Case Summary (G.R. No. 188027)
Procedural History
Swire filed a Complaint for Sum of Money and Damages alleging breach of the waterproofing Agreement. The Regional Trial Court (Quezon City, Branch 224) rendered judgment in favor of Swire ordering respondents to pay Php 400,000.00 (actual damages for monies advanced without completion), Php 124,931.40 (costs paid to Esicor to finish Specserv’s unfinished works), and Php 100,000.00 attorney’s fees. The RTC denied respondents’ motion for reconsideration. The Court of Appeals reversed and awarded Specserv Php 157,702.06 plus legal interest, finding that additional works were performed and calculating balance due. The Court of Appeals denied reconsideration. Swire then filed a petition for review on certiorari under Rule 45 with the Supreme Court.
Issues Presented to the Supreme Court
- Whether the Supreme Court may review the Court of Appeals’ findings of fact in a Rule 45 petition; and 2) Whether the waterproofing of the swimming pool constituted “additional works” outside the scope of the Agreement, thus entitling respondents to extra compensation.
Standard of Review and Exceptions to Rule 45 Finality
The Court reiterated the general rule that Rule 45 limits review to questions of law but acknowledged established exceptions (Medina v. Asistio) that permit review of factual findings when, inter alia, conclusions are grounded on speculation, are manifestly mistaken, the judgment is based on misapprehension of facts, findings are conflicting, or a finding is premised on supposed absence of evidence contradicted by the record. The Court found several such exceptions applicable here, particularly where the CA’s factual conclusion that the pool waterproofing was an “additional work” conflicted with the RTC’s findings and rested on a misapprehension of the contractual scope.
Contractual Scope and Whether Pool Waterproofing Was Additional Work
The Agreement’s Article I expressly enumerated the covered areas and systems, listing “Swimming Pool 234.20 sq.m. — Xypex” among the covered areas and stating the agreed unit prices per square meter. The Court held that this plain contractual enumeration demonstrates that all works necessary to accomplish waterproofing for the swimming pool were included in the contract price. A site instruction noting “2nd waterproofing after lightweight concrete topping” did not, in itself, convert the works into additional works because the pool was already a listed covered area. If respondents believed that the work called for by the site instruction constituted an additive change, they should have invoked Article VII (Change Orders) and sought a written agreement on additive work pricing before performing such work. Thus the Court concluded the CA erred in treating the pool waterproofing as additional compensated work.
Facts Adopted and Respondents’ Performance
The Court adopted facts affirmed by both the RTC and the CA: respondents accomplished only 90% of the waterproofing works; respondents failed to redeploy workers despite demand and the expiry of the 100-day period; respondents’ excuse (that the sump pit was not free from debris) was unsubstantiated; and there was no basis for respondents’ claim of “short payments” because progress billings were accepted by them and adjustments reflected the actual extent of accomplished work. These facts established a contractual breach by respondents.
Computation of Refunds and Actual Damages
Because respondents completed only 90% of the contract, the Court agreed with the RTC’s method of computing allowable deductions from the contract price, accounting for the unfinished 10% (Php 200,000), the 10% retention (Php 200,000), and the 1% withholding tax (Php 20,000), yielding aggregate allowable deductions of Php 420,000.00. The RTC had awarded only Php 400,000.00; the Supreme Court modified the award and ordered respondents to pay Php 420,000.00 as actual damages to Swire.
Reimbursement for Completion by Third Party (Esicor)
Under Article 1167 of the New Civil Code (if one obliged fails to do something, the same shall be executed at his cost), the Court upheld the RTC’s award ordering respondents to reimburse Swire Php 124,931.40—the contract price Swire paid to Esicor to complete Specserv’s unfinished work. The Court affirmed this award and incorporated it into the final disposition.
Penalty / Liquidated Damages: Reduction and Rationale
The Agreement imposed a penalty of Php 10,000.00 per day of delay. The Court recognized respondents’ delay extended to the date Esicor finished the remaining work (a period of 365 days), which would nominally yield Php 3,650,000.00. Applying Articles 1229 and 2227 of the New Civil Code and established jurisprudence allowing equitable reduction when penalties are unconscionable or the principal obligation is partly complied with, the Court found the contractual penalty manifestly excessive in light of respondents’ partial performance (90%) and lack of bad faith. The Court therefore reduced the penalty to Php 200,000.00 as liquidated damages.
Attorney’s Fees
The RTC had awarded Php 100,000.00 as attorney’s fees. The Supreme Court deleted that award, applying the PNCC v. APAC standard requiring a clear factual, legal, and equitable basis for attorney’s fees under Article 2208 of the Civil Code. The RTC’s sparse justification (“constrained to litigate”) was insufficient; thus the award of attorney’s fees was removed.
Disposition
The
Case Syllabus (G.R. No. 188027)
Procedural Posture
- Petition for review on certiorari under Rule 45 of the Rules of Court seeking to annul and set aside:
- Decision dated February 24, 2009 and
- Resolution dated May 25, 2009
- both issued by the Court of Appeals in CA-G.R. CV No. 84706 (Rollo, pp. 62-70).
- Originating action: Complaint for Sum of Money and Damages filed by petitioner Swire Realty Development Corporation against respondents Specialty Contracts General and Construction Services, Inc. (Specserv) and its President/General Manager Jose Javellana, Jr.
- Trial court: Regional Trial Court (RTC), Quezon City, Branch 224 — Decision rendered July 9, 2004 (Pairing Judge Ramon A. Cruz) (Rollo, pp. 72-78).
