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Frederick V.

Espinosa 4B

REPUBLIC OF THE PHILIPPINES


REGIONAL TRIAL COURT
NATIONAL CAPITAL JUDICIAL REGION
Branch 141
City of Manila, Philippines

RIZAL CEMENT COMPANY,


Plaintiff,
Civil Case No. 12345
-versus- For: Collection of a sum
of money with damages.

R.S. TOMAS, INC. & TIMES


SURETY
& INSURANCE CO. INC.,
Defendant.
x--------------------------------------------------x

FACTUAL ANTECEDENTS
The plaintiff in this case, Rizal Cement Company Inc., is a domestic
corporation duly-registered in accordance with the law of the Republic of the
Philippines.

The defendant in this case, R.S. Tomas Inc., is a domestic corporation duly-
registered in accordance with the law of the Republic of the Philippines. R.S. Tomas
Inc., is engaged in the supply of labor, materials, and technical supervision in wiring
and installation and supply installation. On the other hand Times Surety and
Insurance Co. Inc., is engaged in surety and insurance business and in the issuance
of performance bonds to secure the full and faithful performance of all obligations
of a party to a contract.

On December 28, 1990, Rizal Cement Company (Rizal) and R.S Tomas
Inc(Tomas), entered into a Contract for the supply of labor, materials, and technical
supervision of the following projects:

1. J.O. #P-90-212 Wiring and installation of primary and secondary


lines system.
2. J.O. #P-90-213 Supply and installation of primary protection and
disconnecting switch.

3. J.O. #P-90-214 Rewinding and conversion of one (1) unit 3125


KVA, 34.5 KV/2.4 KV, 3 Transformer to 4000 KVA, 34.5
KV/480V, 3 Delta Primary, Wye with neutral secondary.

Tomas agreed to perform the above-mentioned job orders. Rizal agreed to pay
the total sum of P2,944,000.00 in consideration of the performance of the job orders.
Rizal undertook to complete the projects within one hundred twenty (120) days from
the effectively of the contract. It was agreed upon that Tomas would be liable to
Rizal for liquidated damages in the amount of P29,440.00 per day of delay in the
completion of the projects which shall be limited to 10% of the project cost. To
secure the full and faithful performance of all its obligations and responsibilities
under the contract, Tomas obtained from Times Surety & Insurance Co. Inc. (Times
Insurance) a performance bond in an amount equivalent to fifty percent (50%) of the
contract price or P1,458,618.18. Pursuant to the terms of the contract, Rizal made an
initial payment of P1,458,618.18.

Tomas requested for an extension of seventy-five (75) days within which to


complete the projects because of the need to import some of the materials needed.
In the same letter, it also asked for a price adjustment of P255,000.00 to cover the
higher cost of materials. In another letter dated March 27, 1991, Tomas requested
for another 75 days extension for the completion of the transformer portion of the
projects for failure of its supplier to deliver the materials.

On June 14, 1991, Tomas manifested its desire to complete the project as soon
as possible to prevent further losses and maintain goodwill between the companies.
Tomas requested for Rizals assistance by facilitating the acquisition of materials and
supplies needed to complete J.O. #P-90-212 and J.O. #P-90-213 by directly paying
the suppliers. It further sought that it be allowed to back out from J.O. #P-90-214
covering the rewinding and conversion of the damaged transformer.

In response to Tomas’ requests, Rizal, through counsel, manifested its


observation that Tomas’ financial status showed that it could no longer complete the
projects as agreed upon. Rizal also informed Tomas that it was already in default.
Rizal further notified Tomas that the former was terminating the contract. It also
demanded for the refund of the amount already paid to Tomas, otherwise, the
necessary action would be instituted. Rizal sent another demand letter to Times
Insurance for the payment of P1,472,000.00 pursuant to the performance bond it
issued.

On November 14, 1991, Rizal entered into two contracts with Geostar
Philippines, Inc. (Geostar) for the completion of the projects commenced but not
completed by Tomas.
On December 14, 1991, Tomas reiterated its desire to complete J.O. #P-90-
212 and J.O. #P-90-213 and to exclude J.O. #P-90-214, but the same was denied by
Rizal. In the same letter, Rizal pointed out that amicable settlement is impossible.
Hence, the Complaint for Sum of Money filed by Rizal against Tomas and Times
Surety & Insurance Co., Inc. praying for the payment of the following: P493,695.00
representing the amount which they owed Rizal from the downpayment and
advances made by the latter ; P2,550,945.87 representing the amount incurred in
excess of the cost of the projects as agreed upon; P294,000.00 as liquidated
damages; plus interest and attorney’s fees.

