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SECOND DrVISION

ASIAN CONSTRUCTION AND G.R. No. 221147

DEVELOPMENT CORPORATION,
Petitioner,
Present:

- versus - · PERLAS-BE~~ABE, SAJ,

Chairperson,
HERNANDO., *
MERO STRUCTURES, INC., CARANDANG,
substituted by NOVUM INTING, and
STRUCTURES LLC, INC., FIRST DIMAAMP AO, JJ.
CENTENNIAL CLARK CORP., and
NATIONAL DEVELOP1VIENT Promulgated:
· COMPANY,
Respondents.

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

HERNANDO, J.:

This Petition for Review on Certiorari1 seeks to set aside the February
18, 2015 Decision 2 and October 21, 2015 Resolution3 of the Court of Appeals
(CA/appellate court) in CA~G.R. CV No. 98844.

The facts of the case are as follows:

In line with the 100th anniversary celebration of the Philippine

· indep~ndence from Spanish colonial rule in 1998,4 First Centennial Clark

* Designated as additional Member per August 25, 2021 Raffle.

1
Rotlo, pp, 9-48.
" Id. at 49-65.
3
Id, at 66-69.
4
Id. at 5 l.
Decision G.R. No. 221147 .

Corporation (FCC{:) was created for the purpose of designing, constructing,

operating, and marl.aging the Philippines' National Centennial Exposition to be
held in the Clark Special Economic Zone (CSEZ) located in Clark Field,
Pampanga. 5

On March 16, 1998, FCCC entered into a Construction Agreement6 with

petitioner Asian Construction and Development Corporation (Asiakonstrukt)
for the finalization of the architectural concept, design, and storyline approved
by the National Centennial Commission and to undertake all the necessary
construction works for the Exposition Theme Park. 7 On even date, respondent
MERO Structures, Inc. (l\1iERO), an American corporation, submitted a
Materials Only Proposal 8 to Asiakonstn1kt for the supply of materials in
constructing a special Philippine flag structure in the Expo Filipino, the grand
opening of which is on July 19, 1998. The proposal provides, among others,
that: (a) MERO would manufacture and supply the 1v1ERO KK System
Spaceframe (spaceframe) for the flag structure for US$570,000.00; (b) 20% of
the contract price would be paid upon award of the supply contract and the
remainder payable via letter of credit; and ( c) the materials would be shipped
on April 4, 1998 if the transaction were confirmed by l\!Iarch 18, 1998. 9 On
J\,1arch 17, 1998, Asiakonstrukt accepted the ]\;faterials Only Proposal. 10

In a bill of lading dated April 5, 1998, 11 l'AERO shipped the space frame
to "Philippine Centem1ial Exposition c/o Asiakonstrukt." 12

On June 16, 1998, Asiakonstrukt submitted to FCCC a proposal 13 for the

design, supply, and installation of the flag structure using MERO's
spaceframe subject to the following terms and conditions: (a) full payment of
the imported IvIERO spaceframe stn1ctures i1pon its delivery on-site; (b) 50%
payment of installation and lighting of spaceframe structures upon receipt of
the notice to proceed while the remaining 50% shall be paid on progress
billing; and (c) completion of the project on June 28, 1998. 14 On the same day,
the FCCC held a board meeting and approved Asiakonstrukt' s proposal,
subject to the applicable rules and regulations of the Conunissio11 on Audit,
tht;: reimbursement of the costs out of the sponsorships, and the submission of
a certificate from MERO that Asiakonstn1kt is the only certified installer of
spaceframe structures in the Philippines. 15 Also, in a Memorandum 16 for the
Board of Directors, the President of FCCC, 1\/Ir. Benjie L. Lopez, requested

5 Id.
6
Records, pp. 73-85.
7
Id.
8 Id. at 203-206.
9
Id.
10
Id. at 203.
ti Id.at219-220.
12
ld. at 219-223.
13
Rollo, p. 52.
4
t Records, pp. 227-228.
15
Id. at 230.
16
CA ro!lo, p. 62.
 Decision 3 G.R. No. 221147

