G.R. No. 200759 - FAJ Construction and Development Corp. vs. Saulog

Case Summary (G.R. No. 200759)

Contract Formation, Payments, and Work Stoppage

Construction commenced under the agreement. Respondent made a total payment of P10,592,194.80. Petitioner then submitted progress billing statements covering October 31 and November 6, 2000 in the total amount of P851,601.58. Respondent refused to pay those billings. Petitioner thereafter performed additional work but respondent again refused to pay, leading petitioner to terminate the construction contract under Article 27(b) of the Uniform General Conditions for Private Construction, based on respondent’s failure to pay approved requests for payment.

Petitioner sent demand letters to respondent on November 24, 2000 and September 28, 2001. Respondent replied by asserting that petitioner’s work was defective and that petitioner should instead be made liable for the defects. Petitioner then filed an action for collection of a sum of money with damages against respondent in the RTC.

Claims and Counterclaims in the RTC

In its Complaint in Civil Case No. Q-02-45865, petitioner alleged that it faithfully complied with the construction agreement but respondent refused to pay the outstanding balance of P851,601.58, prompting petitioner to stop construction. Petitioner prayed that respondent be ordered to pay P851,601.58 for the unpaid billings; P625,000.00 as retention; P50,000.00 for litigation expenses; 20% attorneys fees and appearance fees amounting to P170,000.00; and costs of suit.

Respondent, in her Answer with Compulsory Counterclaim, admitted paying petitioner according to the construction agreement but averred that petitioner’s work was defective and delayed. She claimed that petitioner failed to remedy the defects. She stated that rainwater seeped through the building, causing extensive damage to the unfinished work, and that she incurred substantial expenses to repair and complete the project. She sought actual damages of P3,213,575.91, lost rentals of P5,391,456.00, consequential damages of P1,600,000.00, additional costs of repair, P5,000,000.00 moral damages, P5,000,000.00 exemplary damages, P1,387,500.00 penalties for delay, attorneys’ fees and appearance fees, interest, and costs.

Dismissal for Failure to Prosecute and Subsequent Developments

After pre-trial, the case proceeded to trial. Petitioner presented its first witness on March 11, 2003, but testimony was not completed because petitioners counsel did not have the required documentary evidence. Petitioner sought a continuance. Despite multiple opportunities, petitioner failed to proceed. The trial court, upon respondent’s motion, dismissed the case for failure to prosecute after petitioners counsel and witness failed to appear at a scheduled hearing on April 29, 2003.

Petitioner filed an unverified motion for reconsideration claiming that counsel could not attend due to arthritis of the knee. The motion lacked an affidavit or certification explaining why the illness excused non-attendance. The trial court later granted reconsideration on June 23, 2003, recalled the dismissal, and set the case for further hearing on July 29, 2003. On that date, petitioner and counsel again did not appear, prompting another reset to September 4, 2003 with a warning that further postponement would not be tolerated. Petitioner again moved for postponement citing schedule conflict, but respondent opposed. On September 4, 2003, petitioner and counsel again failed to appear. The trial court then dismissed the case again for failure to prosecute, ordered that the direct testimony of petitioners witness be stricken off the record, and set the case for hearing on respondent’s counterclaim.

Petitioner filed motions for reconsideration of the September 4, 2003 dismissal. The trial court denied the first motion on December 16, 2003, and denied a second motion on January 14, 2004.

Certiorari Proceedings Before the CA and the Supreme Court’s Final Action

Petitioner sought relief through a petition for certiorari with the CA, assailing the trial courts December 16, 2003 and January 14, 2004 orders as issued with grave abuse of discretion. The CA, in CA-G.R. SP No. 82239, dismissed the petition and affirmed the trial court, finding petitioner adopted a pattern of delay and employed dilatory maneuvers, thereby abusing the trial court’s patience and impeding the administration of justice. The CA also ruled that the dismissal for failure to prosecute operated as an adjudication on the merits, that due process was not violated, and that the second motion for reconsideration was barred under Section 5, Rule 37 of the 1997 Rules of Civil Procedure.

Petitioner elevated the matter to the Supreme Court in G.R. No. 166336. The Supreme Court denied the petition on March 7, 2005 due to failure to submit a verified statement of material dates of filing and failure to show reversible error. The Court’s subsequent resolutions denied reconsideration and en banc referral, and an Entry of Judgment was issued on January 17, 2006, stating the finality and executory nature of the March 7, 2005 resolution.

