G.R. No. 68969 - People vs. Hassan y Ayun

On November 15, 2003, Colorite Marketing Corporation (Colorite) and Architect Ka Kuen Tan Chua doing business as Ka Kuen Chua Architectural (KKCA) signed a contract for KKCA to build a four-storey residential/commercial building on a parcel in Makati City for Php33,000,000.00.
Stipulations included:

Work to commence within seven days after receiving the Notice to Proceed from Colorite, to be completed within 365 days from the seventh day after a Php6,600,000.00 down payment (20% of the contract price).
Liquidated damages of Php10,000.00 per day for delay beyond the completion deadline.
A maximum of 73 days (20%) slippage allowed; Colorite could terminate if exceeded.
Colorite’s right to take over and complete the project with costs deductible from KKCA’s dues.

Additional provisions were incorporated through Addendum #01 and Addendum #02.
Excavation subcontracted by Colorite to WE Construction Company (WCC); full blast excavation began January 10, 2004.

On January 17, 2004, excavation caused erosion damaging the adjacent Hontiveros property, prompting a complaint to the Makati City Government.
A Hold Order dated January 22, 2004 was issued, stopping excavation and requiring restoration to the damaged property.
Restoration of the Hontiveros property completed by October 2005, but the Quitclaim was not secured; thus, the Hold Order remained effective and construction was suspended.
Delay grew to 878 days.

Colorite demanded liquidated damages for delay, loss of rental earnings, attorney’s fees, and litigation expenses (Php8,780,000.00 liquidated damages plus Php10,000 per additional day of delay, and Php13,345,481.00 for lost rentals).
KKCA disputed claims, refused to pay damages, and argued:

Completion period was suspended due to the Hold Order.
Colorite failed to pay Soil Protection costs and 70% of restoration of Hontiveros property.
Excavation done by the subcontractor, not KKCA.

KKCA counterclaimed for soil protection costs, design fees, ECC permit fee, restoration costs, maintenance costs, moral and exemplary damages, and attorney’s fees.

The Construction Industry Arbitration Commission (CIAC) issued a Final Award in 2008:

Colorite entitled to 50% of liquidated damages claimed, but denied other claims.
KKCA partially entitled to soil protection and restoration costs, design fee, denied some claims.
Both parties to bear their arbitration costs.

Confirmed partial entitlement to liquidated damages for Colorite (50%), denied other claims.
KKCA entitled to design fee, partial soil protection claims.
Modified award to require Colorite to pay Php550,000.00 of restoration costs (70% share less Php150,000.00 advanced), share maintenance costs, reimburse ECC permit fee to KKCA.
KKCA directed to finish the project and secure quitclaim and lifting of Hold Order.
Denied moral, exemplary damages, attorney’s fees to both parties.

Motions for reconsideration denied; consolidated petitions filed before the Supreme Court.

Whether KKCA is liable for the delay and payment of liquidated damages and other claims of Colorite.
Whether soil protection and excavation works are within KKCA’s contractual responsibility.
Whether Colorite is liable to share in the restoration costs of the Hontiveros property.
Whether KKCA is obligated to secure the quitclaim and the lifting of the Hold Order to proceed with construction.
Whether Colorite is entitled to loss of rental earnings, attorney’s fees, litigation expenses, and exemplary damages.
Whether KKCA is entitled to its claims for soil protection costs, design fees, ECC permit fees, moral/exemplary damages, and attorney’s fees.
Whether KKCA can be compelled to finish the project despite strained relations and argument against involuntary servitude.
Proper amount of liquidated damages considering delay and parties’ respective faults.
Proper sharing of increase in construction costs due to delay beyond contract period.