Development Bank v. Ballesteros
REITERATIONFacts
The Antecedents: Gloria C. Ballesteros (contractor) entered into a contract with Development Bank of the Philippines (DBP) for the refurbishing of its Cabanatuan Branch building for P850,000.00, with a completion period of 35 days starting April 11, 1988. A penalty of P2,000.00 per day of delay was stipulated. The contractor requested a one-week extension due to material procurement and labor issues, which DBP Head Office initially approved via radio message, waiving the penalty for the extension period. The project architect accepted the turnover on May 22, 1988, at 97.2% completion. However, a DBP Refurbishing Committee repudiated this acceptance due to defects. The contractor requested that the penalty for May 16-22, 1988, be waived, which was to be elevated to higher COA authorities. DBP accepted the project at 97.35% completion on May 29, 1988. The Commission on Audit (COA) opined that the extension had no legal basis under P.D. 1594, and penalties should be imposed. DBP deducted P28,000.00 (P2,000/day for 14 days) from the contractor's retention fee. Procedural History: The contractor filed a complaint for Collection and Damages against DBP and its auditor, Marcelita Sarmiento, alleging unjustified imposition of penalties and non-payment for additional work. The Regional Trial Court (RTC) ruled in favor of the contractor, ordering DBP to pay for the imposed penalty and additional work, and ordering Sarmiento to pay damages. The RTC disregarded the argument that the extension violated P.D. 1594. Both parties appealed. The Court of Appeals (CA) modified the RTC decision, upholding the validity of the extension and the acceptance by the project architect, thus deleting the award of damages and attorney's fees but still ordering DBP to pay the contractor the amount representing penalty charges less overpayment. DBP moved for reconsideration, which was denied. DBP then filed a petition for review on certiorari with the Supreme Court. The Petition: DBP seeks to set aside the CA decision, arguing that the CA erred in ordering DBP to return the P26,725.00 (representing liquidated damages/penalty charges less overpayment) and that the CA failed to consider COA's powers and the respondent's failure to exhaust administrative remedies.
Issue(s)
Whether the extension of contract time was in accordance with the implementing rules and regulations of Presidential Decree No. 1594. Whether Architect Jose Vicente Salazar III, DBP Project Architect, was authorized to accept the refurbishing project. Whether the respondent failed to exhaust administrative remedies.
Ruling
The petition is GRANTED. The Decision of the Court of Appeals and its resolution are REVERSED and SET ASIDE. The complaint against petitioner DBP is DISMISSED.
Ratio Decidendi
On the issue of extension of contract time: The Court ruled that the reasons cited by the contractor for the extension – problems in freight delivery service due to supplier negligence, unavailability of materials due to hoarding, and laborers' refusal to work on Sundays – do not constitute valid grounds for granting an extension of contract time under Presidential Decree No. 1594 (P.D. 1594) and its implementing rules and regulations prevailing at the time the contract was entered into. Specifically, the non-availability of materials and labor issues are explicitly listed as grounds for which no extension shall be granted. The Court clarified that the implementing rules, even as amended, do not allow extensions based on excusable failure or neglect; non-availability of materials is a sufficient ground for denial of extension regardless of fault. Therefore, the initial approval of the extension by DBP Head Office did not bind the Commission on Audit (COA), which has the constitutional mandate to audit government funds and ensure compliance with the law. The Court found the imposition of the penalty to be in order. On the issue of the Project Architect's authority to accept the project: The Court reversed the Court of Appeals' finding that Architect Jose Vicente Salazar III was authorized to accept the project. While the contract specifications granted the Project Architect the authority to inspect, supervise, condemn, or reject defective works before completion, approval, and acceptance, it did not expressly grant him the power to accept the project itself. The Court emphasized that an architect's authority is limited to what is contained in the contract, and the architect's testimony that he did not remember if his contract granted him such authority was insufficient to prove his claim. The acceptance of the project was ultimately made by the Bidding Committee of DBP on May 29, 1988. Consequently, since there was no valid extension, the fourteen-day delay from May 16 to May 29, 1988, was subject to the stipulated penalty. On the issue of exhaustion of administrative remedies: The Court acknowledged that the respondent failed to exhaust administrative remedies by not appealing the adverse decisions of the COA Acting Chief and Branch Auditor to higher COA authorities. However, the Court noted that the trial court properly took cognizance of the case because no motion to dismiss was filed on this ground by the petitioner. The failure to invoke this ground at the proper time operates as a waiver, allowing the court to proceed with the case. Despite this procedural aspect, the substantive issues regarding the validity of the extension and the architect's authority were decisive.
Main Doctrine
The granting of an extension of contract time due to non-availability of materials or labor problems is not allowed under Presidential Decree No. 1594, and the imposition of penalties for delay is therefore in order. Furthermore, an architect's authority to inspect, supervise, and reject defective works does not automatically grant them the power to accept the completed project.