AMA COMPUTER COLLEGE, INC. PETITIONER, VS. VILLA GAREZA OUTDOOR ADVERTISING, RESPONDENT.

AMA Computer College versus Villa Gareza Outdoor Advertising

The Case

This is a petition for review filed by AMA Computer College against Villa Gareza Outdoor Advertising, a case for sum of money that began in the Metropolitan Trial Court and rose to the Supreme Court. Villa Gareza sued to collect the unpaid balance on four purchase orders for the fabrication, installation, maintenance and repair of panaflex signages in AMA's school branches. AMA resisted on the ground that there was no complete delivery because Villa Gareza never submitted the documents AMA required before payment. The case matters for two reasons: it is a clean illustration that contracts need not be in writing to be binding, and it is a leading application of the revised legal interest rates under the circular issued by the Bangko Sentral ng Pilipinas, following the doctrine of the Nacar case.

Procedural History

Villa Gareza filed its complaint for sum of money with the Metropolitan Trial Court. After trial, the Metropolitan Trial Court rendered judgment in favor of Villa Gareza, ordering AMA to pay the remaining obligation with twelve percent interest per annum from the filing of the complaint, plus attorney's fees and costs. AMA moved for reconsideration, which was denied. AMA then appealed to the Regional Trial Court of Mandaluyong City, Branch 208, which affirmed the decision of the Metropolitan Trial Court in its entirety and later denied AMA's motion for reconsideration. AMA elevated the matter to the Supreme Court through a petition for review under Rule 42. The Supreme Court initially denied due course and dismissed the petition for procedural defects, but reinstated it upon AMA's motion for reconsideration after the required certified true copies were attached. Mediation was attempted before the Philippine Mediation Center, but Villa Gareza's non-compliance was deemed a refusal to mediate, so the parties filed their memoranda and the case was submitted for decision.

Facts

Villa Gareza was engaged in the production and marketing of outdoor and indoor signages. AMA engaged its services for the supply, fabrication and installation of panaflex signages for its Calamba, Pasig and Las Piñas branches, and for the maintenance and repair of existing signages at its Makati branch. These transactions were covered by four purchase orders. Under their terms, AMA would pay fifty percent of the contract price as down payment, with the balance payable after completion of the project. There was no formal written contract between the parties; the dealings proceeded through quotations and purchase orders.

Villa Gareza fabricated and installed the signages according to AMA's specifications and within the agreed time frame. AMA paid the down payments, leaving an unpaid balance of 251,351.50 pesos. Villa Gareza sent billings and made repeated demands, including a demand letter received by AMA's finance department, but the balance remained unpaid despite promises of staggered payment. Villa Gareza was constrained to hire counsel, agreeing to attorney's fees of 50,000 pesos.

AMA denied the material allegations and insisted there was no delivery because it never accepted the signages for lack of a certificate of completion and other documents. At trial, Villa Gareza's witnesses testified that the signages were installed and still existed, while AMA's marketing director testified that the purchase orders lacked the letter of coordination, letter of turnover and completion report, and that no formal contract existed, only purchase orders.

Issues

• Whether or not the Regional Trial Court erred in holding AMA liable to pay Villa Gareza's money claims despite the alleged non-compliance with the requirements constituting complete delivery.
• Whether or not the absence of a written contract, other than the purchase orders, defeats Villa Gareza's claim for payment.
• Whether or not the twelve percent per annum interest imposed by the Metropolitan Trial Court was the correct rate for the entire period of the obligation.

Applicable Provisions

Article 1159 of the Civil Code provides:

Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.

This is the anchor of the ruling: the purchase orders created a binding obligation that AMA had to perform in good faith, and its refusal to pay without proof of any justified cause breached that obligation.

Section 1 of Rule 133 of the Revised Rules of Court provides:

In civil cases, the party having the burden of proof must establish his case by a preponderance of evidence.

This governs the evidentiary question: Villa Gareza, as plaintiff, had to prove its claim by preponderance of evidence, and the Court found it did, while AMA failed to substantiate its defense.

Ruling

On the first issue, the Court held that the petition was without merit. The factual findings of the Metropolitan Trial Court and the Regional Trial Court coincided, and the Court generally accords respect to such consistent findings when supported by the evidence. AMA sought a re-evaluation of probative value, but the Regional Trial Court had already performed that appellate task. The records were bereft of any evidence, testimonial or documentary, that AMA ever informed Villa Gareza of the alleged documentary requirements, and AMA in fact presented no documentary evidence at all. Villa Gareza, by contrast, established that after the fifty percent down payment, it delivered and installed the signages, yet the balance remained unsatisfied despite demands. AMA failed to present any evidence to justify its refusal to pay for contracted works actually performed.

On the second issue, the Court held that the absence of a written contract did not defeat the claim. Contracts need not be in writing to be valid; they are obligatory in whatever form they may have been entered into, provided all essential requisites for validity are present. A contract is a meeting of minds whereby one binds himself with respect to the other to give something or to render some service. The purchase orders embodied that meeting of minds, and under Article 1159 they had the force of law between the parties.

On the third issue, the Court modified the interest. Noting the Resolution of the Monetary Board dated May 16, 2013, embodied in Bangko Sentral ng Pilipinas Circular No. 799, Series of 2013, which took effect on July 1, 2013, the Court held that in the absence of express stipulation, the rate of interest shall be six percent per annum. Thus the twelve percent annual interest applied only up to June 30, 2013, and from July 1, 2013 the rate became six percent per annum until fully paid, with another six percent per annum from finality of judgment until satisfaction.

Doctrine

First, contracts are valid and binding in whatever form they are entered into, provided all essential requisites are present; a written contract is not indispensable, and purchase orders may constitute the binding agreement between the parties. Second, under Article 1159, obligations arising from contracts have the force of law between the parties and must be complied with in good faith; a party who refuses to pay for work performed must justify that refusal with evidence. Third, the party making affirmative averments bears the burden of proof, and in civil cases the plaintiff must establish the case by preponderance of evidence. Fourth, consistent factual findings of the trial court and the appellate court are accorded respect, especially when supported by the evidence. Fifth, following the circular of the Bangko Sentral ng Pilipinas effective July 1, 2013, the legal interest rate in the absence of stipulation is six percent per annum, so a twelve percent rate imposed earlier applies only until June 30, 2013, with six percent thereafter and six percent from finality until satisfaction.

Disposition

The petition was denied due course, and the decision and order of the Regional Trial Court were affirmed with modification as to the interest rate, such that AMA was ordered to pay Villa Gareza 251,351.50 pesos with twelve percent interest per annum from judicial demand until June 30, 2013, six percent per annum from July 1, 2013, and another six percent per annum from finality of judgment until full satisfaction.

Remember This

Memorize this line: contracts need not be in writing to be valid, and obligations arising from contracts have the force of law between the parties and must be complied with in good faith. Examiners use this case to test the revised legal interest rates under the Bangko Sentral ng Pilipinas circular, and to test whether a party who pleads non-delivery or non-compliance has actually discharged its burden of proof.