Case Summary (G.R. No. L-3546)
Petitioners and Respondents
G.R. No. 154885: Diesel Construction Co., Inc. petitions to set aside the Court of Appeals’ modification of the CIAC award.
G.R. No. 154937: UPSI Property Holdings, Inc. petitions to reverse portions of the same appellate ruling.
Key Dates
• August 26, 1995: Contract executed
• August 21, 1999–November 20, 1999: Scheduled project period
• December 14, 2001: CIAC decision
• April 16, 2002: Court of Appeals decision
• August 21, 2002: Court of Appeals resolution on motions for reconsideration
• March 24, 2008: Supreme Court decision
Applicable Law
• 1987 Philippine Constitution (decision after 1990)
• 1987 Civil Code, Arts. 1234 (substantial performance) and 2208(5) (attorney’s fees for defendant’s bad faith)
• Uniform General Conditions of Contract for Private Construction (CIAC Document 102)
• Construction Agreement provisions on liquidated damages, excusable delays, and change orders
Contract and Delay Provisions
Contract price: PhP 12,739,099, payable by progress billing. Diesel posted a performance bond through FGU. The contract fixed a 90-day completion period (August 21–November 20, 1999) and stipulated liquidated damages equal to 0.2% of total cost per calendar day of unjustifiable delay. Excusable delays included acts of God, government acts, owner-initiated delays, and other unforeseeable events; all other delays were non-excusable.
Project Implementation and Disputes
Diesel encountered delays due to manual hauling of materials, marble supply, change orders, and shower installation. UPSI disapproved extension requests and withheld progress payments, deducting liquidated damages. Diesel declared project completion on March 16, 2000; UPSI refused acceptance, retained 10% retention, and withheld the unpaid balance.
CIAC Decision
In CIAC Case No. 18-2001, the Arbitral Tribunal found Diesel had substantially performed, awarded Diesel PhP 3,661,692.60 (unpaid balance) plus PhP 366,169 (attorney’s fees), dismissed UPSI’s counterclaim, and assessed UPSI for arbitration costs (PhP 298,406.03). No liquidated damages were imposed.
Court of Appeals Decision
The Court of Appeals granted UPSI PhP 1,309,500 in liquidated damages (45 days at PhP 29,100/day), awarded Diesel PhP 2,441,482.64 (unpaid balance minus damages), denied all attorney’s fees, equally apportioned arbitration costs, and discharged FGU as surety. On reconsideration, it reduced liquidated damages to PhP 1,146,519 and restored Diesel’s award to PhP 2,515,173.64.
Issues on Review
- Whether the Court of Appeals erred in reviewing and overturning the CIAC’s fact-finding.
- Whether the appellate court improperly substituted its own factual conclusions regarding delay, extensions, and liquidated damages.
- Whether denial of attorney’s fees and allocation of arbitration costs was warranted.
- Whether UPSI’s claim for additional completion expenses and abandonment was supported by evidence.
Authority to Review CIAC’s Findings
The Supreme Court affirmed that, under Rule 45 and administrative-law precedents, the Court of Appeals may review fact-findings of a specialized tribunal when substantial-evidence support is challenged. The presumption of CIAC panel competence stands, but the appellate court may examine evidentiary sufficiency without regard to panel members’ credentials.
Assessment of Delay and Liquidated Damages
The manual hauling delay was foreseeable and not excusable. The Court of Appeals correctly excluded that 14-day extension but erred by failing to account for owner-approved change orders, which extended completion to April 7, 2000. Diesel’s request for extensions due to project-site constraints did not justify liquidated-damages deductions.
Change Orders and Substantial Completion
UPSI issued Change Orders Nos. 1–4 in February–March 2000, each extending the completion date. Progress Report No. 19 (March 22, 2000) showed 97.56% work accomplished. Under Civil Code Art. 1234 and CIAC Document 102, substantial completion precludes further liquidated damages and entitles full payment less actual damages.
Attorney’s Fees and Arbitration Costs
UPSI acted in gross and evident bad faith by
Case Syllabus (G.R. No. L-3546)
Facts of the Contract and Project
- On August 26, 1995, Diesel Construction Co., Inc. (Contractor) and UPSI Property Holdings, Inc. (Owner) executed a Construction Agreement for interior architectural works on the 14th–16th floors of UPSI Building 3 Meditel/Condotel Project in Ermita, Manila.
- Contract price, as amended, was PhP 12,739,099, payable by progress billing; Diesel posted a performance bond through FGU Insurance Corp.
- Project oversight: Grace S. Reyes Designs, Inc. (interior design/architecture), D.L. Varias & Associates (construction manager), Ryder Hunt Loacor, Inc. (quantity surveyor).
- Original prosecution period: August 2 – November 8, 1999 (90 days); parties moved start to August 21 and completion to November 20, 1999.
- Agreement provided liquidated damages of 0.2% of total project cost per day for unjustifiable delay; set rules on change orders, excusable delays, extensions, and negative slippage damages.
Delay Events and Employer’s Deductions
- Diesel sought time extensions for: manual hauling of materials (no hoist), delayed marble delivery, multiple change/extra work orders, and delay in shower assembly installation.
- UPSI disapproved several extension requests, deemed delays unjustifiable, and imposed liquidated damages via deductions from Diesel’s progress payments.
- On March 16, 2000, Diesel’s project manager notified UPSI of project completion; UPSI refused acceptance and withheld 10% retention plus unpaid balance, alleging abandonment and unfinished work.
CIAC Arbitration Proceedings
- Diesel filed before the Construction Industry Arbitration Commission (CIAC) for unpaid balance, plus damages and attorney’s fees; UPSI counterclaimed for completion expenses and validated liquidated damages.
- After hearings, the Arbitral Tribunal (December 14, 2001) awarded Diesel PhP 4,027,861.60 (PhP 3,661,692.60 unpaid balance; PhP 366,169 attorney’s fees), dismissed UPSI’s counterclaim, and taxed UPSI with PhP 298,406.03 arbitration costs.
Court of Appeals Decision and Resolution
- UPSI petitioned the Court of Appeals (CA). On April 16, 2002, CA modified CIAC award:
- Granted UPSI liquidated damages of PhP 1,309