THIRD DIVISION
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PHILIPPINE
NATIONAL CONSTRUCTION CORPORATION, Petitioner, - versus - THE HONORABLE COURT OF APPEALS and MCS CONSTRUCTION and DEVELOPMENT
CORPORATION, Respondents. |
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G.R.
No. 165433 Present: YNARES-SANTIAGO, J., Chairperson, AUSTRIA-MARTINEZ,
CALLEJO, SR., and CHICO-NAZARIO, JJ. Promulgated: February
6, 2007 |
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CHICO-NAZARIO, J.:
Before Us is a Petition for Review on Certiorari under Rule 45 of the Rules of Civil Procedure, assailing
the Decision[1] of the
Court of Appeals in CA-G.R. SP No. 76198, dated 19 July 2004, which dismissed Philippine National
Construction Corporation’s (PNCC’s) Petition for
Review of the Decision[2] of
the Construction Industry Arbitration Commission (CIAC) Arbitral Tribunal
awarding herein respondent MCS Construction and Development Corporation (MCS)
the amount of P6,352,791.33, with interest at the rate of 6% per annum
from 6 June 1999 up to the date of award and an interest rate of 12% per annum
as of the date the decision becomes final and executory
until fully paid.
A contract for the construction of the Philippine Merchant
Marine Academy’s (PMMA’s) Replication Project located
in San Marcelino, Zambales,
was entered into between the PNCC and PMMA.
Included in the scope of works for the Replication Project was the
construction of a gymnasium building.
The construction of said gymnasium was subcontracted by PNCC to MCS
under a Subcontract Agreement dated P19,483,572.65.
In a Certificate of Acceptance dated
Hence, on P24,988,597.44. MCS
maintained that notwithstanding the fact that the construction of the gymnasium
had been satisfactorily completed as early as 1999, PNCC still failed to fully
satisfy its obligation to pay the price of the construction project under the
Subcontract Agreement despite several written demands.
For its defense, PNCC alleged that the request for
arbitration was premature, as MCS had no cause of action against PNCC since the
latter is still in the process of paying its obligation to MCS. Furthermore, PNCC claimed that although its
payments were made in installments, said payments were made regularly, contrary
to the claim of MCS that said installment payments were irregular and took a
very long period of time.
In a preliminary conference held on
1. Was the filing of this case before CIAC premature for lack of cause of action?
1.1 In the event this case is
proven to have been prematurely filed, is Respondent entitled to its claim to
be compensated for the alleged bad reputation suffered? If so, how much?
1.2 If the filing of the case is
not premature, is Claimant entitled to its claim for the balance of the
contract price, damages and interest? If
so, how much?
2. Who between the parties is entitled to attorney’s fees?
3. Who between the parties shall shoulder the cost of arbitration?[3]
On
PNCC
contends that Article IV of the Subcontract Agreement (Exhibit A) shows that
MCS’ cause of action is premature because the corresponding payments from PMMA
had not been received. The pertinent
portion of Article IV reads as follows:
4.1.
The price referred to in Article 111 above shall be paid by PNCC to
Subcontractor in the following manner and subject to receipt by PNCC of
corresponding payment/s from PMMA:
xxxx
PNCC
submitted in evidence a summary of the accounts payable to MCS and the payments
made thereunder as of
Exhibit
14 clearly showed that PNCC had received a total of P31,249,223.30 from PMMA on
the “gymnasium building”, with a further balance of P6,972,043.44 still due
from PMMA. Parenthetically, PNCC did not
submit in evidence in these proceedings any copy of its contract or contracts
with PMMA. Other than Exhibit 14, PNCC
did not submit any evidence to show that the payments made to it by PMMA had
reference to other accounts between PMMA and PNCC, or that said payments were
inadequate to warrant PNCC’s payment in full of the
amounts due MCS.
On
the contrary, having already received a total of P31,249,233.30 from PMMA on
the “gymnasium building” project, PNCC saw fit to consider the same sufficient
to justify payment to MCS of only P9,965,465.98 (as adjusted by this arbitral
tribunal). Since there still appeared a
receivable of P6,972,043.44 from PMMA, PNCC chose to
relegate such receivable to the payment of the balance due MCS, in the amount
of P6,352,791.33. In other words, PNCC
opted to reap and enjoy its margins from the PMMA contract before satisfying
its obligations to its sub-contractor MCS.
This, the arbitral tribunal finds to have been done in bad faith on the
part of PNCC.
