G.R. No. 118972 April 3, 1998
HOME DEVELOPMENT MUTUAL FUND and MARILOU ADEA-PROTOR, petitioners, vs. COURT OF APPEALS and DR. CORA J. VIRATA, (CONVIR) and Associates, Inc., respondents.

FACTS

On January 1, 1985, CONVIR and Associates, Inc., represented by its President, Dra. Cora J. Virata, and the Home Development Mutual Fund (HDMF), represented by its Senior Vice-President, entered into a Consultancy Agreement for the former to render medical services to HDMF employees. The agreement stipulated it was effective from January 1, 1985 to December 31, 1985, “provided however, that either party who desires to terminate the contract may serve the other party a written notice at least thirty (30) days in advance.” On December 16, 1985, Dra. Virata wrote to petitioner Marilou Adea-Proctor, HDMF’s Officer-in-Charge, assuming from their silence that the agreement was renewed for 1986. In a reply-letter dated December 23, 1985, Adea-Proctor notified Dra. Virata of the contract’s termination upon its expiration on December 31, 1985, citing the appointment of a full-time physician. This letter was formally received by private respondents only on January 9, 1986. Private respondents filed a complaint, arguing the termination was sudden and did not conform with the 30-day advance written notice requirement, causing them loss. The trial court awarded compensatory damages and attorney’s fees to private respondents. The Court of Appeals affirmed with modification, deleting the compensatory damages but upholding the award of attorney’s fees. Petitioners sought review, arguing the contract automatically expired on December 31, 1985, and no advance notice was required for non-renewal.

ISSUE

Whether the Consultancy Agreement was deemed renewed for another term due to the petitioners’ failure to serve a written notice of termination at least thirty (30) days in advance as stipulated in the contract.

RULING

Yes. The Supreme Court affirmed the Decision of the Court of Appeals. The Court ruled that the two clauses in the contractual provision must be interpreted together. The first clause sets the term (January 1, 1985 to December 31, 1985), and the second clause (the proviso) prescribes the manner of termination: by written notice at least thirty days in advance. The Court held that to give effect to all stipulations, the requirement of a 30-day advance written notice applied to the termination of the agreement, including its non-renewal upon the expiry date. The petitioners’ notice, served or mailed just days before the year’s end and received only on January 9, 1986, was unreasonable and did not constitute substantial compliance. The Court noted the established practice since 1981 of implied renewals without renegotiation, where Dra. Virata would continue services after the contract’s expiry date, lending reason for private respondents to assume renewal. The Court also upheld the award of attorney’s fees, finding petitioners acted in bad faith by refusing to comply with a valid demand. The petition was denied for lack of merit.