Asian Construction v. Mero Structures
REITERATIONFacts
The Antecedents: First Centennial Clark Corporation (FCCC) was created to manage the Philippine National Centennial Exposition. FCCC entered into a Construction Agreement with Asian Construction and Development Corporation (Asiakonstrukt) for the Exposition Theme Park. MERO Structures, Inc. (MERO) submitted a Materials Only Proposal to Asiakonstrukt for the supply of materials for a special Philippine flag structure, which Asiakonstrukt accepted. MERO shipped the spaceframe materials. Asiakonstrukt submitted a proposal to FCCC for the design, supply, and installation of the flag structure, which FCCC approved subject to certain conditions. Asiakonstrukt informed MERO that FCCC awarded the contract and that MERO would be paid after FCCC's payment. MERO sought payment from Asiakonstrukt, and later requested to be paid directly by FCCC. Asiakonstrukt agreed to this request. MERO's attempts to seek assistance from government agencies were futile. FCCC's new president was not acquainted with the transaction and noted no contract between FCCC and MERO. MERO made a final demand on Asiakonstrukt for payment of US$570,000.00 plus interest. Asiakonstrukt failed to pay, prompting MERO to file a complaint for sum of money against Asiakonstrukt, FCCC, and National Development Corporation (NDC). Procedural History: The Regional Trial Court (RTC) found in favor of MERO and ordered Asiakonstrukt to pay MERO P25,650,000.00 (equivalent of US$570,000.00) with legal interest, with the right to be reimbursed from FCCC. The complaint against NDC was dismissed. The RTC denied the parties' motions for reconsideration, holding that the documentary evidence for 18% monthly interest did not bear defendants' signatures, thus not a written agreement for stipulated interest. The Court of Appeals (CA) affirmed the RTC Decision with modification, applying 12% interest per annum from the date of default until June 30, 2013, and 6% thereafter. The CA ruled that while there was a written stipulation for 18% interest, it could be tempered in the interest of justice and equity, applying legal interest in accordance with Nacar v. Gallery Frames. Asiakonstrukt's motion for reconsideration was denied. The Petition: Asiakonstrukt filed a Petition for Review on Certiorari, arguing that the CA erred in failing to consider the letters between MERO and Asiakonstrukt as a new written contract for direct collection from FCCC, and in affirming the decision without excluding the foreign respondent Novum (MERO's new name) from the case.
Issue(s)
Whether the exchange of letters between MERO and Asiakonstrukt constituted a novation of their original agreement, thereby extinguishing Asiakonstrukt's obligation to pay MERO. Whether Novum Structures LLC, the successor entity of MERO Structures, Inc., was correctly included as a party to the case.
Ruling
The Petition for Review on Certiorari is DENIED. The February 18, 2015 Decision and October 21, 2015 Resolution of the Court of Appeals in CA-G.R. CV No. 98844 are AFFIRMED.
Ratio Decidendi
On the issue of Novation: The Court held that the exchange of letters between MERO and Asiakonstrukt did not constitute novation. Novation requires a previous valid obligation, agreement to a new contract, extinguishment of the old contract, and a valid new contract. The letters merely showed Asiakonstrukt's approval of MERO's efforts to collect directly from FCCC, which did not extinguish Asiakonstrukt's primary obligation to pay MERO. There was no unequivocal declaration of novation, nor was there incompatibility between the old and new obligations. Furthermore, FCCC, as a third party whose consent would be necessary for a valid novation involving substitution or subrogation, was not a party to these exchanges and did not consent to any such arrangement. Therefore, Asiakonstrukt's obligation to pay MERO remained valid and existing. On the issue of the foreign respondent: The Court found that Asiakonstrukt's argument regarding the inclusion of Novum Structures LLC was without merit. The records showed that MERO Structures, Inc. merely changed its name to Novum Structures LLC due to its conversion from a Delaware Corporation to a Delaware Limited Liability Company, with its composition remaining the same. The RTC had granted MERO's motion to reflect this change. Thus, MERO and Novum Structures LLC are essentially the same entity, and no new party was impleaded, nor was there a transfer of interest that would warrant exclusion.
Main Doctrine
The exchange of letters between a contractor and a supplier, wherein the contractor merely approves the supplier's request to collect directly from the project owner, does not constitute novation that extinguishes the contractor's obligation to pay the supplier. Such an act merely provides an alternative collection mode and does not substitute the debtor or extinguish the original obligation, especially without the unequivocal consent of all parties involved and a clear declaration of intent to novate.