G.R. No. 188027 - Swire Realty Development Corp. vs. Specialty Contracts General and Construction Services, Inc.

Case Summary (G.R. No. 188027)

Parties, Agreement, and Contractual Payment and Penalty Terms

Under the Agreement, the respondents were to perform waterproofing works for the Garden View Tower for Php 2,000,000.00 over 100 calendar days from execution of the Agreement or until April 6, 1997. The contract price was payable by a 20% down payment and the 80% balance through monthly progress billings, subject to a 10% retention fee and a 1% withholding tax. The Agreement further provided that the parties would be liable for penalty in case of delay in performance, and that the retention fee would be released within 90 days from turnover and acceptance by the petitioner of the completed work. The Agreement also declared time of the essence and fixed a penalty of Php 10,000.00 per day of delay for failure to finish within the prescribed period, subject to excuses for delay due to the fault of the owner, fortuitous events, or force majeure. It contained a change order mechanism under Article VII, allowing charges to be based on agreed unit costs when the owner ordered omissions or additions of works.

Proceedings in the Regional Trial Court and RTC Awards

After a Complaint for Sum of Money and Damages was filed by the petitioner against the respondents for breach of contract, the Regional Trial Court (RTC) of Quezon City, Branch 224, rendered a Decision on July 9, 2004. The RTC ordered the respondents to pay: (a) Php 400,000.00 representing actual damages consisting of moneys advanced by the petitioner without completion of the waterproofing works; (b) Php 124,931.40 representing the contract price paid by the petitioner to Esicor for unfinished works; and (c) Php 100,000.00 as attorney’s fees. The respondents moved for reconsideration, but the RTC denied the motion in an Order dated October 25, 2004. The controversy thus proceeded to the CA.

CA Decision and the Concept of “Additional Works”

On appeal, the CA reversed and set aside the RTC’s Decision. It ruled that the petitioner still owed the respondents Php 157,702.06, with legal interest of six percent (6%) per annum from October 10, 1997 until paid. In reaching that computation, the CA treated the liabilities by considering the original project cost of Php 2,000,000.00, the respondents’ accomplishment rate of 90% (computed as Php 1,800,000.00), and then adding a figure representing alleged additional works of Php 57,702.06, producing an adjusted accomplishment value of Php 1,857,702.06. The CA then subtracted the amounts already paid by the petitioner, including paid billings with withholding tax, resulting in a balance due for a 90% accomplishment rate of Php 197,702.06. It further deducted a penalty claim asserted by the petitioner for failure to execute the remaining 10% of the works, set at Php 40,000.00, leaving the CA’s final balance due of Php 157,702.06.

Petitioner’s Grounds on Review and the Core Issues

The petitioner sought reconsideration, which the CA denied in its Resolution dated May 25, 2009. In the Supreme Court, the petitioner advanced three grounds, principally arguing that the CA (a) misappreciated facts by holding that the respondents’ purported “additional works” were not within the Agreement’s scope; (b) ignored and discounted established evidence of actual damages; and (c) improperly overturned the RTC’s findings, which the petitioner insisted were supported by clear and convincing evidence. The respondents, for their part, contended that findings of fact by the CA are generally binding and beyond the Court’s review in a Rule 45 petition. The Supreme Court identified two issues that controlled resolution: first, whether the Court could review the CA’s findings of fact in this Rule 45 setting; and second, whether waterproofing of the swimming pool constituted additional works for which the respondents must be compensated.

Reviewability of Findings of Fact Under Recognized Exceptions

The Supreme Court held that while Rule 45 ordinarily limits review to questions of law, it admitted exceptions under jurisprudence. These exceptions included situations where findings were grounded entirely on speculation, where inferences were manifestly mistaken, absurd, or impossible, where there was grave abuse of discretion, where judgments were based on misapprehension of facts, where findings were conflicting, and where the CA went beyond the issues or relied on conclusions without citation of specific evidence. The Court found that several exceptions applied because the CA and the RTC differed on whether the swimming pool waterproofing constituted additional work, and because the CA’s conclusion was based on a misapprehension of facts. The Court therefore exercised review over the factual determination on that specific point.

