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CORPORATION GR NO. 199650 JUNE 26, 2013




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 former’s 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.
Mabunay’s 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
Mabunay’s liability for liquidated damages arises only upon the happening of such
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

if among others. but also for evaluation of the progress of work by the contractor. he can be held liable for interest. attributing to the doubtful ones that sense which may result from all of them taken jointly. (2) that the debtor delays performance. The Performance Bond guaranteed not only the 20% down payment but the full and faithful compliance of Mabunay’s obligations under the Construction Agreement. The increased liability is not because of the contract but because of the default and the necessity of judicial collection. 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 contractor’s failure to complete the building. Article 1374 of the Civil Code requires that the various stipulations of a contract shall be interpreted together. petitioner is entitled to the proceeds of the bond as indemnification for damages it sustained due to the breach committed by Mabunay. Having terminated the contract. Here. Nowhere in law or jurisprudence does it state that the obligation or undertaking by a surety may be apportioned. the work schedule approved by petitioner was intended. . which is an accessory undertaking to assume greater liability on the part of the obligor in case of breach of an obligation. If a surety upon demand fails to pay. 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. and (3) that the creditor requires the performance judicially or extrajudicially. even if in thus paying. Such stipulation allowing the confiscation of the contractor’s performance bond partakes of the nature of a penalty clause. The Construction Agreement provided that the contractor shall be deemed in default. Mabunay was already in delay.default: (1) that the obligation be demandable and already liquidated. its liability becomes more than the principal obligation. The imposition of interest on the claims of petitioner is in order. not only to serve as its basis for the payment of monthly progress billings.