Case Summary (G.R. No. 181426)
Trial Court & Initial Proceedings
The controversy began with a construction contract between BCWD and RDPCI for a water supply project. In a 1996 Financial Assistance Contract, LWUA provided BCWD with a loan to fund the project, designating LWUA as an "agent" of BCWD. Following competitive bidding, RDPCI was awarded the construction contract, which required LWUA's approval before any work could commence.
CIAC Proceedings
After claims for payment went unheeded, RDPCI filed a complaint with the Construction Industry Arbitration Commission (CIAC) against both LWUA and BCWD. The CIAC Tribunal ultimately ruled in favor of RDPCI, holding that both LWUA and BCWD were solidarily liable to pay RDPCI’s claims, totaling PHP 84,439,378.18.
Court of Appeals Ruling
LWUA appealed to the Court of Appeals, asserting that it was not liable under the construction contract since it was merely an agent of BCWD. The CA affirmed CIAC’s ruling, referencing LWUA’s substantial involvement in the project management which went beyond typical agency functions. The appellate court underscored that LWUA acted in a manner akin to a co-owner of the project.
Supreme Court Consideration
The main issues before the Supreme Court included:
- Whether LWUA is a party to the construction contract.
- If so, whether its liability is solidary with BCWD.
- The validity of the attorney’s fees and other costs awarded by CIAC.
The Supreme Court concluded that LWUA is indeed a party to both the construction contract and the financial assistance contract. The Court reasoned that LWUA’s actions during the contract's execution and its essential role in managing the project indicated a level of involvement that contradicted its claims of merely being an agent.
Solidarity of Obligations
LWUA’s contention that it could not be held solidarily liable was refuted by the Court. Relying on Article 1207 of the Civil Code, the Court clarified that solidary liability may arise from the nature of the obligation. This situation was substantiated by the intertwined relationship between the parties during the contract's execution. The intricate involvement of LWUA in financial transactions and project approvals necessitated its solidary liability.
Attorney's Fees and Costs of Suit
The decision also upheld
...continue readingCase Syllabus (G.R. No. 181426)
Background and Nature of the Case
- The case is a Petition for Review on Certiorari filed by the Local Water Utilities Administration (LWUA) under Rule 45, challenging the Court of Appeals' affirmation of the Construction Industry Arbitration Commission's (CIAC) Final Award.
- CIAC found LWUA solidarily liable with Butuan City Water District (BCWD) to pay R.D. Policarpio & Co., Inc. (RDPCI) monetary claims totaling PHP 84,439,378.18.
- Root of dispute is a construction contract for the Butuan City Water Supply System Comprehensive Improvement Program funded by LWUA through a loan obtained from Japan Bank for International Cooperation (JBIC).
Facts of the Case
- On July 26, 1996, LWUA and BCWD entered into a Financial Assistance Contract involving a loan of PHP 550,915,000.00 to implement the Project.
- Project funds sourced partly from Japan Overseas Economic Cooperation Fund.
- LWUA appointed Yoshito Sato as Acting Project Manager.
- LWUA authorized as agent of BCWD with extensive powers related to Project management including bid evaluation, contract award, inspection, and payment release.
- RDPCI was awarded the construction contract in 1998, which LWUA approved.
- Amendments to the Construction Contract and Supplemental Agreement were made, with LWUA's approval, including additional time and adjusted contract price.
- Construction halted temporarily in 1999, resumed in 2001.
- RDPCI claims it completed work as required but was not paid by BCWD despite demands.
- RDPCI filed arbitration complaint with CIAC against LWUA and BCWD for unpaid claims including works value, retention money, price escalation, and interest.
Proceedings Before the CIAC and Court of Appeals
- CIAC constituted Arbitral Tribunal; BCWD withdrew motion to dismiss.
- BCWD filed cross-claim against LWUA; LWUA failed to answer RDPCI's complaint but answered BCWD's cross-claim.
- CIAC Final Award on April 1, 2011, ordered LWUA and BCWD to pay RDPCI, holding LWUA solidarily liable for the debt.
- CIAC discussed Article 1207 of Civil Code and concluded solidarity arose from the nature of the obligation, despite absence of express contract or law imposing it.
- Court of Appeals affirmed CIAC's Final Award, agreeing that LWUA acted more like co-owner of the project than mere agent, given its extensive participation and control.