PNCC vs Mars Construction : 133909 : February 15, 2000 : J. Panganiban : Third Division

THIRD DIVISION

[G.R. No. 133909. February 15, 2000]

PHILIPPINE NATIONAL CONSTRUCTION CORPORATION, petitioner, vs. MARS CONSTRUCTION ENTERPRISES, INC., respondent. brando

D E C I S I O N

PANGANIBAN, J.:

Unilateral rescission of a contract is subject to judicial determination. Contractual stipulations should be interpreted together. Ambiguous ones should be construed to conform to the sense that would result when all the provisions are comprehended jointly. Moreover, doubts should be settled in favor of the greatest reciprocity of interests.

The Case

Before the Court is a Petition for Review under Rule 45 of the Rules of Court, seeking the reversal of the May 20, 1998 Decision of the Court of Appeals[1] (CA) in CA-GR CV No. 45009, which affirmed the Regional Trial Court (RTC) of Pasig City (Branch 154). The assailed Decision disposed as follows:[2]

"WHEREFORE, [there being] no error in the appealed decision, the same is AFFIRMED in toto."

The Facts

In its assailed Decision, the Court of Appeals relates the facts of this case as follows:[3]

"On July 2, 1982, [Mars Construction Enterprises, Inc., respondent herein] entered into a subcontract/Agreement with x x x Construction & Development Corporation of the Philippines (CDCP) [petitioner herein], later reorganized into the present Philippine National Construction Corporation (PNCC), for the supply of ‘approximately seventy thousand (70,000) cubic meters of aggregates consisting of: micks

1. washed sand,

2. washed ¾" gravel,

3. washed 1-½" gravel

4. sub-base’.

"On August 7, 1982, [respondent] and CDCP executed Amendment No. 1 increasing the amount of the third party liability coverage from P50,000.00 to P100,000.00. On November 5, 1982, [respondent] and CDCP executed Amendment No. 2 amending the scope of services, as follows:

‘1. Art. I is hereby amended to read:

‘ARTICLE I – SCOPE OF SERVICES

'The FIRST PARTY [respondent] shall supply approximately SEVENTY THOUSAND (70,000) cubic meters of concrete aggregates consisting of the following:

1. [W]ashed sand app. 17,500 cu. m.

2. Washed ¾" gravel app. 17,500 cu. m. Me-sm

3. Washed 1 ½" gravel app. 35,000 cu. m.

4. Sub-base 2" minus crusher run

xxx xxx xxx.'

(Exhibit ‘C-1’, Folder of Exhibits)

"Amendment No. 2 also altered Article IV (5.0) of the original Agreement which provided that ‘(t)he first party guarantees to commence delivery within forty five (45) days after signing of the contract and continue delivery until the quantities enumerated x x x [shall] have been delivered to the jobsite stockpile’ to read as follows:

‘ARTICLE V – DELIVERY

'The FIRST PARTY [respondent] shall deliver a minimum of SIX THOUSAND (6,000) cubic meters of combined concrete aggregate per month until the entire requirements of the SECOND PARTY [petitioner] to complete the Philphos Project shall have been satisfied.’ (Underscoring supplied.)

"Actual delivery of aggregates started only in March of 1983, or a delay of eight (8) months of the 45 days stipulated in the Agreement (Agreement, Article IV (5.0); TSN, September 6, 1985, pp. 9-10). There were also non-deliveries between the period June 1983 to January 1984 (TSN, supra). Thus [petitioner] was constrained to obtain the necessary materials from other sources, incurring additional costs representing the difference between the agreed price of P140.00 per cubic meter under the Agreement and the pricing of the outside sources. The difference in cost was reimbursed by [respondent] in accordance with the default clause under the Agreement that ‘the Second Party [petitioner] can procure from any other quarry operator x x x (and) should such procurement cost the Second Party more than the agreed price above, the excess [would] be for the account of the First Party x x x' (Article VII, no. 7). A total of P1.578 M was thusly paid by [respondent] (TSN, September 5, 1985, p. 12). S-l-x

"The controversy arose when [petitioner] refused to accept [respondent’s] delivery of 17,000.00 cubic meters of washed 1-1/2" gravel, saying that it had no more need for the same. For this, [respondent] claimed the amount of P680,000.00 representing lucrum cessans or unrealized profit with interest at bank rate until fully paid, exemplary damages and attorney’s fees. [Respondent] also demanded payment of P118,518.68 (Memorandum for Plaintiff, Record, p. 245) covered by a check tendered by [petitioner] (Exhibit ‘15’) based on a balance on the purchase of 39,200.62 cubic meters of base course amounting to P130,000.00 after deducting half of the overpayment of P23,256.80 made by [respondent] (TSN, April 22, 1986, p. 22).

