Case Summary (G.R. No. 229262)
Factual Background
H. S. Pow Construction and Development Corp. is a construction corporation engaged by Shaughnessy Development Corporation pursuant to a written Construction Contract to perform subdivision concrete roads, underground drainage, water distribution, and an elevated water reservoir for the Summerfield Subdivision in Taytay, Rizal, for the contract sum of P10,500,000.00. Work commenced May 21, 2002, with a contractual completion period of 180 days and no escalation clause. During performance, HSPCDC undertook variation and rework items and, at the owner’s instruction, constructed three duplex units that were not part of the original scope.
Contractual Scope and Performance
The Contract expressly described the scope as including “PROPOSED CONSTRUCTION OF SUBDIVISION CONCRETE ROADS, UNDERGROUND RCP DRAINAGE SYSTEM, WATER DISTRIBUTION AND ELEVATED STEEL WATER RESERVOIR,” and obligated the contractor to “fully and faithfully perform all labor, furnish all tools, plants, equipment, all materials supervision and all incidental related to the work package being contracted and will do all things necessary for the proper construction and completion of all work shown and described in the Contract Document.” HSPCDC reported substantial completion of the road network by March 3, 2003, and submitted progress billings, but later complained of nonpayment and presented a Summary of Account asserting a principal balance due of P2,122,704.55 comprising the main contract balance, the three duplex houses, and variation orders.
Pleadings and Counterclaims
HSPCDC filed suit for sum of money to collect P2,122,704.55, interest, attorney’s fees, litigation expenses, and exemplary damages. SDC denied liability and counterclaimed for damages and expenses allegedly incurred due to HSPCDC’s delay and abandonment, alleging unfinished well-drilling and elevated water tank works, failure to build basketball court and sidewalks shown in the plans, and failure to issue a performance bond. SDC sought P50,000.00 for completion expenses, P728,067.80 as actual damages and penalties, P200,000.00 exemplary damages, and P100,000.00 litigation costs.
Trial Court Proceedings and Decision
After trial, the RTC rendered judgment in favor of HSPCDC. The RTC ordered SDC to pay HSPCDC P44,270.94 as the amount due on the main contract, P552,829.75 for variation works, and P488,290.00 for the duplex buildings, plus ten percent attorney’s fees and costs, with interest at 12% per annum from finality. The RTC found that HSPCDC did not incur delay, attributed delay allegations to the owner’s changes and other events, and held HSPCDC liable for the variation works and duplex houses while addressing SDC’s claims for expenses in completing unfinished items.
Appeals and Positions of the Parties
Both parties appealed to the Court of Appeals. HSPCDC contended that the RTC erred in limiting recovery under the main contract and sought correction of amounts awarded. SDC argued the RTC erred in finding it liable for variation orders, in failing to find HSPCDC delayed and abandoned work, in not accounting for work included in the signed plans, and in awarding attorney’s fees not pleaded. On appeal, SDC sought damages for work it completed after HSPCDC’s alleged abandonment, including well-drilling and the elevated steel water tank, and liquidated damages for delay.
Court of Appeals Ruling
The Court of Appeals reversed and set aside the RTC decisions and rendered a new judgment ordering mutual payments. The CA awarded HSPCDC P1,581,584.80 balance under the contract and P488,290.00 for the duplex houses, and ordered HSPCDC to pay SDC P362,781.72 for well-drilling, P359,503.80 for the elevated steel water tank, and P1,050,000.00 for delay, directing offsetting pursuant to Art. 1278, Civil Code and applying six percent interest per annum from finality. The CA reasoned that many of HSPCDC’s exhibits were excluded by the trial court and that the admitted evidence and admissions warranted the CA’s award on the well and tank; it also concluded that HSPCDC breached the contractual completion term and thus was liable for liquidated damages up to the contract ceiling.
Issues Presented to the Supreme Court
HSPCDC petitioned for certiorari under Rule 45, challenging the CA’s orders that it pay SDC P362,781.72 for well-drilling, P359,503.80 for the elevated water steel tank, and P1,050,000.00 for delay. HSPCDC argued lack of liability for the well and tank because SDC allegedly failed to secure necessary permits and because disbursement proof was lacking; it also argued that owner-caused changes excused the alleged delay. SDC responded that the issues are factual and not cognizable by the Supreme Court and complained that the CA awarded more than what HSPCDC prayed for.
Standard of Review and Applicable Exceptions
The Supreme Court recalled that under Rule 45 it generally resolves questions of law and may review factual findings only under recognized exceptions, such as findings based on conjecture, manifestly mistaken inferences, misapprehension of facts, findings contrary to admissions, or where the appellate court overlooked undisputed material facts. The Court emphasized that a question of law exists where resolution depends solely on legal rules without reviewing the probative value of evidence; issues necessitating reexamination of evidence are factual.
