Philippine National Construction Corporation v. Mars Construction Enterprises
REITERATIONFacts
The Antecedents: On July 2, 1982, Mars Construction Enterprises, Inc. (Mars) entered into a subcontract with Construction & Development Corporation of the Philippines (CDCP), later reorganized as Philippine National Construction Corporation (PNCC), for the supply of approximately 70,000 cubic meters of aggregates. Amendments were executed, including one that changed the delivery stipulation to a minimum of 6,000 cubic meters per month until the project requirements were satisfied. Mars commenced delivery in March 1983, eight months after the initial 45-day stipulation, and had periods of non-delivery. PNCC procured materials from other sources due to these delays, and Mars reimbursed PNCC for the excess costs incurred, totaling P1.578 million. A dispute arose when PNCC refused to accept Mars' delivery of 17,000 cubic meters of washed 1-1/2" gravel, claiming no further need for it. Mars claimed unrealized profits (lucrum cessans), exemplary damages, and attorney's fees, and also demanded payment for a balance on base course purchase. Procedural History: The Regional Trial Court (RTC) of Pasig City ruled in favor of Mars, ordering PNCC to pay Mars P680,000.00 as lucrum cessans, P33,387.91 for outstanding obligation, and P50,000.00 for attorney's fees. The Court of Appeals (CA) affirmed the RTC decision in toto, holding that PNCC breached the contract by refusing the delivery of washed 1.5-inch gravel and that Mars was entitled to lucrum cessans. The CA also denied PNCC's prayer for damages due to delays, finding that Mars had compensated for such delays, and rejected PNCC's bad faith claim as it was not raised in the trial court. The Petition: PNCC filed a Petition for Review with the Supreme Court, seeking to reverse the CA decision, arguing that it was not compelled to accept the 17,000 cubic meters of gravel and that the award of lucrum cessans was not in accord with law and jurisprudence.
Issue(s)
Whether PNCC was compelled to accept the delivery of 17,000 cubic meters of washed 1-1/2" gravel, and whether its refusal constituted a breach of contract or a justified rescission. Whether the award of P680,000.00 as lucrum cessans was in accord with law and jurisprudence, and whether PNCC's claims for damages arising from delays should be granted.
Ruling
The Petition is denied, and the assailed Decision of the Court of Appeals is affirmed. PNCC is ordered to pay Mars Construction Enterprises the amount of P680,000.00 as lucrum cessans, P33,387.91 for outstanding obligation, and P50,000.00 for attorney's fees, plus costs of litigation.
Ratio Decidendi
On the issue of PNCC's obligation to accept delivery and rescission: The Court held that PNCC was under an obligation to accept the 17,000 cubic meters of washed 1.5-inch gravel. The "Scope of Services" provision in Amendment No. 2 stipulated that approximately 35,000 cubic meters of the total 70,000 cubic meters of concrete aggregates should be washed 1.5-inch gravel, which was interpreted as a minimum quantity. PNCC's refusal to accept the delivery constituted a breach of contract because the total quantity of washed 1.5-inch gravel received by PNCC from both Mars and other suppliers was only 18,140.49 cubic meters, significantly less than the stipulated 35,000 cubic meters. The Court emphasized that contractual stipulations must be interpreted together, and ambiguous provisions should be construed to achieve the greatest reciprocity of interests, meaning the specified quantities should be considered minimums. The Court ruled that PNCC's act of refusing delivery based on a letter from its Project Director was a unilateral rescission of the contract, which is provisional and subject to judicial determination. PNCC proceeded at its own risk by rescinding without court action. Furthermore, PNCC's claim that Mars was in default was not a substantial breach justifying rescission because the contract allowed PNCC to procure materials from other sources, and Mars willingly paid for the incremental costs incurred by PNCC due to these defaults. By exercising its option to procure from other suppliers and being compensated for the excess costs, PNCC waived its right to rescind the contract on grounds of such defaults and was estopped from doing so. On the issue of lucrum cessans and PNCC's claims for damages: The Court found no merit in PNCC's contention that the award of lucrum cessans was speculative. The Court reiterated that findings of fact by the trial court, especially when affirmed by the Court of Appeals, are binding and conclusive upon the Supreme Court. Since PNCC failed to show any exceptions to this rule, the factual determination regarding the lost profits was upheld. The Court affirmed the CA's computation of the outstanding obligation, which was based on a quitclaim and a backcharge invoice, and denied PNCC's claim for damages arising from delays, as Mars had already compensated for such delays.
Main Doctrine
Unilateral rescission of a contract is provisional and subject to judicial determination. Contractual stipulations must be interpreted together, with ambiguous ones construed to conform to the sense of all provisions jointly, and doubts settled in favor of the greatest reciprocity of interests. Defaults that are compensated do not constitute a substantial breach justifying rescission, and exercising options in case of default waives the right to rescind.