. board approval to sec1.,ire advances from respondent National Development

Corporation (NDC) to finance the design, supply, and installation of the flag
17
structure. NDC would in turn source the advances from a loan provided by
certain goven1ment financial institutions to FCCC. 18

In a letter 19 dated June 17, 1998, FCCC approved Asiakonstrukt's

proposal, subject to the pricing, tenns, and conditions in the latter's proposal
dated June 16, 1998, and in accordance with MERO's Materials Only
Proposal dated March 16, 1998. 20 ·

On June 18, 1998, Asiakonstrukt informed MERO that FCCC awarded to

Asiakonstrukt the contract for the design supply, and installation of the flag
structure and the latter would pay MERO after FCCC' s payment of the
materials not later than June 26, 1998. 21

On August 10, 1998, Asiakonstrukt requested from FCCC the full

. payment for the spaceframe, which had been delivered to the intended site,
and the 50% downpay1nent for its installation and lighting, both due since
June 17, 1998. 22

In a series of letters dated as early as March 19, 1998, MERO sought

payment of the spacefi:ame from Asiakonstrukt. 23

In a letter24 to Asiakonstn1k1: dated October 13, 1999, JVIERO requested

that it be paid directly by the FCCC and that Asiakonstruk't notify FCCC that
the work is complete and satisfactory and that :full payment should be rnade. 25
By way of a response, Asiakonstn1kt, in a letter26 dated November 8, 1999,
stated that it interposed no objection to MERO's request to collect payment
directly from the FCCC.

In another series of letters, 27 MERO attempted to seek assistance from

the Department of Trade and Industry (DTI) and Department of Finance
(DOF). However, these attempts proved futile.

In a letter28 dated Jvfay 3, 2000, the newly appointed FCCC President at

the time, Mr. Nianuel R. Pamaran, wrote to 11ERO that he was not yet
acquainted with the previous transactions of FCCC but noted that he had yet
17
Records, pp. 231-232.
is Id.
19
Id. at 229.
20
Id.
21
Id. at 225.
22
Id. at 233.
23
Id. at211-214 and 221.
24 Rollo, pp. 20-21.
25
Records, p. 24.
26 Id. at 25 at 226.
27
Id. at 26-28 and 234-237.
28
Id. at 29.
Decision 4 G.R. No. 221147•

to see a contract between FCCC and IVIERO. 29 In the same letter,30 he also
requested a conference with 1VlERO's representative on May 12, 2000. The
meeting eventually happened on May 22, 2000, but yielded nothing for
MERO in ten11s of the payment demanded. 31

In a letter32 dated September 21, 2000, MERO, through counsel, made a

final demand on Asiakonstrukt for its US$570,000.00 principal obligation plus
1.5% interest per month or 18%, annually.

Despite this, Asiakonstrukt still failed to pay, prompting MERO to

institute before the Regional Trial Court (RTC) a Complaint33 for sum of .
money on February 21, 2002. ivIERO prayed that Asiakonstrukt or FCCC be
ordered to pay US$1,033,990.00 including interest, plus litigation expenses,
and moral and exemplary damages, and NDC be directed to furnish FCCC
with advances for this purpose. 34

In its Answer with Counterclaim, 35 NDC challenged MERO's personality

to sue in the Philippines as well as the validity of the complaint's verification
and certification against forum shopping. 36 It argued that MERO has no cause
of action against NDC because it was only a member of the Oversight
C01nmittee tasked to oversee the release and utilization of the Pl .4 billion
budget for the Philippine Centennial Exposition Project, and FCCC failed to
comply with the required tenns for the approval of the loan drawdowns. 37 It
interposed counterclaims for attorney's fees and exemplary damages. 38

