WT Construction v. Province of Cebu
REITERATIONFacts
The Antecedents: The Province of Cebu (Province) decided to construct the Cebu International Convention Center (CICC) for the ASEAN Summit. WT Construction, Inc. (WTCI) won the bids for Phase I and Phase II of the project. As Phase II neared completion, the Province requested WTCI to perform additional works, including site development and structural, architectural, electrical, and plumbing works, with assurances of prompt payment. WTCI agreed and completed these additional works before the ASEAN Summit. Procedural History: WTCI billed the Province for the additional works, aggregating to ₱261,217,886.66. The Province refused to pay, prompting WTCI to file a collection case. The Province admitted the additional works but denied a contract therefor, citing the lack of public bidding under Republic Act No. (RA) 9184. The parties jointly verified the value of the additional works at ₱263,263,261.41. The Regional Trial Court (RTC) ruled in favor of WTCI, ordering payment of ₱263,263,261.41 with 12% legal interest, attorney's fees, and costs. Upon reconsideration, the RTC reduced the actual damages to ₱257,413,911.73 but maintained the 12% interest and other awards. The Court of Appeals (CA) affirmed the RTC's order but reduced the legal interest rate to 6% per annum, finding the Province's refusal to pay malicious and in bad faith. The CA deemed the existence of a contract immaterial due to the Province's admission of liability for the amount and payment thereof. The Petition: Both WTCI and the Province filed petitions for review on certiorari. WTCI argued for a 12% interest rate, claiming the obligation was a forbearance of money and that interest should run from extrajudicial demand. The Province contended there was no perfected contract, or if there was, it was void for lack of public bidding, and that it should not be liable for interest, attorney's fees, or costs.
Issue(s)
Whether the liability of the Province of Cebu for additional works performed on the CICC constitutes a loan or forbearance of money, or a contract of service, and the applicable legal interest rate. Whether the interest due should be computed from the date of the filing of the complaint or from the time extrajudicial demand was made, considering the finality of the RTC's judgment.
Ruling
The Supreme Court denied both petitions, affirming the Court of Appeals' Decision and Resolution. The Court upheld the Province of Cebu's liability to WTCI in the amount of ₱257,413,911.73 for the additional works. The Court ruled that the liability is not a loan or forbearance of money but a contract of service, thus subject to a 6% legal interest rate. The Court also affirmed that the legal interest shall be computed from the time of the filing of the complaint, as WTCI failed to appeal this specific point from the RTC's ruling.
Ratio Decidendi
On the nature of the liability (loan or forbearance of money vs. contract of service) and applicable interest rate: The Court held that the liability of the Province of Cebu to WTCI for the additional works performed on the CICC does not constitute a loan or forbearance of money. Citing Sunga-Chan v. CA and Estores v. Supangan, the Court explained that forbearance of money involves an acquiescence to the temporary use of money, goods, or credits. In this case, WTCI performed actual services, specifically site development and additional structural, architectural, electrical, and plumbing works. The Court reiterated its ruling in Federal Builders, Inc. v. Foundation Specialists, Inc. that liabilities arising from construction contracts for works performed are in the nature of contracts of service, not loans or forbearance of money. Therefore, the applicable legal interest rate for damages awarded is 6% per annum, as per Eastern Shipping Lines, Inc. v. Court of Appeals and its subsequent update in Nacar v. Gallery Frames. On the computation of interest: The Court found merit in WTCI's argument that interest should be computed from the date of extrajudicial demand (February 8 and 12, 2007). However, the Court noted that WTCI did not appeal nor seek reconsideration of the RTC's May 20, 2009 Judgment, which awarded interest computed from the filing of the complaint (January 22, 2008). Since this specific determination by the RTC had become final as against WTCI, the Court was constrained to uphold the rulings of the RTC and CA that the legal interest shall be computed from the time of the filing of the complaint. The Court also affirmed that the 6% legal interest rate shall be imposed from the finality of the judgment until its satisfaction, as this period is deemed an equivalent to a forbearance of credit.
Main Doctrine
Liabilities arising from construction contracts for additional works, even without public bidding, do not partake of loans or forbearance of money but are in the nature of contracts of service, thus subject to a 6% legal interest rate on damages.