Noteworthy
also is the fact that PNCC did not raise this defense in its answer nor among
the special and affirmative defenses included in said answer. PNCC merely invoked its “financial
difficulties” in trying to justify its belated payments due MCS.
The
arbitral tribunal therefore holds that MCS’ cause was not prematurely filed,
and that its claim for payment of the balance of the contract consideration
made in these proceedings was proper.
Aside
from the said unpaid balance, to what other amount or amounts is MCS entitled
arising from PNCC’s breach in bad faith?
xxxx
xxx
MCS is entitled to interest, attorney’s fees and reimbursement of the costs of
arbitration – which (aside from its claims on the deterioration of the value of
the Phil. Peso) were all that MCS prayed for.
xxxx
It
is the ruling of this arbitral tribunal that, there having been unwarranted and
baseless delay in the payment required of the respondent PNCC, the claimant is
entitled to interest at the legal rate of 6% p.a. on the amount of P6,352,791.33 adjudicated in its favor, computed from the date
of first extrajudicial demand, which was on June 6, 1999 (Exhibit C). However, when the award herein becomes executory, the amount thereof will then partake of the
nature of a forebearance of credit and will thereupon
be entitled therefrom to the interest rate of 12%
p.a. until fully paid (Eastern Shipping
Lines, Inc. vs. Court of Appeals, 234 SCRA 78, 95-97 [1994]); reiterated in
Bangko Sentral ng Pilipinas vs. Santamaria, G.R. No. 139885,
In
respect of the costs of arbitration, Sec. 5, Article XV of the Rules of
Procedure Governing Construction Arbitration states:
Decision as to Cost of Arbitration. – In the case of
non-monetary claims or where the parties agreed that the sharing of fees shall
be determined by the Arbitrator(s), the award shall, in addition to dealing
with the merits of the case, fix the cost of arbitration, and/or decide which
of the parties shall bear the cost(s) or in what proportion the cost(s) shall
be borne by each.
Rule
142 of the Revised Rules of Court of the
Section 1. Costs Ordinarily follow the result of suit.
Unless otherwise provided in these rules, costs shall be allowed to the prevailing
party as a matter of course, but the court shall have power for special
reasons, to adjudge that either party shall pay the cost of an action, or that
the same shall be divided, as may be equitable.
Since
the institution of this arbitration case was necessitated by respondent PNCC’s refusal to pay claimant MCS the amounts due the
latter, this tribunal holds that respondent PNCC should exclusively bear the
costs of arbitration. PNCC had refused
to satisfy MCS’ valid and demandable claims; consequently, MCS had been
compelled to institute the present proceedings to protect its interests. Furthermore, PNCC was in gross and evident
bad faith in delaying the payment of MCS’ claim. It is, therefore, only just and equitable
that respondent PNCC be ordered to pay the costs of arbitration and to refund
to MCS all the amounts the latter had advanced in instituting and pursuing
these arbitration proceedings.
The
same aforementioned circumstances warranting the award of arbitration costs in
favor of the claimant likewise constitute justification for an award of
attorney’s fees by way of damages, also in favor of claimant (Art. 2208 [5] and
[11]. Considering the years of travail
which claimant went through in waiting and following-up the payment of the
contract consideration to which claimant was lawfully entitled, eventually
culminating in these arbitration proceedings, the arbitral tribunal finds that
an amount equivalent to ten per cent (10%) of the principal claim plus the
interests accruing thereon up to the date of payment is just; equitable and
reasonable in the premises.
WHREFORE,
arbitral award is hereby rendered in favor of claimant MCS Construction and
Development Corp. and against respondent Philippine National Construction
Corporation, ordering the latter to pay the former the following amounts:
(a) The principal claim of P6,352,791.33, with
interest thereon at 6% per annum computed from June 6, 1999 provided however
that said rate shall be increased to 12% per annum effective as of the date
that the decision herein becomes final and executory,
until the aforesaid principal amount is paid in full;
(b) Attorney’s fees equivalent to ten per cent
(10%) of such principal claim and the interests accruing thereon until all of
such principal claim and interests are paid in full; and,
(c) To reimburse the claimant the costs of
arbitration paid and/or advanced thereby.
Respondent’s
counterclaim is dismissed for lack of basis.[4]
Asserting that the CIAC Arbitral Tribunal committed error in
ruling that the claim of MCS is not premature, PNCC filed a Petition for Review
before the Court of Appeals, which was dismissed by the appellate court in a
Decision dated
We
disagree.
