Case Summary (G.R. No. 174387)
Procedural History
RTC: Ruled for BF Corporation, awarding unpaid contract balance (Php 4,771,221.59), unpaid change orders (Php 141,944.93), rectification/other charges with 12% interest from filing, and attorney’s fees (Php 200,000).
CA (first decision): Modified RTC, imposed liquidated damages of Php 3,066,000.00 (70 days × Php 43,800) and reduced amount due to petitioner to Php 1,847,167.52.
CA (on reconsideration): Further awarded respondent repainting expenses (Php 1,050,000.00) and allowed a 10% retention fee, reducing amount due to petitioner to Php 717,450.75.
Supreme Court: Partly granted the petition, reallocated extensions, awarded liquidated damages for 18 days, allowed repainting expenses and 10% retention, and computed the final amount due to petitioner with 6% interest per annum from filing.
Contract Provisions and Relevant Clauses
- Section 3 (Time of Performance): Stipulated completion date and liquidated damages for delay (Php 43,800/day).
- Section 1 (Scope of Work): Minutes of pre‑bid conferences incorporated into contract.
- Section 5: Contractor’s obligation to provide all materials, labor, tools and equipment; workmanship quality standards.
- Section 6: Defective work must be removed/replaced at contractor’s expense.
- Section 14 (Final Payment): Conditions for release of 10% retention.
- Section 15 (Guarantee): One‑year guarantee against defects; contractor responsible for defects during guarantee period.
- Section 16 (Extra Work or Alteration): Extra work/alteration to be by mutual written agreement; period of completion extended pursuant to suspension by public authorities.
Facts and Timeline (Essential)
- Excavation/demolition began Nov 26, 1994; regular construction effectively began March 24, 1995 (113 days later) due to delays.
- Stop‑work order by Makati City Building Office: Feb 20, 1995 (permit not secured); building permit finally secured March 23, 1995.
- Respondent alleged contractor delays and poor workmanship; respondent paid Php 38,088,445.00, withholding Php 4,771,221.59; assessed liquidated damages for 70 days (Php 3,066,000.00).
- Petitioner claimed multiple justifiable causes for delay (unforeseen concrete slabs, extra soft soil, permit delays, reorientation of plan, change orders), initially asserting entitlement to 243 days extension but requested 130 days.
Parties’ Primary Allegations
Petitioner: Delays caused by unforeseen underground concrete slabs and extra soft soil, respondent’s late securing of required ECC and building permit, respondent‑ordered revisions and change orders, and a stop‑work instruction. Seeks unpaid balance (Php 4,771,221.59), unpaid change orders (Php 141,944.93), and a declaration liquidated damages were baseless.
Respondent: Asserts petitioner had prior knowledge (pre‑bid conference, soil tests), was responsible for permits, suffered from poor workmanship and defective equipment, and thus is liable for liquidated damages and respondent’s repainting expenses.
Standard of Review
Petitioner’s attack raised primarily questions of fact. Under Rule 45, the Supreme Court ordinarily does not re‑evaluate factual findings except when findings of the trial court and appellate court are conflicting or contradictory. The Court found such a conflict here and reviewed the evidence to resolve discrepancies.
Supreme Court’s Allocation of Responsibility and Extensions — Overview
The Court concluded that both parties bore responsibility for various delays and apportioned extensions by cause. From the original completion date (April 7, 1995), the Court allowed petitioner a total of 112 days of extension, moving the effective completion date to July 28, 1995. The actual turnover on August 15, 1995 therefore resulted in 18 days of delay for which liquidated damages were imposed.
Excavation and Earthworks — 21 days granted
Evidence (daily reports, testimony) showed earth/demolition works extended well beyond the contractor’s schedule. The Court found the existence of unforeseen concrete slabs and extra soft soil were not readily discoverable, entitling petitioner to credit for part of the resulting delay. However, petitioner also failed to maintain adequate equipment and manpower and experienced equipment breakdowns, which contributed to delay. Weighing these factors, the Court allowed 21 days for excavation and related works (partial credit rather than the full 30–40 days petitioner sought).
