Case Summary (G.R. No. 212058)
Factual Background
In May 2002, Star Electric Corporation entered into a Construction Contract with R & G Construction Development and Trading, Inc. to perform electrical, plumbing, and mechanical works for the Grami Empire Hotel for P2,571,457.21, payable by progress billing. Respondent paid petitioner a downpayment of P500,000 and an advance payment of P80,000. Petitioner issued progress billings in August and September 2002, and on September 20, 2002 it informed respondent that it would stop work until outstanding progress billings were paid, while reserving its right to terminate and claim payment. The next day respondent terminated the contract, alleging defective materials and improper installations and asserting that the downpayment had already compensated petitioner for about 23.13% completion.
Pleadings and Claims
Petitioner filed a complaint on April 4, 2003 seeking P1,235,052.70, representing four progress billings and a change order. Petitioner later filed an amended complaint reducing its claim to P771,152.48 by offsetting the downpayment and adding P116,100 for tools allegedly withheld. Petitioner later sought to include a final billing dated November 3, 2002 for P498,581.35 and filed a second amended complaint for P1,269,734.05, explaining the omission as a misplacement. Respondent counterclaimed for reimbursement of expenses it incurred in hiring CP Giron Enterprises and PTL Power Corporation for remedial works, alleging charges of P558,730 and P161,810 respectively.
Trial Court Proceedings and Judgment
The Regional Trial Court found for Star Electric Corporation and ordered R & G Construction Development and Trading, Inc. to pay P1,153,634.09 representing unpaid progress billings, with legal interest from demand, plus attorney’s fees and costs of suit. The RTC rejected respondent’s allegations of defective workmanship as self-serving and concluded that petitioner substantially performed the contract; the court also found respondent could not profit from an alleged delay when it had allowed work to continue and caused numerous changes in the project.
Court of Appeals Decision
The Court of Appeals reversed and set aside the RTC decision and dismissed petitioner’s complaint, awarding respondent P540,009.75 as liquidated damages. The CA found that petitioner’s works were defective and that respondent had been compelled to engage other contractors to remedy the defects. The CA also concluded that respondent itself breached by hiring third parties without giving petitioner an opportunity to rectify, and it invoked Art. 1192 to equitably temper liability and to treat the parties as bearing their own losses, while separately assessing liquidated damages for petitioner’s delay under the contract’s formula.
Issue Presented on Review
The principal issue presented to the Supreme Court was whether the Court of Appeals erred in reversing the RTC decision and in ordering petitioner to pay respondent liquidated damages for alleged delay in construction.
Standard of Review and Exceptions Employed
The Court acknowledged the general Rule 45 limitation that the Supreme Court ordinarily resolves questions of law and not questions of fact, but it noted recognized exceptions permitting review of factual findings, including when the findings are contrary to the trial court or when the CA manifestly overlooked undisputed facts. The Court invoked those exceptions, as the CA’s findings conflicted with the RTC and overlooked material undisputed facts.
Evaluation of Respondent’s Proof of Defective Workmanship
The Supreme Court found that respondent failed to prove petitioner’s defective workmanship and use of substandard materials by a preponderance of evidence. Respondent relied on internal memos and its termination letter, but did not deny that it inspected the panel boards at petitioner’s workshop on September 4, 2002 and even insisted on their inclusion in a progress billing. Respondent did not show that it returned or rejected materials on delivery, and it did not identify specifically the defective works allegedly remedied by CP Giron and PTL. The contracts and invoices offered by respondent were not properly authenticated under Section 20, Rule 132, Revised Rules of Court, and the witness offered to authenticate them disclaimed participation in their execution. The Court concluded that respondent’s allegations were bare assertions unsupported by cogent evidence.
