PASAY CITY vs CFI MANILA

G.R. No. L-32162 September 24, 1984 ISSUE:

Whether the amount of the performance bond should cover the
THE PASAY CITY GOVERNMENT, THE CITY MAYOR OF DEFENDANT whole unfinished project or only the next stage of work to be done
PASAY CITY GOVERNMENT, THE MEMBERS OF THE MUNICIPAL
BOARD OF PASAY ClTY and THE CITY TREASURER OF PASAY CITY HELD
GOVERNMENT, petitioners-appellants, YES. Sub-paragraph B of paragraph 1 of the Compromise
vs. Agreement contemplated a DIVISIBLE OBLIGATION. Therefore, the
THE HONORABLE COURT OF FIRST INSTANCE OF MANILA, BRANCH X performance bond should be “in proportion” to the uncompleted
and VICENTE DAVID ISIP (doing business under the firm name V.D. ISIP work.
SONS & ASSOCIATES), respondents-appellees.
HELD/RATIO
FACTS The said stipulation, if read together with the stage-by-stage
In August 1964, VD Isip and Sons, (“VDIS”) represented by construction and payment approach from the agreements, leads to the
Vicente Isip, entered into a “Contract and Agreement” with the Pasay conclusion that parties contemplated a divisible obligation, which
City Gov’t (“Pasay”), represented by Mayor Pablo Cuneta, to construct a necessitates that the performance bond be “in proportion” to the
new Pasay City Hall. The said contract contemplated construction by uncompleted work.
stages where VDIS shall advance the amount needed for the What is crucial in sub-paragraph B of paragraph 1 of the
construction and shall only proceed on the succeeding stage upon compromise agreement are the words "in proportion." If the parties
reimbursement of Pasay. really intended the performance bond to refer to the whole unfinished
VDIS accomplished about Php1.7M of the total contract price of work, then the provision should have required the plaintiff contractor
Php 4.9M, representing various stages of work. Pasay City only paid to submit and file a new performance bond to cover the remaining
Php 1.1M leaving a balance of Php 600k, which prompted VDIS to file value cost of the unfinished work of the construction. Using the words
an action for specific performance. in proportion then significantly changed the meaning of the paragraph
During the litigation, the parties entered into a Compromise to ultimately mean a performance bond equal to 20% of the next stage
Agreement where VDIS shall be paid the balance, subject to VDIS of work to be done.
furnishing Pasay “…a new performance bond in proportion… to the
remaining value of the unfinished construction…” as provided in sub-
paragraph B of paragraph 1.
Thereafter, VDIS applied for garnishment on the PNB funds of
Pasay, which the latter is now assailing the validity. In its motion to set
aside the garnishment, Pasay is questioning the order of the court on
the submission of the performance bond furnished by VDIS.
VDIS submitted a performance bond of Php60k which VDIS
increased subsequently to Php100k which pertains to the 20% of the
cost of the next stage of the construction to be undertaken. The court
found the same reasonable and substantially compliant for the court
deems it unreasonable to compel VDIS to submit a performance bond
for the remaining cost of the project.