CASE DIGEST: Transcept Construction vs. Aguilar

G.R. No. 177556 : December 8, 2010




Teresa C. Aguilar (Aguilar) entered into an Owner-General Contractor Agreement (First Contract) with petitioner Transcept for the construction of a two-storey split level vacation house (the Project) located at Batangas. Under the First Contract, the Project would cost P3,486,878.64 and was to be completed within 210 working days from the date of the First Contract.

Transcept submitted its First and second Billing, respectively, to Aguilar for work accomplishments from start to the present. Only the first billing was paid by Agilar as he questioned the 2nd billing for being 45 days ahead of actual accomplishment. Thus, transcept stopped working.

Thereafter, Aguilar hired ASTEC, a duly accredited testing laboratory, to test Transcepts quality of work and it was discovered that the test showed substandard works done by Transcept. ASTEC, through Engr. Jaime E. Rioflorido (Engr. Rioflorido), sent Aguilar an Evaluation of Contractors Performance which showed that aside from the substandard workmanship and use of substandard materials, Transcept was unreasonably and fraudulently billing Aguilar.

Transcept and Aguilar entered into a Construction Contract (Second Contract) to extend the date of completion from 7 June 2005 to 29 July 2005 and to use up the P1.6 million downpayment paid by Aguilar. Aguilar hired the services of Engr. Edgardo Anonuevo (Engr. Anonuevo) to ensure that the works would comply with the plans in the Second Contract. Transcept failed to finish the Project on 29 July 2005, alleging that the delay was due to additional works ordered by Aguilar. Transcept also asked for payment of the additional amount of P290,824.96. Aguilar countered that the Second Contract did not provide for additional works.

On 2 September 2005, Aguilar sent a demand letter to Transcept asking for payment of P581,844.54 for refund and damages. Transcept ignored the demand letter. On 6 September 2005, Aguilar filed a complaint against Transcept before CIAC.

The CIAC ruled against Aguilar. On appeal, the Court of Appeals ruled that Transcept only accomplished 87.81% of the contract price thus entitling Aguilar to liquidated damages equivalent to 10% of P1,632,436.29 or P163,243.63. Thus, the CIAC was reversed. Transcept filed a motion for reconsideration but the same was denied. Hence, this petition.

ISSUE: Whether or not then CA erred in ruling that Aguilar is entitled to liquidated damages

HELD: Yes. CA Decision modified

CIVIL LAW- if the obligation had been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee.

The Court of Appeals ruled that CIAC erred in adopting Transcepts computation of unaccomplished works. The Court of Appeals agreed with Aguilar that the CIACs computation was based on what Transcept submitted which was based on the original contract price of P3,486,878.64 instead of the contract price of P1,632,436.29 under the Second Contract.

However, the Court of Appeals failed to consider the CIACs as well as its own finding that Aguilar did not present any evidence on indirect costs for General Requirements. In addition, Aguilars counsel did not cross-examine Transcepts witnesses. In short, Aguilar did not dispute but merely accepted Transcepts computation on indirect expenses. Aguilar did not interpose any objection to the computation until after the CIAC ruled that Transcept substantially complied with the Project.

Section 20.11(A) (a) of the Construction Industry Authority of the Philippines (CIAP) Document No. 102 provides that "there is substantial completion when the Contractor completes 95% of the Work, provided that the remaining work and the performance of the work necessary to complete the Work shall not prevent the normal use of the completed portion."

According to CIACs computation, Transcepts accomplishment amounted to 98.16% of the contract price. It is beyond the 95% required under CIAP Document No. 102 and is considered a substantial completion of the Project. We thus agree with CIACs application of Article 1234 of the Civil Code, which provides that "if the obligation had been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee.

There being a substantial completion of the Project, Aguilar is not entitled to liquidated damages but only to actual damages of P30,076.72, representing the unaccomplished works in the Second Contract as found by the CIAC, which is the difference between the contract price of P1,632,436.29 and the accomplishment of P1,602,359.97.

The CIAC found that Aguilar demanded additional works from Transcept. The CIAC found that the additional works include the balcony, lifting of roof beams, and extra fast walls which are not covered by the Second Contract. However, we agree with the Court of Appeals that the works done were just for correction of the substandard works done under the First Contract. During the ocular inspection, Aguilar pointed out that the lifting of the roof beam was done because the construction was three meters short of that specified in the First Contact. Hence, while the roofing system is excluded from the Second Contract, it could not be said that the lifting of the roof beam is an additional work on the part of Transcept.

The Court notes that the Second Contract was entered into by the parties precisely to correct the substandard works discovered by ASTEC. Hence, Aguilar should not be made to pay for works done to correct these substandard works.

Petition Partly Granted

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