Cayetano-Abano v. Letran-Calamba

PEREZ, J.:

The Case Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the Decision1 dated 31 August 2007 of the Court of Appeals (CA) in CA-G.R. SP No. 99315 which set aside the Final Award2 dated 7 June 2007 of the Construction Industry Arbitration Commission (CIAC) in CIAC Case No. 20-2006 ordering Colegio De San Juan De Letran-Calamba (respondent) to pay herein Engr. Emelyne P. Cayetano-Abaño, operating under the name and style Jacob Joseph Builders & Planners, and Engr. Dario C. Abaño (petitioners) the total sum of P13,903,722.94.

The Antecedent Facts In early 2003, respondent, an educational institution created and existing under Philippine laws, decided to build a central library building on its campus which would likewise house the classrooms and laboratory facilities of its Nursing program.3 Petitioners were commissioned to undertake the project.4 The corresponding Contract5 (the Contract) was executed on 17 November 2003 for a total project cost of P52,319,927.20.6 In connection with this, petitioners gave respondent a Technical Specifications Book7 which formed part of the Contract and which detailed how petitioners would implement the construction project. The parties agreed on a project duration of fourteen (14) months effective upon the signing of the Contract and the issuance of the necessary building permit. The requisite building permit was issued on 27 January 2004;8 hence, petitioners had until 27 March 2005 to complete the project.

On 16 February 2004, petitioners reminded respondent of the down payment consisting of 25% of the contract price, or a sum equivalent to P13,079,981.80. By this date, respondent had already paid a total of P6,000,000.00 starting 5 December 2003. The full amount of the down payment was settled on 27 February 2004.9 On 16 April 2004, upon petitioners' request and representation that they needed urgent substantial funding, respondent paid P10 million although no progress report had been submitted.10 Petitioners again requested payment on 12 July 2004 in the amount of P14,325,196.07 for work accomplishment equivalent to 27.38%.

This time respondent required a progress report to substantiate the request for payment.11 Accordingly, on 2 August 2004, petitioners submitted their First Progress Billing Report covering the period 1 December 2003 to 30 June 2004. Respondent paid the billed amount in installments beginning 28 July 2004 until 26 October 2004.12 In their First Progress Billing Report, petitioners indicated "28 February 2005" as the completion date of the project.13 As a result, respondent sent a Memorandum14 to petitioners, dated 21 January 2005, requesting documents necessary for the procurement of a Certificate of Occupancy.

Instead of delivering the requested documents, petitioners submitted its Second Progress Billing Report on 8 February 2005, demanding payment of P9,586,057.06 and indicating a new move-out date: April 2005 - a date fixed without prior consultation with and approval from Respondent.15 Subsequently, in a meeting held on 28 February 2005, petitioners undertook to turn over on 15 March 2005 the first two floors of the building and to make a partial turn over on 15 April 2005 of the third floor. For its part, respondent committed to pay P4,994,927.20 out of the P14,994,927.20 balance from the contract price. While respondent complied with its undertaking, petitioners failed to make even one partial turn over.

Thus, 14 months after the construction permits were secured, or by 27 March 2005, the building had not been completed.16 On 30 April 2005, petitioners submitted to respondent its Final Billing: (1) indicating a 100% completion of the project; (2) informing respondent that its unpaid balance was P10 million; and (3) requesting a final inspection of the building.17 The joint inspection was carried out on 16 and 17 May 2005. During the two-day inspection, serious problems regarding workmanship and the materials used were discovered and documented by respondents. The parties agreed that all the necessary corrective and completion works on the project would be done in accordance with the inspection results.18 Petitioners resumed repair, rehabilitation and cleaning works on the building on 13 June 2005 only.

At the same time, petitioners wrote respondent two letters: first, expressing readiness to comply with their undertaking to accomplish the incomplete works, but denying that they conformed to the punch list resulting from the joint inspection and second, demanding arbitration for respondent's unpaid amounts.19 Respondent replied through counsel, asserting that petitioners cannot deny having expressed conformity to the punch list report after accepting the obligation to correct and complete the project based on the same report. Respondent also rejected the demand for arbitration for being premature.20 On 8 July 2005, petitioners' counsel wrote respondent to convey that petitioners had fully accomplished the project under the Contract, including the agreements reached on 6 June 2005, and requested a joint inspection anew. The second joint inspection was conducted on 25 July 2005.

The following day, 26 July 2005, respondent wrote petitioners a letter detailing the various defects and deficiencies in the building that need to be corrected and completed before respondent finally accepts the project and pay the final billing. The defects highlighted were: (1) the brand of electrical wirings used were not "Phelps Dodge" or its accepted equivalent, as specified in the Contract; (2) absence of any waterproofing in the gutters; (3) uneven floor patterns; and (4) absence of a number of electrical materials required to be installed.

Respondent reiterated its demand for corrective and other rehabilitative works on the project in a letter dated 12 August 2005.21 In another meeting held on 26 August 2005, petitioners demanded full payment of its billings. No payment from respondent apparently forthcoming, petitioners, on 26 September 2005, gave respondent a second notice and demand for arbitration to press settlement of their unpaid claims. Petitioners named their arbitrator and gave respondent fifteen days within which to respond.22 In a letter23 dated 10 October 2005, counsel for respondent denied the request for arbitration and insisted that petitioners enter the construction site within seven days from notice to complete and correct all the unfinished and defective works consistent with respondent's letter of 26 July 2005.

Respondent warned petitioners that should they ignore the matter, they would be considered to have abandoned the project, giving respondent the right to take full possession of the building and allow other contractors to complete the unfinished works, with a right to collect the costs of completion from petitioners. Petitioners did not respond to respondent's ultimatum within the given period; neither did they undertake remedial measures to correct and finish the deficiencies in the project. With no word either from petitioners or their counsel, respondent was compelled to take-over the building on 19 October 2005 in the presence of barangay and police officials from Calamba City.

Upon take-over of the building, respondent re-confirmed and re-documented the various defects and deficiencies earlier noted and determined.24 In order to ascertain the extent of petitioners' accomplishment on the project and its corresponding value, respondent engaged the services of Davis Langdon and Seah Philippines, Inc. (DLSPI), a specialized quantity surveyor firm.

Contrary to petitioners' claim of 100% project completion, the cost analysis and evaluation performed by DLSPI revealed that the building was only 94.12% complete and that the actual cost of work performed was worth only P49,244,814.09. Aggrieved, respondent filed an arbitration complaint before the CIAC pursuant to the arbitration clause contained in the Technical Specifications Book.25 Respondent claimed that it is entitled to payment in the total amount of P18,923,519.54 representing expenses incurred in the construction of temporary facilities, hiring of consultants for the detailed inspection of the building, damages, attorney's fees and arbitration expenses.26 The Decision of the CIAC After hearing, the CIAC issued a Final Award in favor of petitioners, ordering respondent to pay the following amounts: Unpaid balance of Progress Billing No. 2 dated 10 February 2005 ₱4,581,129.86 Final Billing 5,418,870.14 Monthly surcharge of 2% on unpaid claims 799,999.99 Moral damages 1,500,000.00 Exemplary damages 500,000.00 Attorney's fees and litigation expenses 800,000.00 Arbitration cost 303,722.94 TOTAL: