Federal Builders v. Foundation Specialists
REITERATIONFacts
The Antecedents: Federal Builders, Inc. (FBI) entered into a construction agreement with Foundation Specialists, Inc. (FSI) for the construction of the diaphragm wall, capping beam, and guide walls of the Trafalgar Plaza for ₱7,400,000.00. FSI was to receive a downpayment and progress billings payable within one week of presentation. Procedural History: FSI filed a complaint for Sum of Money against FBI, seeking ₱1,635,278.91 for unpaid Billings No. 3 and 4, with interest, alleging 97% completion. FBI countered that FSI only completed 85% of the work, abandoned the jobsite, and that FBI incurred costs for remedial works due to FSI's alleged defects. The RTC ruled in favor of FSI, ordering FBI to pay ₱1,024,600.00 (Billings 3 & 4 less ₱33,354.40) with 12% legal interest from August 30, 1991, ₱279,585.00 for undelivered cement, and ₱200,000.00 for attorney's fees. FBI's counterclaim was denied. The CA affirmed with modification, deleting the award for undelivered cement and reducing attorney's fees to ₱50,000.00, but maintained the 12% interest rate. The Petition: Both parties appealed to the Supreme Court. FSI argued for the reinstatement of the cement cost and higher attorney's fees. FBI questioned the award for Billings 3 & 4, the interest rate, and the dismissal of its counterclaim. The Supreme Court denied FSI's petition due to late filing. FBI's petition is the subject of this decision.
Issue(s)
Whether the Court of Appeals erred in affirming the trial court’s judgment that Federal Builders, Inc. was liable to pay the balance of ₱1,024,600.00 less ₱33,354.40 despite alleged defective and out-of-specification work by Foundation Specialists, Inc., and in dismissing the counterclaim of Federal Builders, Inc. for alleged actual damages. Whether the Court of Appeals erred in imposing a 12% legal interest rate on the disputed claim despite no stipulation in the agreement and the agreement not being a loan or forbearance of money. Whether the counterclaim of Federal Builders, Inc. for alleged actual damages should be granted.
Ruling
The Supreme Court denied FBI's petition, affirming the CA's decision with modification regarding the interest rate. FBI is ordered to pay FSI ₱1,024,600.00 less ₱33,354.40, with interest at six percent (6%) per annum from August 30, 1991, until full payment.
Ratio Decidendi
On the liability for Billings 3 and 4, the alleged defects, and the dismissal of the counterclaim: The Court affirmed the findings of the RTC and CA, holding that factual findings of these courts, when affirmed, are accorded high respect and considered conclusive. The evidence showed that FSI completed 97% of its contracted works. The alleged defects and non-completion of the remaining 3% were attributable to FBI's own fault, specifically its failure to deliver cement as agreed, which prevented FSI from constructing the capping beam. Furthermore, issues like misaligned diaphragm walls and erroneous rebar dowel locations were anticipated and had stipulated remedies, with FBI's own actions contributing to these issues. FBI's counterclaim for damages was denied for lack of factual and legal basis, as the alleged defects were not proven to be solely FSI's fault and FBI had already paid a substantial amount based on its evaluation of FSI's work without objection. The evidence presented did not sufficiently establish that the alleged defects were solely attributable to FSI's negligence or fault. Instead, the findings indicated that FBI's own actions and failures, such as the non-delivery of cement and the handling of excavation, contributed to or caused the issues complained of. Given that FSI had substantially completed its work and the alleged defects were either anticipated or caused by FBI, FBI's claim for damages incurred in rectifying these issues lacked a strong factual and legal basis. On the applicable interest rate: The Court found merit in FBI's argument that the 12% interest rate was inapplicable. Citing Eastern Shipping Lines, Inc. v. Court of Appeals and Nacar v. Gallery Frames, the Court clarified that the 12% interest rate applies to loans or forbearance of money. For obligations not constituting a loan or forbearance of money, such as construction contracts, the interest rate on damages awarded is at the discretion of the court, typically 6% per annum. The Court reiterated that this case involves a breach of a construction contract for services, not a loan or forbearance of money, thus the 6% interest rate is appropriate. The Court noted that the 6% interest rate shall be imposed from the finality of the judgment until satisfaction, in line with Nacar v. Gallery Frames, but affirmed the RTC's ruling that interest should commence from August 30, 1991, the date of extrajudicial demand, as the claim was established with reasonable certainty. On whether the counterclaim of Federal Builders, Inc. for alleged actual damages should be granted: The Court upheld the dismissal of FBI's counterclaim. The evidence presented did not sufficiently establish that the alleged defects were solely attributable to FSI's negligence or fault. Instead, the findings indicated that FBI's own actions and failures, such as the non-delivery of cement and the handling of excavation, contributed to or caused the issues complained of. Given that FSI had substantially completed its work and the alleged defects were either anticipated or caused by FBI, FBI's claim for damages incurred in rectifying these issues lacked a strong factual and legal basis.
Main Doctrine
In construction contracts, where the obligation is breached and it consists in the payment of a sum of money arising from services rendered, the interest rate shall be six percent (6%) per annum, not twelve percent (12%), as it does not constitute a loan or forbearance of money. The six percent (6%) interest rate shall be imposed from the finality of the judgment until satisfaction thereof.