Times Insurance did not file any pleading nor appeared in court. For its part,
Tomas denied liability and claimed instead that it failed to complete the projects due
to Rizal’s fault. It explained that it relied in good faith on Rizal’s representation that
the transformer subject of the contract could still be rewound and converted but upon
dismantling the core-coil assembly, it discovered that the coils were already badly
damaged and the primary bushing broken. This discovery allegedly entailed price
adjustment. Tomas thus requested Rizal for additional time within which to complete
the project and additional amount to finance the same. Tomas also insisted that the
proximate cause of the delay is the misrepresentation of the Rizal on the extent of
the defect of the transformer.

ISSUES TO BE RESOLVED

1) Whether Tomas is guilty of inexcusable delay in the completion of the


project
2) Whether Tomas is liable for liquidated damages.
3) Whether the Tomas is liable for the cost of the contract between the
plaintiff and Geostar.
4) Whether there was a delay on the part of Rizalwhich amounts to breach
of contract.
5) Whether or not the petitioner was guilty of fraud or misrepresentation as
to the actual condition of the transformer subject of the contract.

RULING OF THE COURT

R.S. TOMAS IS GUILTY


OF INEXCUSABLE DELAY

Default or mora on the part of the debtor is the delay in the fulfillment of the
prestation by reason of a cause imputable to the former. It is the non-fulfillment of
an obligation with respect to time.1 As clearly shown in the case through the
contracts presented, there was delay on part of R.S. Tomas. The contract entered
into by the parties in the present case clearly show that the original date of
completion of the work agreed upon would be 120 days from the execution of the
contract. However, it is undisputed in that R.S. Tomas was not able to finish the
work it undertook to perform, such delay was made more apparent when R.S.
Tomas requested for extensions. R.S. Tomas’ delay in the performance of its
obligation constitutes a breach of contract which has been defined as the failure
without legal reason to comply with the terms of a contract. It is also defined as the
failure, without legal excuse, to perform any promise which forms the whole or
part of the contract.2

R.S. TOMAS IS LIABLE


FOR LIQUIDATED DAMAGES

Under Article 2226 of the Civil Code the amount the parties stipulated to
pay in case of breach are liquidated damages. "It is attached to an obligation in
order to ensure performance and has a double function: (1) to provide for

1 IV Arturo M. Tolentino, COMMENTARIES AND JURISPRUDENCE ON THE CIVIL CODE OF THE


PHILIPPINES, 101 (1987ed.).
2 Spouses Luigi M. Guanio and Anna Hernandez-Guanio v. Makati Shagri-la Hotel and Resort Inc.,
G.R. No. 190601, February 7, 2011
liquidated damages, and (2) to strengthen the coercive force of the obligation by
the threat of greater responsibility in the event of breach." 3 The amount of
“P29,440.00 per day of delay in the completion of the projects which shall be
limited to 10% of the project cost” is the basis of R.S. Tomas’ liability for the
payment of liquidated damages.

R.S. TOMAS IS LIABILE


FOR THE COST OF
CONTRACT BETWEEN
RIZAL AND GEOSTAR

This is a situation similar to a case decided by the Supreme Court4 where the
Court declared that “Nevertheless, there was a clear breach of the third contract,
and VilRey should be held liable for the natural and probable consequences of the
breach as duly proven. In this case, Lexber was able to prove that it sustained
damages in the amount of P284,084.46, which was the amount it paid another
contractor tasked to complete the works left unfinished by VilRey. That amount
was charged against the second surety bond, which guaranteed not only the
workmanship and the quality of the materials used in the project, but also the
obligations of Vil-Rey.”

Thus, in light of the abovementioned ruling of the Supreme Court and


following the principle of stare decises, which requires courts in a country to
follow the rule established in a decision of the Supreme Court5, this court rules that
R.S Tomas must pay Rizal the amount that the latter paid to Geostar for the
completion of the unfinished work.

OTHER ISSUES
The Court has determined that, by ruling in favor of Rizal in the first 3
issues, it would no longer be necessary to discuss and decide the remaining issues
since the delay causing the breach of contract was proven.

3 BF Corporation v. Werdenherg International Corporation, G.R. No. 174387, December 9, 2015,


777 SCRA60, 86.
4 Vil-Rey Planners and Builders v. Lexeber, Inc., G.R. No. 18940, June 15, 2016
5 Carmelo F. Lazatin, Marino A. Morales, Teodoro L. David and Angelito A. Pelayo v. Hon Aniano A.
Desierto as Ombudsman, and Sandigan Bayan, Third Division, G.R. No.147097, June 5, 2009
WHEREFORE, judgment is hereby rendered:
I. Holding that the defendant, R.S. Tomas Inc., guilty of inexcusable delay
resulting in the breach of the December 28, 1990 contract between it and Rizal
Cement Company Inc.
II. The defendant, R.S. Tomas Inc., is hereby ordered to pay the plaintiff, Rizal
Cement Company Inc., the amount of P29,440.00 per day of delay in the
completion of the projects which shall be limited to 10% of the project cost as
liquidated damages as well as the amount paid by Rizal Cement to Geostar
Philippines to complete the work left unfinished by R.S. Tomas

Frederick V. Espinosa
Presiding Judge