Republic of the Philippines

REGIONAL TRIAL COURT OF MISAMIS ORIENTAL

10th Judicial Region
BRANCH 21
Cagayan de Oro City

REGINALD ALLAN S. BAGAIPO, CIVIL CASE NO.

PROPRIETOR & MANAGER OF REGALL CV-ORD-2017-457
ENGINEERING TECHNOLOGIES &
CONSTRUCTION SERVICE
ENTERPRISES,
Plaintiff,

- versus- FOR: COLLECTION

OF SUM OF MONEY
MDBARCELONA VENTURES, INC.
Represented by MR. RAUL M.
BARCELONA, President/Officer,

and

MR. RAUL M. BARCELONA, in his

Capacity as President or Officer of the
Corporation,
Defendants.
x——————————————————/

MEMORANDUM FOR DEFENDANTS

COME NOW Defendants, through counsel, unto this

Honorable Court, most respectfully submit this Memorandum and in
amplification thereof most respectfully avers:

PREFATORY STATEMENT

Under Article 1191 of the Civil Code, it provides that “[t]he

power to rescind obligations is implied in reciprocal ones, in case one
of the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in either
case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible… xxx
 Page 2 of 12

BRIEF STATEMENT OF THE FACTS

Mr. Reginald Allan S. Bagaipo, the Proprietor and Manager of

Regall Engineering Technologies and Construction Service
Enterprises, hereinafter referred to as “Plainiff” for brevity, and
Defendant Corporation MDBarcelona Ventures Inc., herein after
referred to as “Defendants” for brevity, through Raul M. Barcelona,
entered into a contract whereby Plaintiff will install the solar panels
of the Defendants’ proposed solar power project designed to provide
electric power to the MERWASCO water motor pumps at Kibungtud,
Cabug, Medina, Misamis Oriental. The Plaintiff submitted his third
bid covered by a Letter Offer with Quotation of Prices of Materials
dated Nov. 3, 2016, amounting to Php2,210,699.05 less requested
discount of Php210,699.05, or a net of Php2,000,000.00 bid to match
the lowest bid received not showing Value-Added Tax (VAT).
Defendants issued two checks each amounting to Php1,000,000.00
and Php200,000.00, the Acknowledgement Receipts. Plaintiff received
an additional Php300,000.00, on November 15, 2016, and
Php170,000.00 on March 24, 2017, resulting to a balance of
Php330,000.00. The Plaintiff conducted an ocular inspection of the
area where the solar panels were to be installed and promised to
finish the installation of the solar panels within the first week of
December 2016. However, Plaintiff was not able to complete the
project, much less make it operational. The Defendants were
compelled to engage the services of another contractor to repair and
finish the installation of the solar panels in the amount of
Php207,000.00.

Plaintiff filed this case for Collection of Sum of Money against

Defendant on May 17, 2017.

ISSUES

1. Whether or not there is basis for the Plaintiff’s cause of action for
sum of money.

2. Whether or not the plaintiff is liable for Damages to Defendants

MDBarcelona Ventures, Inc. and Raul M. Barcelona.

DISCUSSIONS AND ARGUMENTS

 Page 3 of 12

Whether or not there is basis for the Plaintiff’s cause of

action for sum of money with damages.

In the case of Parañaque Kings Enterprises, Inc. vs Court of

Appeals, G.R. No. 111538, February 26, 1997, the Supreme Court held
that a cause of action exists if the following elements are present: (1) a
right in favor of the Plaintiff by whatever means and under whatever
law it arises or is created; (2) an obligation on the part of the named
Defendant to respect or not to violate such right; and (3) an act or
omission on the part of such Defendant violative of the right of the
Plaintiff or constituting a breach of the obligation of Defendants to
the Plaintiff for which the latter may maintain an action for recovery
of damages.

When Plaintiff and Defendants entered into the contract, a

reciprocal obligation arose. Reciprocal obligations are those which
arise from the same cause, wherein each party is a debtor and a
creditor of the other, such that the obligation of one is dependent
upon the obligation of the other. They are to be performed
simultaneously, so that the performance of one is conditioned upon
the simultaneous fulfillment of the other. 1 In this case, Plaintiff’s
obligation comprises of the installation of an operational solar panel
project designed to provide electric power to the MERWASCO water
motor pumps at Kibungtud, Cabug, Medina, Misamis Oriental, and
the Defendants’ obligation comprises of payment upon the
completion and fulfillment of Plaintiff’s obligation, according to the
terms and conditions of their agreement, whether or not it was made
merely through “Inato”, which is an agreement common among
relatives, which foregoes the written aspect of any formal agreement
in consideration of the close relationship between the parties.