Causation of Delay and Project Modifications
The Supreme Court concluded that, although the work extended beyond the originally agreed three-month period, the delay was attributable to respondent’s actions and to changes in the project plans. The parties had negotiated on a four-storey plan, the City Engineer’s approved plan included a fifth floor, and respondent later caused revisions by adding a sixth floor and altering building dimensions, thereby necessitating architectural and sewerage changes and requiring petitioner to change material lengths and relocate electrical and plumbing components. The City Building Official’s Inspection Report corroborated conversions and alterations and the subsequent revocation of the building permit. Because respondent contributed materially to the delay and because no evidence established the separate completion rate of petitioner’s electrical and plumbing works, the CA’s assessment of liquidated damages against petitioner lacked a factual basis.
Misapplication of Art. 1192 and the Finding of Mutual Breach
The Court held that the CA misapplied Art. 1192, Civil Code in treating th
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Case Syllabus (G.R. No. 212058)
Parties and Procedural Posture
- Star Electric Corporation filed a complaint for collection of sum of money against R & G Construction Development and Trading, Inc. before the Regional Trial Court of Paranaque City, Branch 196.
- The RTC rendered judgment in favor of Star Electric Corporation ordering R & G Construction Development and Trading, Inc. to pay P1,153,634.09 plus legal interest and attorney's fees and costs of suit.
- R & G Construction Development and Trading, Inc. appealed to the Court of Appeals in CA-G.R. CV No. 95008, which reversed and dismissed the complaint and awarded P540,009.75 as liquidated damages to the respondent.
- Star Electric Corporation filed a Petition for Review under Rule 45 challenging the Court of Appeals Decision and the denial of its motion for reconsideration.
- The Supreme Court, in a decision penned by Velasco, Jr., J., resolved the petition and reinstated the RTC Decision with modification.
Key Facts
- Star Electric Corporation contracted with R & G Construction Development and Trading, Inc. in May 2002 as subcontractor to perform electrical, plumbing, and mechanical works for the Grami Empire Hotel for P2,571,457.21 payable by progress billings.
- R & G Construction Development and Trading, Inc. paid a P500,000 downpayment and a P80,000 advance, and later refused to pay subsequent progress billings despite repeated demands.
- Star Electric Corporation stopped work on September 20, 2002 and offered to terminate the contract without prejudice to its claims, whereupon R & G Construction Development and Trading, Inc. formally terminated the contract on September 21, 2002 alleging defective work and substandard materials.
- Star Electric Corporation submitted successive progress billings covering August to November 2002 and ultimately sued for unpaid progress billings and the value of tools and equipment withheld.
Contract Terms
- The Construction Contract provided a twenty percent downpayment and progress-billing payment method with a ten percent retention to be released upon bonded warranty, as set forth in Article 3, Section 3.1 of the contract.
- The contract contained a liquidated damages provision for delay, which the Court of Appeals applied in computing P540,009.75 as damages for purported delay.
- The parties negotiated the contract on the basis of a four-storey plan but construction approvals and on-site revisions altered the building plan during performance.
Pleadings and Claims
- Star Electric Corporation initially claimed P1,235,052.70 for progress billings, later amended its claim to P771,152.48 after deducting downpayment and adding P116,100 for tools, and subsequently increased the claim to P1,269,734.05 to include a November 3, 2002 final billing.
- R & G Construction Development and Trading, Inc. counterclaimed reimbursement for expenses incurred from engaging CP Giron Enterprises and PTL Power Corporation to remedy alleged defective works, citing invoices of P558,730 and P161,810 respectively.
- Both parties presented documentary and testimonial evidence to support their competing contentions regarding workmanship, materials, and completion rate.
Trial Evidence
- The trial record showed on-site interactions between R & G Construction Development and Trading, Inc.'s representatives and Star Electric Corporation's general manager, including contemporaneous complaints of defects that were addressed at the site.
- R & G Construction Development and Trading, Inc. relied on memos, a September 21, 2002 termination letter, and private contracts and invoices with CP Giron and PTL Power to prove defects and repair expenses.
- Star Electric Corporation presented progress billings, correspondence, and testimony indicating inspections, repairs, and t