FCCC filed an Answer with Counterclaim and Crossclaim, 39 arguing that

no privity of contract exists between it and MERO because the transaction
subject of the complaint involved only MERO and Asiakonstrukt, thus,
MERO has no cause of action against FCCC. 40 It futher averred that FCCC's
approval of Asiakonstrukt's proposal fQr the design, supply, and installation of
the flag structure was subject to certain conditions which were never met,
hence the approval did not take effoct; in fact, the l\1ERO flag was not
utilized. 41 It interposed a cross~daim against Asiakonstrukt fbr reimbursement
of any possible award made in favor of 1\r1ERO, and prayed for attorney's fees
and exemplary damages as compulsory counterclaims. 42

z9 Id.
30 Id.
31
Id. at 238-240.
32
Id. at 30.
33
Id.at2-10.
34 Id.
35
Id. at 50-57.
36
Rollo, p. 54.
37 Id.
38 Id.
39
Records, pp. 60-66.
40
Rollo, p. 54.
41 Id.
42 Id.
 Decision 5 G.R. No. 221147

Asiakon strukt likewise filed an P....nswer with Cross-claim, 43 wherein it

admitted the validity of MERO's claim for the value of the spaceframe but
objected on the imposition of 18% annual interest, which was allegedly not
stipulated in writing. 44 It professed willingness to pay and explained that the
delay was due to FCCC and NDC 's refusal to pay their obligations to
MER0. 45 It claimed that as a mere contractor of the project, it has no liability
for the amount collected, instead, FCCC and NDC, the project owners, should
be held accountable. 46 By way of cross-claim, it contended that FCCC and
NDC should be jointly and severally liable to pay Asiakonstrukt
Pl,000,000.00 in attorney's fees. 47

During the RTC proceedings, MERO filed a Manifestation and Motion

alleging that while MERO's composition remains the same, it was converted
from a Delaware Corporation to a Delaware Limited Liability Company, and
in the process, changed its name to from "MERO Structures, Inc." to "Novum
Structures LLC" on J\r1arch 31, 2006. 48

Accordingly, after due hearing, the RTC granted the said Manifestation
and Motion in an Order49 dated October 20, 2006.

Ruling of the Regional Trial Court:

On July 19, 2011, the trial court rendered a Decision50 upholding

MERO's right to collect from Asiakonstrukt and FCCC, the fonner by virtue
of a contract and the latter for having benefited from MERO' s fulfillment of
its obligation to supply the spaceframe. However, the RTC dismissed the
· complaint against NDC for lack of evidence. 51 The dispositive po1iion of the
said Decision reads: 52

WHEREFORE, in view of the foregoing considerations, the Court hereby

finds in favor of the plaintiff and against defendants Asiakonstrnkt and FCCC.
Thus, this court hereby orders Asiakonstrukt to pay plaintiff in the smn of
Philippine Pesos: TWENTY-FIVE MILLION SIX HUNDRED FIFTY
THOUSAND (P25,650,000.00) ($570,000XP45.00) ·with interest at 6% per
annum from date hereof and 12% per annum from date of finality of this
decision until fully paid, with right to be reimbursed from FCCC without
pronouncement as to cost.

43 Records, pp. 69-72.

44 Rollo, p. 54.
45 Id.
46 Id.
• 47 Id
48 Records, pp. 427-437.
49 Id. at 456.
50
Id. at7 l 5-721.
51 Id.
52 Id.
Decision 6 G.R. No. 221147-

However, the complaint against NDC is hereby DISMISSED for

insufficiency of evidence and the counterclaim of NDC is also DISMISSED
[for] insufficiency of evidence.

SO ORDERED. 53

Both MERO and Asiakonstrukt sought reconsideration but the RTC

denied the same through its Order54 dated December 19, 2011. Pertinently, the
RTC held that the documentary evidence presented by MERO, wherein a
1.5% monthly interest was stated, does not bear the signatures of any of the
defendants; therefore, it is not the written agreement contemplated by law as a
basis for the imposition of stipulated interest. 55 Accordingly, it stood firm
with the imposition of the legal rate of interest. 56

Ruling of the Court of Appeals:

Dissatisfied, MERO and Asiakonstrukt filed separate appeals 57 with the

CA. In a Decision58 dated February 18, 2015, the CA denied both appeals and
affirmed the RTC Decision with modification, to wit:

WHEREFORE, these separate appeals are hereby DENIED. The July 19,
2011 Decision and December 19, 2011 Order of the Regional Trial Court,
Branch 145, Makati City in Civil Case No. 02-206 are AFFIRMED with
MODIFICATION that the 12% interest per annunz shall be applied from the
date of default on March 31, 1998 until June 30, 2013 only, after which date
and until fully paid, the outstanding obligation of Asian Construction and
Development Corporation shall earn interest at 6% per annum.