- Court of Appeals: Reversed RTC in Decision dated February 24, 2009; denied reconsideration in Resolution dated May 25, 2009 (Rollo, pp. 62-70).
- Supreme Court action: Petition granted; Supreme Court Decision rendered August 9, 2017 (Decision authored by Justice Reyes, Jr.; concurring: Velasco, Jr., Bersamin, Jardeleza, Tijam). Notice of judgment received by the Office on September 15, 2017 at 2:40 p.m. (Rollo).
Parties and Nature of the Action
- Petitioner: Swire Realty Development Corporation — owner/developer of condominium project known as Garden View Tower.
- Respondents: Specialty Contracts General and Construction Services, Inc. (Specserv) and Jose Javellana, Jr.
- Cause of action: Breach of contract — Complaint for Sum of Money and Damages arising from alleged breach of an Agreement to Undertake Waterproofing Works dated December 27, 1996.
Material Facts
- Agreement executed December 27, 1996: respondents undertook waterproofing works on Garden View Tower for Php 2,000,000.00 to be performed over 100 calendar days from execution (i.e., until April 6, 1997).
- Payment terms: 20% down payment; balance 80% payable through monthly progress billings based on accomplished work; subject to 10% retention fee and 1% withholding tax; retention fee to be released within 90 days from turnover and acceptance of completed work.
- Agreement provided for penalties in case of delay and for change orders (see Article V and VII reproduced in the record).
- Disputed performance: respondents accomplished only 90% of the waterproofing works; despite demand they failed to deploy workers and did not complete remaining 10% within the agreed period.
- Esicor was engaged by petitioner to complete respondents’ unfinished works; cost paid by petitioner to Esicor was recorded in the proceedings.
- Site Instruction Form contained notation: "2nd waterproofing after lightweight concrete topping" for the swimming pool (Rollo, p.168).
The Agreement — Relevant Provisions and Scope of Works
- Article I — Scope of Works (material excerpts in the record):
- Contractor agrees to perform waterproofing requirements including supply of materials, tools and equipment, labor and supervision; surface preparation (including acid etching); cleaning/floodtesting.
- Covered areas expressly enumerated, including Swimming Pool — approx. 234.20 sq.m. (list includes Ground Floor, Driveway above B-01, Ramps down to B-01, Lagoon, Swimming Pool, Shower/Sauna/Filter Room, Slop Sink, etc.) (Rollo, p.105).
- Note in Agreement: agreed unit prices per sq.m. for Xypex and Epoxy systems (Rollo, p.105).
- Article V — Time of Completion:
- Time is of the essence; contractor shall not unjustly delay completion.
- If contractor fails to finish within 100 calendar days from signing, contractor liable to pay penalty of P10,000.00 per day unless delay excused by owner’s fault or fortuitous events/force majeure (Rollo, pp.153-154).
- Article VII — Change Orders:
- If owner orders change or deviation by written notice, charges for deductive works based on unit cost; unit prices for additive works subject to further agreement between owner and contractor (Rollo, p.107).
RTC Findings and Decision (July 9, 2004)
- RTC rendered judgment in favor of petitioner and ordered respondents to pay:
- P400,000.00 representing actual damages (moneys advanced by defendant Specserv without completion of waterproofing works);
- P124,931.40 representing the contract price paid by petitioner to Esicor for unfinished works of Specserv;
- P100,000.00 as attorney’s fees (Rollo, pp.72-78; dispositive at p.78).
- RTC denied respondents’ motion for reconsideration in Order dated October 25, 2004 (Rollo, pp.80-81).
Court of Appeals Decision and Computation (February 24, 2009)
- CA reversed RTC and entered new judgment directing petitioner to pay defendant Specserv P157,702.06 with legal interest of 6% per annum from October 10, 1997 until paid (Rollo, pp.67-68).
- CA’s computation (as reproduced in the record):
- Original project cost: P2,000,000.00
- Accomplishment rate: 90% → P1,800,000.00
- Additional works: P57,702.06 → Total P1,857,702.06
- Less advances by Swire / Paid billings (inclusive of withholding tax): P400,000.00 + P1,260,000.00 = P1,660,000.00
- Balance due Specserv for 90% accomplishment rate: P197,702.06
- Less: Penalty claim by Swire for failure to execute remaining 10%: P40,000.00
- Balance due Specserv: P157,702.06 (Rollo, p.67).
Grounds of the Petition to the Supreme Court
- Petitioner alleges:
I. CA gravely misappreciated facts by ruling respondents’ purported "additional works" were not included in parties’ Agreement despite clear and convincing evidence to the contrary;
II. CA ignored and disregarded established evidence of actual damages suffered by petitioner on account of respondents’ breach and discounted express provisions of the Agreement in determining damages;
III. Findings of trial court, being in a better position to evaluate evidence and testimony, are supported by clear and convincing evidence and are final and conclusive (Rollo, pp.31-32).
Respondents’ Position Before the Supreme Court
- Respondents averred that the Supreme Court cannot review findings of fact rendered by the Court of Appeals, especially since they are supported by evidence on record, and thus the petition must be dismissed.
Issues Presented to the Supreme Court
- Two principal issues identified by the Court:
- Whether the Supreme Court can review the findings of fact rendered by the Court of Appeals in a petition for review on certiorari under Rule 45; and
- If reviewable, whether waterproofing of the swimming pool constitutes additional works for which respondents must be compensated.
Legal Standard for Reviewability of Facts in Rule 45 (Medina Exceptions)
- General rule: Under the Rules of Court, only questions of law should be raised in a petition for review on certiorari; exceptions a