contract included an escalation clause allowing for price adjustments in response to increased labor costs and materials. Labor and material costs escalated soon after the contract was signed, leading Pan Pacific to claim an adjustment amounting to PHP 5,165,945.52. After negotiations with the respondent's appointed project engineer, this claim was revised down to PHP 4,858,548.67 and eventually to PHP 3,730,957.07.
Claims and Disputes
Despite the bank’s acceptance of the project in July 1992, it withheld payment for the price adjustment despite repeated demands from Pan Pacific, offering instead a loan of PHP 1.8 million, which was used to pay laborers and suppliers directly. Pan Pacific contended that this loan was not an expression of true intent but an advance against pending price adjustments, asserting that the promissory note, which they executed, lacked proper consideration and should be deemed null and void. Conversely, the bank insisted on offsetting the price adjustment with Pan Pacific's outstanding loan balance.
Initial Ruling by RTC
On May 6, 1994, Pan Pacific filed a complaint with the Regional Trial Court (RTC) to annul the promissory note and recover the price adjustment amount. The RTC ruled in favor of Pan Pacific on April 12, 1999, declaring the promissory note void and awarding damages, including unpaid balance, moral and exemplary damages, and attorney’s fees.
Appeal to the Court of Appeals
Both parties appealed aspects of the RTC's decision to the Court of Appeals (CA). The CA, in its decision on June 30, 2005, modified the RTC judgment by adjusting the principal amount due to PHP 1,516,015.07 and maintaining interest at the legal rate of 12% per annum.
Supreme Court's Ruling
In their petition, Pan Pacific challenged the CA’s imposition of the lower interest rate, asserting an entitlement to an 18% bank lending interest rate based on their contract. The Supreme Court granted the petition, emphasizing that the CA’s decision unduly restricted the contractual rights of the parties. The Court held that the contract stipulated that the bank lending rate would apply to delayed payments without needing additional consent from the respondent for such imposition.
Interpretation of Contractual Agreements
The Court underscored the importance of the defined
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Case Background
- This case involves a Petition for Review filed by Pan Pacific Service Contractors, Inc. and its President, Ricardo F. Del Rosario, challenging the Decision of the Court of Appeals (CA) dated 30 June 2005 and the Resolution dated 5 October 2005.
- The CA modified the decision of the Regional Trial Court (RTC) of Makati City, which had ordered Equitable PCI Bank to pay the petitioners P1,516,015.07, along with interest at the legal rate of 12% per annum starting 6 May 1994.
Facts of the Case
- Contractual Agreement: On 24 November 1989, Pan Pacific entered into a contract for mechanical works with Equitable PCI Bank for a total consideration of P23,311,410.30, which included nine change orders.
- Escalation Clause: The contract included an escalation clause allowing price adjustments due to increases in labor and material costs.
- Project Completion: The mechanical works were completed in June 1992, with acceptance by the respondent on 9 July 1992.
- Price Adjustment Claim: Following a rise in costs, Pan Pacific claimed a price adjustment of P5,165,945.52 on 5 April 1991. After negotiations, the amount was reduced to P4,858,548.67.
- Recommendation for Adjustment: TCGI Engineers recommended a further reduced price adjustment of P3,730,957.07 based on various factors including labor indices and shipping documents.
- Payment Issues: Despite repeated demands for payment of the price adjustment, Equitable PCI Bank withheld payment, le