SO ORDERED. 59

The appellate court ruled that while there was indeed a written stipulation
between MERO and Asiakonstrukt as to the 18% interest, contrary to the
RTC' s findings, the said interest may nevertheless be tempered by the courts
in the interest of justice and equity. 60 Thus, the CA still agreed with the RTC
that legal interest shall apply subject to the modification of the interest rate in
accordance with this Court's ruling in the Nacar v. Gallery Frames 61 case. 62

53
Id. at 721.
54
Id. at 798-799.
55
Rollo, P~ 55.
56 Id.
57 Records, pp. 801-903 and 806-808.
58
Rollo, pp. 49-65.
59 Id. at 64-65.
60
Rollo, pp. 59-61.
61
Id. at 60-61.
62
Rollo, pp. 59-61.
Decision 7 G.R. No. 221147

Aggrieved, Asiakonstrukt filed a Motion for Reconsideration63 with the

CA, but was denied in a Resolution64 dated October 21, 2015.

Hence, the instant Petition for Review on Certiorari65 filed by

Asiakonstrukt, which essentially raises the following assignment of errors:

l. [Whether or not the CA] seriously erred whe:p it failed and refused to
consider the letter of MERO dated October 13, 1999 and the response letter of
Asiakonstrukt dated Nove1:nber 8, 1999 as a new written contract, wherein both
parties agreed that MERO collects directly the unpaid obligation of
US$570,000.00 or its equivalent against the FCCC; and

2. [Whether or not the CA] seriously erred when it affirmed with

modification the RTC dedsion without excluding the newly included foreign
respondent Novlm1 from being a party to this case. 66

Our Ruling

We deny the Petition for Review on Certiorari.

No new contract was borne of the

l!etters exchanged by MERO and
Asiako:nstru.kt. At most, the said
exchanges merely show
Asia.konstrukt's approval of lVIERO's
extraordinary efforts in belph~g the
former fulfill its obHg~dion to the
latter. ln any event, Asiako:nstrukt's
approval of MERO's request to
collect directly from the l?CCC did
not extinguish Asiakonstrukt's
obligation to pay MERO.

In its Petition for Review on Certiorari, which is merely a rehash of its

arguments before the lower courts, Asiakonstrukt would want to impress upon
this Court that a new contract was entered into by it and MERO, wherein
MERO waives its rights to collect from Asiakonstrukt and is subrogated to
Asiakonstrukt's place to collect directly from FCCC and NDC.

This argument has utterly no factual or legal basis.

63
CA rolla, pp. 28 l •288,
64
Ratio, at pp. 66-69.
65
Id. at 9-48.
66 ld. at 24-25.
Decision 8 G.R. No. 221147•

There are two (2) relevant contracts in this case, namely: l) The
Construction Agreement67 between the FCCC and Asiakonstrulct dated March
16, 1998, and 2) MERO's Materials Only Proposal 68 dated March 16, 1998
that was accepted by Asiakonstrukt on March 17, 1998. While Asiakonstrukt
is a common party in these contracts, MERO and FCCC have no contractual
relationship with each other.

A cursory perusal of the instant petltmn would reveal that

Asiakonstrukt's argument is essentially hinged on the theory that its obligation
to pay MERO was extinguished by novation of either or both of the
aforementioned contracts, as evidenced by the letters exchanged between it
and MERO.