Agreement Scope of Works and Why “Second Waterproofing” Was Not Automatically “Additional Works”

The CA had based its determination that additional works were performed on trial testimony that instructions were given to the respondents to waterproof the swimming pool again due to a change in depth, and on a Site Instruction Form issued by Hector Gallegos indicating “2nd waterproofing after lightweight concrete topping.” The Supreme Court disagreed. It ruled that a plain reading of the Agreement showed that the works performed and accomplished were included in the scope of works. The Court emphasized that the mere statement in the Site Instruction Form that “2nd waterproofing after lightweight concrete topping should be done on the swimming pool” did not automatically mean that the work constituted an addition outside the Agreement. In the absence of evidence to the contrary, the Court held that the work was impliedly deemed included in the enumeration of the swimming pool as a covered area in the Agreement.

The Court referred to Article I of the Agreement, which enumerated the scope of works and covered areas for waterproofing, including the Swimming Pool with an approximate area of 234.20 square meters, and it noted that the Agreement fixed unit prices for the covered area systems. The Court reasoned that by entering into the Agreement and signifying acceptance, the respondents undertook to perform all works necessary to accomplish waterproofing requirements in the entire covered swimming pool area. If the respondents truly believed that an additional work was being required, the Court stated that they should have raised the issue with the petitioner and invoked Article VII on change orders, which governed charges for omitting or adding works.

Facts Consistently Found by RTC and CA

Beyond the additional-works controversy, the Supreme Court found no inconsistency between the RTC and the CA on other material factual matters. It adopted facts affirmed by both courts: the respondents’ accomplishment was only 90%; despite demand, they failed to deploy workers until the end of the 100-day period and thus failed to complete within the agreed time; the respondents’ allegation that they refused to continue due to the sum pit area not being free from debris was unsubstantiated and did not justify non-performance; and there was no basis for a claim of short payments because the records showed that all progressive billings were accepted, while the alleged short payments were merely adjustments made by the petitioner to conform to the actual extent of work accomplished.

Liability for Breach, Refund of Excess Payments, and Actual Damages

From these established facts, the Court held that the respondents clearly breached the contract by failing to fully comply with their obligation to complete the waterproofing works within the time agreed upon and by completing only 90% within the period, with no adequate showing to excuse failure to perform necessary repairs. The Court ruled that the respondents were liable for damages and were bound to refund any excess payments made by the petitioner, subject to corresponding deductions based on contract completion percentage, taxes, and other fees.

The Court accepted the RTC’s approach to deductions and corrected the monetary result. It held that the RTC’s award was incomplete because it failed to account for the reductions arising from the 1% withholding tax and the 10% retention fee. It computed that the unfinished portion of 10% meant that 10% of the contract price equivalent to Php 200,000.00 was not payable, that the 10% retention fee added another Php 200,000.00, and that the withholding tax amounted to Php 20,000.00, for a total allowable deduction of at least Php 420,000.00 at the time the respondents demanded payment of Php 378,237.82 as alleged short payments. Because the RTC awarded only Php 400,000.00, the Supreme Court modified the award by ordering payment of Php 420,000.00 as actual damages.

Costs of Completion by Esicor and Article 1167

The Court also ordered the respondents to pay the petitioner the Php 124,931.40 representing the contract price paid to Esicor to complete unfinished work. It anchored this liability on Article 1167 of the New Civil Code, which provides that if a person obliged to do something fails to do it, the obligation may be executed at the debtor’s cost. The Court treated Esicor’s completion work as a consequence of respondents’ failure to complete the waterproofing works.

Penalty/Liquidated Damages, Equitable Reduction, and Imposition of a Reduced Amount

On the penalty, the Supreme Court noted that both the CA and the RTC recognized entitlement to damages due to the delay, and that the penalty amount was governed by the Agreement’s Article V on time of completion. The Court applied settled jurisprudence and Article 1229, in relation to Article 2227, directing that penalties may be equitably reduced when the principal obligation has been partly or irregularly complied with, or when liquidated damages are iniquitous or unconscionable. The Court treated the contractual obligation as due on April 6, 1997, but found that the remaining work was performed by Esicor and was accomplished on April 5, 1998. It

Case Syllabus (G.R. No. 188027)

Parties and Procedural Posture

Swire Realty Development Corporation filed a petition for review on certiorari under Rule 45 to annul and set aside the Court of Appeals (CA) Decision dated February 24, 2009 and Resolution dated May 25, 2009 in CA-G.R. CV No. 84706.
Specialty Contracts General and Construction Services, Inc. and its President and General Manager Jose Javellana were respondents in the Supreme Court petition and defendants in the case below.
The controversy began with a Complaint for Sum of Money and Damages filed by Swire against the respondents based on an alleged breach of an Agreement to Undertake Waterproofing Works dated December 27, 1996.
The Regional Trial Court (RTC) of Quezon City, Branch 224 rendered a decision ordering the respondents to pay the petitioner specified sums for actual damages and attorney’s fees.
The CA reversed the RTC decision after finding proof of additional works, and computed a different balance due the respondents.
The CA denied reconsideration, prompting Swire to seek review on certiorari before the Supreme Court.