Building Permit, ECC and Stop‑Work Order — 38 days granted
Contract pre‑bid minutes and correspondence demonstrated respondent had undertaken to initiate securing the building permit/ECC and in practice delayed securing the ECC until February 22, 1995. The Makati City stop‑work order (Feb 20–Mar 23, 1995) impeded operations; petitioner had notified respondent earlier that absence of ECC/building permit would constrain work. The Court found respondent at fault in initiating but not completing the permit process and awarded petitioner an aggregate 38‑day extension for permit‑related delays and the resulting stop‑work effects.
Change Orders and Extra Works — 40 days granted
Although Section 16 requires written agreement for extra work, the Court noted respondent had actually granted time credits and had partially paid for change orders (leaving an unpaid balance of Php 141,944.93). The Court credited petitioner for change orders and extra works and granted 40 days as an appropriate extension.
Boundary Dispute and Holiday Credits — 13 days granted
The Court accepted the CA’s finding that petitioner was entitled to 7 days for a boundary dispute suspension (with Sinclair Paints) and 6 days for holiday breaks, totaling 13 days.
Total Extension and Resulting Default Period
Summation of extensions: 21 (excavation) + 38 (permit/stop‑work) + 40 (change orders) + 7 (boundary dispute) + 6 (holidays) = 112 days. Counting from April 7, 1995, the extended completion date became July 28, 1995. Actual turnover on August 15, 1995 meant petitioner was in default for 18 days (July 29–Aug 15, 1995).
Liquidated Damages — 18 days × Php 43,800 = Php 788,400.00
Under Articles 2226–2228 of the Civil Code, parties may stipulate liquidated damages. The Construction Agreement specified Php 43,800.00 per day. Because the Court credited petitioner with 112 days of extension, only 18 days of delay remained chargeable; liquidated damages were therefore equitably imposed for 18 days, totaling Php 788,400.00.
Repainting Expenses — Php 1,050,000.00 awarded
Respondent demonstrated that painting defects persisted despite petitioner’s undertaking to remedy them. The contract contained a one‑year guarantee (bid proposal and Section 15) and Section 6 required replacement of defective work at contractor’s expense. Under Article 1167 of the Civil Code, if an obligor fails to do what was required, the obligation may be executed at his cost. Respondent contracted Silver Line Builders for repainting at Php 1,050,000.00; the Court held petitioner liable and awarded reimbursement in that amount.
10% Retention Fee — Allowed
Citing established construction practice (H.L. Carlos Construction, Inc. v. Marina Properties) and Section 14 of the Construction Agreement, the Court allowed respondent to retain 10% of the contract price as security for corrective work. The final computation deducted a 10% retention in determining the net amount due petitioner.
Interest and Other Monetary Relief
The Court ordered the amount due petitioner to accrue interest at 6% per annum from filing of the complaint until full payment (citing Nacar v. Gallery Frames). The RTC’s prior award of 12% interest and attorney’s fees was not adopted in the Supreme Court’s final computation; the Supreme Cour
Case Syllabus (G.R. No. 174387)
The Case
- Petition for review on certiorari filed under Rule 45 of the Revised Rules of Court seeking reversal of the Court of Appeals (Former Seventh Division) Resolution dated August 23, 2006.
- At issue: whether respondent was properly entitled to liquidated damages for delay, a 10% retention fee, and reimbursement for repainting expenses arising from a construction dispute.
- The Supreme Court partly granted the petition, modified the CA resolution, and rendered a new computation of the amounts due.
Parties
- Petitioner: BF Corporation — a Philippine corporation engaged in erecting buildings and other structures.
- Respondent: Werdenberg International Corporation — a Philippine corporation engaged in manufacture, distribution and retail of gourmet products.
- Procedural posture: RTC judgment for petitioner; CA modified and awarded respondent certain sums; Supreme Court reviewed facts where lower courts’ findings conflicted.
Contract and Key Provisions
- Construction Agreement between the parties for a three‑story building (meat processing plant and showroom/office) in Makati City with contract price Php 43,800,000.00 and completion/delivery date of April 7, 1995.
- Relevant contract clauses cited:
- Section 1 (Scope of Work): minutes of pre-bid conferences become binding terms.
- Section 3 (Time of Performance): period of completion automatically extended when works are suspended to comply with rules/orders of public authorities.
- Section 6: defective work to be removed/replaced at contractor’s expense.
- Section 14 (Final Payment): conditions for release of 10% retention fee.
- Section 15 (Guarantee): one (1) year guarantee for defects in workmanship and materials.
- Section 16 (Extra Work or Alteration): alterations/extra work require mutual written agreement; period of completion correspondingly extended.
- Contractual liquidated damages: Php 43,800.00 per day of delay.
Factual Background and Timeline (as alleged in pleadings and record)
- Excavation/demolition begun November 26, 1994; regular construction works began March 24, 1995 (113 days later).
- Petitioner turned over the building on August 15, 1995; respondent refused acceptance alleging multiple deficiencies.
- Respondent paid Php 38,088,445.00; petitioner claimed unpaid balance Php 4,771,221.59 plus Php 141,944.93 for change orders/extra works.
- Petitioner claimed multiple grounds for delay and requested extensions totaling 243 days but sought only 130 days; respondent granted 60 days and charged liquidated damages for remaining 70 days (Php 3,066,000.00).
- Respondent later engaged another contractor for repainting allegedly because petitioner’s corrective work failed; respondent claimed repainting expenses of Php 1,202,888.50 (later found by CA to be Php 1,050,000.00).
Petitioner’s Claims and Reliefs Sought
- Principal claim: sum of money for unpaid contract balance (Php 4,771,221.59).
- Additional claim: Php 141,944.93 for unpaid change orders/extra works.
- Prayer for declaration that respondent’s assessment of liquidated damages (Php 3,066,000.00) was without basis.
- Itemized causes of delay alleged by petitioner included:
- Removal of 2–3 layers of unforeseen concrete slabs (30–40 days).
- Extra soft soil requiring boulder fill (14 days).
- Boundary dispute with Sinclair Paints → suspension ordered by respondent (6 days).
- Delay in building permit issuance because respondent failed to secure required ECC → stop work order from City Building Office (31 days).
- Revision of building plan requiring verbal instructions (claimed 30 days).
- Additional works/change orders after April 7, 1995 that took 130 days (petitioner asked for 130 days, claimed aggregate entitlement of 243 days).
Respondent’s Defenses and Counterclaims
- Respondent alleged delays were due to petitioner’s fault: poor workmanship, defective or insufficient equipment, persistent inaction in addressing complaints.
- Contended petitioner had knowledge of subsurface conditions during pre-bid conference and site presence/soil testing.
- Argued petitioner was responsible for securing required permits.
- Maintained many change orders were linear activities that did not interrupt normal construction pace; respondent had already granted extensions totaling 60 days (initial 34 days then additional 26 days).
- Counterclaimed for liquidated damages and later sought reimbursement for repainting expenses and retention.
Trial Court (RTC) Ruling
- RTC ruled in favor of petitioner.
- RTC found petitioner’s enumerated causes of delay valid and concluded the 60‑day credit granted by respondent was insufficient.
- RTC awarded petitioner:
- Php 4,771,221.59 (unpaid balance of the contract price, inclusive of retention fee and net of electric/water billings).
- Php 141,944.93 (unpaid balance for change orders/extra works).
- Interest at 12% per annum on rectification works and change orders from filing until paid.
- Php 200,000.00 as attorney’s fees and costs of suit.
- RTC declared respondent’s deduction for liquidated damages baseless.
Court of Appeals (First Decision and Reconsideration)
- CA initially modified RTC decision and allowed respondent’s deduction for liquidated damages (Php 3,066,000.00), computing amount due to petitioner as Php 1,847,167.52, with 12% interest upon finality.
- On Motion for Reconsideration, CA again modified its computation:
- Recognized respondent entitled to repainting expenses: Php 1,050,000.00.
- Granted respondent’s claim for 10% retention fee.
- Final CA computation reduced amount due to petitioner to Php 717,450.75 after deducting liquidated damages, repainting expense, and 10% retention.
- CA credited certain petitioner extensions (35 days for removal of concrete slabs and 7 days for boundary dispute) but upheld respondent’s overall 60‑day extension grant and held petitioner liable for the 70‑day delay remaining (June 6 to August 15, 1995).
Issues on Review and Standard of Review
- Petitioner raised factual questions — Rule 45 generally does not entertain questions of fact.
- Exception: where factual findings of CA and trial court conflict or are contradictory — present in this case (RTC vs. CA divergent factual findings regarding causes and allocation of delay).
- Supreme Court reviewed credibility findings and evidence where lower courts’ findings conflicted and re‑w