RgEP OF THE PHILIPPIEl

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

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

PHILIPPINES, 101 (1987ed.).
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 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 Court 4

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.”

2 Spouses Luigi M. Guanio and Anna Hernandez-Guanio v. Makati Shagri-la Hotel and Resort Inc.,
G.R. No. 190601, February 7, 2011
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
 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.

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

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