G.R. No.
204423 : September 14, 2016
PHILIPPINE SCIENCE HIGH SCHOOL-CAGAYAN VALLEY
CAMPUS, Petitioner, v. PIRRA CONSTRUCTION
ENTERPRISES, Respondent.
DEL CASTILLO, J.:
FACTS:
On April 19, 2010, respondent PIRRA Construction Enterprises (PIRRA) filed
with the Construction Industry Arbitration Commission (CIAC) a complaint
for damages against petitioner Philippine Science High School
(PSHS) relative to the construction contracts for PSHS' Project A (Academic
Building I and Girls' Dormitory Building I); and its Project C (Academic
Building II, Boys' Dormitory Building, and School Canteen).
On October 27, 2008, PIRRA won the bidding for Project A. The duration of
Project A was for 180 days from December 20, 2008, with approved 65-day
extension until August 22, 2009. PSHS paid PIRRA its Partial Billing (PB)
Nos. 1 to 4.
On July 29, 2009, PIRRA requested payment for its PB No. 5. On August 6,
2009, it sent PSHS a letter requesting for substantial acceptance and
completion of Project A and submitted its Summary of Accomplishment
Report stating that as of July 24, 2009, the accomplishment for Project A
was already at 94.09%.
On September 23, 2009, PSHS replied to PIRRA's request for substantial
acceptance and completion of Project A, and for payment of PB No. 5. It
stated that the payment thereof could not yet be made pending the final
inspection of the concerned agencies. At the same time, PSHS declared that
it considered PB No. 5 as PIRRA's final billing such that it had to account
PIRRA's liabilities relating to Project A.
On September 25, 2009, PSHS informed PIRRA that the Commission on
Audit (COA) would inspect Project A on September 29, 2009 to validate
PIRRA's accomplishment thereon. On September 29, 2009, the COA
proceeded with the inspection. On October 30, 2009, PSHS informed PIRRA
that its PB No. 5 could not be processed yet as it was awaiting the COA
Report.
On January 6, 2010, PSHS informed PIRRA that it would take over Project A
in the interest of the government, and to prepare for its occupancy for
School Year 2010-2011. On the other hand, PIRRA claimed that PSHS'
takeover of Project A is violative of its rights as the winning contractor.
On December 2, 2008, PIRRA participated in and won the bidding for Project
C. The parties entered into a Contract Agreement. PSHS alleged that it found
out that as of October 12, 2009, PIRRA suspended work on Project C without
its approval. Thus, PSHS terminated the Project C contract because of
PIRRA’s delay, default, and abandonment. PIRRA contended that the
termination of the contract is unjustified. It stressed that PSHS failed to give
it the intended revisions of the building plan for Project C as well as the
necessary documents to secure a building permit for the project.
On January 26, 2011, the CIAC rendered its Final Award, and decreed that
PSHS had no basis in taking over Project A. It stressed that during the
pendency of said project, PIRRA requested payment of its PB No. 5 based on
substantial acceptance and completion with 94.09% accomplishment. As
regards Project C, the CIAC stated that PSHS failed to comply with the
November 20, 2009 Joint Agreement that PSHS would submit revised
drawings and issue a VO on Project C. It thus held that PSHS breached its
obligations and invalidly terminated the contract for Project C.
On appeal, the CA modified the Final Award of the CIAC by ordering PSHS to
pay respondent PIRRA the residual value of Partial Billing No. 5 and holding
that PSHS validly terminated the contract for Project C. Nonetheless, the CA
affirmed that PSHS is liable for the value of the work done on Project C
because otherwise there would be unjust enrichment on the part of PSHS.
ISSUE: Whether or not PSHS treated Project A as substantially completed
such that it is liable for the residual value of PB No. 5?
HELD: Court of Appeals’ decision is sustained.
CIVIL LAW: substantial performance of obligation
As provided for under Article 1234 of the Civil Code, if the obligation had
been substantially performed in good faith, the obligor, in this case, PIRRA,
may recover as if it had strictly and completely fulfilled its obligation, less
the damages suffered by the obligee or in this instance, PSHS. (Diesel
Construction Co., Inc. v. UPSI Property Holdings, Inc., 572 Phil. 494)
PSHS accepted and treated Project A as a substantially completed project,
and for which reason, PSHS' takeover thereof is of no moment. Since PSHS
treated Project A as substantially completed, it is liable to pay PIRRA the
residual value of PB No. 5. When PIRRA requested substantial acceptance
and completion of Project A, PSHS did not object to such a request. It acted
upon it and even created an Inspectorate Team for punch listing, and for the
purpose of determining PIRRA's PB No. 5.
Notably, PSHS repeatedly referred to PB No. 5 as the final billing for Project
A. In fact, PSHS initially expressed its willingness to pay only to put it on
hold because of the COA Report. Nonetheless, such Report cannot affect
PSHS' obligation to pay PIRRA because the existence of the defective or
undelivered items was not an excuse to avoid payment of the progress
billing, as the payment was due on the performed items that were
completed or were otherwise performed, save for the defects.
CIVIL LAW: principle of quantum meruit
While records reveal that PSHS failed to submit the revised drawing for the
preparation of a VO, PIRRA, on its end, is not entirely faultless. This is
because after the November 20, 2009 Agreement, PIRRA no longer
coordinated with PSHS. Neither did it explain why it did not demand from
PSHS the submission of the needed drawing. The suspension of work as of
October 12, 2009 made by PIRRA on Project C, without PSHS' approval,
cannot be ignored.
Pursuant to the General Conditions of Contract, PSHS may terminate the
contract if PIRRA incurs delay, abandons the project, causes stoppage of
work without the authority of PSHS. Indeed, by reason of PIRRA's delay,
suspension of work without any approval from PSHS, and abandonment of
the project, PSHS has sufficient basis to terminate the contract for Project C.
Nonetheless, PIRRA is entitled to the value of the work done on Project C
pursuant to the principle of quantum meruit and to avoid unjust enrichment
on the part of PIRRA. Quantum meruit means that, in an action for work and
labor, payment shall be made in such amount as a party reasonably
deserves, as it is unjust for a person to retain any benefit without paying for
it. Here, records show that PIRRA had a 25.25 % accomplishment on Project
C. To deny payment thereof would result in unjust enrichment of PSHS at
the expense of PIRRA. Hence, PSHS must pay PIRRA the value of the work
done on Project C.
Petition for review on certiorari is DENIED.
