UNIVERSITY OF THE EAST

Graduate School
Manila

Name: Engr. Jan Adrian G. Hernandez Date: May 13, 2023

Student No.: 20220125702 GCT 7206-1S

CASE PROBLEM 300

H.L. CONSTRUCTION, INC.
VS
MARINA PROPERTIES CORPORATION.

I. ABSTRACT

The case of H.L. Construction Inc. vs. Marina Properties Corporation brings to
the forefront a complicated legal dispute between two prominent entities in the fields
of construction and real estate development. H.L. Construction Inc. (HLC), a reputable
construction company, alleges that Marina Properties Corporation (MPC), a renowned
real estate developer, breached the terms of their contractual agreement by failing to
make timely payments, thereby impeding the project's progress and putting HLC
under significant financial pressure. In contrast, MPC contends that the project delays
and setbacks were largely attributable to HLC's substandard craftsmanship,
inadequate oversight, and failure to adhere to agreed-upon schedules, which
prompted MPC to withhold payments to ensure satisfactory project completion.

This case seeks to examine the specifics of HLC and MPC's contractual
agreement, investigate the sequence of events that led to the dispute, and evaluate
the validity of the claims presented by both parties. The case highlights the potential
complexities inherent in commercial construction projects and emphasizes the
importance of clear communication, thorough documentation, and strict adherence to
contractual provisions in order to reduce the likelihood of disputes and costly litigation.

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II. BACKGROUND OF THE STUDY

The respondent, Marina Properties Corporation (MPC), is engaged in the

development of real estate. On May 10, 1988, MPC entered into a contract with H.L.
Carlos Construction, Inc. (HLC), the petitioner, to construct Phase III of a
condominium complex known as Marina BAYHOMES CONDOMINIUM PROJECT,
which included townhouses and villas, totaling 31 housing units, for a total
consideration of P38,580,609.00, within 365 days from receipt of 'Notice to Proceed'.
The original due date for the project was May 16, 1989, however it was extended to
October 31, 1989 with a grace period until November 30, 1989.

III. STATEMENT OF THE PROBLEM

On December 15, 1989, HLC filed a lawsuit for monetary damages against
MPC and its alleged president, respondents Jesus K. Typoco, Sr. and Tan Yu, seeking
the payment of various sums totaling P14 million pesos.

a. P7,065,885.03 for labor price increases, change orders, and material price
increases;
b. P2,000,000.00 in additional compensatory damages, exclusive of court costs.
c. P3,147,992.00 representing retention funds allegedly withheld by MPC on HLC's
Progress Billings beginning in January 1990.
d. P2,000,000.00 representing the value of construction materials allegedly withheld
by MPC.

The respondents filed separate answers, denying the complaint's allegations and
claiming they are not parties to the Construction Contract and Amendatory Contract
and therefore not liable to HLC. MPC countered that HLC has no cause of action
against it and is not entitled to its claims. MPC counterclaimed for P68,296,227.14 in
actual, compensatory, liquidated, unliquidated advances, and attorney's fees.

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On May 15, 1997, the trial court ruled in favor of HLC and ordered the following from
respondents MPC, Tan Yu, and Jesus K. Typoco, Sr.:

1. P7,065,885.03, representing unpaid labor escalation costs, change orders, and

material price escalations, plus 12% annual interest from the date the complaint
was filed until paid in full.
2. P3,147,992.39 representing the 10% retention money withheld by the
[respondents] [from] [petitioner's] progress billing beginning in January 1990, plus
12% interest per annum from the date the complaint was filed, until fully paid.
3. P2,000,000.00 representing the value of construction materials and other similar
items detained by [respondents], plus 12% legal interest from the date the
complaint was filed until full payment.
4. The amount equal to 15% of the principal amount for attorney's fees.
5. Costs associated with this lawsuit.

Due to a lack of evidence, the counterclaim for liquidated damages was dismissed.
Liquidated damages can only be awarded under paragraph 2 of the amended
construction contract that extended the completion date, and primarily based on the
finding that the project was 85% substantially complete, and that the delay and
stoppage of the project were caused by the respondent's failure to pay the progress
billings that would have allowed the petitioner to continue and complete the project.

