Philippine Commercial & International Bank v. William Golangco Construction Corporation
REITERATIONFacts
The Antecedents: William Golangco Construction Corporation (WGCC) and Philippine Commercial International Bank (PCIB) entered into a contract for the construction of the PCIB Tower II extension. Following the completion and turnover of the project, PCIB accepted the work. However, in 1993, portions of the granite wash-out finish on the exterior walls began to peel and fall. WGCC made initial repairs, but PCIB subsequently contracted another company to re-do the entire finish, incurring significant expenses. PCIB sought reimbursement for these repair costs, while WGCC counterclaimed for material cost adjustments. Procedural History: The dispute was initially brought before the Construction Industry Arbitration Commission (CIAC). The CIAC ruled that PCIB was entitled to recover P9,741,829.00 for repairs and awarded WGCC's counterclaim of P5,777,157.84, resulting in a net award of P3,964,671.16 to PCIB, with legal interest. Both parties appealed to the Supreme Court. In G.R. No. 142830, the Supreme Court reversed the CIAC's decision regarding WGCC's liability for construction defects, effectively absolving WGCC of the amount claimed by PCIB. In G.R. No. 127275, PCIB's appeal regarding material cost adjustments was also ruled against. Subsequently, WGCC sought execution of the CIAC Decision, leading to disputes over the inclusion and computation of legal interest. These disputes were elevated to the Court of Appeals (CA), which issued a decision partly granting WGCC's petition, and then denied motions for reconsideration, leading to the present petitions before the Supreme Court. The Petition: Before the Supreme Court are petitions for review on certiorari under Rule 45 of the Rules of Court, consolidated as G.R. Nos. 195372 and 195375. The core issues revolve around the proper computation and application of legal interest on the awards. Specifically, the petitions question whether the CA erred in directing PCIB to pay 6% interest per annum on the principal award (P5,777,157.84) reckoned from June 21, 1996, and in denying WGCC's prayer for 12% interest per annum on the entire award from April 27, 2006, until full payment. The Supreme Court affirmed the CA's decision, holding that WGCC is entitled to compensatory interest at 6% from the issuance of the CIAC Decision and that the principal award, not being a loan or forbearance of money, is subject to this rate. The Court also clarified the application of interest on interest and the rates applicable based on relevant jurisprudence and BSP circulars.
Issue(s)
Whether the Court of Appeals erred in directing PCIB to pay compensatory interest on the principal award at the rate of 6% per annum, reckoned from June 21, 1996, the date of the issuance of the CIAC Decision, until full payment. Whether the Court of Appeals erred in denying WGCC's prayer to treat the entire judgment award as a forbearance of money that is subject to interest at the rate of 12% per annum, reckoned from the finality of the Court's Decision in G.R. No. 142830 on April 27, 2006, until full payment; and whether WGCC is entitled to interest on the entire award from the finality of the Supreme Court's decision until full satisfaction.
Ruling
The Court affirmed the assailed Decision and Resolution of the Court of Appeals. It directed the Construction Industry Arbitration Commission to compute the remaining liability of Philippine Commercial and International Bank (now Banco De Oro Unibank, Inc.) and effect payment thereof in favor of William Golangco Construction Corporation within thirty (30) days from receipt of the records of the case.
Ratio Decidendi
On the entitlement to compensatory interest reckoned from the issuance of the CIAC Decision: The Court held that WGCC is entitled to compensatory interest on the principal award of ₱5,777,157.84. This award arose from PCIB's breach of the construction contract, which did not constitute a loan or forbearance of money. Therefore, the interest falls under compensatory interest as per Article 2210 of the Civil Code and paragraph 2 of the guidelines in Eastern Shipping Lines v. Court of Appeals. The Court found PCIB's argument against liability for interest to be without merit. Although the CIAC Decision initially imposed interest on the net award to PCIB, the Supreme Court's decision in G.R. No. No. 142830 absolved WGCC of liability for construction deficiencies. However, the principal award in favor of WGCC for material cost adjustment remained subject to compensatory interest. The Court agreed with the CA that the CIAC Decision, by awarding WGCC's counterclaim and noting PCIB's failure to pay, implicitly acknowledged WGCC's entitlement to interest due to PCIB's breach. The CA correctly reckoned the imposition of compensatory interest from the issuance of the CIAC Decision on June 21, 1996, as this was the date when WGCC's claim became liquidated, satisfying the requirement for the commencement of interest accrual under Eastern Shipping. On WGCC's entitlement to interest imposed on the entire award: The Court clarified that WGCC is not entitled to "interest on interest" as contemplated by Article 2212 of the Civil Code, which applies only to accrued interest. However, consistent with Eastern Shipping, the Court ruled that WGCC is entitled to interest at the rate of 6% per annum applied to the entire award, computed from the finality of the Supreme Court's decision until full satisfaction. This period is deemed an equivalent to a forbearance of credit. The Court noted that PCIB's remaining liability would be the sum of the principal award and the compensatory interest, less the amount already paid via checks. This remaining balance would then earn interest at 6% per annum from the date of the Supreme Court's decision until full payment.
Main Doctrine
The Court affirmed the Court of Appeals' ruling that the principal award for material cost adjustment is subject to compensatory interest at the rate of 6% per annum from the date of the CIAC Decision until full payment, and that the entire award, after payment of checks, shall earn interest at the rate of 6% per annum from the date of the Supreme Court's Decision until full satisfaction, as it is deemed a forbearance of credit during the interim period.