Manila

THIRD DIVISION

[ G.R. No. 188027. August 09, 2017 ]

SWIRE REALTY DEVELOPMENT CORPORATION, PETITIONER, V. SPECIALTY CONTRACTS GENERAL AND CONSTRUCTION SERVICES, INC. AND JOSE JAVELLANA, RESPONDENTS.

D E C I S I O N

REYES, JR., J:

This is a petition for review on certiorari1 under Rule 45 of the Rules of Court seeking to annul and set aside the Decision2 dated February 24, 2009 and Resolution3 dated May 25, 2009 issued by the Court of Appeals (CA) in CA-G.R. CV No. 84706.

The controversy arose from a Complaint for Sum of Money and Damages filed by Swire Realty Development Corporation (petitioner) against Specialty Contracts General and Construction Services, Inc., represented by its President and General Manager Jose Javellana, Jr. (the respondents).

The Complaint alleges breach of an Agreement to Undertake Waterproofing Works4 (the Agreement) entered into on December 27, 1996 by the petitioner and the respondents. By virtue of this, the respondents undertook to perform waterproofing works on the petitioner's condominium project known as the Garden View Tower for the amount of Php 2,000,000.00 over a period of 100 calendar days from the execution of the Agreement or until April 6, 1997. The amount agreed upon is to be paid to the respondents as follows: 20% as down payment, and the balance of 80% payable through monthly progress billings based on accomplished work, subject to a 10% retention fee and 1% withholding tax. The Agreement likewise provided that the parties are liable for penalty in case of delay in the performance of their respective obligations and that retention fee shall be released to the respondents within 90 days from turnover and acceptance by the petitioner of the completed work.

After due proceedings, the Regional Trial Court (RTC) of Quezon City, Branch 224, on July 9, 2004, rendered its Decision,5 viz.:

WHEREFORE, judgment is hereby rendered ordering [the respondents] to pay [the petitioner] the following:

1.) P400,000.00 representing actual damages moneys advanced by defendant Specserve without completion of waterproofing works;

2.) P124,931.40 representing the contract price paid by [the petitioner] to Esicor for the unfinished works of Specserve;

3.) P100,000.00 as attorney's fees.

SO ORDERED.6

The respondents filed a motion for reconsideration of the RTC decision, which the RTC denied in its Order7 dated October 25, 2004.

The matter was elevated to the CA. Finding proof that additional works were performed by the respondents, the CA in its Decision dated February 24, 2009, reversed and set aside the RTC's decision, in this wise:

IN VIEW OF THE FOREGOING, the decision appealed from is reversed, and a new one entered directing the [petitioner] to pay the defendant Specserv the amount of P157,702.06 with legal interest of six (6) percent per annum form October 10, 1997 until paid.8 (Citation omitted)

In so ruling, the CA computed the outstanding liabilities in this manner:

Original project cost P2,000,000.00
Accomplishment rate 90%
____________
P1,800,000.00
Additional works 57,702.06
____________
P1,857,702.06
Less: Advances by Swire Paid Billings (inclusive of withholding tax) P400,000.00
1,260,000
1,660,000.00
Balance due Specserv for a 90% accomplishment rate 197,702.06
Less: Penalty claim by Swire for failure of Specserv to execute the remaining 10% 40,000.00
Balance due Specserv P157,702.069

The petitioner sought a reconsideration of the CA decision, but it was denied by the CA in its Resolution10 dated May 25, 2009.1aшphi1

In support of this petition for review on certiorari, the petitioner alleges the following grounds:

I.

THE CA GRAVELY MISAPPRECIATED THE FACTS WHEN IT RULED THAT THE RESPONDENTS' PURPORTED "ADDITIONAL WORKS" WERE NOT INCLUDED IN THE SCOPE OF WORKS UNDER THE PARTIES' AGREEMENT DESPITE THE PRESENCE OF CLEAR AND CONVINCING EVIDENCE TO THE CONTRARY;

II.

THE CA COMPLETELY IGNORED AND DISREGARDED THE ESTABLISHED EVIDENCE OF ACTUAL DAMAGES WHICH THE PETITIONER HAD SUFFERED ON ACCOUNT OF THE RESPONDENTS' BREACH OF THEIR CONTRACTUAL UNDERTAKING AND IN DISCOUNTING THE CLEAR AND EXPRESS PROVISIONS OF THE PARTIES' AGREEMENT IN DETERMINING AND CONSIDERING SUCH DAMAGES; and

III.