IV. STATEMENT OF THE FACTS

The Court of Appeal ruled that Respondents were not liable for increases in
the cost of labor and construction materials on appeal. The CA based its decision on
the fact that the parties' contract was for a fixed sum of money and did not account
for inflation. Since there was no addendum covering change orders and extra work,
as stipulated in the primary Construction Contract, Respondents were also exempt
from such costs. Even though it appears that the petitioner performed additional

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work as indicated by Progress Billing No. 24, this claim is not backed up by
adequate evidence.
The CA also came up empty when trying to justify waiving the 10% retention.
Petitioner did not meet the conditions set forth in the Construction Contract for
granting such a release, so no such release was granted. Since the petitioner
ultimately withdrew the construction materials, MPC was also not held liable for their
detention or withholding. There was no evidence in the files suggesting that Typoco
or Tan bore any legal responsibility. Furthermore, there was no liability for MPC to
assume toward the petitioner. The petitioner was found to be responsible for both
actual and liquidated damages by the CA. Since the latter had left the project
unfinished, MPC had to hire someone else to finish it and ended up paying more in
damages than the contract's remaining balance. In addition, the Construction
Contract called for liquidated damages to be paid at the rate of one thousandth of
the contract price for each day of delay.

V. ANALYSIS OF THE FACTS

1st Issue: Liability of Additional Costs

Labor and Material Cost Escalation

MPC's late payment entitles petitioner to price escalation for labor and materials.
The former admits that a contractor is expected to build a contingency factor into its
price to protect it from cost increases during the contract. However, it argues that a
contractor cannot predict price increases beyond the contract period. Respondents
claim that the project was delayed, so it is not entitled to a price increase. The CA
denied petitioner's claim because the contract was for a lump sum and petitioner
delayed project completion.

CA agrees with petitioner that it is entitled to price escalation, but only for Progress
Billing No. 24's labor. The Contract only allows labor cost escalations, so material
cost escalations are prohibited. No provision in the original or amended contract

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justifies billing for increased material costs. Petitioner provided no evidence of
material cost increases, such as official economic data on construction material price
indexes. Petitioner claims these cost escalations are damages due to billing delays
and claims for additional work. Respondents are liable for damages under Article
2201 of the Civil Code for their baseless and malicious refusal to pay those claims.

Change Orders & Extra Work

Petitioner claims compensation for construction memoranda-covered change orders
and extra work. MPC claims the former never estimated additional work costs.
MPC could have unilaterally billed for actual accomplishment based on the estimate.
Worse, its engineer valued the extra work at only P705.41. Progress Billing No. 24,
which covered the Construction Contract project, did not mention extra work or
change orders. Other bills than petitioner's 24 Progress Billings covered these
additional jobs. Petitioner did extra work that MPC accepted, even though it failed to
show the construction memoranda. Quantum meruit allows a contractor to recover
the reasonable value of goods or services without a contract to avoid unjust
enrichment. Quantum meruit requires the plaintiff to be paid what they deserve in a
work and labor action. Denying payment for a nearly finished and occupied building
would allow the contractor to be unjustly enriched. Billing No. 24 did not claim
additional work, so the CA assumed it had been paid for. Not true. The petitioner
sent MPC separate progress billings for change orders and extra work.

Retention Money
The claim for the 10% retention money was denied by the CA because the petitioner
failed to comply with the conditions set forth in paragraph 6.3 of the Construction
Contract. On the other hand, the latter claims that these conditions were deemed
fulfilled under Article 1186 of the Civil Code because MPC prevented the fulfillment
of those conditions when its contract was terminated. It would be allegedly unfair
and unreasonable for petitioner to guarantee the completion of a project by another
contractor. The simple fact is that by failing to complete the project, the former failed
to meet a requirement for the release of the retention money.

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Detained Materials
After two years, petitioner was allowed to remove illegally detained materials from
the site. Only 30% of detained materials were salvageable by 1992. Not true. The
CA ruled that MPC detained petitioner's materials only because it denied the
February 1990 letter's request for used form lumber. However, petitioner only
attempted to obtain its request in that letter. It should have tried again before
claiming respondents unreasonably prevented it from removing its construction
materials from the premises. The other materials were never removed from the
construction site. Thus, petitioner was never denied these.

