Philippine Reclamation Authority v. Romago
REITERATIONFacts
The Antecedents: The Bases Conversion and Development Authority (BCDA) created the Heritage Park Project. The Philippine Reclamation Authority (PRA), formerly Public Estates Authority, was designated Project Manager. A Pool Formation Trust Agreement (PFTA) was executed among BCDA, PRA, and Philippine National Bank (PNB) for the securitization of interment plots. Romago, Inc. (Romago) was awarded the contract for outdoor electrical and lighting works for the park by the PRA. Subsequently, the Heritage Park Management Corporation (HPMC) was organized to take over the project management. HPMC notified PRA of the termination of PRA's management functions and demanded turnover of project documents and equipment. Procedural History: PRA informed Romago of the termination of its services and assigned its contract with Romago to HPMC. HPMC refused to recognize the PRA's contract with Romago. Romago filed a complaint with the Construction Industry Arbitration Commission (CIAC) against PRA, HPMC, and Rosehills Memorial Management (RMMI) for unpaid claims. RMMI was dropped as a respondent. CIAC ruled that PRA and HPMC were jointly and severally liable to Romago. HPMC elevated the CIAC order to the Court of Appeals (CA), which dismissed the complaint against HPMC for lack of arbitration agreement. PRA also filed a petition for review with the CA. The CA modified the CIAC award, reducing the actual damages and deleting certain interests. The CA rejected PRA's argument that it was no longer liable due to the turnover and assignment to HPMC, stating Romago did not consent to the assignment. Both PRA and Romago moved for reconsideration, which were denied. Both parties filed separate petitions for review before the Supreme Court. The Petition: The PRA argued that its liability was extinguished by novation through its assignment of obligations to HPMC. Romago sought an increase in the CA award for actual damages.
Issue(s)
Whether or not the CA erred in holding the PRA still liable to Romago under the Construction Agreement despite the subsequent turnover of the Heritage Park Project to the HPMC. Whether or not the CA erred in reducing the CIAC award for actual damages to Romago to just ₱8,935,673.86.
Ruling
The Supreme Court affirmed the Decision of the Court of Appeals with modification, directing the Philippine Reclamation Authority to pay Romago, in addition to the ₱8,935,673.86 award of actual damages, legal interest of 6% per annum from October 22, 2004, until the judgment against it is wholly paid, and the costs of arbitration in the amount of ₱396,608.73.
Ratio Decidendi
On the issue of PRA's continued liability despite turnover to HPMC: The Court ruled that the PRA remained liable to Romago. Novation requires the agreement of all parties to the new contract, including the consent of the original parties and the new debtor or creditor. In this case, the HPMC clearly rejected the PRA's assignment of its liability under the contract to HPMC. Romago did not consent to this assignment. Therefore, there was no novation that extinguished PRA's liability. The provisions of the Pool Formation Trust Agreement (PFTA) also indicated that the termination of PRA's obligations was conditioned upon specific turnovers and faithful performance, and did not automatically transfer its contractual obligations to HPMC. Section 7.01 of the PFTA explicitly stated that PRA shall be liable for obligations it undertook in its own name. On the issue of the reduction of CIAC award for actual damages: The Court found no error in the CA's reduction of the award. Engineer J.R. Milan testified that Romago received ₱86,479,617.61 out of ₱105,120,826.50 worth of work accomplished, leaving a deficiency of ₱18,641,208.89. This testimony, supported by Progress Report No. 50, was not refuted by Romago, which even adopted the same document as its exhibit. Thus, Romago conceded the correctness of the PRA's valuation of the balance due it. The Court deemed it proper to impose legal interest of 6% per annum on the amount finally adjudged, reckoned from October 22, 2004, the date the CIAC rendered judgment, until the same is wholly satisfied, in keeping with established jurisprudence.
Main Doctrine
Novation requires the agreement of all parties to the new contract, including the consent of the original parties and the new debtor or creditor. An assignment of contractual obligations without the consent of the original creditor does not constitute novation.