THIRD DIVISION
[G.R. No. 232096. October 6, 2021.]
LAND REGISTRATION AUTHORITY (LRA), petitioner, vs. EAST ASIA CONSTRUCTION, INC., REPRESENTED BY ITS PRESIDENT, ENGR. ROBERT C. CERRADA, respondent.
NOTICE
Sirs/Mesdames :
Please take notice that the Court, Third Division, issued a Resolution datedOctober 6, 2021, which reads as follows: HTcADC
"G.R. No. 232096 (Land Registration Authority (LRA), Petitionerv. East Asia Construction, Inc., represented by its President, Engr. Robert C. Cerrada, Respondent.)— This Petition 1 assails the Decision 2 dated 08 September 2016 and Resolution 3 dated 25 May 2017 of the Court of Appeals (CA) in CA-G.R. CV No. 102313, which affirmed with modification the Decision dated 03 March 2014 4 of Branch 227, Regional Trial Court (RTC), Quezon City in Civil Case No. Q-03-50443.
Antecedents
The instant Petition stemmed from a Complaint 5 for injunction and damages with prayer for issuance of a writ of preliminary injunction filed by respondent East Asia Construction, Inc. (respondent) against petitioner Land Registration Authority (petitioner) and Benedicto B. Ulep (Administrator Ulep), in his capacity as LRA Administrator. 6
On 10 February 1999, petitioner awarded respondent the contract to build the Twin Registry of Deeds Building in Laoag City, Ilocos Norte (Project), following a public bidding held on 14 November 1997. Due to the delay in the release of funds for the Project, it was only on 16 April 1999 that the parties entered into a Construction Agreement (Contract). The contract price stated in the contract is Php12,061,315.77 covering all works specified in the Scope of Work, which shall be completed within 180 calendar days from commencement of work. Respondent commenced construction after it received the Notice to Proceed on 05 July 1999. 7
While respondent was working on the Project, it submitted several progress billings to petitioner. From June 2001 up to November 2001, respondent submitted Billing Nos. 21 to 24 to petitioner, including charges for change/extra work orders and price adjustment amounting to Php1,417,903.30. 8
On 15 October 2001, respondent informed petitioner that it will be slowing down its work on the project due to non-payment of billings. Eventually on 15 November 2001, respondent suspended its work on the Project in accordance with Section CI-10, paragraph (2), subsection (e) of the Implementing Rules and Regulations (IRR) 9 of Presidential Decree No. (PD) 1594. 10
Citing various reasons, such as a change order or extra work order, extension due to force majeure, and contract time extension due to delays in the payment of its 18 progress billings, respondent alleged that it had already worked a total of 2,307 days, as of April 18, 2001, on the Project. 11 Further, the Project was already at 92% and substantially complete. Petitioner, however, refused to deliver or process the payment for progress billings for completed works despite repeated demands by respondent. Hence, respondent was forced to stop its work on the Project. 12
In a letter dated 17 July 2003, Administrator Ulep notified respondent that petitioner was unilaterally terminating the Contract on the ground of respondent's substantial failure to fulfill its obligations, and that it would instead be taking over the Project. 13
Respondent informed Administrator Ulep that it was opposing the takeover unless it has paid the following: (1) compensation for work already done on the Project; (2) the Demobilization Fee; (3) the cost of materials and equipment already purchased; (4) expected profit on the balance of the contract price in the amount of Php250,000.00; and (5) other claims for actual and compensatory damages for the termination of the Contract. Respondent also opposed the unilateral termination of the Contract and denied petitioner's allegation that it failed to fulfill its obligations under the Contract without justifiable cause. The parties held a meeting but failed to reach an agreement. 14
On 20 August 2003, respondent received another letter from Administrator Ulep stating that the Project Management Committee had recommended payment of respondent's claims, but only up to Php742,048.86. However, said amount shall be subject to deduction for liquidated damages in the amount of Php1,005,297.03. Hence, respondent would still be liable to pay petitioner Php480,118.64 in liquidated damages. 15
Respondent countered that, based on the computation prepared by petitioner's Ilocos Norte/Laoag City Project Inspectors, the target date of completion is 11 May 2002. Thus, the project was ahead of schedule of completion by 25% to 40%. As such, petitioner has no right to terminate the Contract or to take over the Project. Neither can it collect for liquidated damages since there was no delay in the performance of respondent's obligations considering that it had earned a time extension pursuant to the cited provision of PD 1594's IRR. Moreover, petitioner failed to show any evidence of respondent's alleged failure to fulfill its obligations under the Contract. In addition, petitioner did not notify respondent of the alleged violations of the Contract during the construction period from 15 July 1999 to 15 November 2001, or at any time before the Project was pre-terminated. 16
