R.S. Tomas, Inc. v. Rizal Cement Company, Inc.
REITERATIONFacts
The Antecedents: Petitioner R.S. Tomas, Inc. (RST) and respondent Rizal Cement Company, Inc. (RCC) entered into a contract for the supply of labor, materials, and technical supervision for three job orders, including the rewinding and conversion of a transformer, for a total sum of ₱2,944,000.00, with a completion period of 120 days. RST obtained a performance bond from Times Surety & Insurance Co., Inc. (Times Insurance). RST requested extensions and price adjustments, citing the need to import materials and difficulties in sourcing replacements. Later, RST sought to withdraw from the transformer project (J.O. #P-90-214) and requested RCC to directly pay its suppliers. RCC, observing RST's financial status and failure to meet the deadline, terminated the contract, demanded a refund, and claimed against the performance bond. Procedural History: RCC filed a complaint against RST and Times Insurance for sum of money, claiming refund of downpayment, excess costs incurred in hiring a new contractor (Geostar Philippines, Inc.), and liquidated damages. The Regional Trial Court (RTC) dismissed RCC's complaint and awarded damages to RST, finding RCC guilty of misrepresentation and bad faith. The Court of Appeals (CA) reversed the RTC decision, finding that RST failed to prove misrepresentation and was liable for breach of contract, ordering RST to pay RCC the excess payment, costs for Geostar, and liquidated damages. The Petition: RST filed a petition for review on certiorari with the Supreme Court, assailing the CA decision and raising issues of fraud/misrepresentation by RCC regarding the transformer's condition, adequacy of RST's evidence, inexcusable delay, liability for liquidated damages, and liability for the cost of the contract between RCC and Geostar.
Issue(s)
Whether respondent Rizal Cement Company, Inc. was guilty of fraud or misrepresentation as to the actual condition of the transformer subject of the contract. Whether the evidence presented by petitioner R.S. Tomas, Inc. adequately established the true nature and condition of the subject transformer. Whether petitioner R.S. Tomas, Inc. is guilty of inexcusable delay in the completion of the projects. Whether petitioner R.S. Tomas, Inc. is liable for liquidated damages. Whether petitioner R.S. Tomas, Inc. is liable for the cost of the contract between respondent Rizal Cement Company, Inc. and Geostar Philippines, Inc.
Ruling
The petition is denied. The Court of Appeals Decision dated December 19, 2005 and Resolution dated June 6, 2006 in CA-G.R. CV No. 61049 are affirmed. Petitioner R.S. Tomas, Inc. is liable for breach of contract, including liquidated damages and reimbursement for costs incurred by respondent Rizal Cement Company, Inc.
Ratio Decidendi
On the issue of fraud or misrepresentation by Rizal Cement Company, Inc. regarding the transformer's condition: The Court ruled in the negative. Petitioner R.S. Tomas, Inc.'s requests for extension and price adjustment, as evidenced by its letters dated March 9, 1991, March 27, 1991, and May 25, 1991, anchored its inability to complete the projects on the unavailability of materials and the need for importation, not on the transformer's condition being worse than represented. The claim of misrepresentation was only raised in a letter dated June 14, 1991, which was significantly later than the initial justifications for delay. Furthermore, the Court noted that petitioner admitted it made a judgment error in its bid for the transformer project, indicating a failure to adequately assess the scope and costs involved. The Court found no evidence to support allegations of fraud, bad faith, concealment, or misrepresentation on the part of respondent. On the adequacy of petitioner's evidence regarding the transformer's condition: The Court found the evidence insufficient. The testimony of petitioner's president regarding the severely damaged and irreparable condition of the transformer was not substantiated by any other evidence, such as an independent expert witness. The Court considered this testimony self-serving and difficult to verify. This lack of corroborating evidence, coupled with the failure to raise the issue of the transformer's condition at the earliest opportunity, belied petitioner's claim that it could not complete the projects due to the transformer's state. On the issue of inexcusable delay in the completion of projects: The Court affirmed the Court of Appeals' finding that petitioner was guilty of inexcusable delay and non-completion. Petitioner failed to complete the projects within the stipulated 120 days. Its justifications for delay, such as the need to import materials and difficulties in sourcing replacements, were found to be insufficient grounds to excuse the breach. The Court emphasized that the scope of work clearly indicated the need for replacement of windings and bushings, which petitioner should have anticipated. The requests for price adjustment and direct payment to suppliers further indicated petitioner's inability to manage the project as agreed. On the liability for liquidated damages: The Court held petitioner liable for liquidated damages as stipulated in the contract. The contract provided for liquidated damages of ₱29,440.00 per day of delay, limited to 10% of the project cost (₱294,400.00). Petitioner failed to complete any of the three projects within the agreed period, and the percentage of work accomplishment was not adequately shown. Therefore, the Court applied the general rule of upholding the parties' freedom to contract and enforced the agreed liquidated damages, finding no reason to reduce the amount as in cases of partial fulfillment or unconscionable sums. On the liability for the cost of the contract between respondent and Geostar Philippines, Inc.: The Court affirmed petitioner's liability for the costs incurred by respondent in engaging Geostar to complete the unfinished projects. Since petitioner was found to be in breach of contract and failed to complete the projects, it is liable for damages that are the natural and probable consequences of its breach. This includes the expenses respondent had to incur to have the projects finished by another contractor. The Court found no reason to depart from the CA's conclusion requiring reimbursement for these costs, in addition to the return of excess advance payments and liquidated damages.
Main Doctrine
A contractor who fails to complete projects within the agreed period due to unavailability of materials and requests for price adjustments, without alleging fraud or misrepresentation by the other party at the earliest opportunity, is liable for breach of contract, liquidated damages, and reimbursement for costs incurred by the other party to complete the projects.