From the foregoing, it is safe to say that the Plaintiff’s right to

payment and the Defendants’ obligation to pay is conditioned upon
the Plaintiff’s compliance in good faith with the terms and conditions
of the agreement. It is subject to a resolutory condition the effectivity
of which shall take place only if and when the event which
constitutes the condition happens or is fulfilled. 2 Therefore, any
assertion of his right to payment before the project’s completion is
premature and cannot be countenanced. Article 1181 of the Civil
Code provides:

1Asuncion v. Evangelista, 375 Phil. 328, 356 (1999), citing Tolentino, Arturo, Commentaries and
Jurisprudence on the Civil Code of the Phil., Vol. IV, 1985 edition, p. 175.
2Insular Life Assurance Co., Ltd. v. Toyota Bel-Air, Inc., 573 Phil. 222, 232 (2008)
 Page 4 of 12

In conditional obligations, the acquisition of rights, as well as

the extinguishment or loss of those already acquired, shall depend
upon the happening of the event which constitutes the condition.

The Plaintiff admitted, in his Reply to the Answer submitted by

the Defendants that he promised to complete the project by the first
week of December 2016, but due to numerous incorrect orders placed
by the Plaintiff in procuring the materials for the project, the project
was unfinished at the time agreed upon by the parties. In breach of
his promise, the Plaintiff has incurred in delay in fulfilling his end of
the obligation. Article 1169 provided 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. xxx From the moment one of
the parties fulfills his obligation, delay by the other begins.

xxx

In reciprocal obligations, neither party incurs in delay if the

other does not comply or is not ready to comply in a proper manner
with what is incumbent upon him. From the moment one of the
parties fulfills his obligation, delay by the other begins.”

In reciprocal obligations, where one of the parties to a contract

does not perform the undertaking which he is bound by the terms of
the agreement to perform, he is not entitled to insist upon the
performance of the other party. For failure of the other party to
assume and perform the obligation imposed upon him, the other
party does not incur in delay. 3 Hence, Plaintiff’s demand on
Defendants to pay the remaining balance of Php330,000.00 cannot be
heeded since the Plaintiff has not performed his end of the obligation
yet. It is the fulfillment of such obligation that triggers the
Defendants’ obligation to pay the remaining balance of Php330,000.00
to Plaintiff.

The Supreme Court held in Tanguilig vs. Court of Appeals 4

where the petitionerand the respondent entered into a contract for
the construction of a windmill for a consideration of P60,000 with a
one-year guaranty, and where, after completion, the petitioner sued
the respondent for non-payment of the balance of the construction

3Agustin vs. Court of Appeals, G.R. No. 84751, June 6, 1990, 186 SCRA 375; Boysaw, et al. vs.
Interphil Promoters, Inc., G.R. No. L-22590, March 20, 1987, 148 SCRA 635; Abaya vs. Standard
Vacuum Oil, 101 Phil. 1262.
4G.R. No. 117190, January 2, 1997, 77 SCAD 647.
 Page 5 of 12

price but the respondent did not pay because the windmill
collapsed due to the defects in the construction:

“Finally, petitioner’s argument that private respondent was

already in default in the payment of his outstanding balance of
P15,000.00 and hence should bear his own loss, is untenable. In
reciprocal obligations, neither party incurs in delay if the other
does not comply or is not ready to comply in a proper manner
with what is incumbent upon him (Article 1169). xxx Thus,
respondent cannot be said to have incurred in delay; instead, it is
petitioner who should bear the expenses for the reconstruction of the
windmill.”

In the case at bar, the Plaintiff’s claim does not satisfy the first
element for the existence of a cause of action. Under the parties’
agreement, the Plaintiff’s obligation is to install an operational solar
panel project producing electricity for the water pumps of
MERWASCO. Plaintiff conducted an ocular inspection in the area
where the solar panel was to be installed. Contrary to Plaintiff’s
uncorroborated claims, there was already an existing Two-Tilt system
of steel frames during the ocular inspection so it necessarily follows
that Plaintiff was made aware of such particular design as proven by
the Chronology of Event sent to and received by Plaintiff on March 5,
2017. Yet, Plaintiff did not exercise proper diligence by not repairing
the materials to be used. He insisted on using the materials which are
appropriate only for a One-Tilt system of steel frames. Plaintiff also
claims that he proceeded upon Defendants’ suggestion of using the
materials for One-Tilt system when in truth and in fact there was no
suggestion made by the Defendants since it is followed by the fact
that the structure was already using the Two-Tilt system. It is highly
logical that the Defendants did not make the suggestion since that
would only entail additional expenses and labor costs that would
only work a disadvantage to him. Nor was there any ratification from
the Defendants. The Defendants cannot be made liable to pay for the
costs of the reconstruction of the steel frames since it was part and
parcel of Plaintiff’s obligation absent any ratification by the
Defendants.