Evidence and Findings on Respondent’s Counterclaim

With the complaint dismissed, respondent proceeded to present evidence on her counterclaim. The CA summarized that respondent’s evidence included the testimony of Rhodora Calinawan, the architect who inspected the project first in September 2000 and again in November 2000, after typhoon Seniang. Calinawan testified on defects, and identified photographs and documentary submissions as proofs of substandard work. The defects included flooring problems, misalignment of electrical outlets and switches, stained flooring, incorrect cement used to fill gaps, the need to repair door jambs, sloppily done grouting, issues with doors, bubbles in varnishing, uneven or unaligned parquet flooring, defects in shower termination and enclosure, dirty window sill, lack of screws and rubber on windows, damaged roof panels, needs for plashing and installation of drift edges, and improper installation of asphalt shingles on the roof. After typhoon Seniang, she also reported additional defects attributed to inadequate sealing and protection of windows.

Respondent testified on February 15, 2005. She stated that she had paid petitioner P10,592,194.80, yet refused to pay the remaining P851,601.58 due to abandonment and unfinished work. She described additional costs she incurred to rectify and complete the project, totaling P3,820,796.21, and presented a detailed breakdown of items chargeable to petitioner. She also testified to a penalty for delay of P12,500.00 per day, and computed penalties from July 30, 2000 up to November 17, 2000 in the total amount of P1,387,500.00. She claimed further damages for physical consequences she associated with the dispute and presented receipts for acupuncture services. She claimed moral damages of P5,000,000.00, as well as various reimbursement and expenses for professional help to put records in order.

The RTC Decision on Counterclaim

On January 30, 2006, the RTC rendered its decision. It held that respondent proved, among others, that petitioner’s work was delayed, defective, and abandoned while incomplete and riddled with defects. It also found that respondent paid petitioner the total amount of P10,592,194.80 before abandonment. The RTC declared that respondent had to finish and rectify the abandoned work at substantial additional expense, supported by documentary evidence and respondent’s testimony.

The RTC awarded moral damages in an amount reduced from respondent’s claim, holding that moral damages were allowable under Article 2220 of the New Civil Code for breach of contract involving fraud or bad faith. It also awarded exemplary damages in a moderated amount, citing Article 2229, and it granted attorneys fees, relying on Article 2208, while also awarding the penalties for delay based on the parties’ agreement. The RTC rejected the request for additional consequential damages of P1,600,000.00 for lack of sufficient support. It also granted lost rentals of P5,391,456.00, finding respondent’s evidence credible and plausible.

The RTC ordered petitioner to pay respondent: P3,213,575.91 as actual damages; P5,391,456.00 as lost rentals; P500,000.00 moral damages; P500,000.00 exemplary damages; P1,387,500.00 penalties for delay; attorneys fees of P20,000.00 plus an appearance fee of P4,000.00 per appearance, and 6% interest commencing from the filing of the complaint on January 2, 2002, until full satisfaction. It dismissed the consequential damages claim of P1,600,000.00.

Appeal to the CA and Modification of Damages

Petitioner appealed to the CA, docketed as CA-G.R. CV No. 88385, arguing that it should not be liable for the awarded amounts and that the complaint dismissal should not have been imposed due to counsel’s negligence. The CA affirmed the trial court’s dismissal but affirmed with modification the damages awards.

The CA ruled that further arguments on the dismissal were barred by res judicata, referring to the prior Supreme Court denial in G.R. No. 166336 and the CA’s earlier determinations. It further applied the rule that mistake or negligence of counsel generally binds the client, while noting that courts intervene only in cases of gross or palpable negligence.

On actual damages and delay, the CA sustained the findings of defective workmanship under Article 1715 of the Civil Code, holding that the defects were amply proven through Calinawan’s testimony and documentary evidence. The CA also sustained the penalty for delay, ruling that petitioner incurred delay and that the penalty in the contract should be enforced when no further extensions were agreed upon after petitioner’s abandonment.

However, the CA modified the awards. It deleted moral damages, holding that the trial court’s basis was too shallow and lacked evidence showing the claimed ailments were directly caused by delayed construction. The CA also vacated exemplary damages as a consequence. Regarding lost rentals,

Case Syllabus (G.R. No. 200759)

FAJ Construction & Development Corporation (petitioner) filed a Petition for Review on Certiorari to set aside the Court of Appeals (CA) November 29, 2011 Decision and February 24, 2012 Resolution in CA-G.R. CV No. 88385.
The CA decision affirmed with modification the Regional Trial Court (RTC) January 30, 2006 Decision and denied petitioner’s Partial Motion for Reconsideration.
The underlying RTC case was Civil Case No. Q-02-45865 in RTC of Quezon City, Branch 220, initiated as a suit for collection of money by petitioner against Susan M. Saulog (respondent).

