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R.S. TOMAS v. RIZAL CEMENT COMPANY

FACTS:

On December 28, 1990, petitioner R.S. Tomas, Inc. and respondent Rizal Cement Company, Inc. entered into a Contract for the supply of labor, materials, and technical supervision for three projects. Petitioner obtained a performance bond from Times Surety & Insurance Co. Inc. in an amount equivalent to 50% of the contract price. Petitioner requested for two extensions to complete the projects due to the need to import materials and the failure of its supplier to deliver the materials. Petitioner also requested respondent's assistance in acquiring materials and supplies and to allow it to back out from one of the projects. In response, respondent observed that petitioner could no longer complete the projects and terminated the contract. Respondent demanded for the refund of the amount already paid and filed a Complaint for Sum of Money. Respondent entered into contracts with another company for the completion of the projects. Petitioner denied liability and claimed that it failed to complete the projects due to respondent's fault and misrepresentation regarding the condition of the transformer. After the presentation of evidence, the RTC rendered a decision in favor of petitioner.

The case involves a contract for the rewinding and conversion of a transformer to be installed by the petitioner for the respondent. The contract consisted of three job orders. Petitioner failed to complete the projects within the agreed period and alleged that respondent committed fraud and misrepresentation as to the true nature of the transformer. The trial court found that respondent failed to inform petitioner of the true condition of the transformer, justifying petitioner's failure to complete the projects. The Court of Appeals, however, reached a different conclusion, ruling in favor of respondent.

The issues raised in the petition for review are whether respondent was guilty of fraud or misrepresentation regarding the condition of the transformer, whether the evidence presented by petitioner adequately established the condition of the transformer, whether there was inexcusable delay by petitioner, whether petitioner was liable for liquidated damages, and whether petitioner was liable for the cost of the contract between respondent and another contractor. The Court, after a review of the evidence, found no reason to depart from the conclusions of the Court of Appeals.

ISSUES:

  1. Whether or not there was a breach of contract

  2. Whether or not the defense of the petitioner is tenable

  3. Whether petitioner is solely responsible for the failure to complete the projects without justifiable ground.

  4. Whether the damaged condition of the subject transformer was adequately proven.

  5. Whether respondent acted in bad faith, fraud, deceit, or misrepresentation in dealing with petitioner.

  6. Whether or not the petitioner is liable for liquidated damages for non-completion of the projects within the agreed upon time.

  7. Whether or not the petitioner is liable for the return of excess payments and the cost of contracting another contractor.

RULING:

  1. There was a breach of contract as the respondent failed to perform its part of the contract on time and did not complete the projects.

  2. The defense of the petitioner is not tenable because there was no allegation of fraud, bad faith, concealment, or misrepresentation on the part of the respondent as to the true condition of the subject transformer.

  3. Yes, petitioner is solely responsible for the failure to complete the projects without justifiable ground. Petitioner failed to thoroughly study the entirety of the projects before offering its bid, repeatedly asked for extensions, and requested financial assistance from respondent. The evidence presented shows that petitioner was unable to fulfill its obligations and did not take into consideration the source and cost of materials.

  4. No, the damaged condition of the subject transformer was not adequately proven. Petitioner failed to present any other evidence to substantiate the claim that the transformer was severely damaged and beyond repair. The lack of evidence and petitioner's failure to raise this issue earlier cast doubt on its claim.

  5. No, respondent did not act in bad faith, fraud, deceit, or misrepresentation in dealing with petitioner. Petitioner admitted that its representatives were given the opportunity to inspect the subject transformer before offering its bid. Petitioner's failure to conduct a thorough inspection and its willingness to offer a bid without considering the condition of the transformer show its own negligence and inexcusable conduct.

  6. The petitioner is liable for liquidated damages for non-completion of the projects within the agreed upon time. The court upheld the agreement of the parties to impose liquidated damages in the amount of P29,440.00 per day of delay, limited to a maximum of 10% of the project cost or P294,400.00. Since the petitioner failed to complete the projects within 120 days as agreed upon, it is held liable for the maximum amount of liquidated damages due to non-completion of all three projects.

  7. The petitioner is liable for the return of excess payments and the cost of contracting another contractor. Because of the petitioner's delay and breach of contract, the respondent was forced to contract the services of another contractor in order to finish the projects. Therefore, the court upheld the ruling of the Court of Appeals requiring the petitioner to return the excess payments and pay the cost of contracting another contractor, in addition to the liquidated damages.

PRINCIPLES:

  • The findings of fact of the Court of Appeals (CA) are final and conclusive and cannot be reviewed on appeal to the Supreme Court, except when there are recognized exceptions such as conflicting findings of fact.

  • In determining whether there was a breach of contract, the Court reviews the probative value of the evidence presented before the trial court.

  • A party cannot ask for additional payment to cover expenses that were already part of the undertaking in the contract.

  • Breach of contract is defined as the failure without legal reason to comply with the terms of a contract. In this case, petitioner's failure to complete the projects constitutes a breach of contract.

  • Bad faith requires a dishonest purpose or some moral obliquity and conscious doing of a wrong. Fraud includes an inducement through insidious machination, and deceit exists when material facts are concealed or omitted to induce consent. These allegations require clear and convincing proof.

  • Contractors have an obligation to thoroughly study the projects they undertake and to obtain as much information as possible on the conditions and materials involved. Failure to do so may result in inexcusable negligence.

  • Parties are free to agree on the terms and conditions of a contract as long as they are not contrary to law, morals, good customs, public order or public policy.

  • Liquidated damages may be imposed if the party bound by the contract fails to fulfill its obligations within the agreed upon time.

  • The breaching party is liable for damages that are the natural and probable consequences of its breach of obligation.