In the same case of Tanguilig, the Supreme Court had occasion

to pronounce that:

“When the windmill failed to function properly it became

incumbent upon petitioner to institute the proper repairs in
accordance with the guaranty stated in the contract.
 Page 6 of 12

Thus, respondent cannot be said to have incurred in delay;

instead, it is petitioner who should bear the expenses for the
reconstruction of the windmill. Article 1167 of the Civil Code is
explicit on this point that if a person obliged to do something fails to
do it, the same shall be executed at his cost.”

In view of Plaintiff’s negligence in procuring the wrong

materials for the installation of the project, the Defendants cannot be
made liable to pay for the costs for the rectification and
reconstruction of the Two-Tilt system. Plaintiff alleged that the
Defendants’ gave him the “go” signal to perform the necessary
reconstruction and rectification, to be shouldered by the Defendants,
to accommodate the materials purchased by the Plaintiff for the
installation of the solar panel. This is completely false. The truth of
the matter is, no “go” signal was ever given by the Director of
MDBarcelona to Plaintiff since the latter assumed the obligation on
his account since it was necessarily part of his obligation to install the
solar panel. Furthermore, had the Plaintiff ordered the correct and
proper materials, there would have been no need for rectification and
reconstruction in the first place.

According to Plaintiff, he inquired from Engr. Isagani Barcelona

about the power grid system of MORESCO II, in which the latter
informed the former that it had an upgraded system of 3-Phase WYE
which does not require a transformer. However, Plaintiff alleged that
when he made an inquiry at the MORESCO Office, a transformer was
required. It turns out, however, that Engr. Isagani was correct and
that the Solax Brand Inverter did not require a transformer.
Therefore, it should be on Plaintiff’s account that the cost of the
transformer be due. Had the Plaintiff been more cautious and
diligent in procuring the proper materials for the power grid system,
the transformer wouldn’t have been ordered. Further, the Plaintiff
has alleged that the Defendants have taken possession of the
transformer yet, had been unable to offer any evidence to this fact. In
truth, Plaintiff purchased the transformer in order to delay the
completion of the project on the first week of December 2016, and
passed the blame on Defendants as a scheme to relieve itself from
liabilty. As can be gleaned from the facts aforestated, Plaintiff indeed
bought the transformer in bad faith. Bad faith connotes a dishonest
purpose or some moral obliquity and conscious doing of a wrong, a
breach of a known duty through some motive or interest or ill will
that partakes of the nature of fraud, which constitutes bad faith.5

5Cathay Pacific Airways, Ltd. v. Vasquez, G.R. No. 150843, March 14, 2003, 399 SCRA 207, 220.
 Page 7 of 12

Last but not least, Plaintiff is transferring the burden of paying

the VAT to Defendants. This cannot be countenanced. The third bid
submitted by Plaintiff amounted to Php2,000,000.00, without
showing VAT, to match the lowest bid for the 20,000 watts to operate
limited daytime during sunny days. VAT is ultimately a tax on
consumption, even though it is assessed on many levels of
transactions on the basis of a fixed percentage.6 It is the end user of
consumer goods or services which ultimately shoulders the tax, as
the liability therefrom is passed on to the end users by the providers
of these goods or services7 who in turn may credit their own VAT
liability (or input VAT) from the VAT payments they receive from
the final consumer (or output VAT). However, it was agreed upon by
the parties that it should be the Plaintiff who will shoulder the VAT
aspect of the transaction. Parties are free to enter into agreements and
stipulate as to the terms and conditions of their contract, as provided
in Article 1306 of the Civil Code:

The contracting parties may establish such stipulations,

clauses, terms and conditions as they may deem convenient,
provided they are not contrary to law, morals, good customs, public
order, or public policy.

