G.R. No. 173342 - Zamboanga Forest Managers Corp. vs. New Pacific Timber and Supply Co.

Case Digest (G.R. No. 173342)
Expanded Legal Reasoning Model

Facts:

Background of the Contractual Relationship

On 18 August 2004, Teresa C. Aguilar entered into an Owner-General Contractor Agreement (the First Contract) with Transcept Construction and Management Professionals, Inc. for the construction of a two‐storey split level vacation house at Phase 3, Block 3, Lot 7, Canyon Woods, Laurel, Batangas.
The agreed contract price under the First Contract was P3,486,878.64, with a stipulated completion period of 210 working days (or by 7 June 2005).
Aguilar made an initial downpayment of P1 million on 27 August 2004.

Progress of Construction and Early Disputes

Transcept submitted its First Billing on 30 November 2004 for work accomplished from the start of the project until 15 November 2004; Aguilar paid P566,356.
On 1 February 2005, Transcept issued the Second Billing for P334,488 covering 16 November 2004 to 15 December 2004.
Aguilar questioned the Second Billing for being 45 days ahead of actual accomplishment and withheld payment, prompting Transcept to halt work on the project on 2 February 2005.

Discovery of Substandard Work and Subsequent Developments

Aguilar engaged ASTEC, a duly accredited testing laboratory, to evaluate the quality of Transcept’s work, which was found to be substandard.
On 7 March 2005, Transcept issued a letter outlining a program to repair or redo the substandard works identified by ASTEC.
On 28 March 2005, ASTEC, through Engr. Jaime E. Rioflorido, furnished an Evaluation of Contractor’s Performance noting not only deficiencies in workmanship and materials but also alleging fraudulent billing practices.

The evaluation indicated that out of the downpayment of P1,632,436.29, only work valued at P527,875.94 had been reasonably accomplished.
A recommendation was made for partial demolition of Transcept’s work.

Execution of the Second Contract

On 30 May 2005, the parties entered into a Construction Contract (the Second Contract) to extend the completion date from 7 June 2005 to 29 July 2005 and to utilize the P1.6 million downpayment.
Aguilar engaged Engr. Edgardo Anonuevo to supervise and ensure that the work was in accordance with the Second Contract.
Transcept later claimed that delays were caused by additional work orders from Aguilar and demanded an extra payment of P290,824.96, whereas Aguilar contended that the Second Contract did not include provisions for extra works.

Initiation of Dispute Resolution Proceedings

On 2 September 2005, Aguilar sent a demand letter to Transcept seeking P581,844.54 for refund and damages.
Transcept ignored the demand, leading Aguilar to file a complaint with the Construction Industry Arbitration Commission (CIAC) on 6 September 2005.

CIAC Proceedings and Award

The CIAC, in its Decision promulgated on 16 January 2006, assessed:

Direct Costs for Labor and Materials at P1,110,440.13.
Indirect Costs for General Requirements at P275,355.50.
Work associated with the Septic Tank at P7,300.00.
Added 5% contingencies and 10% Contractor’s Profit to arrive at a total accomplishment of P1,602,359.97.

The CIAC held that since the accomplishment (98.16% of the contract price) was above the 95% threshold for substantial completion, Aguilar was not entitled to liquidated damages.
The CIAC awarded Aguilar:

P75,000 for Consultancy Expenses.
It computed that additional works performed amounted to P189,909.91, which were later subject to offset.

The dispositive portion of the CIAC’s decision detailed orders involving:

Payment by Transcept of P30,076.72 as the cost difference for unaccomplished works.
The consultancy fee plus interest.
An order for Aguilar to pay Transcept for extra works amounting to P189,909.91.
Denial of liquidated damages, attorney’s fees, and other cost claims.

Court of Appeals Proceedings

On 24 January 2007, the Court of Appeals reversed the CIAC decision.

It recomputed the indirect costs for General Requirements based on the Second Contract’s price (P1,632,436.29) which resulted in a lower indirect cost of P128,799.22.
With the new computation, the Court of Appeals determined:

Sub-Total costs and associated additions led to a total accomplishment of P1,433,520.93.

ii. Aguilar should be awarded P198,916.02 for unaccomplished works. iii. Liquidated damages of 10% of the contract price or P163,243.63 should be awarded. iv. The previous CIAC award of P189,909.91 for additional works was deleted.

It recognized that Aguilar had paid P135,000 for consultancy services.

Transcept filed a motion for reconsideration, which was denied in the 20 April 2007 Resolution, prompting the present petition for review.

Issues:

Disputed Computation for Unaccomplished Works

Whether the Court of Appeals erred in awarding Aguilar P198,916.02 for unaccomplished works instead of the CIAC’s computed amount of P30,076.72.

Award of Liquidated Damages

Whether Aguilar is entitled to liquidated damages, particularly in light of indications that the project had achieved over 95% completion as per relevant industry guidelines.

Treatment of Additional Works

Whether the Court of Appeals erred in deleting the CIAC’s award of P189,909.91 to Transcept for additional works done under the Second Contract.

Award for Consultancy Services

Whether the Court of Appeals correctly awarded Aguilar the amount of P135,000 for consultancy services, which includes payments made to experts such as Engr. Rioflorido and others.

Ruling:

(Subscriber-Only)

Ratio:

(Subscriber-Only)

Doctrine:

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Case Digest (G.R. No. 173342) Core Legal Reasoning Model Expanded

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Case Digest (G.R. No. 173342) Expanded Legal Reasoning Model

Facts:

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Doctrine:

Case Digest (G.R. No. 173342)
Core Legal Reasoning Model

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Case Digest (G.R. No. 173342)
Expanded Legal Reasoning Model