Star Electric v. R & G Construction
REITERATIONFacts
The Antecedents: Petitioner, Star Electric Corporation, entered into a Construction Contract with respondent, R & G Construction Development and Trading, Inc., as a sub-contractor for electrical, plumbing, and mechanical works on a commercial building (Project) for P2,571,457.21, payable via progress billing. Respondent paid a downpayment of P580,000. Petitioner commenced work, but respondent subsequently refused to pay progress billings, citing defective work and improper installation. Petitioner threatened to stop work, and respondent formally terminated the contract, alleging secondhand materials and improper installation. Procedural History: Petitioner filed a complaint for collection of sum of money. The Regional Trial Court (RTC) ruled in favor of petitioner, ordering respondent to pay P1,153,634.09 plus legal interest, attorney's fees, and costs. The Court of Appeals (CA) reversed the RTC decision, dismissing petitioner's complaint and ordering it to pay respondent P540,009.75 as liquidated damages, finding both parties guilty of breach of contract. The CA's decision was based on the premise that petitioner's work was defective and materials were substandard, while respondent failed to give petitioner an opportunity to rectify the defects. The Petition: Petitioner filed a petition for review with the Supreme Court, assailing the CA's decision.
Issue(s)
Whether the Court of Appeals erred in setting aside the RTC Decision and in ordering petitioner to pay respondent liquidated damages for its alleged delay in the construction of the project. Whether respondent proved petitioner's alleged poor workmanship and use of substandard materials. Whether respondent caused the delay in the construction of the project. Whether respondent committed a breach of contract in refusing to pay petitioner's progress billings.
Ruling
The Supreme Court granted the petition, reversed and set aside the Court of Appeals Decision and Resolution, and reinstated the RTC Decision with modification. The respondent was ordered to pay the petitioner P1,153,634.09 representing the unpaid value of the service contract, with legal interest from demand; P50,000.00 for attorney's fees; and costs of suit.
Ratio Decidendi
On whether the CA erred in ordering petitioner to pay liquidated damages for delay: The Supreme Court ruled that the CA erred. While petitioner's work extended beyond the original three-month period, the evidence showed that the delay was caused by the respondent's numerous modifications to the construction plans, including adding a fifth and sixth floor, and extending the frontage and back. These revisions necessitated changes in petitioner's work, such as altering material lengths and relocating systems, and at times required petitioner to wait for other structures to be completed. The Court found that the respondent's own actions, including the alterations to the plans which led to the revocation of the building permit, were the primary cause of the delay, not petitioner's performance. Therefore, the award of liquidated damages was without basis. On whether respondent proved petitioner's poor workmanship and use of substandard materials: The Supreme Court held that respondent failed to prove its allegations by preponderant evidence. The respondent's claims were based on memos and a letter citing secondhand breakers and improper installation, but these were not sufficiently substantiated. The Court noted that respondent had inspected panel boards before delivery and had the opportunity to raise immediate objections on-site, which they did not consistently do. Furthermore, respondent's contracts with CP Giron and PTL Power, presented to prove the cost of rectifying petitioner's work, were unnotarized and not properly authenticated, failing to establish the specific defective works repaired. The Court considered these allegations as bare and self-serving assertions. On whether respondent caused the delay in the construction: The Supreme Court affirmed that respondent caused the delay. The evidence, including an Inspection Report from the City Building Official, confirmed significant modifications to the original four-floor plan, including the addition of a fifth and sixth floor and alterations to partitions. These changes directly impacted petitioner's scope of work and timeline. The Court emphasized that respondent's actions in altering the plans, which led to the revocation of the building permit, were the root cause of the project's extended duration, not petitioner's performance. On whether respondent committed a breach of contract in refusing to pay petitioner: The Supreme Court found that respondent's refusal to pay petitioner's progress billings was without basis, constituting a breach of contract. The Court found no proof of petitioner's alleged violation of contractual obligations. Instead, the evidence indicated that petitioner had performed its obligations in accordance with the contract, and respondent's rejection of work and refusal to pay were inconsistent with their usual practice of on-site inspection and immediate rectification. The Court agreed with the RTC's finding that petitioner was entitled to payment for the work accomplished, as respondent's claims of defective work were unsubstantiated. The Supreme Court found the award of attorney's fees to be just and equitable. Given respondent's unjustified refusal to pay petitioner's plainly valid and demandable claims, petitioner was compelled to incur litigation expenses for 12 years. The Court reduced the attorney's fees to P50,000.00, adhering to the principle of reasonableness. Costs of suit were awarded to petitioner as the prevailing party.
Main Doctrine
The Supreme Court reinstated the RTC decision, holding that the respondent failed to prove the petitioner's alleged poor workmanship and use of substandard materials. The Court found that the delay in the project was caused by the respondent's modifications to the construction plans, not by the petitioner. Consequently, the award of liquidated damages by the CA was reversed, and the respondent was ordered to pay the petitioner the unpaid balance of the contract, attorney's fees, and costs of suit.