Case Summary (G.R. No. 194507)
Factual Background
FSI entered into a subcontract agreement with FBI to construct the diaphragm wall, capping beam, and guide walls of the Trafalgar Plaza for a contract price of P7,400,000.00, with a twenty percent downpayment and progress billings every fifteen days payable within one week of presentation. FSI alleged it completed ninety‑seven percent of the work but that FBI refused payment of Billings Nos. 3 and 4 totaling P1,635,278.91. FBI countered that FSI completed only eighty‑five percent, performed defective and out‑of‑specification work, abandoned the site, and that FBI incurred remedial costs for defects.
Trial Court Proceedings and Ruling
FSI filed a complaint for sum of money and FBI answered with counterclaims. After trial the RTC found in favor of FSI and ordered FBI to pay P1,024,600.00 representing Billings 3 and 4 less P33,354.40, plus twelve percent legal interest from August 30, 1991; awarded P279,585.00 for undelivered cement; and granted P200,000.00 as attorneys’ fees, while denying FBI’s counterclaim for lack of basis.
Court of Appeals Proceedings and Ruling
On appeal the CA affirmed the RTC but deleted the P279,585.00 award for undelivered cement for lack of substantiation and reduced attorneys’ fees to P50,000.00 as excessive. The CA sustained the RTC’s imposition of twelve percent interest on the money judgment, citing the principle that where no interest rate is stipulated the legal rate applies pursuant to Article 2209 and relevant jurisprudence.
Petitions to the Supreme Court
Both parties filed separate petitions for review under Rule 45, Rules of Court. FSI’s petition in G.R. No. 194621 was dismissed as tardy by resolution dated February 21, 2011. FBI’s petition in G.R. No. 194507 remained for decision and raised three assignments of error challenging the award of Billings 3 and 4, the imposition of twelve percent interest, and the denial of FBI’s counterclaim for alleged remedial costs.
Issues Presented
The primary issues were whether the lower courts erred in ordering FBI to pay the balance for Billings 3 and 4; whether the twelve percent legal interest was properly imposed from August 30, 1991; and whether the RTC erred in denying FBI’s counterclaim for P8,582,756.29 representing remedial expenses.
Parties' Contentions
FSI contended that deletion of the undelivered cement award and reduction of attorneys’ fees were erroneous because FBI failed to deliver the agreed quantity of cement and the attorneys’ fees award was justified. FBI contended that the work was defective, that it had to redo the diaphragm wall at its expense, that the imposition of twelve percent interest was inappropriate because the contract did not involve a loan or forbearance of money, and that its counterclaim for substantial remedial costs had been wrongly dismissed.
Supreme Court's Review of Factual Findings
The Court affirmed the factual findings of the RTC as upheld by the CA, applying the high degree of respect due to trial court findings when supported by the record and not falling under recognized exceptions. The Court reviewed documentary and testimonial evidence and concluded that FSI completed ninety‑seven percent of the work, that the remaining omissions and alleged defects were attributable largely to FBI’s own failures such as non‑delivery of cement and site excavation issues, and that FBI had paid approximately P6,000,000.00 without objection to the then perceived accomplishments of FSI. The Court therefore found no basis to disturb the lower courts’ conclusion that FBI’s refusal to pay was unjustified and that FBI’s counterclaim for remedial costs lacked sufficient proof.
Supreme Court's Analysis on the Proper Rate and Commencement of Interest
The Court found merit in FBI’s contention regarding the interest rate. It revisited the Court’s guidance in Eastern Shipping Lines, Inc. v. Court of Appeals and the subsequent modification in Nacar v. Gallery Frames, noting that when the obligation breached does not constitute a loan or a forbearance of money the award of interest is discretionary and ordinarily at the rate of six percent per annum. The Court clarified the meaning of «forbearance» as a contractual acquiescence to the temporary use of money, goods, or credit, and distinguished such arrangements from contracts for performance of services like construction.
Application of Precedent and Governing Rules
Relying on the settled doctrine that construction contracts are contracts of service and not loans or forbea
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Case Syllabus (G.R. No. 194507)
Parties and Posture
- Federal Builders, Inc. (FBI) filed a petition for review on certiorari under Rule 45 assailing the Court of Appeals decision in CA-G.R. CV No. 70849.
- Foundation Specialists, Inc. (FSI) filed a separate petition for review on certiorari which this Court dismissed for late filing by Resolution dated February 21, 2011.
- The cases arose from Civil Case No. 92-075 before the Regional Trial Court of Makati City where FSI sued for unpaid billings and FBI counterclaimed for damages for alleged defective work.
- The Supreme Court resolved the consolidated petitions by Decision rendered September 8, 2014 and entered September 12, 2014.
Key Factual Allegations
- Federal Builders, Inc. engaged Foundation Specialists, Inc. on August 20, 1990 to construct the diaphragm wall, capping beam, and guide walls for Trafalgar Plaza for a contract price of P7,400,000.
- The contract provided for a twenty percent downpayment and progress billings every fifteen days payable within one week of presentation.
- FSI completed what it claimed was ninety-seven percent of the works and presented Billings Nos. 3 and 4 which remained unpaid.
- FBI contended that FSI completed only eighty-five percent of the work, that the diaphragm wall was defective and out of specifications, and that FSI abandoned the jobsite.
- FSI alleged repeated failures by FBI to deliver the agreed cement quantity, which obstructed completion of certain items such as the capping beam and steel props.
Trial Court Ruling
- The RTC rendered judgment on May 3, 2001 ordering FBI to pay FSI P1,024,600.00 representing Billings 3 and 4 less P33,354.40 plus legal interest at twelve percent per annum from August 30, 1991.
- The RTC awarded FSI P279,585.00 for the cost of undelivered cement, P200,000.00 as attorneys' fees, and costs of suit.
- The RTC denied FBI's counterclaim for lack of factual and legal basis after finding FSI substantially performed and that purported defects were attributable to FBI's acts.
Court of Appeals Ruling
- The Court of Appeals affirmed the RTC decision but deleted the P279,585.00 award for undelivered cement for lack of substantiation by receipts.
- The Court of Appeals reduced attorneys' fees from P200,000.00 to P50,000.00 as excessive and confirmed the imposition of twelve percent legal interest from August 30, 1991.
Issues Presented
- Whether the trial court and the Court of Appeals erred in ordering FBI to pay P1,024,600.00 for Billings 3 and 4 notwithstanding alleged defective works.
- Whether legal interest at twelve percent per annum should have been imposed on the adjudged sum given the absence of a stipulation and the nature of the obligation.
- Whether the RTC erred in dismissing FBI's counterclaim for alleged remedial and consequential damages totaling P8,582,756.29.
Supreme Court Holdings
- The petition filed by Federal Builders, Inc. was denied in part and the Court of Appeals decision