Petitioner also had a warehouse in a construction site yard that was guarded by its
own security and inaccessible to MPC personnel. Therefore, it should have
protected those materials from the elements and theft.

Attorney’s Fees
Petitioner claims attorney's fees under Article 2208 of the Civil Code because
respondents' act or omission forced it to litigate with third parties or incur expenses
to protect its interest, and respondents acted in gross and evident bad faith in
refusing to satisfy its plainly valid, just, and demandable claim. The project was not
completed despite petitioner's claims being granted. Because the right to litigate
should not be monetized, attorney's fees are not awarded to winning parties.
Petitioner is not blameless in this dispute. MPC's withholding of petitioner's
payments does not indicate gross or evident bad faith. MPC had counterclaims.

2nd Issue: Typoco and Tan’s Liabilities

Typoco did not act in bad faith, gross negligence, or outside his authority as
company president, according to the records. MPC should have been cited for
contempt of court for unilaterally terminating the Contract during the TRO, and a

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preliminary injunction would have stopped the second contractor from working.
There is no evidence that the unilateral Contract termination was void.

Tan is not an MPC officer or director. He only spoke to petitioner's project manager,
Engineer Mario Cornista. The former allegedly verbally guaranteed the latter's
progress billings. Respondent's solidary liability to petitioner is unproven.

3rd Issue: Liability for Actual and Liquidated Damages

Petitioner claims that respondents' actions caused its project's failure, exonerating it
from counterclaims for actual and liquidated damages. Petitioner breached contract.
Since MPC was allowed to fire the contractor, it could not blame MPC for hiring a
second contractor. Petitioner completed about 80% of the project by November 30,
1989. It was already delayed. Respondents suspected it would not finish the project
after Engineer Miranda testified that it would lose money even if it did.

Petitioner delayed and breached contract. The obligor must pay damages that result
from its breach. MPC paid petitioner P31,435,187 of the P38,580,609 contract price,
leaving P7,145,422. The latter paid P11,750,000 to a second construction firm to
finish the project. Thus, MPC lost P4,604,579 for project completion.
Contract liquidated damages apply to petitioner.

Liquidated damages are agreed-upon penalties for breach. The agreed amount
compensates the owner for project delays. Philippine law considers these damages
penalties. Penal clauses increase liability in case of breach. It is attached to an
obligation to ensure performance. According to the CA, petitioner must pay
liquidated damages for 92 days, from the grace period in the Amended Contract's
expiration to February 1, 1990, when it abandoned the project.

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VI. CONCLUSION

In conclusion, the H.L. Construction vs. Marina Properties Corporation case

demonstrates the significance of clear and specific contract agreements in
construction projects. The case highlights the potential repercussions of violating
these agreements and the need for effective dispute resolution mechanisms. The case
highlights the difficulties that can arise in construction projects when unanticipated
changes or delays occur, as well as the significance of effective project management
and communication among all parties. The case's resolution will have repercussions
for the construction industry and could serve as a legal precedent for future disputes
between contractors and project owners. The case demonstrates the significance of
having a contract that is well-written and adhering to the dispute resolution
mechanisms outlined in the contract.

Overall, H.L. Construction vs. Marina Properties Corporation is a reminder of the

significance of clear and specific contract agreements and effective dispute resolution
mechanisms in construction projects. It also emphasizes the importance of effective
project management and communication between all parties in order to complete
projects on time and within budget.

VII. RECOMMENDATIONS

The case of H.L. Construction vs. Marina Properties Corporation

demonstrates the significance of clear and specific contract agreements, efficient
project management, and dispute resolution mechanisms in construction projects. It
is advised that all parties involved in construction projects adhere to the contract
agreement, which should be well-written and outline all parties' expectations. Effective
project management is essential for completing projects on time and within budget.
Dispute resolution mechanisms should be included in the contract agreement and
adhered to in order to resolve disputes expeditiously and economically. It is important
to seek legal counsel before signing any contract to ensure that all parties are

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protected and their interests are represented. Overall, adhering to these suggestions
can aid in avoiding legal conflicts similar to H.L. Construction vs. Marina Properties
Corporation and ensuring the successful completion of construction projects.