Topic: Classification of Contracts according to purpose

36. WT CONSTRUCTION, INC., Petitioner, v. THE PROVINCE OF CEBU, Respondent.

G.R. No. 208984, FIRST DIVISION, September 16, 2015, PERLAS-BERNABE, J.

Facts:
Province of Cebu conducted a public bidding for the construction the Cebu International
Convention Center (CICC or the project) in Cebu which would serve as venue for the ASEAN
Summit. WTCI emerged as the winning bidder for the construction of Phase I and Phase II. As
Phase II neared completion, the Province of Cebu caused WTCI to perform additional works on
the project which included site development, and additional structural, architectural, electric, and
plumbing works (additional works). Cognizant of the need to complete the project in time for the
ASEAN Summit, and with the repeated assurances that it would be promptly paid, WTCI agreed
to perform the additional works notwithstanding the lack of public bidding.

WTCI completed the project, including the additional works and, accordingly, demanded
payment therefor. The Province of Cebu, however, refused to pay, thereby prompting WTCI to
send a Final Billing dated February 21, 2007 where it demanded payment of the aggregate sum
of P261,217,886.66.

Issue:
whether or not the liability of the Province of Cebu is in the nature of a loan or forbearance of
money

Held.
There is no question that the present case does not involve an obligation arising from a loan;
what is at issue is whether the liability of the Province of Cebu involves a forbearance of money,
based on WTCI's claim that it merely advanced the cost of the additional works. In Sunga-Chan
v. CA,the Court characterized a transaction involving forbearance of money as follows: The term
"forbearance," within the context of usury law, has been described as a contractual obligation of
a lender or creditor to refrain, during a given period of time, from requiring the borrower or
debtor to repay the loan or debt then due and payable.

In Estores v. Supangan,the Court explained that forbearance of money, goods, or credit refers
to arrangements other than loan agreements where a person acquiesces to the temporary use
of his money, goods or credits pending the happening of certain events or fulfilment of certain
conditions such that if these conditions are breached, the said person is entitled not only to the
return of the principal amount given, but also to compensation for the use of his money
equivalent to the legal interest since the use or deprivation of funds is akin to a loan.

Applying the foregoing standards to the case at hand, the Court finds that the liability of the
Province of Cebu to WTCI is not in the nature of a forbearance of money as it does not involve
an acquiescence to the temporary use of WTCI's money, goods or credits. Rather, this case
involves WTCI's performance of a particular service, i.e., the performance of additional works on
CICC, consisting of site development, additional structural, architectural, plumbing, and
electrical works thereon.
Verily, the Court has repeatedly recognized that liabilities arising from construction contracts do
not partake of loans or forbearance of money but are in the nature of contracts of service. The
Court, therefore, sustains the CA's ruling that the rate of legal interest imposable on the liability
of the Province of Cebu to WTCI is 6% per annum

The guidelines have been updated in Nacar v. Gallery Frames, pursuant to BSP Circular No.
799, series of 2013, which reduced the rate of legal interest for loans or transactions involving
forbearance of money, goods, or credit from 12% to 6% per annum. Nevertheless, the rate of
legal interest for obligations not constituting loans or forbearance such as the one subject of this
case remains unchanged at 6% per annum.

Coming now to the issue of whether the RTC and the CA erred in computing the interest due
WTCI from the time of the filing of the complaint, the Court finds merit in WTCI's argument that
the same should be reckoned from the time WTCI made the extrajudicial demand for the
payment of the principal. The Court observes, however, that WTCI neither appealed from nor
sought a reconsideration of the Judgment of the RTC which awarded interest to it computed
from the time of the filing of the complaint on January 22, 2008. Accordingly, the RTC's
determination of the interest's reckoning point had already become final as against WTCI since
it was not one of the assigned errors considered on appeal. It is settled that a decision becomes
final as against a party who does not appeal the same. Consequently, the present petition of
WTCI questioning the RTC's determination on the reckoning point of the legal interest awarded
can no longer be given due course. The Court is, therefore, constrained to uphold the rulings of
the RTC and the CA that the legal interest shall be computed from the time of the filing of the
complaint.

Lastly, the Court agrees with the CA that the legal interest rate of 6% shall be imposed from the
finality of the herein judgment until satisfaction thereof. This is in view of the principle that in the
interim, the obligation assumes the nature of a forbearance of credit which, pursuant to Eastern
Shipping Lines, Inc. as modified by Nacar, is subject to legal interest at the rate of 6% per
annum.

