GR 168794; (August, 2006) (Digest)
G.R. No. 168794 August 30, 2006
Development Bank of the Philippines vs. Gloria C. Ballesteros, represented by her Attorney-In-Fact, Valentino Rivera
FACTS
Petitioner Development Bank of the Philippines (DBP) and respondent Gloria Ballesteros entered into a contract for the refurbishing of the DBP Cabanatuan Branch building. The contract stipulated a completion period of 35 days, commencing on April 11, 1988, with a penalty of P2,000 per day of delay. During the project, the contractor performed additional works at the behest of DBP’s project architect. Foreseeing delay, the contractor requested a one-week extension without penalty, which DBP approved via a radio message on May 25, 1988, expressly waiving the penalty for that extension period. The project architect accepted the work as 97.2% complete on May 22, 1988. However, a DBP committee later repudiated this acceptance due to noted defects. The project was formally accepted by DBP’s Branch Bidding Committee as 97.35% complete on May 29, 1988.
ISSUE
Whether DBP is liable to pay the contractor the amount representing penalty charges deducted from the retention fee, considering the prior grant of a time extension with a waiver of penalties.
RULING
The Supreme Court ruled in favor of DBP, reversing the lower courts. The legal logic centered on the ineffectiveness of the DBP branch manager’s unilateral waiver of the penalty clause. The contract was a government infrastructure contract governed by Presidential Decree No. 1594 and its implementing rules. These laws explicitly provide that time extensions may only be granted for causes where the government is responsible, such as force majeure or due to government-requested changes. The contractor’s reasons for delay—problems in material delivery and labor issues—were causes for which the government was not responsible under the decree. Consequently, the DBP branch manager lacked the authority to validly grant an extension and waive the penalties for that period. The effective completion date was the formal acceptance by the DBP Bidding Committee on May 29, 1988, resulting in a 14-day delay from the original deadline of May 15, 1988. The deduction of the corresponding P28,000 in liquidated damages from the retention fee was therefore proper and in accordance with the contract and governing law.