Further, respondent denied that it abandoned the Project. In fact, it continued to secure and maintain the Property from theft and vandals, at their expense, while work was suspended. On the contrary, petitioner and its officials were the ones responsible for the delay in the completion of the project. Petitioner and its officials grossly violated the Contract by unjustly refusing to pay respondent's progress billings and legitimate claims, and disregarding the latter's request to formalize the target completion of the Project. 17
In their Answer, petitioner and Administrator Ulep denied the material allegations in the complaint. They claimed that the termination of the contract, takeover of the project, and imposition of liquidated damages were due to respondent's substantial failure to comply with its obligation and commitment to finish the Project on 28 August 2001. They further contended that the Project was not ahead of schedule since there was unreasonable delay when respondent's request for price escalation and time extension was denied by the Department of Justice. According to petitioner and Administrator Ulep, respondent committed to complete the project within two (2) months after the date of release of the retention money. However, despite the release of the retention money on 29 June 2001, respondent still failed to finish the project on time. Because of this unreasonable delay, respondent's request for payment of Billing Nos. 20 and 21 was not approved. 18
Petitioner also averred that, upon inspection, it was found that there was no improvement or development that occurred the year after and the building was assessed to be 86.63% complete. Since respondent continued to suspend construction, petitioner decided to terminate the Contract and take over the Project. 19
Consequently, respondent's failure to complete the Project entitles petitioner to claim liquidated damages in accordance with the Contract. After deducting the liquidated damages against respondent's claims, respondent is still liable to pay petitioner the remaining liquidated damages amounting to Php480,118.64. 20
Ruling of the RTC
The RTC granted the complaint and ordered petitioner and Administrator Ulep to pay respondent the sum of Php1,417,903.30, with 6% interest from the filing of the complaint until full payment. It also awarded Php300,000.00 in nominal damages, Php300,000.00 as exemplary damages, and Php150,000.00 attorney's fees. On the other hand, it dismissed petitioner's counterclaim. 21
The RTC held that respondent had a legal right to expect petitioner and Administrator Ulep to pay for the service that had already been rendered, pursuant to the terms of the Contract, and PD 1594 and its IRR. By 01 August 2001, or more than 45 days after the progress billing was made, the same remained unpaid. As such, petitioner and Administrator Ulep were already in breach long before 28 August 2001, the date on which respondent purportedly defaulted on its commitment. Thus, petitioner could no longer expect respondent to comply with the two (2)-month deadline, considering their failure to fulfill their own commitment. Given the manifest breach of petitioner's contractual commitment, respondent is entitled to its claim for actual, nominal, and exemplary damages, as well as attorney's fees. 22
Petitioner appealed 23 the Decision to the CA.
Ruling of the CA
The CA partly granted the appeal. 24 It agreed with the RTC that petitioner first violated its contractual obligations under the contract, and PD 1594 and its IRR. 25 The CA found that the obligations of the parties under the Contract were reciprocal and to be performed simultaneously. 26 As such, respondent cannot be faulted for not finishing the project within the two-month period that it promised, because petitioner was already in default when it failed to pay for the billings submitted by respondent. 27 Respondent therefore had authority to suspend work or terminate the contract due to petitioner's failure to perform its obligation. 28
However, the CA absolved Administrator Ulep of personal liability since he merely acted in the performance and discharge of his official functions. 29 In addition, the CA deleted the award of exemplary damages for lack of evidence that petitioner acted in bad faith. The CA also deleted the award of nominal damages, in view of the award of actual damages. The award of attorney's fees was also removed because the RTC failed to discuss its factual and legal bases.