Article 1231 of the Civil Code provides for the different modes of
extinguishing obligations, to wit:

Article 1231. Obligations are extinguished:

(1) By payment or performance;

(2) By the loss of the thing due;

(3) By the condonation or remission of the debt;

(4) By the confusion or merger of the rights of creditor and debtor;

(5) By compensation;

(6) By novation. (Underscoring supplied)

Other causes of extingliishrnent of obligations such as annulment,

rescission, fulfillment of a resolutory condition, and prescription, are governed
elsewhere in this Code.

The rules on novation are outlined in the Civil Code as follows:

Article 1291. Obligations may be modified by:

(1) Changing their object or principal conditions;

(2) Substituting the person of the debtor;

(3) Subrogating a third person in the rights of the creditor. (1203)

xxxx

Article 1292. In order that an obligation may be extinguished by another which

substitute the same, it is imperative that it be so declared in unequivocal tenns,

67
Records, pp. 330-342.
68 Id. at 203-205.
Decision 9 G.R. No. 221147

or that the old and the new obligations be on every point incompatible with
each other.

xxxx

A1iicle 1293. Novation which consists in substituting a new debtor in the place
of the original one, may be made even without the knowledge or against the
will of the latter, but not without the consent of the creditor. Payment by the
new debtor gives him the rights mentioned in Articles 1236 and 1237.

Novation extinguishes an obligation between two parties when there is a

substitution of objects or debtors or when there is subrogation of the creditor. 69
It occurs .only when the new contract declares so "in unequivocal terms" or
that "the old and the new obligations be on every point incompatible with each
other." 70

In Garcia v. Llamas ,71 We discussed the concept of novation as follows:

Novation is a mode of extinguishing an obligation by changing its objects

or principal obligations, by substituting a new debtor in place of the old one, or
by subrogating a third person to the rights of the creditor. Article 1293 of the
Civil Code defines novation as follows:

Art. 1293. Novation which consists in substituting a new debtor in

the place of the original one, may be made even without the
lmowledge or against the will of the latter, but not without the
consent of the creditor. Payment by the new debtor gives him rights
mentioned in articles 1236 and 1237.

In general, there are two modes of substituting the person of the debtor:
(1) expromision and (2) delegacion. In expr01nision, the initiative for the
change does not come from -- and may even be made without the knowledge
of ·- the debtor, since it consists of a third person's assumption of the
obligation. As such, it logically requires the consent of the third person and the
creditor. In delegacion, the debtor offers, and the creditor accepts, a third
person who consents to the substitution and assumes the obligation; thus, the
consent of these three persons are necessary. Both modes of substitution by the
debtor require the consent of the creditor.

Novation may also be extinctive or modificatory. It is extinctive when an

old obligation is terminated by the creation of a new one that takes the place of
the former. It is merely modificatory when the old obligation stibsists to the
extent that it remains compatible with the anwndatory agreement. Whether
extinctive or modificatory, novation is made either by changing the object or
the principal conditions, referred to as objective or real povation; or by
substituting the person of the debtor or subrogating a third person to the rights
of the creditor, an act knov,rn as subjective or personal novation. For novation to
take place, the following requisites must concur:

69 Arco Pulp and Paper Co., Inc. and Candida A. Santos v. Dan T. lim, 737 Phil. 133, 144 (2014).
70 Id.
71
462 Phil. 779 (2003).
Decision 10 G.R. No. 221147 •

1) There must be a previous valid obligation.

2) The parties C()ncemed must agree to a new contract.

3) The old contract must be extinguished.

4) There must be a valid new contract.

Novation may also be express or implied. H ls express when the new

obligation declares in unequivocal tenn.s that the old obligation is extinguished.
It is implied when the new obligation is incon~patible with the old one on every
point. The test of incompatibility is whether the two obligations can stand
, together, each one . with hs own independent existence. 72 (Underscoring
supplied)

Applying the foregoing to the instant case, it is evident that there was
neither an express nor implied novation thn;mgh the letters exchanged between
11ERO and Asiakonstrukt.

First there is nothing in the letters that unequivocally states that the
1

obligation of Asiakonstrukt to pay J\1ERO would be extinguished.

Second, there is also no mention that 1\1ERO vvou.ld substitute or·

subrogate Asiakonstrukt as FCCC's payee/obligee as the letters merely show
that MERO was allowed by Asiakonstrukt to try collecting from FCCC
directly.

