1986 – Integrated Construction Services Inc. v. Relova, L-41117 (Novation, Arbitration Award, Breach of Contract, Martial Law)

3.1. DATE OF PROMULGATION

• December 29, 1986

3.2. DECIDING COURT

• Supreme Court of the Philippines

3.3. DIVISION

• En Banc

3.4. PONENTE

• Paras

3.5. CONCURRENCE AND ATTENDANCE

3.6. SEPARATE OPINIONS

3.7.PARTIES

3.8. COUNSEL

3.9. NATURE OF ACTION

• Petition for Mandamus as Special Civil Action
• An appeal on a CFI Manila Order

3.10. LAWS AND PROVISIONS CITED

• Rules of Court, Section 5, Rule 39

3.11. CASES CITED

• Kabangkalan Sugar Co. vs.  Pacheco, 55 Phil. 555

4.1. FACTS

• …

4.2. PROCEDURAL HISTORY

• CFI Manila
  • 1970, July 17
    • Petitioners sued respondent MWSS for breach of contract
    • The case was submitted for arbitration
  • 1972, August 11
    • the arbitration board rendered its decision-award. It ordered MWSS to pay petitioners P15,518,383.61 – less P2,329,433.41, to be set aside as a trust fund to pay creditors of the joint venture in connection with the project — or a net award of P13,188,950.20 with interest thereon from the filing of the complaint until fully paid. Petitioners agreed to give respondent MWSS some discounts in consideration of an early payment
  • 1972, September 9
    • respondent Judge confirmed the award
  • 1972, September 21
    • MWSS adopted a board resolution embodying the terms and conditions of the agreement.
  • 1972, October 2
    • MWSS sent a letter-agreement to petitioners granting MWSS some discounts from the amount payable under the under the decision award (consisting of certain reductions in interests, in the net principal award and in the trust fund), provided that MWSS would pay the judgment, less the said discounts, within fifteen days therefrom or up to October 17, 1972.
    • Upon MWSS’ request, the petitioners signed their “Conforme” to the said letter-agreement and extended the period to pay the judgment less the discounts aforesaid to October 31, 1972.
    • Petitioners claimed that they refused MWSS’ request for a conforme or quitclaim.
  • 1972, December 22
    • MWSS, however, paid only on December 22, 1972, the amount stated in the decision but less the reductions provided for in the October 2, 1972 letter-agreement.
  • 1975, June
    • After the last balance of the trust fund has been released and used to satisfy creditors’ claims, the petitioners filed a motion for execution in said civil case against MWSS for the balance due under the decision-award.
    • Respondent MWSS opposed execution setting forth the defenses of payment and estoppel.
  • 1975, July 10
    • Respondent judge denied the motion for execution on the ground that the parties novated the award by their subsequent letter-agreement.
  • 1975, July 24
    • Petitioners moved for reconsideration but respondent judge denied the same
• Supreme Court
  • Petition for mandamus was filed by petitioners, alleging that respondent judge unlawfully refused to comply with his mandatory duty – to order the execution of the unsatisfied portion of the final and executory award.
  • 1975, October 17
    • Supreme Court dismissed the Petition for lack of merit and denied petitioners’ Motion for Reconsideration of the same.
    • At the hearing on petitioners’ Second Motion for Reconsideration, however, respondent MWSS asserted new matters, arguing that:
      • the declaration of martial law, thus, placing MWSS under the management of the Secretary of National Defense, which impelled MWSS to refer the matter of payment to the Auditor General and/or the Secretary of National Defense; and that the 15-day period was merely intended to pressure MWSS officials to process the voucher
  • Petitioners denied these matters, which were not supported by the records.

4.3. ISSUES

• Whether the letter-agreement novated the judgement award?
• Whether the placing of MWSS under the control and management of The Secretary of National Defense was an unforeseen supervening factor?
• Whether the stipulated period was intended to pressure MWSS officials to process the voucher?
• Whether petitioners are in estoppel to question the subsequent agreement?

4.4. HELD

• Whether the letter-agreement novated the judgment award?
  • No.
    • While the tenor of the subsequent letter-agreement in a sense novates the judgment award there being a shortening of the period within which to pay (Kabangkalan Sugar Co. vs. Pacheco, 55 Phil. 555), the suspensive and conditional nature of the said agreement (making the novation conditional) is expressly acknowledged and stipulated in the 14th whereas clause of MWSS’ Resolution No. 132-72, (p. 23, Rollo) which states:
      • “WHEREAS, all the foregoing benefits and advantages secured by the MWSS out of said conferences were accepted by the Joint Venture provided that the remaining net amount payable to the Joint Venture will be paid by the MWSS within fifteen (15) days after the official release of this resolution and a written CONFORME to be signed by the Joint Venture;” (Emphasis supplied)
    • MWSS’ failure to pay within the stipulated period removed the very cause and reason for the agreement, rendering some ineffective. Petitioners, therefore, were remitted to their original rights under the judgment award.
• Whether the placing of MWSS under the control and management of The Secretary of National Defense was an unforeseen supervening factor?
  • No.
    • The placing of MWSS under the control and management of the Secretary of National Defense thru Letter of Instruction No. 2, dated September 22, 1972 was not an unforeseen supervening factor because when MWSS forwarded the letter-agreement to the petitioners on October 2, 1972, the MWSS was already aware of LOI No. 2.
• Whether the stipulated period was intended to pressure MWSS officials to process the voucher?
  • No.
    • MWSS’ contention that the stipulated period was intended to pressure MWSS officials to process the voucher is untenable. As aforestated, it is apparent from the terms of the agreement that the 15-day period was intended to be a suspensive condition. MWSS, admittedly, was aware of this, as shown by the internal memorandum of a responsible MWSS official, stating that necessary steps should be taken to effect payment within 15 days, for otherwise, MWSS would forego the advantages of the discount.”
• Whether petitioners are in estoppel to question the subsequent agreement?
  • No.
    • As to whether or not petitioners are now in estoppel to question the subsequent agreement, suffice it to state that petitioners never acknowledged full payment; on the contrary, petitioners refused MWSS’ request for a conforme or quitclaim. Accordingly, the award is still subject to execution by mere motion, which may be availed of as a matter of right any time within (5) years from entry of final judgment in accordance with Section 5, Rule 39 of the Rules of Court.

4.5. DISPOSITION

• Assailed order set aside, writ of Mandamus issued to respondent judge to grant the writ of execution for the balance due under the award.

4.6. SEPARATE OPINION