G.R. No. 230645 July 1, 2019
Tondo Medical Center, represented by Dr. Maria Isabelita M. Estrella, Petitioner vs. Rolando Rante, doing business under the name and style of Jaderock Builders, Respondent

FACTS

Petitioner Tondo Medical Center (TMC) entered into a construction contract with respondent Rolando Rante for a renovation project. The contract stipulated a 240-day completion period. TMC alleged that respondent incurred significant delays despite several extensions and accommodations, including the deletion of a portion of the work scope. After the final extended deadline of June 27, 2014, passed with the project unfinished, TMC, through its new Medical Center Chief Dr. Estrella, issued a Notice to Terminate. Following a review, TMC formally terminated the contract for unjustified default, forfeited the performance bond, and blacklisted respondent.
Respondent filed a Request for Arbitration with the Construction Industry Arbitration Commission (CIAC). The CIAC, in its Final Award, upheld the validity of TMC’s termination of the contract. However, it simultaneously awarded monetary claims in favor of respondent, including a portion of the retention fee, the return of the entire performance bond, payment for variation orders, and damages. TMC appealed to the Court of Appeals, which affirmed the CIAC award. TMC now argues before the Supreme Court that it was error to grant monetary awards to a contractor found to be in default.

ISSUE

Whether the CIAC and the Court of Appeals erred in awarding monetary claims to the respondent contractor despite a parallel finding that the petitioner’s termination of the construction contract was valid and justified.

RULING

The Supreme Court denied the petition and affirmed the assailed CA decision. The Court clarified that a finding of valid termination due to contractor default does not automatically preclude the contractor from recovering legitimate amounts earned for work done. The CIAC’s factual findings, affirmed by the CA, showed that respondent had accomplished 65.48% of the project. The monetary awards represented compensation for this actual work completed and accepted, unpaid variation orders for additional work performed, and the cost of unreturned tools and equipment. The forfeiture of the performance bond was also correctly disallowed, as the bond is intended to answer for damages suffered by the owner due to the contractor’s failure to complete the work. Here, the CIAC offset respondent’s claims against TMC’s proven damages from the delay, resulting in a net award. The Court emphasized that the CIAC, exercising its technical expertise, has the authority to determine the respective rights and obligations of the parties, including the valuation of work done and the adjudication of countervailing claims, even after a valid termination. The awards were not a condonation of the breach but a settlement of mutual debts and credits arising from the partially executed contract.