Hence, if the stipulations in the contract are valid, the parties

thereto are bound to comply with them, since such contract is the law
between the parties. The precise reason why Defendants asked for a
quotation not showing VAT is because it was agreed by the parties
that the Plaintiff will shoulder the same. In direct tax, it is the seller
who shoulders the VAT. Therefore, there being no law prohibiting
the parties from agreeing that the seller shall shoulder the VAT, such
agreement is valid and binding between the parties. From the
moment the contract is perfected, the parties are bound not only
to fulfill what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in keeping
with good faith, usage and the law.8

Upon its failure to fulfill its end of the contract obliterated any
trace of right entitling Plaintiff to the remaining balance of
Php300,000.00. Hence, Plaintiff has no basis for his cause of action for

6Commissioner of Internal Revenue v. Benguet Corporation, G.R. Nos.134587 & 134588, 8 July
2005, 463 SCRA 28, 42.
7Contex Corporation v. Commissioner of Internal Revneue, G.R. No. 151135, 2 July 2004, 433

SCRA 376, 385, citing Deoferio, Jr. and Mamalateo, THE VALUE ADDED TAX IN THE
PHILIPPINES 35-36 (1st ed. 2000).
8Romero vs. Court of Appeals, G.R. No. 107207, November 23, 1995, 65 SCAD621, 250 SCRA

223.
 Page 8 of 12

sum of money with damages against the Defendants and should not
be entitled to the rest of the payment.

Whether or not the Plaintiff is liable for Damages to Defendants

MDBarcelona Ventures, Inc. and Raul M. Barcelona.

Plaintiff is liable for damages to Defendants since by reason of

the non-completion of the project, the Defendants were forced to hire
another contractor to repair and finish the installment of the solar
panel project in the amount of Php207,000.00 evidenced by the
Rehabilitation Report which lays out the necessary steps the
Defendants had to undertake in order to rehabilitate the incomplete
and non-operational solar panel installed by the Plaintiff. As
provided under the Civil Code in Art. 1191, it states:

“The power to rescind is implied in reciprocal ones, in case

one of the obligors should not comply with what is incumbent upon
him.

The injured party may choose between the fulfillment and the
rescission of the obligation, with payment of damages in either
case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be

just cause authorizing the fixing of a period.

xxx” (Emphasis supplied)

Had the Plaintiff faithfully complied with its obligation in the

agreement, he would’ve finished the project within the time agreed
upon by the parties. Had the Plaintiff proceeded with diligence in
evaluating the proper materials to be used in the installation of the
solar panel project with the Two-Tilt system, the repair and
construction would not have been necessary. Instead, with intent to
defraud the Defendant and delay the installation of the project,
Plaintiff has passed the burden of costs to Defendants who relied on
Plaintiff’s promises to finish the project within the first week of
December 2016. The law expressly provides that those who in the
performance of their obligation are guilty of fraud, negligence, or
delay and those who in any manner contravene the tenor thereof, are
liable for damages.9

9Art. 1170, Civil Code of the Philippines (1997)

 Page 9 of 12

When Plaintiff failed to deliver the required materials on

November 15, 2016, he reasoned that there was a technical problem
confronting its China shipment. However, by verbal assurance by the
Plaintiff to Defendants, the materials were agreed to be procured
from Australia or Europe. This agreement formed part of the original
package with a discounted price of Php2,000,000.00. It was also
agreed that any deviation from the original agreement may be made
only by first obtaining the approval of Defendants, after submitting a
proposal for changes. But despite of the foregoing agreements,
Plaintiff went on to order materials from China without first
obtaining the approval of the Defendants, in derogation of its
obligation to comply with the terms and conditions of the “Inato”
agreements. In a letter dated April 24, 2017, sent through electronic
mail, the Defendants clarified these terms and conditions with the
Plaintiff. The Defendants cited that it was the Plaintiff who insisted in
procuring materials from China despite the numerous advises of
Defendants not to purchase materials from China. The Defendants
did not ratify the variation as no new package contract was effected
upon Plaintiff’s non-compliance of the agreed place of origin of the
materials. Had the Defendants known that the materials were to be
procured from China, they would not have entered into the
agreement since the quality and durability of said materials would
greatly affect the longevity of the solar project’s life span. The
Defendants were seriously misled as to the object of the contract.
There was, indeed, a clear intention on the part of the Plaintiff to
injure the Defendants for their personal gain.

The Plaintiff also claims that it undertook a Handover, Testing

and Commissioning on February 14 to 24 in 2017. Plaintiff did not
even show proof as to this fact. Granting arguendo that the Plaintiff
undertook Testing and Commissioning for the solar panel project, it
was inutile since it did not serve its purpose of determining its
efficiency in supplying electricity to water pumps. As said by
Defendants, the solar panel project was an ONGRID system, which
meant that electric supply through its wiring system to the water
pumps come from MORESCO II and the solar panel project. It can be
driven automatically by a single electrical source or by a combination
of sources, and Plaintiff claimed that it was operational. However,
the findings of the Defendants prove otherwise. The Defendants were
not able to charge MERWASCO for an electrical consumption from
the solar panel project as the electrical consumption from MORESCO
II resulted in very minimal reduction compared to previous billings
even with the help of combining the four hours daily operation of our
generation set. The Defendants sent the Plaintiff a Letter dated April
 Page 10 of 12

6, 2017, including a Statement of Account from the MERWASCO

supporting the Defendants’ defense of non-operation. Therefore, the
condition upon which the Plaintiff bases his right to payment has not
yet been satisfied. It is evident therefore that Plaintiff has
prematurely demanded a right he is not entitled to since he has not
fulfilled his obligations.

