The Supreme Court held that a professional services contract remains enforceable unless properly annulled, even if one party claims the other breached their obligations. The Court emphasized that factual findings of lower courts, especially when affirmed by the Court of Appeals, are generally binding and that parties must fulfill their contractual obligations in good faith. This decision underscores the importance of adhering to contractual terms and seeking judicial recourse to address alleged breaches, rather than unilaterally withholding agreed-upon compensation.

Campaign Promises and Contractual Obligations: When Does a Win Guarantee a Bonus?

This case revolves around a professional services contract between Eduardo B. Manzano, a candidate for Vice-Mayor of Makati City, and Antonio B. Lazaro, who was hired as his campaign manager. After Manzano won the election, a dispute arose over Lazaro’s compensation, specifically the balance of his professional fees and a bonus promised upon Manzano’s electoral victory. Manzano argued that Lazaro failed to fulfill his contractual obligations, thus forfeiting his right to the bonus. The core legal question is whether Lazaro’s alleged breach of contract justified Manzano’s refusal to pay the agreed-upon compensation and bonus.

The Regional Trial Court (RTC) ruled in favor of Lazaro, ordering Manzano to pay the outstanding balance and bonus. The Court of Appeals (CA) affirmed this decision, leading Manzano to elevate the case to the Supreme Court. Manzano’s defense rested on the assertion that Lazaro had misrepresented himself as an experienced campaign manager and had failed to perform his duties effectively. He claimed Lazaro was often absent, failed to provide adequate personnel, and did not contribute significantly to the campaign’s success. According to Manzano, these failures constituted a material breach of the contract, negating Lazaro’s entitlement to the bonus.

However, the Supreme Court found these arguments unpersuasive. The Court emphasized that factual findings of the trial court, especially when affirmed by the Court of Appeals, are generally binding. In this case, the lower courts found Lazaro’s evidence sufficient to prove his case. The Supreme Court also highlighted the principle that a contract is the law between the parties, as stated in Article 1159 of the Civil Code: “Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.”

The Court noted that Manzano’s claim of breach of obligation was contradicted by the evidence on record. Specifically, the June 1998 payroll remittance indicated that Lazaro would be paid the remaining balance upon submission of a final inventory of campaign equipment. Lazaro complied with this condition, delivering the inventory to Manzano. Manzano even acknowledged receipt of the equipment in a letter. Despite this, Manzano then introduced a new condition: submission of a report on the liquidation of campaign expenses, a task that Lazaro and another individual, Cruz, asserted was not part of Lazaro’s responsibilities. This sequence of events led the Court to conclude that Manzano’s claim of breach was merely an excuse to avoid payment.

Regarding Manzano’s claim that Lazaro misrepresented his expertise, the Court cited the Court of Appeals’ apt observation that such misrepresentation would only make the contract voidable, not void. Article 1390 of the Civil Code provides:

Art. 1390. The following contracts are voidable or annullable, even though there may have been no damage to the contracting parties.

1. Those where one of the parties is incapable of giving consent to a contract.

2. Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.

These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification.

A voidable contract remains binding unless annulled by a court. In this case, Manzano did not take steps to annul the contract. Instead, he continued to demand tasks from Lazaro, implying ratification of the agreement. The Court found that Manzano only raised the defense of vitiated consent when Lazaro demanded payment. This behavior indicated that Manzano was agreeable to the contract, even if Lazaro’s performance did not fully meet his expectations. The Court also upheld the award of attorney’s fees to Lazaro, as he was compelled to litigate to protect his interests due to Manzano’s unjust refusal to pay.

The Supreme Court clarified the applicable legal interest rate. Citing Eastern Shipping Lines, Inc. v. Court of Appeals, the Court distinguished between obligations constituting a loan or forbearance of money and other obligations. Since this case involved a contract for professional services, the unpaid amount of P220,000.00 would earn interest at 6% per annum from the date of extrajudicial demand (July 3, 1998) until the finality of the decision. After the decision becomes final and executory, the interest rate would increase to 12% per annum until full payment.

FAQs

What was the key issue in this case?	The key issue was whether a campaign manager was entitled to his professional fees and bonus despite the candidate’s claim that he failed to adequately perform his contractual duties.
What did the Supreme Court decide?	The Supreme Court affirmed the lower courts’ decisions, ruling that the campaign manager was entitled to his fees and bonus because the candidate failed to prove a material breach of contract and had, in fact, ratified the agreement.
What is a voidable contract?	A voidable contract is an agreement that is binding unless annulled by a court due to defects in consent, such as mistake, fraud, or undue influence. It can be ratified, making it fully valid.
What does it mean to ratify a contract?	To ratify a contract means to approve or confirm it, despite an initial defect. Ratification can be express (stated directly) or implied (through actions that indicate acceptance).
What interest rate applies to the unpaid fees?	The unpaid fees earn interest at 6% per annum from the date of extrajudicial demand until the finality of the decision. After the decision becomes final, the interest rate increases to 12% per annum until full payment.
What is the significance of ‘extrajudicial demand’?	Extrajudicial demand refers to a formal request for payment made outside of court proceedings. It is important because it marks the starting point for calculating legal interest on the debt.
Why was the candidate ordered to pay attorney’s fees?	The candidate was ordered to pay attorney’s fees because his unjust refusal to pay the campaign manager’s fees compelled the latter to litigate to protect his interests.
Can a party unilaterally rescind a contract for breach?	No, unless there is an explicit stipulation in the contract, the power to rescind an obligation is implied in reciprocal ones but must be invoked judicially, not unilaterally determined by one party.

This case highlights the importance of clearly defining contractual obligations and seeking legal remedies for alleged breaches. Unilateral actions, such as withholding payment without a court order, can lead to adverse legal consequences. Parties should ensure that contracts are properly documented and that all obligations are fulfilled in good faith.

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: Eduardo B. Manzano v. Antonio B. Lazaro, G.R. No. 173320, April 11, 2012