In Uniwide Sales, Inc. v. Mirafuente & Ng, Inc., the Supreme Court affirmed that contractual obligations must be performed in good faith. The Court ruled that Uniwide Sales was obligated to pay Mirafuente & Ng, Inc. for architectural services rendered, as the termination of the agreement occurred after the architectural designs were completed and submitted. This decision underscores the principle that parties cannot evade their contractual responsibilities by terminating agreements after receiving the benefits of the other party’s performance.

Architectural Agreement or a Foundation of Dispute? Uniwide’s Termination Dilemma

The case revolves around a “DESIGN SERVICES: Architectural Services Agreement” between Uniwide Sales, Inc. (petitioner) and Mirafuente & Ng, Inc. (respondent), where the latter was engaged to plan and design a Uniwide Sales Mall for a fee of Two Million Five Hundred Thousand (P2,500,000) Pesos. The agreement stipulated that the scope of work included the preparation, planning, design, and documentation for architectural drawings, with 95% completion marked upon submission of complete working drawings. A dispute arose when Uniwide terminated the agreement, leading Mirafuente & Ng, Inc. to seek payment for services rendered, particularly for the “Construction Document Phase” and a “Change Order.”

The core legal question is whether Uniwide Sales was justified in terminating the architectural services agreement without fully compensating Mirafuente & Ng, Inc. for the work completed. The resolution of this issue hinges on determining whether the termination occurred before or after Mirafuente & Ng, Inc. had substantially fulfilled its contractual obligations.

The Regional Trial Court (RTC) and the Court of Appeals both ruled in favor of Mirafuente & Ng, Inc., finding that the architectural designs had been submitted prior to the termination. Uniwide Sales then elevated the matter to the Supreme Court, arguing that Mirafuente & Ng, Inc. failed to fulfill its obligations and that the termination was therefore justified. Uniwide contended that the appellate court’s inference from the facts was erroneous. However, the Supreme Court upheld the lower courts’ decisions.

The Supreme Court emphasized that its role in petitions filed under Rule 45 is generally limited to questions of law. Factual findings by the lower courts are binding unless there is a showing of grave abuse of discretion or other exceptional circumstances. In this case, both the RTC and the Court of Appeals found that Mirafuente & Ng, Inc. delivered the architectural design before the termination, and the Supreme Court found no reason to disturb these findings.

An important aspect of the case is the alleged verbal agreement regarding a six-month deadline for the completion of the architectural design. Uniwide claimed that Mirafuente & Ng, Inc. failed to meet this deadline, justifying the termination. However, the Supreme Court noted that this alleged verbal agreement was not incorporated into the written contract. The Court questioned why Uniwide did not enforce this agreement earlier or reject the documents submitted by Mirafuente & Ng, Inc. if the deadline had indeed been violated.

The absence of any written evidence of this six-month deadline significantly weakened Uniwide’s argument. The Supreme Court invoked the principle of estoppel, stating that Uniwide was prevented from enforcing the verbal agreement because it continued to engage with Mirafuente & Ng, Inc. even after the alleged deadline had passed. This continued engagement included recommending revisions to the design and making payments for the initial phases of the project. This action shows how important it is to document EVERYTHING.

The court also addressed Uniwide’s claim that it had verbally ordered Mirafuente & Ng, Inc. to cease work on the project prior to the formal notice of termination. The Supreme Court pointed out that the notice of termination referred to an earlier instruction to “put on hold” the works, which is not equivalent to termination. Moreover, the notice did not specify any grounds for the termination, further undermining Uniwide’s position.

The Supreme Court also highlighted the inconsistency in Uniwide’s justifications for the termination. Initially, Uniwide claimed material deficiencies in the architectural design proposals. However, this contradicted its earlier claim that the agreement had been terminated before the proposals were submitted. The Court found that the mall project had already commenced using the plans prepared by Mirafuente & Ng, Inc., further indicating that the architectural firm had fulfilled its obligations before the termination.

The Supreme Court unequivocally stated that Mirafuente & Ng, Inc. had discharged its obligations under the agreement before the termination. Terminating the agreement after Mirafuente & Ng, Inc. had complied with its obligations constituted a violation of Article 1159 of the New Civil Code, which mandates that contractual obligations have the force of law and must be complied with in good faith. “Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.” The Court emphasized the importance of honoring contractual commitments and acting in good faith throughout the duration of an agreement.

FAQs

What was the key issue in this case?	The key issue was whether Uniwide Sales was justified in terminating its architectural services agreement with Mirafuente & Ng, Inc. without compensating them for completed work. The Court considered whether the termination occurred before or after Mirafuente & Ng, Inc. had fulfilled its contractual obligations.
What did the Architectural Services Agreement entail?	The agreement engaged Mirafuente & Ng, Inc. to plan and design a Uniwide Sales Mall for a fee of P2,500,000. The scope of work included preparing, planning, designing, and documenting architectural drawings, with 95% completion upon submission of complete working drawings.
What was the basis for Uniwide’s termination of the agreement?	Uniwide initially claimed material deficiencies in the architectural design proposals and later argued that there was a verbal agreement requiring completion within six months, which Mirafuente & Ng, Inc. allegedly failed to meet. However, these claims were inconsistent and unsupported by written evidence.
What is the significance of Article 1159 of the New Civil Code in this case?	Article 1159 states that contractual obligations have the force of law and must be complied with in good faith. The Court invoked this article to emphasize that Uniwide could not terminate the agreement after Mirafuente & Ng, Inc. had fulfilled its obligations.
What is the principle of estoppel, and how does it apply here?	Estoppel prevents a party from asserting a right or claim that contradicts its previous actions or statements. The Court found that Uniwide was estopped from enforcing the alleged verbal agreement because it continued to engage with Mirafuente & Ng, Inc. after the purported deadline.
What evidence supported the court’s finding that Mirafuente & Ng, Inc. had fulfilled its obligations?	The lower courts found that the architectural designs were delivered before the termination. Additionally, the mall project had commenced using Mirafuente & Ng, Inc.’s plans, and Uniwide had made payments for the initial phases of the project.
What was the outcome of the Supreme Court’s decision?	The Supreme Court affirmed the Court of Appeals’ decision, ordering Uniwide Sales to pay Mirafuente & Ng, Inc. the unpaid architectural fees, legal interest, attorney’s fees, and costs of suit.
How does this case highlight the importance of documenting agreements?	The absence of a written agreement specifying the six-month deadline proved detrimental to Uniwide’s case. This underscores the importance of including all material terms in a written contract to avoid disputes based on alleged verbal agreements.

The Supreme Court’s decision in Uniwide Sales, Inc. v. Mirafuente & Ng, Inc. serves as a reminder of the importance of fulfilling contractual obligations in good faith. Parties must honor their commitments and cannot evade their responsibilities after receiving the benefits of the other party’s performance. This case also highlights the significance of documenting all material terms in a written contract to avoid disputes based on verbal agreements.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Uniwide Sales, Inc. vs. Mirafuente & Ng, Inc., G.R. No. 172454, August 17, 2007