The dispositive portion of the CA's Decision reads:
WHEREFORE, premises considered, the instant appeal filed by the Land Registration Authority and its Administrator Benedicto B. Ulep is PARTLY GRANTED. The assailed Decision dated March 3, 2014 of Branch 227, Regional Trial Court of Quezon City in Civil Case No. Q-03-50443 is AFFIRMED with MODIFICATION, viz.:
(1) Defendant-appellant Land Registration Authority is ordered to pay plaintiff appellee East Asia Construction, Inc. actual damages in the amount of One Million Four Hundred Seventeen Thousand Nine Hundred Three Pesos and Thirty Centavos (PhP1,417,903.30) which is subject to 6% legal interest per annum from the filing of the complaint until said amounts shall have been fully paid;
(2) The exemplary damages in the amount of Three Hundred Thousand Pesos (PhP300,000.00) is DELETED;
(3) The nominal damages in the amount of Three Hundred Thousand Pesos (PhP300,000.00) is DELETED; and (4) The award of Attorney's fees of One Hundred Fifty Thousand Pesos (PhP150,000.00) is DELETED.
SO ORDERED.30
Both parties sought reconsideration, 31 which the CA denied in its Resolution. Hence, this Petition.
Issue
The sole issue in this case is whether the CA erred in partly granting the appeal.
Ruling of the Court
The Petition is DENIED.
Respondent's unpaid billings entitled
Petitioner faulted the CA in ruling that the contract time was extended by 1,032 days, or until 21 May 2002, arguing that the same has no legal and factual basis. The extension alluded to by respondent was contrary to the provisions of the IRR of PD 1594 and Article III 32 of the Contract, which required prior approval by the government agency before a time extension is granted. Moreover, the Memorandum dated 09 February 2001 (Memorandum) recommending approval of the extension was only for petitioner's internal discussion and was only conditionally approved. 33
Contrary to petitioner's claim, however, it was the Project Management Committee of petitioner that recommended the approval of the time extension and the tentative date of completion. 34 The Memorandum was duly approved by petitioner's officer-in-charge, Ricardo Arandilla, with an annotation that the same was subject to undertaking contained in letter dated 22 February 2001 to finish Project within two months from release of the retention money. Even with said condition, the fact remains that petitioner's Project Management Committee approved the extension of the Contract by 1,032 days, or until 11 May 2002.
Likewise, even if We consider that the Memorandum was not approved, respondent still cannot be declared in default by its failure to finish the project on 29 August 2001, or two (2) months after the retention money was released. Engineer Gloria Lacambra (Engr. Lacambra), who was presented as respondent's adverse witness testified that once billing is sent to petitioner, it must be paid within 45 days, and should there be no payment after 45 days, the contractor (respondent) will be entitled to contract time extension, pursuant to PD 1594. 35 The computation of the time extension was based on the unpaid billings, and according to Engr. Lacambra, despite the release of the retention money to petitioner on June 2001, there were still unpaid bills due to respondent. 36 The unpaid billings not only justified the contract time extension in favor of respondent but also showed that even prior to 29 August 2001, petitioner was already in breach of its obligation.