As
alleged in the complaint of respondent MCS, in pursuance to the agreement, the
latter made billings for various amounts on different dates. However, aside from making its payments
irregularly, petitioner also took a long time to make the payments, so much so,
that even after the lapse of more [than] three years from the time the
gymnasium project was satisfactorily completed in 1999, petitioner has not been
able to fully settle its obligation without lawful ground.
It
has been held that a cause of action is defined as an act or omission of one
party in violation of the legal rights of the other which causes the latter
injury (Rebollido v. Court of Appeals, 170 SCRA 800
[1989]).
In
determining whether or not a cause of action exists the following elements must
be present: (1) a right in favor of the plaintiff by whatever means and under
whatever law it arises or is created; (2) an obligation on the part of the
defendant to respect or not violate such right; and (3) an act or omission on
the part of such defendant in violation of the right of the plaintiff or
constituting a breach of the obligation of the defendant to the plaintiff for
which the latter may maintain an action for recovery of damages (Relucio v. Lopez, 373 SCRA 578 [2002]).
In the instant case, respondent MCS has a
right to be paid for its services in constructing the gymnasium and petitioner
PNCC recognized this right under the Subcontractors Agreement. Notwithstanding several written demands made
by the respondent MCS and considering the lapse of a considerable period of
time since the project was completed, petitioner PNCC has not complied with its
duty to pay respondent for its services.
Petitioner maintains that it was suffering from “financial difficulties”
but no evidence was shown to substantiate the same.
Well-settled
is that rule that the cause of action does not accrue until the party obligated
refuses, expressly or impliedly, to comply with his duty (Summit Guaranty and Insurance Company, Inc. v. De Guzman, 151 SCRA
389 [1987]).
Note
should be taken on the arbitral tribunal’s finding of the existence of a cause
of action by respondent MCS. Thus:
“Unfortunately for PNCC, the same document also listed
down the payments it had received from PMMA on the “gymnasium building” project
– the very same building for which MCS has been engaged to construct on behalf
of PNCC.
x x x
Exhibit 14 clearly showed that PNCC had received a
total of P31,249,223.30 from PMMA on the “gymnasium building”, with a further
balance of P6,972,043.44 still due from PMMA.
xxx Other than Exhibit 14, PNCC
did not submit any evidence to show that the payments made to it by PMMA had
reference to other accounts between PMMA and PNCC, or that said payments were
inadequate to warrant PNCC’s payment in full of the
amounts due MCS.” (Rollo, p. 124)
Also,
it has been held that where a contract is to be performed periodically, as by
installments, each failure to pay an installment constitutes a cause of action
and can be subject of a separate suit as the installment falls due, or can be
included in the pending or supplemental pleading (Larena v. Villanueva, 53 Phil. 923 [1928]).
xxxx
The
arbitral tribunal ruled that petitioner PNCC was guilty of gross and evident
bad faith in delaying payment of respondent’s claims, and as such, it was only
just and equitable that petitioner PNCC should bear the costs of arbitration.
In
the instant case, the arbitral tribunal found that because petitioner PNCC had
unjustifiably refused to satisfy MCS’ valid and demandable claims,
notwithstanding the presence of sufficient funds at its disposal, respondent
MCS was compelled to institute the present action in order to protect its
interests. xxx
xxxx
Contrary
to petitioner’s argument that the body of the decision of the arbitral tribunal
failed to state legal and factual bases for the award of attorney’s fees, the
decision stated the following basis to justify the award of attorney’s fees:
“The same aforementioned
circumstances warranting the award of arbitration costs in favor of the
claimant likewise constitute justification for an award of attorney’s fees by
way of damages, also in favor of claimant (Art. 2208 [5] and
[11], Civil Code).” (Rollo, p. 126)
xxxx
We
are convinced that the CIAC Arbitral Tribunal considered the evidence at hand
and the records clearly show that its decision is amply supported by
substantial evidence; thus, we find no reason to disturb the same.
WHEREFORE,
premises considered, the petition is DISMISSED. The Decision dated
Aggrieved by the aforequoted
Decision, PNCC filed the instant petition raising as issues the alleged prematurity of respondent’s action and the impropriety of
the award of attorney’s fees and arbitration fees.
While petitioner does not dispute the fact that MCS has
remaining receivables from PNCC under the Subcontract Agreement, PNCC insists
that such obligation of petitioner to pay respondent the remaining balance of
the contract price is not yet ripe for court or legal action as no cause of
action exists, since PNCC has not yet violated the rights of respondent. PNCC maintains that before the filing of the
complaint for arbitration, petitioner was in the process of paying its
obligations with claimant, thus the complaint for arbitration filed by MCS was
premature.
