G.R. No. 177556; December 8, 2010
TRANSCEPT CONSTRUCTION AND MANAGEMENT PROFESSIONALS, INC., Petitioner, vs. TERESA C. AGUILAR, Respondent.

FACTS

Teresa Aguilar engaged Transcept Construction to build a vacation house under a contract priced at over ₱3.4 million. After Aguilar paid a substantial downpayment, Transcept submitted billings which Aguilar questioned as being ahead of actual accomplishment. Following Transcept’s work stoppage, Aguilar had the construction tested, revealing substandard workmanship and materials. The parties subsequently executed a second contract, which revised the completion date and stipulated that the remaining balance of Aguilar’s downpayment would constitute the new contract price of ₱1,632,436.29. Transcept again failed to complete the project by the new deadline.
Aguilar filed a complaint with the Construction Industry Arbitration Commission (CIAC). The CIAC computed the value of Transcept’s accomplished work at ₱1,602,359.97, finding it constituted 98.16% completion of the second contract’s price. It thus ruled the project was substantially complete and denied Aguilar’s claim for liquidated damages. The CIAC ordered Transcept to refund ₱30,076.72 for unaccomplished work and pay ₱75,000 in consultancy fees, but also ordered Aguilar to pay ₱189,909.91 for alleged extra work. The Court of Appeals reversed this decision, awarding Aguilar larger amounts for unaccomplished work and liquidated damages, and disallowing the charge for extra work.

ISSUE

Whether the Court of Appeals erred in its recomputation of damages and in disallowing Transcept’s claim for payment for extra work.

RULING

The Supreme Court modified the appellate court’s decision. It reinstated the CIAC’s finding on the value of unaccomplished work, amounting to ₱30,076.72. The CIAC’s computation, which included direct costs, indirect costs, a septic tank, plus standard industry allowances for contingencies and contractor’s profit, was based on substantial evidence from an ocular inspection and was thus affirmed. However, the Court agreed with the Court of Appeals that liquidated damages were improperly awarded. Since the CIAC validly found the project to be substantially complete (over 95%), the basis for imposing liquidated damages was absent.
Furthermore, the Court upheld the disallowance of Transcept’s claim for ₱189,909.91 for extra work. The evidence demonstrated that the cited work, such as lifting a roof beam, was performed to correct substandard construction from the original contract, not to provide additional features. The second contract was entered into precisely to rectify these prior defects; therefore, Aguilar cannot be charged extra for these corrective actions. The award for consultancy services was correctly increased to ₱135,000, covering payments made to the engineering firm that evaluated Transcept’s substandard work.