G.R. No. L-32162 September 28, 1984
THE PASAY CITY GOVERNMENT, THE CITY MAYOR, THE MEMBERS OF THE MUNICIPAL BOARD, and THE CITY TREASURER, petitioners-appellants, vs. THE HONORABLE COURT OF FIRST INSTANCE OF MANILA, BRANCH X and VICENTE DAVID ISIP (doing business under the firm name V.D. ISIP SONS & ASSOCIATES), respondents-appellees.

FACTS

Respondent Vicente David Isip entered into a contract with Pasay City for the construction of a new city hall. The contract stipulated that the work would be done in stages, with Isip advancing the funds for each stage and the city reimbursing him for completed work before he proceeded to the next stage. Isip completed work valued at P1,713,096.00, but the city paid only P1,100,000.00, leaving a balance of P613,096.00. After Isip filed an action for specific performance, the parties entered into a Compromise Agreement approved by the trial court. The agreement confirmed the original contract and required Isip to submit a new performance bond “in proportion to the remaining value or cost of the unfinished work.” Pasay City, however, refused to pay the P613,096.00, insisting that Isip must first post a performance bond equivalent to 20% of the entire unfinished project cost, which was a significantly larger amount.

ISSUE

Whether the submission of a performance bond by Isip was a condition precedent to Pasay City’s obligation to pay the overdue amount of P613,096.00.

RULING

No. The Supreme Court affirmed the trial court’s order for the issuance of a writ of execution to collect the P613,096.00. The legal logic is anchored on the interpretation of the Compromise Agreement and the principles of contractual obligations. The Court found that the agreement required a bond proportional to the “remaining value or cost of the unfinished work” to secure future performance, not to retroactively secure payment for work already completed and long overdue. The obligation to pay the P613,096.00 arose from the original contract when Isip completed the prior stages, an obligation that was merely confirmed by the compromise. Making the bond a precondition for this payment would unjustly allow the city to evade a settled debt. The Court emphasized that a performance bond should not be construed oppressively beyond the reasonable intent of the contracting parties. Since the city’s payment duty was independent and pre-existing, Isip’s compliance with the future bond requirement was not a suspensive condition for the city’s payment of the past due amount. The Court also awarded attorney’s fees as stipulated in the Compromise Agreement.