THE FINDINGS OF THE TRIAL COURT, WHICH IS IN A BETTER POSITION TO EVALUATE THE PARTIES' RESPECTIVE EVIDENCE AND TESTIMONIES, ARE SUPPORTED BY CLEAR AND CONVINCING EVIDENCE, AND ARE THEREFORE DEEMED FINAL AND CONCLUSIVE.11

For their part, the respondents aver that the Court cannot review the findings of fact rendered by the CA especially since they are supported by the evidence on record. Thus, they submit that the petition must be dismissed outright.

The resolution of the instant case hinges on two issues. First, whether the Court in this petition for review on certiorari can review the findings of fact rendered by the CA, and if in the affirmative, whether the waterproofing of the swimming pool constitutes additional works for which the respondents must be compensated.1aшphi1

Ruling of the Court

The petition is meritorious.

Under the Rules of Court, only questions of law should be raised in a petition for review on certiorari. however, the rule admits of exceptions as recognized by the Court in the case of Medina v. Mayor Asistio, Jr.,12 namely:

(1) When the conclusion is a finding grounded entirely on speculation, surmises or conjectures x x x; (2) When the inference made is manifestly mistaken, absurd or impossible x x x; (3) Where there is a grave abuse of discretion x x x; (4) When the judgment is based on a misapprehension of facts x x x; (5) When the findings of fact are conflicting x x x; (6) When the [CA], in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee x x x; (7) The findings of the [CA] are contrary to those of the trial court x x x; (8) When the findings of fact are conclusions without citation of specific evidence on which they are based x x x; (9) When the facts set forth in the petition as well as in the petitioners' main and reply briefs are not disputed by the respondents x x x; and (10) The finding of fact of the [CA] is premised on the supposed absence of evidence and is contradicted by the evidence on record x x x.13 (Citations omitted)

In the instant controversy, a number of the foregoing exceptions obtain. Among these, the factual findings of the CA and the RTC vary as to whether the waterproofing of the swimming pool constitutes additional work, and since the conclusion of the CA in this regard is based on a misapprehension of facts, the Court can therefore pass upon and review the same in resolving this petition.14

The CA, in concluding that additional works were performed, relied on the testimony during trial that instructions were given to the respondent to waterproof the pool again as a result of its change in depth.15 The CA then made reference to the Site Instruction Form16 issued by the person in charge of the project Hector Gallegos as to the extent and scope of the works accomplished.17

The Court does not agree with the foregoing findings of the CA. A plain reading of the Agreement reveals that the works performed and accomplished are included in the Scope of Works therein agreed upon.

As correctly pointed out by the petitioner, a mere statement in the Site Information Form that "2nd waterproofing after lightweight concrete topping"18 should be done on the swimming pool, does not automatically mean that the same constitutes additional work. In the absence of evidence to the contrary, it is implied that such work is deemed included in the enumeration of the Swimming Pool as a covered area in the Agreement. Article I enumerates the scope of works and covered area under the Agreement, to wit:

ARTICLE I
SCOPE OF WORKS

1.1 The CONTRACTOR hereby agree[s] to perform for the OWNER the following scope of works for the Waterproofing requirements of the PROJECT:

a. Supply of materials, tools and equipment, labor and supervision for the satisfactory completion of the Proj[e]ct.

b. Surface preparation by removal of dust, dirt, loose cement particles and other foreign material including acid etching.

c. Cleaning/floodtesting.

d. The covered [area] under this Agreement are as follows:

Level Area Description Approx. Area in (sq.m.) System
x x x x
Ground Floor Entire Ground Floor 1087.88 Xypex
Driveway above B-01 374.46 Xypex
Ramps Down to B-01 215.00 Xypex
Lagoon 112.70 Xypex
Swimming Pool 234.20 Xypex
Shower/Sauna/Filter Rm. 32.37 Xypex
Slop Sink 0.76 Xypex

x x x x

Note: The agreed price for the abovementioned covered area for Xypex is P 246.776 per sq.m. and for Epoxy is P 607.456 per sq.m. 19 (Emphasis Ours)

By entering into the Agreement and signifying their acceptance thereto, it is understood therefore that the respondents undertook to perform all works necessary to accomplish the waterproofing requirements in the entire 234.20 square meters of the swimming pool.

