G.R. No. 129824 - De Paul/King Philip Customs Tailor vs. National Labor Relations Commission

Petroleum Distributors & Services Corporation (PDSC), owner/obligee of the Project.
N.C. Francia Construction Corporation (FCC), contractor/principal, represented by Emmanuel T. Francia.
FCC officers who signed an Undertaking of Surety: Natividad Francia, Emmanuel C. Francia, Jr., Anna Sheila C. Francia, San Diego Felipe G. Bermudez, Emmanuel T. Francia, Charlemagne C. Francia, and Ruben G. Caperina.
Philippine Charter Insurance Corporation (PCIC), surety, issuer of Performance Bond No. 31915.

Building Contract dated January 27, 1999 for construction of a four‑storey commercial/parking complex known as Park N Fly, located at MIA Road cor. Domestic Road, Pasay City.
Contract price stated as PHP 45,522,197.72; work to commence February 1, 1999; completion by October 15, 1999 or within 259 calendar days.
Project schedule under PERT‑CPM: Phase 1 completion May 17, 1999; Phase 2 May 18 to October 20, 1999; project turnover October 21, 1999.
Contract provision (Art. 2.3) for liquidated damages: one‑tenth (1/10) of one percent (1%) of the contract price for every day of delay, characterized as liquidated damages and not penalty.
Performance Bond No. 31915 issued by PCIC in the face amount of PHP 6,828,329.66 to secure full and faithful performance; bond stated liability of surety shall not exceed face value.

Construction commenced February 1, 1999.
PDSC sourced materials and subcontracted various phases to obtain lowest cost and expedite work, which FCC later said reduced the contract price substantially to PHP 19,809,822.12.
During Phase 1, FCC fell behind schedule: 16 days, then 30 days, then 60 days delay despite PDSC letter of March 25, 1999 warning of liquidated damages.
On September 10, 1999 FCC executed a Deed of Assignment (portion of receivables from Caltex) and a chattel mortgage (conveying construction equipment) in favor of PDSC as additional security.

On September 10, 1999 PDSC and FCC executed a Memorandum of Agreement (MOA) revising the work schedule; MOA stated other terms of the Building Contract not inconsistent remain in full force and effect.
Performance Bond No. 31915 was extended to March 2, 2000 per Exhibit N‑1.

PDSC, by letter dated December 3, 1999, terminated the Building Contract under Article 12, Paragraph 12.1 for failure to accomplish the project within the agreed period.
PDSC demanded liquidated damages of PHP 9,149,962.02 from FCC and its officers, and sought remuneration from PCIC under the performance bond.
PDSC filed a complaint before the RTC for damages, recovery/foreclosure and sought writs of replevin and attachment; later filed a supplemental complaint impleading PCIC claiming coverage under Performance Bond No. 31915 for PHP 6,828,329.66.

FCC admitted the contract but alleged: (a) PDSC's subcontracting and sourcing reduced the contract price to PHP 19,809,822.12; (b) the September 10, 1999 MOA modified obligations and caused PDSC to assume costs; (c) delay was attributable to both parties; (d) a progress billing dispute where PDSC agreed to shoulder subsequent expenses and use FCC equipment.
PCIC asserted: (a) as surety it was not a principal obligor; liability under the bond was conditional, subsidiary, and limited to terms of the bond; (b) bond expired October 15, 1999 and extension to March 2, 2000 was without its knowledge/consent; (c) the September 10, 1999 MOA discharge...(Subscriber-Only)

Whether PCIC is liable under Performance Bond No. 31915 for liquidated damages where the bond ostensibly answers only for actual and compensatory damages.
Whether, assuming liability for liquidated damages, such award is iniquitous or unconscionable and whether Article 2227, Civil Code and *Palmares v. Court of Appeals, 288 SCRA 422* require reduction or denial.
Whether the September 10, 1999 MOA between PDSC and FCC, entered without PCIC's knowledge or consent, discharged PCIC from liability under the bond pursuant to Article 2079, Civil Code.

Whether the sums of PHP 2,793,000.00 (receivable assigned from Caltex...(Subscriber-Only)