F.F. Cruz & Co. v. Hr Construction Corp

REYES, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by petitioner F.F. Cruz & Co., Inc. (FFCCI) assailing the Decision1 dated February 6, 2009 and Resolution2 dated April 13, 2009 issued by the Court of Appeals (CA) in CA-G.R. SP No. 91860. The Antecedent Facts Sometime in 2004, FFCCI entered into a contract with the Department of Public Works and Highways (DPWH) for the construction of the Magsaysay Viaduct, known as the Lower Agusan Development Project. On August 9, 2004, FFCCI, in turn, entered into a Subcontract Agreement3 with HR Construction Corporation (HRCC) for the supply of materials, labor, equipment, tools and supervision for the construction of a portion of the said project called the East Bank Levee and Cut-Off Channel in accordance with the specifications of the main contract.

The subcontract price agreed upon by the parties amounted to ₱31,293,532.72. Pursuant to the Subcontract Agreement, HRCC would submit to FFCCI a monthly progress billing which the latter would then pay, subject to stipulated deductions, within 30 days from receipt thereof. The parties agreed that the requests of HRCC for payment should include progress accomplishment of its completed works as approved by FFCCI.

Additionally, they agreed to conduct a joint measurement of the completed works of HRCC together with the representative of DPWH and consultants to arrive at a common quantity. Thereafter, HRCC commenced the construction of the works pursuant to the Subcontract Agreement. On September 17, 2004, HRCC submitted to FFCCI its first progress billing in the amount of ₱2,029,081.59 covering the construction works it completed from August 16 to September 15, 2004.4 However, FFCCI asserted that the DPWH was then able to evaluate the completed works of HRCC only until July 25, 2004.

Thus, FFCCI only approved the gross amount of ₱423,502.88 for payment. Pursuant to the Subcontract Agreement, FFCCI deducted from the said gross amount ₱42,350.29 for retention and ₱7,700.05 for expanded withholding tax leaving a net payment in the amount of ₱373,452.54. This amount was paid by FFCCI to HRCC on December 3, 2004.5 FFCCI and the DPWH then jointly evaluated the completed works of HRCC for the period of July 26 to September 25, 2004.

FFCCI claimed that the gross amount due for the completed works during the said period was ₱2,008,837.52. From the said gross amount due, FFCCI deducted therefrom ₱200,883.75 for retention and ₱36,524.07 for expanded withholding tax leaving amount of ₱1,771,429.45 as the approved net payment for the said period. FFCCI paid this amount on December 21, 2004.6 On October 29, 2004, HRCC submitted to FFCCI its second progress billing in the amount of ₱1,587,760.23 covering its completed works from September 18 to 25, 2004.7 FFCCI did not pay the amount stated in the second progress billing, claiming that it had already paid HRCC for the completed works for the period stated therein.

On even date, HRCC submitted its third progress billing in the amount of ₱2,569,543.57 for its completed works from September 26 to October 25, 2004.8 FFCCI did not immediately pay the amount stated in the third progress billing, claiming that it still had to evaluate the works accomplished by HRCC. On November 25, 2004, HRCC submitted to FFCCI its fourth progress billing in the amount of ₱1,527,112.95 for the works it had completed from October 26 to November 25, 2004. Subsequently, FFCCI, after it had evaluated the completed works of HRCC from September 26 to November 25, 2004, approved the payment of the gross amount of ₱1,505,570.99 to HRCC.

FFCCI deducted therefrom ₱150,557.10 for retention and ₱27,374.02 for expanded withholding tax leaving a net payment of ₱1,327,639.87, which amount was paid to HRCC on March 11, 2005.9 Meanwhile, HRCC sent FFCCI a letter10 dated December 13, 2004 demanding the payment of its progress billings in the total amount of ₱7,340,046.09, plus interests, within three days from receipt thereof. Subsequently, HRCC completely halted the construction of the subcontracted project after taking its Christmas break on December 18, 2004. On March 7, 2005, HRCC, pursuant to the arbitration clause in the Subcontract Agreement, filed with the Construction Industry Arbitration Commission (CIAC) a Complaint11 against FFCCI praying for the payment of the following: (1) overdue obligation in the reduced amount of ₱4,096,656.53 as of December 15, 2004 plus legal interest; (2) ₱1,500,000.00 as attorney's fees; (3) ₱80,000.00 as acceptance fee and representation expenses; and (4) costs of litigation.

In its Answer,12 FFCCI claimed that it no longer has any liability on the Subcontract Agreement as the three payments it made to HRCC, which amounted to ₱3,472,521.86, already represented the amount due to the latter in view of the works actually completed by HRCC as shown by the survey it conducted jointly with the DPWH. FFCCI further asserted that the delay in the payment processing was primarily attributable to HRCC inasmuch as it presented unverified work accomplishments contrary to the stipulation in the Subcontract Agreement regarding requests for payment. Likewise, FFCCI maintained that HRCC failed to comply with the condition stated under the Subcontract Agreement for the payment of the latter's progress billings, i.e.

joint measurement of the completed works, and, hence, it was justified in not paying the amount stated in HRCC's progress billings. On June 16, 2005, an Arbitral Tribunal was created composed of Engineer Ricardo B. San Juan, Joven B. Joaquin and Attorney Alfredo F. Tadiar, with the latter being appointed as the Chairman. In a Preliminary Conference held on July 5, 2005, the parties defined the issues to be resolved in the proceedings before the CIAC as follows: 1.

What is the correct amount of [HRCC's] unpaid progress billing? 2. Did [HRCC] comply with the conditions set forth in subparagraph 4.3 of the Subcontract Agreement for the submission, evaluation/processing and release of payment of its progress billings?

3. Did [HRCC] stop work on the project? 3.1 If so, is the work stoppage justified?

3.2 If so, what was the percentage and value of [HRCC's] work accomplishment at the time it stopped work on the project? 4. Who between the parties should bear the cost of arbitration or in what proportion should it be shared by the parties?13 Likewise, during the said Preliminary Conference, HRCC further reduced the amount of overdue obligation it claimed from FFCCI to ₱2,768,916.66.

During the course of the proceedings before the CIAC, HRCC further reduced the said amount to ₱2,635,397.77 - the exact difference between the total amount of HRCC's progress billings (₱6,107,919.63) and FFCCI's total payments in favor of the latter (₱3,472,521.86). The CIAC Decision On September 6, 2005, after due proceedings, the CIAC rendered a Decision14 in favor of HRCC, the decretal portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the Claimant HR CONSTRUCTION CORPORATION and AWARD made on its monetary claim against Respondent F.F. CRUZ & CO., INC., as follows: [₱]2,239,452.63 as the balance of its unpaid billings and 101,161.57 as reimbursement of the arbitration costs.