Supreme Court’s Analysis on Well-Drilling and Elevated Tank
The Supreme Court affirmed the RTC and CA findings that HSPCDC was liable for the well-drilling and the elevated water steel tank. The Court observed that HSPCDC admitted incomplete well-drilling because the owner did not secure the NWRB permit and that the Contract placed responsibility for the water distribution and elevated steel reservoir on the contractor. The RTC had compared the cost estimates and the actual amounts SDC spent to complete the works by others and determined the amount HSPCDC owed; the CA found sufficient evidence to uphold these conclusions. Applying Art. 1167, Civil Code, the Court held that a contractor who fails to do what it is obliged to do must bear the cost of completion, and that HSPCDC’s reasons did not excuse nonperformance given the contractual undertaking to perform all work shown and described in the Contract Document. Because the factual findings of the l
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Case Syllabus (G.R. No. 229262)
Parties and Procedural Posture
- H. S. Pow Construction and Development Corporation filed the petition under Rule 45, Rules of Court seeking review of the Court of Appeals decision in CA-G.R. CV No. 98277.
- Shaughnessy Development Corporation was respondent in the petition and appellee below.
- The Regional Trial Court, Branch 223, Quezon City rendered a Decision dated October 29, 2010 and an Order dated November 18, 2011 in Civil Case No. Q-05-55081, both of which were appealed to the Court of Appeals.
- The Court of Appeals reversed the RTC by Decision dated August 16, 2016 and denied reconsideration by Resolution dated January 11, 2017.
- The Supreme Court rendered the present Decision partially granting the petition and modifying the CA Decision on July 7, 2021.
Key Factual Allegations
- HSPCDC alleged that it was engaged by SDC in September 2001 to construct subdivision concrete roads, underground drainage, water distribution, and an elevated water reservoir for the Summerfield Subdivision for P10,500,000 under a written Construction Contract.
- HSPCDC completed most roadworks between May 21, 2002 and March 3, 2003 and submitted progress billings, including a billing for P766,556.46 for work accomplished to March 3, 2003.
- HSPCDC alleged additional variation orders costing P552,829.75 and extra works consisting of three duplex units instructed by SDC president Timothy Ang.
- SDC allegedly failed and refused to pay the amounts claimed by HSPCDC, prompting HSPCDC to send demand letters and finally to file a Complaint on April 4, 2005 for P2,122,704.55 plus interest, attorneys’ fees, litigation expenses, and exemplary damages.
- SDC denied liability, counterclaimed for damages and expenses for alleged abandonment, defective work, and asserted that certain works were included in the original contract.
Contract Terms
- The Construction Contract provided a lump-sum price of P10,500,000 with no escalation clause and specified completion within 180 days from notice to proceed.
- The Contract expressly described the scope as including "proposed construction of subdivision concrete roads, underground RCP drainage system, water distribution and elevated steel water reservoir" and required the contractor to "fully and faithfully perform all labor, furnish all tools, plants, equipment, all materials supervision and all incidental related to the work package."
- The Contract contained a liquidated damages provision for delay and a ceiling on penalties not to exceed ten percent of the contract price.
Trial Court Decision
- The RTC rendered judgment in favor of HSPCDC on October 29, 2010 and awarded P44,270.94 as amount due on the main contract, P552,829.75 as variation works, P488,290.00 for duplex buildings, and ten percent attorneys’ fees, with 12% interest from finality of judgment.
- The RTC found HSPCDC not liable for delay because the delay was reasonably attributable to variation orders and owner instructions and because SDC failed to prove causation of delay by HSPCDC.
- The RTC also found HSPCDC liable to SDC for P722,285.52 as the cost incurred by SDC in engaging others to finish the well-drilling and elevated water tank.
Court of Appeals Decision
- The Court of Appeals reversed the RTC by Decision dated August 16, 2016 and ordered mutual payments: SDC to pay HSPCDC P1,581,584.80 (balance under contract) and P488,290.00 (duplex houses), and HSPCDC to pay SDC P362,781.72 (well-drilling), P359,503.80 (elevated water steel tank), and P1,050,000.00 (delay).
- The CA held that many of HSPCDC’s documentary exhibits were inadmissible photocopies and that the RTC erred in appreciating excluded evidence.
- The CA found no written authorization for variation orders and therefore denied HSPCDC’s claim for additional work, and it deleted the RTC award of attorneys’ fees for lack of pleaded bad faith.
- The CA applied Art. 1278 of the Civil Code to order offsetting of mutual liabilities and imposed six percent interest from finality.
Issues Presented
- Whether the Court of Appeals erred in directing HSPCDC to pay SDC P362,781.72 for well-drilling and P359,503.80 for the elevated water steel tank.
- Whether the Court of Appeals erred in holding HSPCDC liable to pay SDC P1,050,000.00 as liquidated damages for delay.
Parties' Contentions
- HSPCDC contended that SDC failed to secure the NWRB perm