Case Summary (G.R. No. 189401)
Petitioner
Vil-Rey Planners and Builders and Stronghold Insurance Company, Inc.
Respondent
Lexber, Inc.
Key Dates
• First Construction Contract: April 17, 1996 (60-day completion)
• Mutual termination and Second Contract: July 1, 1996 (remaining works, 60 days)
• Work Order (Third Contract): December 23, 1996 (completion by January 15, 1997; extended to January 31, 1997, plus five-day grace)
• RTC Decision: December 12, 2005; partial reconsideration October 22, 2007
• CA Decision: April 16, 2009; Resolution denying reconsideration: September 1, 2009
• SC Decision: June 15, 2016
Applicable Law
• 1987 Philippine Constitution (sanctity of contracts, due process)
• Civil Code of the Philippines: Articles 1167 (reciprocal obligations), 1169 (default and interest), 1170 (liability for delay), 2201 (damages), 2066–2067 (surety’s rights), 2227 (liquidated damages)
• Rules of Court, Rule 45 (certiorari)
Facts
- Under the first contract, Vil-Rey undertook compacted backfill work for P5,100,000, receiving a P500,000 mobilization down-payment secured by a surety bond from Stronghold.
- Parties mutually terminated the first contract and executed a second contract for P2,988,700.20, 60-day completion.
- A third contract (Work Order No. CAB-96-09) covered the remaining works for P1,168,728.37: 50% down-payment secured by Stronghold bond (P584,364.19) and 50% upon completion.
- Lexber extended the third contract deadline from January 15 to January 31, 1997, plus five additional days, yet Vil-Rey failed to finish the works.
- Lexber paid another contractor P284,084.46 to complete the project and claimed under both surety bonds. Vil-Rey counterclaimed unpaid receivables; Stronghold disputed its obligations under the bonds.
RTC Ruling
• Held Vil-Rey and Stronghold jointly and severally liable for P2,988,700.20 plus 12% interest and attorney’s fees (P500,000).
• Upheld indemnity agreements, ordered Stronghold’s cross-claim against Vil-Rey.
• On partial reconsideration, reduced liability to P1,084,364.19 (true bond amounts) plus 12% interest and attorney’s fees of P200,000.
CA Ruling
• Modified liability to P284,084.46 with 6% interest from February 11, 1997 until finality and 12% thereafter; attorney’s fees reduced to P50,000.
• Found no liability under the first surety bond (mobilization down-payment) due to mutual termination waiving earlier claims.
• Confirmed breach of the third contract and liability under the second surety bond for the cost to complete the works.
• Denied Vil-Rey’s and Stronghold’s counterclaims; upheld Stronghold’s cross-claim.
Issues
- Vil-Rey’s liability for breach of the third contract
- Effect of time extension on Stronghold’s liability under the second surety bond
- Entitlement to attorney’s fees
I. Breach of Contract by Vil-Rey
• Reciprocal obligations required Lexber’s 50% balance payment upon project completion by January 15, 1997.
• Extensions did not alter Vil-Rey’s obligation; failure to finish justified damages under Civil Code Article 1167.
• Damages fixed at P284,084.46 (cost to complete), with 6% interest from February 17, 1997 until full satisfaction (Art. 1169).
II. Surety Liability Not Extinguished by Extension
• The second bond was a performance bond guaranteeing “obligations” and completion of works, not merely material or workmanship defects.
• Surety’s obligation did not become more onerous by a 15-day extension and five-day grace, which benefited Stronghold by promoting contract completion.
• Stronghold’s objection to extension was raised too late (on reconsideration), and issues not timely raised cannot be considered on appeal.
• Stronghold remains liable
Case Syllabus (G.R. No. 189401)
Facts
- On 17 April 1996, Vil-Rey Planners and Builders (“Vil-Rey”) and Lexber, Inc. (“Lexber”) executed a Construction Contract for compacted backfill on Lexber’s 56,565 sqm property in Cabanatuan City.
• Contract price: P5,100,000; completion period: 60 days.
• Lexber released a P500,000 mobilization downpayment, secured by Surety Bond G(16) No. 066915 from Stronghold Insurance Co., Inc. (“Stronghold”).
• Vil-Rey agreed to indemnify Stronghold for any payments under the bond. - The first contract was mutually terminated. On 1 July 1996, the parties entered a second Construction Contract for remaining works:
• Contract price: P2,988,700.20; completion period: 60 days. - On 23 December 1996, Work Order No. CAB-96-09 (“third contract”) was issued:
• Scope: complete remaining works by 15 January 1997; consideration: P1,168,728.37.
• Payment terms: 50% downpayment secured by Surety Bond G(16) No. 077258 (P584,364.19) from Stronghold; 50% balance upon completion.
• Vil-Rey again indemnified Stronghold. - By letter dated 21 January 1997, Vil-Rey requested and obtained an extension to 31 January 1997; an additional five-day grace period was later granted. Vil-Rey still failed to complete the works.
- Lexber then demanded payment on both surety bonds. Negotiations failed, prompting Lexber to file a Complaint for sum of money and damages against Vil-Rey and Stronghold before RTC Quezon City, Branch 93.
Procedural History
- Vil-Rey’s Answer with Counterclaim: denied breach, claimed underpayment and receivables totalling P1,960,558.40; prayed for moral damages and attorney’s fees.
- Stronghold’s Answer: contended liability under the first bond was fully liquidated; second bond limited to workmanship and materials defects; filed counterclaim for fees and cross-claim against Vil-Rey.
- RTC Decision (12 December 2005): held Vil-Rey and Stronghold solidarily liable for P2,988,700.20 plus 12% p.a. interest, P500,000 attorney’s fees; upheld indemnity and cross-claim.
- RTC Partial Reconsideration Order (22 October 2007): reduced liability to P1,084,364.19 plus 12% p.a. interest; attorney’s fees