In its Memorandum, petitioner rationalizes its position that
the Request for Adjudication made by MCS before the CIAC Arbitral Tribunal is
premature in view of the fact that PNCC’s last
installment payment to MCS was in July 2002, after the latter’s last demand for
payment in April 2002. Petitioner
further highlights its efforts to fulfill its obligations to MCS by stressing the
fact that it had paid MCS a substantial amount under the Subcontract Agreement,
inasmuch as out of the contract price of P19,483,572.65,
only the balance of P6,352,791.33 remains unpaid. PNCC argues that it has never refused,
expressly nor impliedly, to comply with its responsibility under the
Subcontract Agreement, thus, MCS lacks a cause of action as against petitioner.
Petitioner’s contention is without merit.
It is unmistakable that PNCC’s
obligation to MCS has not been discharged by the amount it has already paid, no
matter how substantial it may be. Nevertheless,
PNCC seems to insist that said obligation may not be a subject of a court
action as MCS is yet to attain a cause of action since PNCC still continues to
pay part of its obligation under the Subcontract Agreement. We cannot agree in petitioner’s position as
this will imply that PNCC’s obligation to pay may not
at all become a proper subject of any court action as long as PNCC continues to
tender irregular installment payments, regardless of the amount, even to the
prejudice of MCS.
A careful perusal of the Subcontract Agreement entered into
by the parties will reveal the clear manner of payment by which PNCC’s obligation to pay MCS for the construction of the PMMA
gymnasium is to be made. According to
Article IV of said Subcontract Agreement:
4.2.
The price
referred to in Article 111 above shall be paid by PNCC to Subcontractor in the following manner
and subject to receipt by PNCC of
corresponding payment/s from PMMA:
xxxx
b.
thru semi-monthly progress billings computed based on
accomplishment as approved/accepted by PNCC/Owner and the agreed unit prices;[6]
From the facts of the case, it is undisputed that the
gymnasium building project subject of the Subcontract Agreement had been
satisfactorily completed by MCS as early as March 1999 and correspondingly
acknowledged by PNCC in a Certificate of Acceptance dated P6,352,791.33 as of the time of filing of
the instant case.
PNCC justifies its failure to completely settle its
obligation to MCS by citing its “financial difficulties.” However, apart from failing to present any
competent evidence to substantiate its claim of financial difficulties, it has been found by the CIAC Arbitral
Tribunal that PNCC has already received a total of P31,249,233.30 from
PMMA on the “gymnasium building” project. Nonetheless, PNCC only saw it fit to pay MCS P9,965,465.98.
Evidently, PNCC lacks any reasonable defense for its continued neglect
of its obligations to MCS.
This conduct demonstrated by PNCC in refusing to
expeditiously settle its obligation to MCS, despite the latter’s satisfactory
completion of its duties under the Subcontract Agreement, is clearly violative of the Subcontract Agreement. Under the pertinent portion of the said
contract cited above, PNCC shall pay MCS thru semi-monthly progress billings
upon PNCC’s receipt of corresponding payments from
PMMA. As found by the CIAC Arbitral
Tribunal, based on the evidence presented by PNCC itself, petitioner has already received from PMMA a
total of P31,249,233.30 for the construction of the gymnasium
building. This amount is evidently
sufficient to pay the whole subcontract price in the amount of only P19,483,572.65, and still leave PNCC the amount of P11,765,660.65
as margin/profit from the contract.
Petitioner’s contention that its failure to fully pay MCS is
because it still has a receivable of P6,972,043.44
from PMMA is untenable. Notwithstanding
this fact that PNCC still has a receivable in an amount sufficient to fulfill
its remaining obligation to MCS, it is not adequate a reason to justify the
irregular installment payments PNCC has been making to MCS in light of the CIAC
Arbitral Tribunal’s finding that PNCC had already received more than a
substantial amount from PMMA to satisfy the whole of its obligation to MCS. As deduced by the CIAC Arbitral Tribunal, this
act of PNCC in opting to reap and enjoy its margins from the PMMA contract
before satisfying its obligations to its Subcontractor MCS is an illustration
of bad faith on the part of PNCC.