Furthermore, the Defendants had also demanded from the

Plaintiff the completion of the project as contained in the letters dated
April 24, 2017 and May 8, 2017, hereto attached as ANNEX “1” and
“2”, respectively. However, the Plaintiff did not heed his demands.
Instead, the Defendants were forced to engage the services of another
contractor to complete the installation of the solar panel project. In
view of this fact, the Defendants incurred expenses in the amount of
Php207,000.00 as evidenced by the Computation/Summary of
Expenses and Damages, marked as ANNEX “3”, for which the
Plaintiff must be ordered to pay the Defendants corporation as
Actual Damages.

Despite Plaintiff’s promise that he will finish the project within

the first week of December 2016, the project remained unfinished
until the Defendants hired another contractor to complete the project.
From the first week of December 2016 up until the time the other
contractor, not the Plaintiff, completed the project, the Defendants
lost an income of Php500,000.00 for the solar panel project as
Compensatory Damages.

Furthermore, the accusations cast against the Defendants has

caused sleepless nights, mental anguish, and besmirched the
reputation of the Defendants for which the Plaintiff must be made to
pay in the sum of Php1,000,000.00 as Moral Damages.

Plaintiff’s suit against the Defendants is evidently unfounded

and malicious, intended to harass, vex, and prejudice herein
Defendants, and mislead the Honorable Court. The malicious and
fraudulent acts of the Plaintiff is clearly attended by bad faith for
which Plaintiff should be ordered to pay Defendants corporation the
amount of Php300,000.00 as Exemplary Damages, to teach Plaintiff a
lesson not to resort to fraudulent acts, and to set an example for
others.

Defendant corporation was constrained to hire the services of

counsel because of the malicious filing of this baseless suit against
 Page 11 of 12

and had to pay Php300,000.00 as Attorney’s fees and Php3,000.00 per

hearing as Appearance Fees.

PRAYER

WHEREFORE, premises considered, it is most respectfully

prayed of this Honorable Court that this Memorandum be noted on
record and this action for Collection of Sum of Money be DISMISSED
for lack of cause of action and legal basis.

IT IS PRAYED FURTHER that an Order be ISSUED directing

Plaintiff to pay the following:

1. Plaintiff be ordered to pay:

a. TWO HUNDRED SEVEN THOUSAND PESOS

(Php207,000.00) as Actual Damages;

b. FIVE HUNDRED THOUSAND PESOS (Php500,000.00)

as Compensatory Damages;

c. THREE HUNDRED THOUSAND PESOS

(Php300,000.00) as Exemplary Damages,

d. ONE MILLION PESOS (Php1,000,000.00) as Moral

Damages; and

e. THREE HUNDRED THOUSAND PESOS

(Php300,000.00) as Attorney’s Fees and THREE
THOUSAND PESOS (Php3,000.00) per hearing as
Appearance Fees.

OTHER RELIEFS just and equitable are likewise prayed for.

Respectfully submitted this 22nd day of February 2019 in

Cagayan de Oro City, Philippines.

THE FIRM
|PALLUGNA | ALENTON |RADAZA|
| ABBU | ABBU | MACALOS|CASIÑO
Door 5, Borromeo Building. Tomas Saco – 14th Streets
 Page 12 of 12

Macasandig, Cagayan de Oro City 9000

Tel. No. (088) 323-134

By: ATTY. ALEJANDRO JOSE C. PALLUGNA

Counsel for Defendants
Attorney’s Roll No. 37984
IBP Official Receipt No. 031203 (January 16, 2019)
PTR. No. 9520252A (January 3, 2019)
MCLE Compliance No. V – 0009612 (valid until 04/14/2019)

Copy furnished:

ATTY. RICO B. PAJO

Counsel for Plaintiff
2nd Floor, Acersyant B.S. Bldg.,
R.N. Pelaez Blvd., Zone 2, Kausgawan
Cagayan de Oro City

ATTY. CESAR B. BAGAIPO

Co-counsel for Plaintiff
Dawang Building, Corrales Avenue
Cagayan de Oro City