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SWIRE REALTY DEVELOPMENT CORPORATION v. SPECIALTY CONTRACTS GENERAL

FACTS:

Swire Realty Development Corporation (petitioner) filed a Complaint for Sum of Money and Damages against Specialty Contracts General and Construction Services, Inc., represented by its President and General Manager Jose Javellana, Jr. (respondents). The complaint alleged a breach of an Agreement to Undertake Waterproofing Works entered into by the petitioner and the respondents. The respondents were tasked with performing waterproofing works on the petitioner's condominium project known as the Garden View Tower for the amount of Php 2,000,000.00. The payment was to be made in installments based on accomplished work. The parties also agreed that a penalty would be imposed for delays and a retention fee would be released after the completion of the work. After due proceedings, the Regional Trial Court (RTC) rendered a decision in favor of the petitioner. The respondents filed a motion for reconsideration, which was denied by the RTC. The respondents appealed to the Court of Appeals (CA), which reversed the RTC's decision and ordered the petitioner to pay the respondents a certain amount. The petitioner sought a reconsideration, but it was denied by the CA. The petitioner then filed a petition for review on certiorari before the Supreme Court. The Court decided to review the findings of the CA since certain exceptions to the general rule that only questions of law can be raised in a petition for review on certiorari were present in the case. The Court disagreed with the CA's conclusion that additional works were performed by the respondents based on a misapprehension of facts.

ISSUES:

  1. Whether the additional work of the "2nd waterproofing after lightweight concrete topping" on the swimming pool constitutes extra work that should be compensated separately.

  2. Whether the penalty or liquidated damages imposed on the respondents is excessive.

  3. Whether the award of attorney's fees is justified.

RULING:

  1. The additional work of the "2nd waterproofing after lightweight concrete topping" on the swimming pool is deemed included in the enumeration of the covered area in the Agreement. The respondents are therefore not entitled to compensation for this work as it is already considered part of their obligation under the contract.

  2. Yes, the penalty or liquidated damages imposed on the respondents is excessive. However, taking into consideration that the respondents have completed 90% of the project and the absence of any showing of bad faith on their part, as well as the fact that the waterproofing works have already been completed at the respondents' expense, the Court reduces the penalty to the amount of Php 200,000.00 as liquidated damages.

  3. No, the award of attorney's fees is not justified. There is no factual basis to support the award, and it is not enough that it is stated that the petitioner was forced to litigate to protect its interest. The award of attorney's fees is deleted.

PRINCIPLES:

  • In a contract, the scope of works and covered area are enumerated to determine the obligations of the parties involved.

  • Implied in the agreement is that the contractor undertakes to perform all works necessary to accomplish the requirements of the covered area.

  • If the party believes that the work falls outside their obligations, they should raise the matter and seek agreement for additional compensation.

  • Failure to fully comply with obligations under the contract may result in liability for damages and refund of excess payment.

  • Deductions on the contract price may be made based on the extent of incomplete work, taxes, charges, and fees.

  • If a person fails to fulfill their obligation, the obligation may be executed at their cost.

  • Delay in performance of obligations may entitle the other party to damages.

  • Time is of the essence in contracts. Contractors should not unjustly delay the completion of the project.

  • Penalties or liquidated damages in contracts may be reduced by the court if they are deemed excessive.

  • Attorney's fees may be awarded in exceptional cases, but there must be factual, legal, and equitable justification for it.