Petitioner cannot deny the unpaid
In its attempt to avoid liability, petitioner argues that it was erroneous for the CA to declare that it was first to violate the Contract. While respondent presented requests for payments, they nonetheless failed to present proof that the requests were certified to and verified by the government project engineer pursuant to the provision of the IRR of PD 1594. There was also no proof that petitioner accepted the same pursuant to Section 4.3 37 of the Contract. Petitioner posits that in the absence of said requirements, its obligation to pay the request for payment has not commenced, and therefore, it has not incurred in delay. 38
It appears that this is the first time petitioner has raised respondent's non-compliance with the requirements relative to the submission of requests for payments. Basic rules of fair play, justice, and due process dictate that arguments or issues not raised in the trial court may not be raised for the first time on appeal. 39 The Court has previously declared that:
"[C]ourts of justice have no jurisdiction or power to decide a question not in issue and that a judgment going outside the issues and purporting to adjudicate something upon which the parties were not heard is not merely irregular, but extrajudicial and invalid." 40
The same notwithstanding, petitioner in its Letter 41 dated 20 August 2003, acknowledged the claim in the amount of Php742,048.86 (for billing nos. 20 to 23, extra work order Nos. 2 and 3, change order No. 2 and price adjustments for billing nos. 20 to 22) 42 as legally due respondent, albeit subject to deduction for liquidated damages. The foregoing progress billings were among the unpaid billings claimed by respondent. Thus, petitioner is now estopped from claiming that respondent's requests for payment failed to comply with the provisions of the IRR of PD 1594 and Section 4.3 of the Contract.
Petitioner is not entitled to liquidated
Petitioner insists that it was respondent who first incurred in delay when it failed to complete the Project on or before 28 August 2001. Respondent, in its letter dated 22 February 2001, promised to finish the substantially delayed project within two (2) months from release of the retention money. Petitioner agreed to release the retention money on 29 June 2001 and the contract was correspondingly adjusted to 28 August 2001. Respondent, however failed to complete and finish the project to the prejudice of petitioner. Upon final evaluation of the Project, it was determined to be only 84.80% complete. 43
Article VII 44 of the Contract provides that where the contractor refuses or fails to satisfactory complete the work within the specified contract time, plus any time extension duly granted and is hereby in default under the contract, the contractor shall pay the government liquidated damages.
We agree with the CA's findings that even before respondent's letter dated 22 February 2001, petitioner was already in default. There were already delayed billings due to respondent as of 09 February 2001. As a result, the target completion date was adjusted tentatively to 11 May 2002, which according to Engr. Lacambra is even subject to further adjustments because of the subsequent billings submitted by respondent that still remain unpaid. 45 Moreover, petitioner still failed to comply with its obligation when several billings were left unpaid without disclosing to respondent the reason for its delay and refusal to pay. 46 Consequently, the denial of petitioner's claim for liquidated damages is warranted for lack of basis.
The rate of interest imposed must be
Meantime, pursuant to Nacar v. Gallery Frames, et al., 47 and, in accordance with Section 1 of Resolution 796 of the Monetary Board of the Bangko Sentral ng Pilipinas dated 16 May 2013, the rate of interest of 6% per annum from the filing of the complaint, must be modified, i.e., 12% interest per annum on the actual damages awarded from the filing of complaint until 30 June 2013. Thereafter, the interest on the actual damages shall then be fixed at 6% per annum from 01 July 2013, until full satisfaction thereof.
WHEREFORE, premises considered, the instant Petition is DENIED. The assailed Decision dated 08 September 2016 and Resolution dated 25 May 2017 of the Court of Appeals are AFFIRMED with MODIFICATION in that the actual damages in the amount of P1,417,903.30 is subject to twelve percent (12%) legal interest per annum from the time of the filing of the complaint until 30 June 2013, and six percent (6%) per annum from 01 July 2013 up to the finality of this resolution until fully paid.
SO ORDERED."
By authority of the Court:
(SGD.) MISAEL DOMINGO C. BATTUNG IIIDivision Clerk of Court
Footnotes
1.Rollo, pp. 11-30.
2.Id. at 33-60; Penned be Associate Justice Maria Elisa Sempio Diy and concurred in by Associate Justices Stephen C. Cruz and Manuel M. Barrios of the Special Twelfth (12th) Division, Court of Appeals, Manila.
3.Id. at 61-66.
4. CA rollo, pp. 12-24; Penned by Presiding Judge Elvira D. C. Panganiban.
5.Id. at 1-11; The complaint was amended to include incumbent officials of the LRA, specifically the members of the Project Management Committee (PMC). However, no new summons for said officials and members was issued by the RTC.
6.Rollo, p. 35.
7.Id. at 35.
8.Id. at 36; Per computation, the amount should be Php1,417,907.48.
