Case Digest (G.R. No. 147614)
Facts:
H.L. Carlos Construction, Inc. (Petitioner) contracted with Marina Properties Corporation (MPC) on May 10, 1988 to build Phase III of the Marina Bayhomes project for P38,580,609.00 with original completion May 16, 1989, later extended to October 31, 1989 with a grace period to November 30, 1989. On December 15, 1989 Petitioner sued MPC and respondents Jesus K. Typoco, Sr. and Tan Yu for unpaid labor and material escalations, change orders, ten percent retention, detained materials and attorneys’ fees; the RTC awarded Petitioner several claims while dismissing MPC’s counterclaim for liquidated damages. The Court of Appeals reversed, dismissed Petitioner’s complaint, partially granted MPC’s counterclaim awarding MPC actual damages of P4,604,579.00 plus P3,549,416.00 as liquidated damages, and the Petition followed under Rule 45.
Issues:
- Whether Petitioner is entitled to price escalation for labor and materials, payment for change orders and extra work, release of the ten percent retention money, reimbursement for detained materials, and attorneys’ fees.
- Whether Respondents Jesus K. Typoco, Sr. and Tan Yu are solidarily liable with MPC.
- Whether Petitioner is liable to MPC for actual and liquidated damages.
Ruling:
The Petition was partly granted. The Court awarded Petitioner labor cost escalation in the sum of P1,196,202.00 and payment for extra work in the sum of P79,340.52, and affirmed the Court of Appeals in all other respects. The Court held that the ten percent retention money was forfeited for failure to satisfy contractual conditions, that reimbursement for detained materials and attorneys’ fees were not warranted, that Typoco and Tan were not personally liable, and that Petitioner was liable for actual damages of P4,604,579.00 and liquidated damages as previously determined.
Ratio:
The Construction Contract expressly permitted escalation only on the labor component; material escalation was barred and was unsupported by evidence. Labor escalation during the period Petitioner continued work after extensions and after a legislated wage increase was compensable to avoid unjust enrichment under Article 22, Civil Code, because MPC accepted the work and later took over the partially completed project. Extra work was proven to have been performed and accepted; lacking a supplementary agreement but to prevent unjust enrichment Petitioner recovered the reasonable value under quantum meruit. The ten percent retention required issuance of a Certificate of Completion and guaranty bond and the lapse of the guaranty period per the contract, conditions not met. Detention of materials was not proved and Petitioner retained control over a guarded warehouse on site. Attorneys’ fees under Article 2208, Civil Code were denied because bad faith was not established. Personal liability of officers under Section 31, Corporation Code attaches only for willful unlawful acts, gross negligence or bad faith, none of which was shown. Petitioner was in delay and breach; actual damages were computed from the cost to finish exceeding the remaining contract balance and liquidated damages were recoverable under the contract’s 1/1000 per day provision.
Doctrine:
- A contract controls the allowance of cost escalations; where it permits escalation only for labor, material escalations are barred absent contractual authorization.
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