"[Petitioner] denied that it breached the contract and counter-claimed for the amount of P85,120 as price differential of the procurement cost over the agreed price, plus reimbursement of overpayment of P23,256.80 it had made arising from error in measurement. (Answer, Counterclaim).

"The lower court rendered judgment, as follows: nigella

‘Wherefore, the foregoing considered, judgment is hereby rendered in favor of plaintiff and against the defendant ordering the defendant to pay plaintiff: a.) the amount of P680,000.00 as lucrum cessans; b.) the amount of P33,387.91 for the outstanding obligation of PNCC in favor of plaintiff (118,518.68 less price differential of P85,120.77); c.) attorney’s fees x x x reduced to the reasonable amount of P50,000.00; and as the costs of litigation.’"

Ruling of the Court of Appeals

The CA ruled that the Contract and its amendments impelled petitioner to accept delivery of the washed 1.5-inch gravel from the respondent. The figures in the "Scope of Services" provision were interpreted to mean the minimum quantities to be delivered to the petitioner. The petitioner received a total of 8,162.43 cubic meters of washed 1.5-inch gravel from the respondent and 9,978.06 cubic meters from other sources. Hence, the petitioner actually utilized only 18,140.49 cubic meters of aggregates of this specification, which was only about half of the stipulated 35,000 cubic meters. Clearly, it breached the Contract when it refused to accept delivery of the 17,000 cubic meters of washed 1.5-inch gravel from the respondent.

Because of this breach, the respondent was entitled to lucrum cessans, computed by deducting the production cost from the agreed cost per cubic meter of aggregates

The outstanding obligation of the petitioner to the respondent was the difference between the subcontractor’s quitclaim minus the penalty charges for outsourcing aggregates, which respondent incurred for its failure to deliver. The amount was based on the Quitclaim presented by petitioner and the undisputed Backcharge Invoice No. 354 presented by respondent. Sc-slx

The CA denied the petitioner’s prayer for damages arising from the delays in delivery, because respondent had already compensated or paid for such delays. The appellate court rejected petitioner’s contention that the respondent committed bad faith by entering into a contract that it was financially incapable of fulfilling, inasmuch as this issue had not been raised before the trial court.

Hence, this Petition.[4]

Issues

In its Memorandum, the petitioner submits the following "issues" for the Court’s consideration:[5]

"i. The honorable Court of Appeals x x x decided that PNCC was compelled to accept the delivery of the 17,000 cubic meters of washed 1-½" gravel which is not in accord with law and jurisprudence

"ii. The honorable Court of Appeals x x x decided to award the amount of P680,000.00 as lucrum cessans which is not in accord with law and jurisprudence." Sl-xsc

The Court’s Ruling

The Petition has no merit.

First Issue: Obligation to Accept Delivery

Petitioner contends that it was not under any obligation to accept 17,000 cubic meters of washed 1.5-inch gravel, because the delivery was made after the actual aggregate requirement of the project had already been fully satisfied, and after respondent had defaulted on its contractual undertakings.

Interpreting the ContractSl-xm-is

Petitioner adds that the respondent had already delivered aggregates, the combined volume of which was about 45 percent over and above that required in Article I, Amendment 2 of the Contract. Hence, the petitioner refused to accept the "excess" delivery in issue.

