Edsa Shangri-La Hotel v. BF Corporation
REITERATIONFacts
The Antecedents: This case originated from a construction contract between Edsa Shangri-la Hotel and Resort, Inc. (ESHRI) and BF Corporation (BF) for the construction of the EDSA Shangri-la Hotel. The contract stipulated payment based on work accomplished, with BF submitting monthly progress billings and ESHRI re-measuring the work and issuing Progress Payment Certificates. BF alleged that ESHRI failed to re-measure work and issue payment certificates for progress billings 14 through 19, despite assurances, leading BF to continue work. ESHRI, in defense, claimed overpayment for earlier billings and alleged delay and inferior work by BF. Procedural History: BF Corporation filed a suit for a sum of money and damages against ESHRI and its officers. The Regional Trial Court (RTC) ruled in favor of BF, ordering ESHRI and its officers to pay BF for unpaid construction work and retention money, with interests and damages. ESHRI appealed to the Court of Appeals (CA). During the pendency of the appeal, ESHRI sought restitution of funds garnished by BF, which was initially granted by the CA but later set aside. The CA, in its final decision, affirmed the RTC's ruling in its entirety, denying ESHRI's claim for restitution. ESHRI and one of its officers, Cynthia Roxas-del Castillo, then filed separate petitions for review with the Supreme Court. The Petition: Petitioners Edsa Shangri-la Hotel and Resort, Inc. (ESHRI) and its officers, along with Cynthia Roxas-del Castillo, filed petitions for review under Rule 45 of the Rules of Court. They sought to nullify the Court of Appeals' decision, raising issues regarding the admissibility of photocopied progress billings, alleged delay and defective work by BF Corporation, the award of damages and attorney's fees, and the propriety of restitution of garnished funds. Roxas-del Castillo also contended that she should not be held personally liable for corporate obligations. The Supreme Court, in its review, dismissed the petition filed by ESHRI and its officers, affirming the CA's findings. However, the Court granted the petition of Roxas-del Castillo, absolving her from any liability, finding that she was no longer a director when the dispute arose and that there was no basis to pierce the corporate veil or hold her personally liable for corporate acts.
Issue(s)
Whether the CA committed grave abuse of discretion in admitting photocopies of Progress Billing Nos. 14 to 19, PMIs, and WVOs as secondary evidence. Whether the CA committed grave abuse of discretion in not holding BF Corporation guilty of delay and liable for liquidated damages. Whether the CA committed grave abuse of discretion in finding ESHRI, et al. guilty of malice and bad faith, and in awarding moral and exemplary damages and attorney's fees. Whether the CA erred in setting aside its Resolution granting restitution of garnished funds. Whether the CA erred in holding petitioner Cynthia Roxas-del Castillo personally liable for the judgment award.
Ruling
The petition in G.R. No. 145842 is DISMISSED, while the petition in G.R. No. 145873 is GRANTED. The CA Decision is AFFIRMED with MODIFICATION, absolving Cynthia Roxas-del Castillo from any liability.
Ratio Decidendi
On the admissibility of photocopies (Progress Billing Nos. 14 to 19, PMIs, and WVOs): The Court held that the CA correctly allowed the presentation of photocopied documents as secondary evidence. The requirements for admitting secondary evidence under Rule 130, Section 3(b) of the Rules of Court were met because the original documents were in the custody of ESHRI, and BF had made reasonable notice for their production, which ESHRI failed to comply with. The exchanges between counsel in the stenographic notes clearly indicated that ESHRI was aware of the request, was given time to produce the originals, and was not inclined to do so. Therefore, BF was justified in presenting secondary evidence, and the CA did not commit grave abuse of discretion in admitting them. On BF's alleged delay and defective work: The Court reiterated that factual findings of the CA, when affirmatory of the RTC's, are generally conclusive and may not be reviewed on appeal, except under compelling reasons. In this case, none of the exceptions applied. The Court found no basis to disturb the CA's conclusion that ESHRI failed to prove BF's delay or defective work. The RTC and CA's findings that ESHRI was remiss in its obligations and that BF had sufficiently established its case by preponderance of evidence were upheld. On malice, bad faith, and damages: The Court affirmed the CA's finding that ESHRI's refusal to pay BF's valid claims constituted evident bad faith, entitling BF to moral damages and attorney's fees. This finding was based on the factual determination of the lower courts, which the Supreme Court found no reason to overturn. The award of damages and attorney's fees was a consequence of ESHRI's failure to fulfill its contractual obligations and its evident bad faith in dealing with BF's claims. On the restitution of garnished funds: The Court ruled that the CA correctly dismissed ESHRI's claim for restitution. Restitution is allowed under Section 5, Rule 39 of the Rules of Court only when the executed judgment is reversed or annulled on appeal. In this case, the RTC Decision was affirmed in toto by the CA, meaning the executed judgment was upheld, not reversed. Therefore, the conditions for restitution were not met, and the CA's setting aside of its earlier resolution granting restitution was proper. On the personal liability of Cynthia Roxas-del Castillo: The Court found merit in Roxas-del Castillo's petition and absolved her from personal liability. The Court emphasized the separate juridical personality of a corporation and that corporate officers are generally not personally liable for corporate obligations. It noted that the RTC decision did not provide a factual or legal basis for her personal liability, and her inclusion in the dispositive portion was the only indication. Furthermore, Roxas-del Castillo had severed ties with ESHRI before the dispute arose, and no act of malice, bad faith, or violation of Section 31 of the Corporation Code was attributed to her. Thus, piercing the veil of corporate fiction was not warranted.
Main Doctrine
The Court affirmed the appellate court's decision holding ESHRI liable for unpaid construction work, but absolved former director Cynthia Roxas-del Castillo from liability, emphasizing that corporate officers are not personally liable for corporate obligations unless they act with malice or bad faith, or unless the corporate veil is pierced under exceptional circumstances. The Court also clarified the application of the best evidence rule and the conditions for restitution of garnished funds.