G.R. No. 194507 & G.R. No. 194621, September 8, 2014
FEDERAL BUILDERS, INC., Petitioner, vs. FOUNDATION SPECIALISTS, INC., Respondent. / FOUNDATION SPECIALISTS, INC., Petitioner, vs. FEDERAL BUILDERS, INC., Respondent.

FACTS

On August 20, 1990, Federal Builders, Inc. (FBI) entered into a subcontract agreement with Foundation Specialists, Inc. (FSI) for the construction of the diaphragm wall, capping beam, and guide walls of the Trafalgar Plaza in Makati City for a total contract price of ₱7,400,000.00. The agreement stipulated that FBI would pay a 20% downpayment and the balance through progress billings every fifteen days, payable within one week from presentation. FSI filed a complaint for sum of money against FBI before the RTC of Makati City on January 9, 1992, seeking to collect ₱1,635,278.91 representing Billings No. 3 and 4, with interest, plus damages and attorney’s fees, alleging FBI refused to pay despite FSI completing 97% of the works. FBI, in its Answer with Counterclaim, contended FSI completed only 85% of the works, performed defective and non-conforming work, abandoned the jobsite, and caused delays, leading FBI to incur costs for remedial works. The RTC ruled in favor of FSI, ordering FBI to pay ₱1,024,600.00 (representing billings 3 and 4 less ₱33,354.40) with 12% legal interest from August 30, 1991, ₱279,585.00 for the cost of undelivered cement, ₱200,000.00 as attorney’s fees, and costs, while denying FBI’s counterclaim. The CA affirmed the RTC decision but deleted the award for undelivered cement due to lack of substantiation and reduced attorney’s fees to ₱50,000.00. Both parties filed motions for reconsideration, which were denied. They elevated the case to the Supreme Court via separate petitions for review on certiorari. The Court denied FSI’s petition (G.R. No. 194621) for being filed late, leaving only FBI’s petition ( G.R. No. 194507 ) for resolution.

ISSUE

1. Whether the CA erred in affirming FBI’s liability to pay the balance of ₱1,024,600.00 less ₱33,354.40 despite alleged defects in the diaphragm wall constructed by FSI.
2. Whether the CA erred in imposing 12% legal interest from August 30, 1991 on the disputed claim despite no stipulation on interest in the agreement and the agreement not being a loan or forbearance of money.
3. Whether the CA erred in dismissing FBI’s counterclaim for actual damages despite alleged overwhelming evidence.

RULING

1. The Supreme Court upheld the factual findings of the lower courts, ruling that FBI’s liability to pay the balance was proper. The RTC and CA found that FSI had completed 97% of its contracted works, and the non-completion and alleged defects were attributable to FBI’s own fault, particularly its failure to deliver the agreed quantity of cement needed for the capping beam. The alleged defects, such as misalignment and bulges in the diaphragm wall, were anticipated in the contract and were the responsibility of FBI, as the main contractor, to remedy. The Court emphasized that factual findings of the trial court, when affirmed by the appellate court, are generally conclusive and found no exceptional circumstances to warrant a deviation from this rule.
2. The Supreme Court modified the interest rate imposed. It ruled that the CA erred in imposing a 12% per annum interest rate from August 30, 1991. Citing Nacar v. Gallery Frames, the Court held that where the obligation arises from a contract other than a loan or forbearance of money, goods, or credit, and no interest rate is stipulated, the interest due in case of breach shall be 6% per annum from the time of judicial or extrajudicial demand. Since the agreement between FBI and FSI was a construction subcontract and not a loan or forbearance of money, and no interest was stipulated, the legal interest rate should be 6% per annum from the date of judicial demand (the filing of the complaint on January 9, 1992) until June 30, 2013. Furthermore, in accordance with Nacar, from July 1, 2013, until full payment, the interest rate shall be 6% per annum.
3. The Supreme Court affirmed the dismissal of FBI’s counterclaim for lack of merit. It upheld the lower courts’ findings that FBI failed to substantiate its claim for actual damages amounting to ₱8,582,756.29 with sufficient evidence. The Court found that the alleged defects and delays were not proven to be solely attributable to FSI, and FBI’s evidence was inadequate to support its counterclaim.
The petition was PARTLY MERITORIOUS. The Court AFFIRMED the CA Decision with MODIFICATION regarding the imposition of interest. FBI is ordered to pay FSI the principal amount of ₱1,024,600.00 less ₱33,354.40, with legal interest at 6% per annum from January 9, 1992 (date of judicial demand) until June 30, 2013, and at 6% per annum from July 1, 2013 until full satisfaction. The award of ₱50,000.00 as attorney’s fees and the denial of FBI’s counterclaim were sustained.