INTEGRATED CONSTRUCTION SERVICES, INC., AND ENGINEERING CONSTRUCTION, INC., PETITIONERS, VS. THE HONORABLE LORENZO RELOVA, AS JUDGE OF THE COURT OF FIRST INSTANCE OF MANILA, AND…

Integrated Construction Services versus Relova

The Case

This is a petition for mandamus, and in the alternative an appeal, brought by Integrated Construction Services, Incorporated and Engineering Construction, Incorporated against Judge Lorenzo Relova of the Court of First Instance of Manila and the Metropolitan Waterworks and Sewerage System, formerly the National Waterworks and Sewerage Authority. The petitioners had won a final and executory arbitration award for a very large sum of money. They later gave the waterworks authority certain discounts in exchange for prompt payment, but the authority paid late and kept the discounts. When the petitioners moved to execute the unsatisfied balance of the award, the trial judge refused, holding that the later letter-agreement had novated the award. The case matters because it teaches when a conditional agreement to pay a judgment extinguishes the judgment and when it does not, and it fixes the rule that a judgment creditor may revive a final award by mere motion within the period allowed by the Rules of Court.

Procedural History

The petitioners sued the waterworks authority for breach of contract in the Court of First Instance of Manila. The parties submitted the dispute to arbitration, and the Arbitration Board rendered its decision-award. The respondent judge confirmed the award, and it became final and executory. Three years later the petitioners filed a motion for execution for the balance still due. The respondent judge denied the motion on the ground that the parties had novated the award by their subsequent letter-agreement, and he denied the motion for reconsideration as well. The petitioners then came to the Supreme Court on a petition for mandamus, alleging that the judge unlawfully refused to perform his mandatory duty to order execution of the unsatisfied portion of a final award. The Supreme Court initially dismissed the petition for lack of merit and denied reconsideration. On the petitioners' second motion for reconsideration, however, the authority raised new matters, and the Court reconsidered and decided the case on the merits.

Facts

In July 1970 the petitioners sued the waterworks authority for breach of contract. While the case was pending, the parties submitted it to arbitration. After extensive hearings, the Arbitration Board rendered its decision-award in August 1972. The respondent judge confirmed the award in September 1972, and it became final and executory. The award ordered the authority to pay the petitioners fifteen million, five hundred eighteen thousand, three hundred eighty-three pesos and sixty-one centavos, less two million, three hundred twenty-nine thousand, four hundred thirty-three pesos and forty-one centavos to be set aside as a trust fund for creditors of the joint venture, or a net award of thirteen million, one hundred eighty-eight thousand, nine hundred fifty pesos and twenty centavos, with interest from the filing of the complaint until fully paid.

The petitioners then agreed to give the authority some discounts in consideration of early payment. In September 1972 the authority adopted Board Resolution Number 132-72 embodying the terms of their agreement. In October 1972 the authority sent a letter-agreement quoting that resolution, granting discounts consisting of reductions in interest, in the net principal award, and in the trust fund, provided that the authority would pay the judgment, less the discounts, within fifteen days, or up to October 17, 1972. At the authority's request, the petitioners signed their conforme and even extended the period to October 31, 1972. The authority, however, paid only on December 22, 1972, and it paid the amount stated in the decision less the reductions in the letter-agreement.

Three years later, in June 1975, after the last balance of the trust fund had been released and used to satisfy creditors' claims, the petitioners filed a motion for execution for the balance due under the award. The authority opposed execution on the defenses of payment and estoppel. The respondent judge denied the motion, ruling that the parties had novated the award by their subsequent letter-agreement, and he denied reconsideration.

Issues

• Whether or not the subsequent letter-agreement novated the final and executory arbitration award, such that the award could no longer be executed for the balance due.
• Whether or not the placing of the waterworks authority under the control and management of the Secretary of National Defense was an unforeseen supervening factor that excused its failure to pay within the stipulated period.
• Whether or not the petitioners were in estoppel to question the subsequent agreement.
• Whether or not the award remained subject to execution by mere motion.

Applicable Provisions

Section 5 of Rule 39 of the Rules of Court, as cited by the Court, provides:

Section 5. Execution of judgments for money, how enforced. — Immediately upon the entry of a judgment directing the payment of money the clerk of the court shall issue a writ of execution, unless the judgment has been stayed by appeal, and in that case when the appeal has been perfected and the judgment affirmed, or when the period to appeal has expired and no appeal has been perfected.

The Court invoked this provision to hold that the award could still be executed by mere motion within five years from entry of final judgment.

Ruling

On the first issue, the Court held that while the subsequent letter-agreement in a sense novated the judgment award, because there was a shortening of the period within which to pay, the novation was conditional. The Court found that the suspensive and conditional nature of the agreement was expressly acknowledged and stipulated in the fourteenth whereas clause of Board Resolution Number 132-72, which states:

WHEREAS, all the foregoing benefits and advantages secured by the MWSS out of said conferences were accepted by the Joint Venture provided that the remaining net amount payable to the Joint Venture will be paid by the MWSS within fifteen (15) days after the official release of this resolution and a written CONFORME to be signed by the Joint Venture;

The Court reasoned that the authority's failure to pay within the stipulated period removed the very cause and reason for the agreement, rendering it ineffective, and the petitioners were therefore remitted to their original rights under the judgment award.

On the second issue, the Court held that the placing of the authority under the control and management of the Secretary of National Defense was not an unforeseen supervening factor, because when the authority forwarded the letter-agreement to the petitioners in October 1972, it was already aware of the letter of instruction placing it under that management. The Court also rejected the contention that the fifteen-day period was merely intended to pressure officials to process the voucher, since the terms of the agreement showed that the period was intended as a suspensive condition, and the authority itself knew this, as shown by an internal memorandum warning that otherwise the authority would forego the advantages of the discount.

On the third issue, the Court held that the petitioners were not in estoppel, because they never acknowledged full payment; on the contrary, they refused the authority's request for a conforme or quit-claim.

On the fourth issue, the Court held that the award was still subject to execution by mere motion, which may be availed of as a matter of right any time within five years from entry of final judgment in accordance with Section 5 of Rule 39 of the Rules of Court.

Doctrine

A subsequent agreement between a judgment creditor and a judgment debtor that shortens the period of payment may novate the judgment award, but where the agreement is suspensive and conditional, the novation is itself conditional. If the debtor fails to comply with the condition, the cause and reason for the agreement disappear, the agreement becomes ineffective, and the creditor is remitted to the original rights under the final judgment. A supervening event known to the debtor at the time of the agreement is not an unforeseen factor that excuses non-compliance. A judgment creditor who never acknowledged full payment is not in estoppel to question the later agreement. Finally, a final and executory award remains subject to execution by mere motion as a matter of right within five years from entry of final judgment under Section 5 of Rule 39 of the Rules of Court.

Disposition

The Court set aside the assailed orders and issued the writ of mandamus directing the Regional Trial Judge of the branch that originally handled the case to grant the writ of execution for the balance due under the award.

Remember This

The one line to memorize is that a conditional novation fails with the condition, and the creditor returns to the original judgment. Examiners use this case to test the requisites of novation of a final judgment and the five-year period for execution by mere motion under Section 5 of Rule 39.