This contention is incorrect. The various stipulations in a contract should be interpreted together. Ambiguous ones should be so construed as to conform to the sense that would result if all the provisions are comprehended jointly.[6] The "Scope of Services" provision in Amendment 2 stipulated the delivery of 70,000 cubic meters of concrete aggregates consisting of approximately 17,500 cubic meters of washed sand, approximately 17,500 cubic meters of washed .75-inch gravel, 35,000 cubic meters of washed 1.5-inch gravel, and "sub-base 2" minus crusher run. Clearly, at least 35,000 of the 70,000 cubic meters of concrete aggregates that the respondent was supposed to deliver to the petitioner should be washed 1.5-inch gravel. The trial court correctly explained: M-issdaa

"x x x Initially, [respondent’s] scope of services [was] to supply 70,000 cu. m. of concrete aggregates consisting of washed sand, washed ¾"gravel, washed 1-½" gravel and sub-base (Art. 1 of the Agreement). This was amended per Amendment No. 2 (Exhibit C) to 70,000 cu. m. of concrete aggregates consisting of washed sand approximately 17,500 cu. m., washed ¾" gravel approximately 17,500 cu. m., washed 1-½" gravel approximately 35,000 cu. m., and sub-base 2" minus crusher run. This amendment x x x made the agreement [ambiguous] because the quantity of sub-base 2" minus crusher run was not specified. If said aggregate was included[;] however, the total would definitely be in excess of 70,000 cu. m. x x x [Petitioner] had ordered from [respondent] more than what was specified in the agreement. This act [signified] that the maximum limit of 70,000 cu. m. [was] disregarded [because of] PNCC’s needs. What then would be the significance of the quantities stated in Amendment No. 2? We interpret that these are the minimum quantities which must be delivered by [respondent]. Both parties are bound by these figures. x x x."[7]

Besides, the stipulation would be too burdensome to the respondent if, as petitioner insists, the breakdown of the specified aggregates were interpreted as mere estimates of the project requirements; the respondent would have then been uncertain as to how much it should deliver. Doubts in contracts should be settled in favor of the greatest reciprocity of interests.[8] Accordingly, these figures, as held by the CA, should be deemed the minimum amounts to be procured and delivered. In this way, both parties would know exactly how much to demand from each other to be able to comply with their respective obligations.

Provisional Unilateral Resolution

PNCC Project Director H. R. Taylor’s letter of May 17, 1984 informed the respondent of the final quantities of concrete aggregates to be delivered, with the advice that no other deliveries would be accepted. Hence, the petitioner asserts that, after that advice, it was no longer bound to accept any further deliveries from the respondent. Sd-aad-sc

We disagree. Such advice is not a sufficient justification for refusing delivery. The only clause on delivery is Stipulation 2 of Amendment 2, which states that "[t]he FIRST PARTY shall deliver a minimum of SIX THOUSAND (6,000) [c]ubic meters of combined concrete aggregate per month until the entire requirements of the SECOND PARTY to complete the Philphos Project shall have been satisfied."[9] The Contract did not authorize the petitioner to limit, by means of a unilateral advice, the quantity of aggregates that may be delivered. Although there were several occasions when the petitioner advised the respondent on the quality and the quantity of concrete aggregates to be delivered, Mr. Solomon Chu (general manager of respondent) testified that the giving of advice did not become the practice between them.[10]

By saying that the quantity specified in the letter was its last order, petitioner unilaterally amended its Contract with the respondent. The act of treating a contract as cancelled or rescinded on account of infractions by the other contracting party is always provisional;[11] that is, contestable and subject to judicial determination.[12] Judicial action is necessary for its rescission in order to afford the other party an opportunity to be heard[13] and to determine if the rescission was proper.[14] When the herein petitioner resolved or rescinded the Agreement without previous court action, it proceeded at its own risk. Only the final judgment of a court will conclusively and finally settle whether such recourse was correct in law.

Default as Insubstantial BreachScä

Petitioner avers that respondent was already in default when the former refused the latter's delivery of 17,000 cubic meters of washed 1.5-inch gravel. Hence, its refusal was justified.