Topic: Void Contract; Doctrine of in pari delicto

88. DOMINGO GONZALO, Petitioner, vs. JOHN TARNATE, JR., Respondent.

G.R. No. 160600 , FIRST DIVISION, January 15, 2014, BERSAMIN, J.

Facts:
After DPWH had awarded the contract for the improvement of the Sadsadan-Maba-ay Section
of the Mountain Province-Benguet Road to his company, Gonzalo Construction,petitioner
Domingo Gonzalo (Gonzalo) subcontracted to respondent John Tarnate, Jr. (Tarnate) the
supply of materials and labor for the project under the latter s business known as JNT
Aggregates.

In furtherance of their agreement, Gonzalo executed on April 6, 1999 a deed of assignment

whereby he, as the contractor, was assigning to Tarnate an amount equivalent to 10% of the
total collection from the DPWH for the project and Gonzalo further authorized Tarnate to use the
official receipt of Gonzalo Construction in the processing of the documents relative to the
collection of the 10% retention fee. This 10% retention fee (equivalent to ₱233,526.13) was the
rent for Tarnate’s equipment that had been utilized in the project.

During the processing of the documents for the retention fee, however, Tarnate learned that
Gonzalo had unilaterally rescinded the deed of assignment by means of an affidavit of
cancellation of deed of assignment dated April 19, 1999 filed in the DPWH on April 22,
1999;4 and that the disbursement voucher for the 10% retention fee had then been issued in the
name of Gonzalo, and the retention fee released to him. Tarnate demanded the payment of the
retention fee from Gonzalo, but to no avail.

Issue:
W/N Gonzalo is not liable to pay Tarnate of the retention fee based on his contentions that the
subcontract and the deed of assignment, being specifically prohibited by law, had no force and
effect under the doctrine of in pari delicto.

Held:
No.

According to Article 1412 (1) of the Civil Code, the guilty parties to an illegal contract cannot
recover from one another and are not entitled to an affirmative relief because they are in pari
delicto or in equal fault. The doctrine of in pari delicto is a universal doctrine that holds that no
action arises, in equity or at law, from an illegal contract; no suit can be maintained for its
specific performance, or to recover the property agreed to be sold or delivered, or the money
agreed to be paid, or damages for its violation; and where the parties are in pari delicto, no
affirmative relief of any kind will be given to one against the other.

Nonetheless, the application of the doctrine of in pari delicto is not always rigid.1âwphi1 An
accepted exception arises when its application contravenes well-established public policy. In
this jurisdiction, public policy has been defined as "that principle of the law which holds that no
subject or citizen can lawfully do that which has a tendency to be injurious to the public or
against the public good."

Unjust enrichment exists, according to Hulst v. PR Builders, Inc.,20 "when a person unjustly
retains a benefit at the loss of another, or when a person retains money or property of another
against the fundamental principles of justice, equity and good conscience." The prevention of
unjust enrichment is a recognized public policy of the State, for Article 22 of the Civil Code
explicitly provides that "[e]very person who through an act of performance by another, or any
other means, acquires or comes into possession of something at the expense of the latter
without just or legal ground, shall return the same to him." It is well to note that Article 22 "is part
of the chapter of the Civil Code on Human Relations, the provisions of which were formulated as
basic principles to be observed for the rightful relationship between human beings and for the
stability of the social order; designed to indicate certain norms that spring from the fountain of
good conscience; guides for human conduct that should run as golden threads through society
to the end that law may approach its supreme ideal which is the sway and dominance of
justice."

There is no question that Tarnate provided the equipment, labor and materials for the project in
compliance with his obligations under the subcontract and the deed of assignment; and that it
was Gonzalo as the contractor who received the payment for his contract with the DPWH as
well as the 10% retention fee that should have been paid to Tarnate pursuant to the deed of
assignment.Considering that Gonzalo refused despite demands to deliver to Tarnate the
stipulated 10% retention fee that would have compensated the latter for the use of his
equipment in the project, Gonzalo would be unjustly enriched at the expense of Tarnate if the
latter was to be barred from recovering because of the rigid application of the doctrine of in pari
delicto. The prevention of unjust enrichment called for the exception to apply in Tarnate’s favor.
Consequently, the RTC and the CA properly adjudged Gonzalo liable to pay Tarnate the
equivalent amount of the 10% retention fee