Contract and Unpaid Progress Billings

Petitioner and respondent entered into an Agreement for the construction of a residential building in San Lorenzo Village, Makati City for a contract price of P12,500,000.00.
Payment to petitioner was to be made on a progress billing basis, subject to inspection of the work by respondent.
Respondent made a total payment to petitioner of P10,592,194.80, leaving an outstanding billing of P851,601.58.
Petitioner sent progress billing statements totaling P851,601.58 for October 31 and November 6, 2000, but respondent refused payment.
After further work, petitioner again sought payment, and respondent continued to refuse.
Petitioner then terminated the construction contract upon notice pursuant to Article 27(b) of the Uniform General Conditions of Contract for Private Construction (Document 102), and sent demand letters on November 24, 2000 and September 28, 2001.

Competing Claims in Trial Court

Petitioner sued for collection of P851,601.58 representing unpaid billings, plus retention, litigation expenses, attorneys fees and appearance fees, and costs of suit.
Respondent asserted that petitioner’s work was defective and delayed, that petitioner failed to remedy the defects, and that rainwater seeped through and caused damage to the unfinished building.
Respondent alleged she incurred substantial expenses to repair and complete the construction.
In her Answer with Compulsory Counterclaim, respondent sought actual damages of P3,213,575.91, lost rentals of P5,391,456.00, additional consequential damages, and large claims for moral and exemplary damages, plus penalties for delay, attorneys fees, interest, and costs of suit.

Failure to Prosecute by Plaintiff

After pre-trial, the RTC set the case for trial, and petitioner presented its first witness on March 11, 2003.
Petitioner’s witness testimony was not concluded because petitioner’s counsel lacked required documentary evidence.
Petitioner moved for continuance, and the RTC granted it through multiple opportunities.
Petitioner later failed to proceed with trial despite the RTC’s allowances and counsel’s repeated postponement requests.
The RTC dismissed the complaint for failure to prosecute after petitioner’s counsel and witness did not appear on the scheduled April 29, 2003 hearing.
Petitioner filed an unverified motion for reconsideration alleging counsel’s knee arthritis, but the motion lacked an accompanying affidavit or certification showing that the illness rendered non-attendance excusable.
The RTC recalled the April 29, 2003 dismissal and reset the case for July 29, 2003, but petitioner and counsel again failed to appear.
The RTC warned that further postponement would not be tolerated, reset to September 4, 2003, and nevertheless dismissed again upon petitioner’s non-appearance.
The RTC ordered the striking off of petitioner’s witness direct testimony from the record and set the matter for hearing on respondent’s counterclaim.

Earlier CA Resolution and Res Judicata Issue

Petitioner sought certiorari before the CA, questioning the RTC’s December 16, 2003 and January 14, 2004 orders which had denied relief from the dismissals and related procedural rulings.
The CA in CA-G.R. SP No. 82239 dismissed petitioner’s certiorari petition on September 30, 2004, finding a pattern of delay and dilatory maneuvers by petitioner, and holding the RTC correctly dismissed the complaint for failure to prosecute.
The CA held that dismissal operated as an adjudication on the merits, that petitioner’s due process was not violated, and that the second motion for reconsideration was barred under Section 5, Rule 37 of the 1997 Rules of Civil Procedure.
Petitioner then filed a petition for review on certiorari with the Supreme Court docketed as G.R. No. 166336.
The Supreme Court denied the petition by March 7, 2005 Resolution for failure to submit a verified statement of material date of filing the motion for reconsideration and for failure to show reversible error.
Subsequent Supreme Court resolutions denied petitioner’s motions on similar grounds, and an Entry of Judgment was issued on January 17, 2006, stating that the March 7, 2005 resolution became final and executory.

RTC Findings on Counterclaim Damages

The RTC allowed respondent to present her evidence on the counterclaim.
Respondent’s evidence included testimony from architect Rhodora Calinawan, who performed inspections in September 2000 and again in November 2000 after typhoon Seniang.
Calinawan identified substandard work through photographs and a list of defects that included sloppily done flooring, misaligned electrical outlets, paint-stained flooring, incorrect colored cement, door jamb repair needs, sloppy grouting, incorrect doors, varnishing bubbles, unaligned parquet flooring, poor termination of shower, dirty window sill, missing screws and rubber on windows, damaged roof panels, and improper roof shingle installation.
After the typhoon, Calinawan found additional defects related to wet flooring caused by improperly sealed windows lacking sealant and rubber protection.
Respondent testified that despite paying P10,592,194.80, petitioner collected advance payments but left extensive unfinished work and abandoned the project.
Respondent refused to pay the outstanding balance, and presented a counter-demand tied to rectification costs and lost rental expectations, along with claims for delay, moral damages, and litigation-related reimbursements.
The RTC found respondent had proven defective and delayed construction and that petitioner abandoned the work incomplete and with many defects.
The RTC found that respo