MIAA v Ala Industries Corp

G.R. No. 147349 February 13, 2004

Art. 1229 – The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor

Facts:

·          MIAA awarded a contract involving the structural repair and waterproofing of the International Passenger Terminal (IPT) and International Container Terminal (ICT) buildings of the Ninoy Aquino International Airport (NAIA) to ALA, which submitted the second lowest and most advantageous bid.

·          The contract contains escalation clauses and price adjustments.

·          ALA made the necessary repairs and waterproofing. After submission of its progress billings to MIIA, ALA received partial payments. But progress billing No. 6 remained unpaid despite repeated demands by ALA.

·          The petitioner unilaterally rescinded the contract on the ground that respondent failed to complete the project within the agreed completion date.

·          ALA objected to the rescission made by MIAA and reiterated its claims with damages.

·          Both parties executed a compromise agreement with judicial approval.

·          However, MIAA defaulted in payment and attributed its delay to the Christmas season, for them a Fortuitous Event, which prompted the trial court to deny motion for execution against ALA.

·          But the CA reversed the order and issued a writ of execution to enforce ALA’s claim to the extent of MIAA’s remaining balance.

·          The MIAA invoked Article 1229 of the Civil Code to reduce the penalty.   

Issue:

WoN the Article 1229 of the Civil Code is applicable to the petitioner’s case.

Held:

            No, the Court holds that such provision is applicable only to contracts that are the subjects of litigation, not to final and executory judgments.

Basic is the rule that if a party fails or refuses to abide by a compromise agreement, the other may either enforce it or regard it as rescinded and insist upon the original demand. For failure of petitioner to abide by the judicial compromise, respondent chose to enforce it. The latter’s course of action was in accordance with the very stipulations in the Agreement that the lower court could not change.

Respondent is thus entitled to a writ of execution for the total amount contained in the Compromise Agreement. The Court cannot reduce it. The partial payment made by petitioner does not at all contravene Article 1229 of the Civil Code, which is applicable only to contracts that are the subjects of litigation, not to final and executory judgments.

Thus, the petition is DENIED.