Had the respondent really believed the same to be an additional work to be performed, it should have, prior to performing the same, raised the matter with the petitioner and sought the implementation of Article VII of the Agreement which provides:

ARTICLE VII
CHANGE ORDERS

7.1 If the OWNER shall, upon written notice to the CONTRACTOR, order change or deviation from the plan or specification either by omitting or adding works, the corresponding charges for deductive works shall be based on the unit cost abovementioned. However, the unit prices for additive works shall be subject to further agreement between the OWNER and the CONTRACTOR.20

As to the other factual matters, there being no inconsistency between the findings of the RTC and the CA, the Court sees no reason to disturb the same, especially since they are supported by the evidence on record.

Therefore, the Court adopts the following facts which are affirmed by both the RTC and the CA:

a) the extent of work accomplished by the respondents is only at 90% and that despite demand they failed to deploy their workers, until the 100-day period for the works to finish has already expired;21

b) the respondents' allegation that they refused to continue with the works because the sum pit area was not free from debris has not been substantiated22 and, thus, cannot justify their non-performance nor absolve them from liability for damages; and

c) there is no basis for the respondents' claim for short payments considering that the records are replete with evidence establishing that all progressive billings are accepted by them; and that the alleged short payments are adjustments made by the petitioner to conform to the actual extent of the work accomplished.23

Evident from the foregoing facts, there being a clear breach of contract on the part of the respondents when they failed to fully comply with their obligation under the contract, having accomplished only 90% of the waterproofing works within the time agreed upon, and failing to perform the necessary repairs, they are liable for damages and are bound to refund the excess in payment made by the petitioner.

In determining whether refund is due to the petitioner, corresponding deductions on the contract price taking into consideration the extent of the respondents' project completion, taxes, charges, and fees would have to be taken into account. On this score, the Court agrees with the RTC, to wit:

Moreover, the claim for "short payments" did not account for the reductions made in the 1% withholding tax and 10% retention fee. Simple mathematics would reveal that due to the unfinished work of 10% a corresponding 10% of the contract price or P200,000.00 is not payable to [the respondents]. Added to this is the 10% retention fee for another P200,000.00, and withholding tax for P20,000.00. All in all, the allowable deduction is at least P420,000.00 at the time that [the respondents] demanded payment of P378,237.82 in alleged "short payments".24

Curiously enough, despite such clear computation, the RTC merely awarded the amount of Php 400,000.00. The Court therefore modifies the same and accordingly orders the respondents to pay the petitioner the amount of Php 420,000.00, which shall take the form of actual damages.

Likewise, the respondents are liable for the costs incurred by the petitioner in hiring the services of Esicor to complete their unfinished work, amounting to Php 124,931.40, in consonance with Article 1167 of the New Civil Code, which provides:

Article 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.

This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore, it may be decreed that what has been poorly done be undone.

With respect to the penalty, the CA25 and the RTC26 both recognized that under the attendant circumstances, the petitioner is entitled to damages on account of the respondents' delay in the performance of their obligation. The amount of penalty is governed by Article V of the Agreement, which provides:

ARTICLE V
TIME OF COMPLETION

5.1 It is agreed that time is of the essence and therefore the CONTRACTOR shall not unjustly delay the completion of the PROJECT by delaying the performance of their contracted work. In case the CONTRACTOR fails to finish their undertakings within 100 calendar days from date of the signing of this Agreement, the CONTRACTOR shall be liable to pay a penalty of P10,000.00 per day of delay incurred unless such delay is excused due to the fault of the OWNER or by fortuitous events or force majeure.27

Pursuant to settled jurisprudence and Article 1229,28 in relation to Article 2227,29 of the New Civil Code, the Court deems it proper to reduce the penalty involved.30

The respondents are obligated under the Agreement to complete the waterproofing works on April 6, 1997, but failed. The remaining work to be done had to be performed by Esicor, who accomplished the same on April 5, 1998.31 In light of these, the respondents are then liable for delay for a period of 365 days, which corresponds to the amount of Php 3,650,000.00 as penalty under the Agreement. Without doubt, taking into consideration that the respondents have completed 90% of the project and the absence of any showing of bad faith on their part,32 as well as the fact that the waterproofing works have already been completed at the respondents' expense, the amount of Php 3,650,000.00 as penalty is exorbitant under the premises. Therefore, the Court reduces the same and imposes the amount of Php 200,000.00 as liquidated damages, by way of penalty.

