G.R. No. 208984 & 209245, September 16, 2015
WT Construction, Inc., Petitioner, vs. The Province of Cebu, Respondent. [G.R. No. 209245] Province of Cebu, Petitioner, vs. WT Construction, Inc., Respondent.

FACTS

The Province of Cebu was chosen to host the 12th ASEAN Summit in December 2006 and decided to construct the Cebu International Convention Center (CICC). WT Construction, Inc. (WTCI) won the public bidding for Phase I (substructure) and, after its completion, for Phase II (adjacent works) of the project. As Phase II neared completion, the Province caused WTCI to perform additional works (site development, and additional structural, architectural, electric, and plumbing works) without public bidding, with repeated assurances of prompt payment. WTCI completed the project, including the additional works, in November 2006 and subsequently demanded payment. The Province refused to pay despite several demand letters. WTCI filed a complaint for collection of a sum of money. The Province admitted the additional works but maintained there was no contract and that the works violated the public bidding requirement under R.A. 9184. The parties jointly verified the value of the additional works at ₱263,263,261.41, later adjusted to ₱257,413,911.73 based on official cost standards.
The Regional Trial Court (RTC) ruled in favor of WTCI, ordering the Province to pay ₱257,413,911.73 with 12% legal interest per annum from the filing of the complaint, attorney’s fees, and costs. The Court of Appeals (CA) affirmed the liability but reduced the interest rate to 6% per annum. Both parties filed petitions for review before the Supreme Court. WTCI argued the obligation was a forbearance of money warranting 12% interest from the date of extrajudicial demand. The Province contended there was no valid contract and it could not be liable for interest, attorney’s fees, and costs.

ISSUE

1. Whether the liability of the Province of Cebu is in the nature of a loan or forbearance of money, determining the applicable legal interest rate.
2. Whether the interest due should be computed from the date of the filing of the complaint or from the time extrajudicial demand was made.

RULING

1. The liability is not a loan or forbearance of money; it is a contract of service. The Supreme Court affirmed the CA’s finding that the obligation arose from WTCI’s performance of additional construction works, not from a loan or an acquiescence to the temporary use of money, goods, or credit. Citing precedents like Federal Builders, Inc. v. Foundation Specialists, Inc., the Court held that liabilities from construction contracts are in the nature of contracts of service. Therefore, the applicable legal interest rate is 6% per annum, pursuant to the guidelines in Eastern Shipping Lines, Inc. v. Court of Appeals for obligations not constituting a loan or forbearance of money.
2. Interest should be computed from the date of judicial demand (filing of the complaint). The Court upheld the RTC and CA’s computation of interest from the date the complaint was filed on January 22, 2008. It cited Nacar v. Gallery Frames, which clarified that for obligations not arising from a loan or forbearance, interest in the concept of damages for delay runs from the time of judicial demand (or extrajudicial demand, if duly proven). In this case, the RTC’s judgment, which ordered interest from the filing of the complaint, had become final as to WTCI since it did not appeal or seek reconsideration. Thus, the computation from the date of judicial demand stands.
The Supreme Court denied both petitions. It affirmed the CA Decision with modification, stating that the interest of 6% per annum on the amount of ₱257,413,911.73 shall be computed from January 22, 2008 (date of judicial demand) until full payment. The awards of attorney’s fees and costs of suit were also affirmed.