Key Factual Allegations

The parties executed an Agreement to Undertake Waterproofing Works for Php 2,000,000.00 covering waterproofing works on the Garden View Tower condominium project.
The respondents undertook to complete the waterproofing works within 100 calendar days from execution of the agreement or until April 6, 1997.
The payment structure required 20% as down payment, and the remaining 80% through monthly progress billings, subject to a 10% retention fee and 1% withholding tax.
The agreement included liability for penalty in case of delay, and required that the retention fee be released within 90 days from turnover and acceptance of the completed works by the petitioner.
Swire alleged that the respondents breached the agreement and failed to complete the waterproofing works as contracted.
The RTC found that the respondents completed only 90% of the work within the contract period and failed to deploy workers to finish until the 100-day period had expired.
The RTC and CA shared factual anchors on several points, including failure to substantiate defenses and the correctness of progressive billing acceptance, even as they disagreed on whether certain pool-related work constituted additional works.

Transactional Contract Terms

Article I (Scope of Works) defined the covered area and enumerated the waterproofing requirements under the agreement for various parts of the project, including “Xypex Swimming Pool 234.20”.
The agreement expressly required the contractor to supply materials, tools, equipment, labor, and supervision, and included surface preparation, cleaning/floodtesting, and the waterproofing requirements for the covered areas enumerated in Article I.
Article V (Time of Completion) provided that time was of the essence and imposed a penalty of Php 10,000.00 per day of delay if the contractor failed to finish within 100 calendar days, absent excused delay due to the owner’s fault or fortuitous events or force majeure.
Article VII (Change Orders) governed deviations by requiring written notice and provided that charges for omitted or added works would be computed based on unit costs, while additive works would be subject to further agreement between the parties.
The agreement further contemplated payment reductions and withholdings through the agreed retention and withholding provisions tied to the progress billings and completion/acceptance cycle.

Issues Raised

The first issue was whether the Supreme Court could review the CA’s findings of fact, and whether the case qualified under recognized exceptions to the general rule limiting review to questions of law.
The second issue was whether the waterproofing of the swimming pool constituted additional works for which the respondents were entitled to compensation.

Petitioners’ Arguments

Swire asserted that the CA gravely misappreciated the facts when it ruled that the respondents’ purported additional works were outside the scope of the parties’ agreement despite allegedly clear and convincing evidence to the contrary.
Swire contended that the CA disregarded established evidence of actual damages arising from the respondents’ contractual breach and failed to properly credit the agreement’s express provisions governing payment, deductions, and liabilities.
Swire argued that the RTC’s findings deserved respect because they were supported by clear and convincing evidence and were therefore final and conclusive.

Respondents’ Arguments

The respondents maintained that the Supreme Court could not reexamine factual findings of the CA, especially where such findings were allegedly supported by the evidence on record.
They argued that the petition should be dismissed outright for attempting to revisit factual determinations.

Reviewability of Factual Findings

The Court reiterated that under Rule 45, only questions of law should be raised in petitions for review on certiorari.
The Court recognized exceptions, as set out in Medina v. Mayor Asistio, Jr. (269 Phil. 225 [1990]), including cases where findings were grounded on misapprehension of facts, where findings were contrary to those of the trial court, and where findings were premised on an absence of evidence contradicted by evidence on record.
The Court held that the present controversy met exceptions because the CA and RTC findings differed on a material factual point: whether the swimming pool waterproofing constituted additional work.
The Court concluded that because the CA’s conclusion on additional works was based on a misapprehension of facts, review was proper despite the general rule against reassessing facts in Rule 45 petitions.
The Court anchored its power to review on the misapprehension exception rather than on a wholesale departure from the rule limiting review.

CA’s Additional-Works Theory

The CA relied on testimony that instructions were given to waterpr