We are not persuaded. The contract specifically provided that if the respondent failed to deliver the required aggregates, the petitioner could procure them from other sources so as not to jeopardize the entire construction project. The records reveal that on several occasions, petitioner purchased concrete aggregates from other suppliers.[15]

Pursuant to Paragraph 3 of Amendment 2, petitioner imposed penalties for the incremental cost of procuring materials from other sources, which respondent willingly paid in the sum of P1,577,000. Since petitioner was already compensated for respondent's defaults, such defaults cannot be considered as a substantial breach that justified the rescission of the Contract and the refusal to accept the questioned delivery.[16]

Furthermore, when the petitioner exercised its options in case of delay or default on the part of the respondent, the former waived its right to rescind and was thus estopped from rescinding the Contract by reason of such short delivery.[17] ScmisÓ

In light of the foregoing, the CA correctly held that petitioner was under obligation to accept and to pay for the 17,000 cubic meters of washed 1.5-inch gravel delivered by the respondent.[18] As found by the CA, the petitioner procured only a total of 18,140.49 cubic meters of washed 1.5-inch gravel from the respondent and from other suppliers (9,978.06 and 8,162.43 cubic meters, respectively). Thus, the respondent had the prerogative to supply, and the petitioner was bound to accept, 16,859.51 (or approximately 17,000) cubic meters of 1.5-inch gravel. Parties to a contract are bound to the fulfillment of what has expressly been stipulated.[19]

Second Issue: Factual Question of Lost Profits

Petitioner avers that the profits which respondent expected to derive from the Agreement were purely speculative, and that the trial and the appellate courts erroneously believed Mr. Chu’s bare testimony on said profits. MisÓ sc

We are not persuaded. Whether the respondent failed to realize profits -- and if so, how much -- and whether the judgment was supported by the evidence presented by it are factual in nature. Factual findings of the trial court, especially when affirmed by the Court of Appeals, as in this case, are binding and conclusive on the Supreme Court. It is not the function of this Court to reexamine the lower courts’ findings of fact.[20] While there are exceptions to this rule,[21] petitioner has not shown its entitlement to any of them.

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner.

SO ORDERED.

Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur. MisÓ spped

[1] First Division composed of J. Portia Aliño-Hormachuelos, ponente; JJ Arturo B. Buena (now a member of the Supreme Court) and Buenaventura J. Guerrero, members.

[4] This case was deemed submitted for decision upon receipt by this Court of the Memorandum for Mars Construction Enterprises, Inc. on October 11, 1999. This Memorandum was signed by Atty. Luis V. Diores of Diores Law Offices (rollo, p. 93).

[5] Rollo, p. 75; the Memorandum for the petitioner was signed by Government Corporate Counsel Jun N. Valerio, Deputy Government Corporate Counsel Elpidio J. Vega, Asst. Government Corporate Counsel Efren B. Gonzales and Government Corporate Attorney IV Manuel V. Fernandez (rollo, p. 75).

[11] University of the Philippines v. De los Angeles, 35 SCRA 102, 107, September 29, 1970.

[13] UP v. De los Angeles, supra; Ocejo, Perez & Co. v. International Banking Corp., 37 Phil. 631, 643, February 14, 1918; Republic v. Hospital de San Juan de Dios, 84 Phil. 820, 827, October 31, 1949; Coronel v. Court of Appeals, 263 SCRA 15, 35, October 7, 1996; and Adelfa Properties, Inc. v. Court of Appeals, 240 SCRA 565, 588, January 25, 1988.

[14] Pangilinan v. Court of Appeals, 279 SCRA 590, 597, September 29, 1997.

[16] Power Commercial and Industrial Corporation v. Court of Appeals, 274 SCRA 597, 608, June 20, 1997; Siska Dev’t. Corp. v. Office of the President of the Phil., 231 SCRA 674, 681, April 22, 1994.

[17] Siska Dev’t. Corp. v. Office of the President, supra; Angeles v. Calasanz, 135 SCRA 323, 332, March 18, 1985.

[19] Romero v. Court of Appeals, 250 SCRA 223, 233, November 23, 1995; Pangilinan v. CA, supra, p. 599.

[20] Sps. Lagandaon v. Court of Appeals, GR Nos. 102526-31, May 21, 1998; National Steel Corporation v. Court of Appeals, GR No. 112287, December 12, 1997.

[21] Fuentes v. CA, 268 SCRA 708-709, February 26, 1997.