Lastly, using the test of incompatibility, Asiakonstrukf s non-objection to

l\1ERO's request to collect :from FCCC directly is not incompatible with the
obligation of Asiakonstrukt to pay 1VIERO. It merely provided an alternative
mode in collecting payment to Iv1ERO, which js nc>t even valid as far as FCCC
is concerned since the latter did not even consent to th~ same, not to mention
there is no existing contractual relationship between J\1IBRO and FCCC.

\Vith regard to the last point, it must be stressed that the consent the of
third party, which is FCC(: in this case, rnust a.lso be secured for the novation
to be valid. Again, FCCC was never a part of the letters ex;changed between
l'VIERO and Asiakonstrukt. Thus, FCCC clearly could have not consented to
any substitution or subrogation of the parties.

If the exchange of letters between IvIBRO and Asiakonstrukt was

intended to novate the original agreen:ient between the parties, FCCC must
have first agreed to the substitution of MERO as the new payee/creditor~ at
least to the extent of the US$570,000.00 representing the payment for the Hag.
The exchange of letters must have also stated in clear and unequivocal terms
that it has replaced the c,riginal obligation of Asiakonstrukt to MERO. Neither
of these circmnstances is present in this case.

12 Id. at 788-·790,
 Decision 11 G.R. No. 221147

Since there was clearly no novation, Asiakonstrukt' s obligation to

MERO remains valid and existing. Asiakonstrukt, therefore, must still pay
respondent the full amount ofUS$570,000.00 with the applicable interest.

Moreover, the records show that the fulfillment of FCCC's obligation to

Asiakonstrukt was never a condition to the fulfillment of Asiakonstrukt's
obligation to :rvIBRO. Absent this condition, Asiakonstrukt, as the primary
contractor for the Philippine Centennial project, assumed the risk of FCCC's
nonpayment when it essentially subcontracted a part of the said project to
MERO. To emphasize, Asiakonstrukt is the only party obligated to pay
MERO, not FCCC and definitely not NTIC.

MERO, being the original party to

the case, may indeed continue to
litigate the present action despite any
transfer of interest. In any event, it
seems that there was no actual
transfer of interest but a mere change
of name by MERO to Novum
Structures LLC.

The records would show that MERO filed a Manifestation and Motion,
alleging that while J\AERO's composition remains the same, it was converted
fi.·om a Delaware Corporation to a Delaware Limited Liability Company, and
in the process, changed its name from "lv1ERO Structures, Inc." to "Novum
Structures LLC" on March 31, 2006. 73

Accordingly, after due hearing, the RT'C granted the said Manifestation
and Motion in an Order74 dated October 20, 2006.

Given this, Asiakonstrukt's argument as to its second assignment of error

patently holds no water as there was no transfer of interest that happened.
MERO, the composition of which remained unchanged, merely changed its
name to Novum Structures LLC to reflect its new status as a limited liability
company. Thus, the appellate court did not corn111it any serious error when it
affinned the trial court's Decision in this regard, given that no new party was
· impleaded since MERO and Novum Structures LLC are essentially one and
the same entity.

WHEREF'ORE, the Petition for Review on Certiorari is DENIED. The

February 18, 2015 Decision and October 21, 2015 Resolution of the Court of
Appeals in CA-G.R. CV No. 98844 are hereby AFFIRJ\/IED.

73
Records, at pp. 427--437.
74
Id. at 456.
Decision 12 G.R. No. 221147 •

SO ORDERED.

WE CONCUR:

ESTELA M'!9i~-BERNABE
Senior Associate Justice
Chairperson

Associate Justice
,Decision 13 G.R. No. 221147

ATTESTATION

I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Court's Division.

h(l(µ.)/
· ESTELA M~}ERLAS-BERNABE
Senior Associate Justice
Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the

Division Chairperson's Attestation, I certify that the conclusions in the above
Decision had been reached in consultation before the case was assigned to the
writer of the opinion of the Court's Division.