Arwood Industries, Inc. v. D.M. Consunji, Inc.
REITERATIONFacts
The Antecedents: Arwood Industries, Inc. (petitioner) and D.M. Consunji, Inc. (respondent) entered into an Agreement for the construction of a condominium project. The contract price was P20,800,000.00. Despite project completion, petitioner failed to pay the outstanding balance of P962,434.78, prompting respondent to demand payment. Procedural History: Respondent filed a complaint for the recovery of the unpaid balance and damages, praying for payment of the principal amount with 2% monthly interest, attorney's fees, exemplary damages, and costs. The Regional Trial Court (RTC) ruled in favor of the respondent, ordering petitioner to pay the principal amount with 2% monthly interest from November 1990, attorney's fees, and costs. The Court of Appeals (CA) affirmed the RTC decision regarding the interest but deleted the award for attorney's fees. Petitioner's motion for reconsideration was denied. The Petition: Petitioner filed a petition for review, assailing the imposition of the 2% monthly interest on the awarded amount, arguing that the provision on interest in the Agreement applied only to "monthly progress billings" and not to the final balance, and that this provision was not properly offered in evidence.
Issue(s)
Whether the 2% monthly interest imposed on the unpaid balance of the contract price is proper. Whether the provision on interest in the Agreement was properly considered as evidence.
Ruling
The petition is DENIED. The Court of Appeals correctly affirmed the imposition of 2% monthly interest on the unpaid balance of the contract price.
Ratio Decidendi
On the propriety of the 2% monthly interest: The Court held that the Agreement, as the law between the parties, clearly stipulated a 2% monthly interest for delayed payments. Petitioner's argument that the unpaid balance of P962,434.78 did not constitute "monthly progress billings" was dismissed as a semantic technicality. The Court reasoned that "monthly progress billings" are part of the contract price and represent payments based on work accomplished as the project progresses. The accumulated unpaid balance, therefore, directly resulted from the petitioner's failure to make timely payments for work completed, thus falling under the purview of delayed payment. The Agreement provided the contractor with two options in case of delayed payments: suspend work or continue work and charge interest. Respondent's completion of the project indicated its choice to continue work and avail of the stipulated interest. The Court emphasized that delay in payment is disfavored, and the agreed interest serves as the appropriate measure of damages for such delay, consistent with Article 2209 of the Civil Code which allows for agreed penalty interest in case of delay in monetary obligations. The Court also noted that even without an explicit stipulation, Article 2209 of the Civil Code would allow for interest, either agreed upon or legal interest. On the admissibility of the Agreement provision on interest: The Court found no merit in petitioner's argument that the provision on interest was not properly offered in evidence. The Agreement itself was formally offered and admitted as evidence, and its terms are binding on the parties. Petitioner's failure to object to the Agreement or its contents during pre-trial or trial meant that it could not raise such an objection for the first time on appeal. Furthermore, the issue of interest was implicitly included in the phrase "exclusive of damages" in the complaint and was a matter that could be determined based on the admitted contract. The Court reiterated that it is not indispensable for a specific provision to be sub-marked or formally offered if the contract itself is in evidence and its validity is not questioned.
Main Doctrine
The stipulation for a 2% monthly interest on delayed payments in a construction agreement is binding and enforceable, even if the specific amount due is not a "monthly progress billing" but a balance of the contract price, as it represents the agreed penalty for the owner's delay in payment.