G.R. No. 164186 & 164347; October 4, 2010
FINANCIAL BUILDING CORPORATION, vs. RUDLIN INTERNATIONAL CORPORATION, BLOOMFIELD EDUCATIONAL FOUNDATION, INC., RODOLFO J. LAGERA, MA. ERLINDA J. LAGERA AND JOSAPHAT R. BRAVANTE; and the consolidated case.

FACTS

Financial Building Corporation (FBC) entered into a Construction Agreement with Rudlin International Corporation (Rudlin) to build a school for a contract price of P6,933,268.00, with a completion date of April 30, 1986. The contract stipulated that time was of the essence and imposed liquidated damages for delay. The project was not completed on time. On June 5, 1986, the parties executed a Letter-Agreement extending the completion date to June 10, 1986, setting a schedule for reconciling accounts and payment of the balance, and explicitly waiving Section 12 (the liquidated damages clause) of the original Construction Agreement. The building was inaugurated and used by Rudlin on June 15, 1986.
FBC filed a complaint for sum of money, claiming a final adjusted contract price of P7,324,128.44 and an unpaid balance of P2,449,208.30. Rudlin countered that the true contract price was only P6,006,965.00, alleging the higher figure in the contract was for loan purposes only, and filed a counterclaim for alleged construction defects and overpayments.

ISSUE

The primary issue was whether the June 5, 1986 Letter-Agreement constituted a novation of the original Construction Agreement, particularly regarding the waiver of liquidated damages for delay.

RULING

The Supreme Court ruled in favor of FBC, affirming with modification the Court of Appeals’ decision. The Court held that the June 5, 1986 Letter-Agreement was a valid novation that modified the original contract. By its clear terms, it extended the completion deadline, established a new payment mechanism, and, most critically, expressly waived Section 12 of the original agreement. This waiver extinguished Rudlin’s right to claim liquidated damages for delays incurred up to that point. Consequently, Rudlin’s counterclaim for such damages, which was based on the pre-June 5 delays, had no legal basis.
Regarding the contract price, the Court upheld the original stipulated amount of P6,933,268.00. Rudlin’s claim of a lower true price, supported only by the self-serving testimony of its president, was insufficient to overcome the written contract’s presumption of validity. The Court also found that FBC substantially complied with its obligations, as Rudlin accepted and used the building. The award for the unpaid balance was thus proper, but the Court deleted the award of moral and exemplary damages to FBC, finding no basis for them. Legal interest on the unpaid balance was imposed from judicial demand.