9. CI 10. Suspension of Work.
1. x x x.
2. The contractor or its duly authorized representative shall have the right to suspend work operation on any or all projects/activities along the critical path of activities after fifteen (15) calendar days from date of receipt of written notice from the contractor to the district engineer/regional director/consultant, as the case may be, due to the following:
xxx xxx xxx.
e. Delay in the payment of contractor's claim for progress billing and/or price escalation beyond forty-five (45) calendar days from the time the contractor's claim has been certified to by the implementing agency's authorized representative that the documents are complete unless there are justifiable reasons thereof which shall be communicated in writing to the contractor.
10.Rollo, p. 36; Entitled "PRESCRIBING POLICIES, GUIDELINES, RULES AND REGULATIONS FOR GOVERNMENT INFRASTRUCTURE CONTRACTS," approved on 11 June 1978.
11.Id.
12.Id. at 37.
13.Id.
14.Id.
15.Id. at 37-38.
16.Rollo, p. 38.
17.Id.
18.Id. at 40.
19.Id.
20.Id. at 41.
21. CA rollo, pp. 23-24.
22. CA rollo, p. 22.
23. Records, pp. 2303-2304; see Notice of Appeal dated 18 March 2014.
24.Rollo, p. 58.
25.Id. at 55.
26.Id. at 45.
27.Id. at 55.
28.Id.
29.Id. at 57.
30.Id. at 58-59.
31. CA rollo, pp. 244-251; 252-262.
32. Article III EXTENSIONS — The period to complete the Work indicated in Article II hereof may be extended by LRA, for good and sufficient reasons, provided that a written request therefore is submitted to the LRA by the CONTRACTOR at least ten (10) calendar days therefore the expiration of said period and stating therein the reasons for the request for extension. Any extension granted shall not entail additional payment over and above the contract price stipulated in Article IV hereof, unless otherwise agreed upon by both parties in writing.
Any extension of the period time which may be granted by the LRA to the CONTRACTOR shall be considered as given, and nay modifications of their Contract shall be considered as authorized as if with the express consent of the Surety.
33.Rollo, p. 21.
34. Records, p. 1980.
35.Rollo, p. 54; CA rollo, p. 20.
36.Id.
37. 4.3 Progress payments shall be made monthly, based upon the estimate of work satisfactorily completed by the CONTRACTOR and accepted by the LRA, and shall be subject to such retentions and deductions as may be required by existing laws, but in no case shall retention be less than ten percent (10%) of the billed amount.
38.Rollo, p. 24.
39.Chinatrust (Phils.) Commercial Bank v. Turner, 812 Phil. 1 (2017), G.R. No. 191458, 03 July 2017 (Per J. Leonen) citing Vitug v. Abuda, 776 Phil. 540 (2010), G.R. No. 201264, 11 January 2016 [Per J. Leonen]; Maxicare PCIB CIGNA Healthcare v. Contreras, 702 Phil. 688, 696 (2013), G.R. No. 194352, 30 January 2013 [Per J. Mendoza].
40.Chinatrust (Phils.) Commercial Bank v. Turner, id., citing Philippine Ports Authority v. City of Iloilo, 453 Phil. 927, 934-935 (2003), G.R. No. 109791, 14 July 2013 [Per J. Azcuna].
41.See Exh. CC.
42.See Annex 11.
43.Rollo, pp. 26-27.
44. Article VII LIQUIDATED DAMAGES
Should the contractor fail to complete the Work under the Contract within the period specified in Article II (Scope of Work and Completion Period) above, plus any extension of time that may be granted under the provisions of this Contract, the CONTRACTOR shall pay the LRA the amount equivalent to one tenth (1/10) of one percent (1%) of the total contract price, minus the value of the complete portions of the Contract certified by the LRA as usable as of the expiration of the Contract time, to each calendar day of delay, until the Work is completed and accepted by the LRA or until such time as the LRA may procure the completion of the Work by another contractor or complete the Work itself. x x x
45.Rollo, p. 52.
46.Id. at 55.
47. 716 Phil. 267, 283 (2013).