REFIGO OF THE PHILIPPINES

REGIOL 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. &

TIMESSURETY
& 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