Finally, on the matter of attorney's fees, the Court finds no basis for the award. In Philippine National Construction Corporation (PNCC) v. APAC Marketing Corporation,33 the Court ruled that:

We have consistently held that an award of attorney's fees under Article 2208 demands factual, legal, and equitable justification to avoid speculation and conjecture surrounding the grant thereof. Due to the special nature of the award of attorney's fees, a rigid standard is imposed on the courts before these fees could be granted. Hence, it is imperative that they clearly and distinctly set forth in their decisions the basis for the award thereof. It is not enough that they merely state the amount of the grant in the dispositive portion of their decisions. It bears reiteration that the award of attorney's fees is an exception rather than the general rule; thus, there must be compelling legal reason to bring the case within the exceptions provided under Article 2208 of the Civil Code to justify the award.34 (Citations omitted)

In the same case, the Court ruled that a mere statement that a party was forced to litigate to protect his or her interest, without further elaboration, is insufficient to justify the grant of attorney's fees. In this case, the RTC in awarding attorney's fees merely stated:

Finally, since it is clear that the [petitioner] was constrained to litigate the instant case through its retained counsel, an award of P100,00.00 as attorney's fees is reasonable under the circumstances. Article 2208 of the Civil Code states:

In the absence of stipulation, attorney's fees and expenses of litigation, other than judicial costs, cannot be recovered except:

x x x x

11. in any other case where the Court deems it just and equitable that attorney's fees and expenses of litigation must be recovered.

x x x x

Clearly, based on the guidance offered by PNCC,35 the same is insufficient and wanting of sufficient factual basis to justify the award of attorney's fees. The award of attorney's fees of the RTC must therefore be deleted.

WHEREFORE, in view of the foregoing disquisitions, the petition for review on certiorari is hereby GRANTED. The Decision dated February 24, 2009 and Resolution dated May 25, 2009 issued by the Court of Appeals in CA-G.R. CV No. 84706 are REVERSED and SET ASIDE.

Respondents Specialty Contracts General and Construction Services, Inc. and Jose Javellana are hereby ordered to pay petitioner Swire Realty Development Corporation the amount of Php 420,000.00 as actual damages, Php 129,931.40 representing the contract price paid by the Petitioner to Esicor, and Php 200,000.00, as penalty or liquidated damages.

SO ORDERED.

Velasco, Jr., (Chairperson), Bersamin, Jardeleza, and Tijam, JJ., concur.

NOTICE OF JUDGMENT

Sirs/Mesdames:

Please take notice that on August 9, 2017 a Decision, copy attached hereto, was rendered by the Supreme Court in the above-entitled case, the original of which was received by this Office on September 15, 2017 at 2:40 p.m.

Very truly yours,

(SGD.) WILFREDO V. LAPITAN
Division Clerk of Court


Footnotes

1 Rollo, pp. 14-58.

2 Penned by Associate Justice Mario L. Guariña III, with Associate Justices Estela M. Perlas-Bernabe (now a Member of this Court) and Marlene Gonzales-Sison, concurring; id. at 62-68.

3 Id. at 70.

4 Id. at 104-111.

5 Rendered by Pairing Judge Ramon A. Cruz; id. at 72-78.

6 Id. at 78.

7 Id. at 80-81.

8 Id. at 67-68.

9 Id. at 67.

10 Id. at 70.

11 Id. at 31-32.

12 269 Phil. 225 (1990).

13 Id. at 232.

14 See Pascual v. Burgos, G.R. No. 171722, January 11, 2016, 778 SCRA 189.

15 Rollo, p. 66.

16 Id. at 168.

17 Id. at 66.

18 Id. at 168.

19 Id. at 105.

20 Id. at 107.

21 Id. at 67, 75.

22 Id. at 75-76.

23 Id. at 76.

24 Id.

25 Id. at 67.

26 Id. at 77.

27 Id. at 153-154.

28 Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.

29 Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable.

30 MCMP Construction Corp. v. Monark Equipment Corporation, 746 Phil. 383, 391-393 (2014); Apo Fruits Corporation, et al. v. CA, et al., 622 Phil. 215 (2009); Filinvest Land, Inc. v. CA, 507 Phil. 259 (2005).

31 Rollo, p. 143.

32 Cf. Urban Consolidated Constructors Philippines, Inc. v. The Insular Life Assurance Co., Inc., 614 Phil. 95, 106 (2009).

33 710 Phil. 389 (2013).

34 Id. at 396.

35 Supra note 33.
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