Having said all these, it is now apparent that MCS has a
cause of action as against PNCC for the full satisfaction of the remaining
balance of the contract price. As stated
in the case of Navoa v. Court of Appeals:[7]
A cause of action is the fact or combination of facts
which affords a party a right to judicial interference in his behalf. The requisites for a cause of action are: (a)
a right in favor of the plaintiff by whatever means and under whatever law it
arises or is created, (b) an obligation on the part of the defendant to respect
and not to violate such right; and, (c) an act or omission on the part of the
defendant constituting a violation of the plaintiff’s right or breach of the
obligation of the defendant to the plaintiff.
Briefly stated, it is the reason why the litigation has come about, it
is the act or omission of defendant resulting in the violation of someone’s
rights.[8]
In continuing to delay the
full satisfaction of its obligation under the Subcontract Agreement despite
satisfactory completion by MCS of the gymnasium project almost three years
earlier and adequate payment by PMMA, PNCC has clearly breached the provisions
of the Subcontract Agreement, entitling MCS resort to the courts for protection
of its interest.
On the issue of the propriety of the award of attorney’s fees and
arbitration costs, petitioner maintains that the Decision of the CIAC Arbitral
Tribunal failed to state the legal and factual basis for the same. We do not agree. As correctly stated by the Court of Appeals,
the CIAC Arbitral Tribunal Decision amply explained the bases for the awards of
attorney’s fees and arbitration cost. As
pointed out by the appellate court, on the basis of its findings that PNCC
exercised gross and evident bad faith in delaying its payment of MCS’ claims
and the law applicable in such cases, the CIAC Arbitral Tribunal adjudged PNCC
liable for attorney’s fees and cost of arbitration. Furthermore, we agree with the Court of
Appeals when it said that that there is no justifiable reason to disturb the
findings of the CIAC Arbitral Tribunal as said quasi-judicial body has considered
the evidence at hand and the records clearly show that its decision is amply
supported by substantial evidence.
Petitioner’s argument that the CIAC Arbitral Tribunal should not have
passed upon the issue of attorney’s fees as said issue is non-arbitrable under Section 2 of Article IV of the Rules
Governing Construction Arbitration is rejected.
Under the Section 2, Article IV of the Rules of Procedure Governing
Construction Arbitration:
Section 2. Non-Arbitrable Issues – Pursuant to Section 4 of Executive
Order No. 1008, claims for moral damages, exemplary damages, opportunity/business
losses in addition to liquidated damages, and attorney’s fees are not arbitrable except
when the parties acquiesce or mutually agree to submit the same for arbitration
and to abide by the decision of the arbitrator thereon. [Emphasis ours]
While it is true that under the aforementioned provision of law,
attorney’s fees is not an arbitrable issue, yet, the
same also provides that it may be the subject of arbitration if the parties
agree to submit the same for arbitration.
In the case it bar, it must be underscored that under the Terms of
Reference agreed to by the parties during the arbitration proceedings, PNCC agreed
that one of the issues to be determined in the proceedings is who between the
parties is entitled to attorney’s fees.
Clearly, petitioner has acquiesced to the submission of the issue of
attorney’s fees to arbitration. What's
more, in petitioner’s very own Answer submitted before the CIAC Arbitral
Tribunal, petitioner asked for attorney’s fees as part of its own compulsory
counterclaim. This act of petitioner
clearly negates its further assertion that it never agreed to submit the issue
of attorney’s fees for arbitration.
WHEREFORE, premises considered, the instant
petition is hereby DENIED. The Decision of the Court of Appeals in CA
G.R. SP No. 76198 dated
SO ORDERED.
|
|
MINITA V. CHICO-NAZARIO Associate Justice |
WE
CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
Associate Justice Associate
Justice
ATTESTATION
I attest that the
conclusions in the above Decision were reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division
CERTIFICATION
Pursuant
to Section 13, Article VIII of the Constitution, and the Division Chairperson’s
Attestation, it is hereby certified that the conclusions in the above Decision
were reached in consultation before the case was assigned to the writer of the
opinion of the Court’s Division.
REYNATO S. PUNO
Chief Justice
[1] Penned by Associate Justice
Rodrigo V. Cosico with Associate Justices Rosalinda
Asuncion-Vicente and Aurora Santiago Lagman,
concurring. Rollo, pp. 27-32.
[2] CIAC
Case No. 33-2002, promulgated on
[3]
[4] CIAC Decision, pp. 4-5, 7-8; id. at 156-157, 159-160.
[5] CA Decision, pp. 4-7; id. at 30-33.
[6]
[7] 321 Phil. 938 (1995).
[8]