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J PLUS ASIA DEVELOPMENT CORPORATION

CORPORATION GR NO. 199650 JUNE 26, 2013

V.

UTILITY

ASSURANCE

TOPIC: Default or mora, INTERPRETATION of Contracts, PENAL CLAUSE/ LIQUIDATED


DAMAGES
FACTS: J Plus Asia, represented by its chairman Joo Han lee, and Martin Mabunay,
entered into a CONSTRUCTION AGREEMENT whereby Mabunay undertook to build
the formers Condominium/hotel in Boracay. The project was to be completed
within 1 yr from the siigning of the NOTICE OF AWARD and receipt of 20% down
payment (8.4 milllion) The down payment was fully paid on January 14, 2008. Per
the agreed work schedule, the completion date of the project was December 31,
2008. Mabunay also submitted the required Performance Bond issued by Utility
Assurance Corporation (UTASSCO) in the amount equivalent to 20% down payment
or P8.4 million.
Mabunay commenced work on January 7, 2008. However, as evidenced by the
Joint Construction Evaluation Result and Status, signed by both parties, the project
was only 31.39 % complete as of November 14, 2008. Thus, J PLUS ASIA
terminated the contract and sent demand letters to Mabunay and the surety. J
Plus Asia filed a request for arbitration before the Construction Industry Arbitration
Commission (CIAC) and prayed that MAbunay and Surety be ordered to pay 8.9
Million as liquidated damages and 2.3 Million to the unrecouped down payment or
overpayment made to Mabunay.
Mabunays answer alleged that the delay was caused by retrofitting and other
revision works ordered by Joo Han Lee. The surety on the other hand filed a MTD
for lack of cause of action. The surety argued that the performance bond merely
guaranteed the 20% down payment and not the entire obligation of Mabunay. THE
CIAC ruled in favor of JPLUS ASIA. THE CA ruled that Mabunay has not yet incurred
delay and that obligation was not yet demandable because the contract was
terminated prior to completion date.
ISSUES: w/n the Mabunay had incurred delay? (YES) w/n the delay should be
reckoned only after the lapse of the 1 year contract period, and consequently w/n
Mabunays liability for liquidated damages arises only upon the happening of such
condition (DELAY MUST BE RECKONED FROM FILING OF COMPLAINT)
HELD: Mabunay already incurred delay at the time the contract was terminated.
Default or mora on the part of the debtor is the delay in the fulfillment of the
prestation by reason of a cause imputable to the former. It is the nonfulfillment of
an obligation with respect to time. Article 1169 of the Civil Code provides that
those obliged to deliver or to do something incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfillment of their obligation.
One who contracts to complete certain work within a certain time is liable for the
damage for not completing it within such time, unless the delay is excused or
waived. The following requisites must be present in order that the debtor may be in

default: (1) that the obligation be demandable and already liquidated; (2) that the
debtor delays performance; and (3) that the creditor requires the performance
judicially or extrajudicially.
Mabunay was already in delay. Article 1374 of the Civil Code requires that
the various stipulations of a contract shall be interpreted together,
attributing to the doubtful ones that sense which may result from all of
them taken jointly. Here, the work schedule approved by petitioner was
intended, not only to serve as its basis for the payment of monthly
progress billings, but also for evaluation of the progress of work by the
contractor. The Construction Agreement provided that the contractor shall be
deemed in default, if among others, it had delayed without justifiable cause the
completion of the project by more than 30 calendar days based on official work
schedule duly approved by the owner.
The Construction Agreement authorizes petitioner to confiscate the Performance
Bond to answer for all kinds of damages it may suffer as a result of the contractors
failure to complete the building. Having terminated the contract, petitioner is
entitled to the proceeds of the bond as indemnification for damages it sustained
due to the breach committed by Mabunay. Such stipulation allowing the
confiscation of the contractors performance bond partakes of the nature
of a penalty clause, which is an accessory undertaking to assume greater
liability on the part of the obligor in case of breach of an obligation. The
Performance Bond guaranteed not only the 20% down payment but the full and
faithful compliance of Mabunays obligations under the Construction Agreement.
Nowhere in law or jurisprudence does it state that the obligation or undertaking by
a surety may be apportioned.
The imposition of interest on the claims of petitioner is in order. If a surety upon
demand fails to pay, he can be held liable for interest, even if in thus
paying, its liability becomes more than the principal obligation. The
increased liability is not because of the contract but because of the
default and the necessity of judicial collection.