G.R. No. 193969-193970
Ka Kuen Chua v. Colori te Marketing Marketing Co. July 5, 2017
Topic: Interpretation Interpretation of Contracts Contracts Petitioner KA KUEN CHUA, doing business under the name and style KA KUEN CHUA ARCHITECTURAL Recit Ready Summar Summar y
Reyes, J. Created by: mateo
Respondent COLORITE MARKETING CORPORATION
Colorite Marketing Corporation (Colorite) and Ka Kuen Chua Architectural (KKCA) signed a construction contract where KKCA will build a 4 s torey residential/commercial building for Colorite on a parcel of land in Makati City. Colorite engaged the services of WE Construction Company (WCC) to undertake excavation work. However, on January 17, 2004, the excavation resulted in erosion, which erosion, which caused damage to the adjacent property o wned by the Hontiveros family. The Hontiveros family filed a complaint and a Hold Order was issued. All excavation activities were stopped and restoration of the eroded portion was ordered. This resulted in the delay of the project because the family refused to sign a waiver to lift the Hold Order until their property was restored. After 878 days of delay, Colorite Colorite demanded that KKCA KKCA pay the damages pursuant to the contract. KKCA KKCA refused because the completion period was suspended because of the hold order. Colorite Colorite also said that KKCA is liable for liquidated liquidated damages for the amount of P8,780,000 plus P10,000 per additional day of delay until the project is completed. KKCA said that his liability does not extend to excavation works done by the sub-contractor (WCC) and that the design fees were not paid. The SC ruled that the t he parties expressly agreed that all excavation works are included in KKCA’s scope of work, as the general contractor of the project. This is shown in Paragraph 21 of Addendum #01. WCC was placed under KKCA’s supervision and control. Ar ticl ti cl e 1370: “If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control.” The courthat tt also said he liquidated damages was not meant to penalize the contractor for the delay but to compensate the owner for the loss it may suffer. It does not operate to remove the stipulation’s character as a penal clause. Neither does i t require that the loss suffered be proved. Applying the stipulated rate shall amount to P43,800,000 which even surpasses the total contract price . Under Ar ticl ti cle e 1229 of the Civil Code: “even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.” unconscionable.” Facts of th e Case 1. Colorite Marketing Corporation Corporation (Colorite) and and Ka Kuen Chua Architectural (KKCA) (KKCA) signed a construction contract where KKCA will build a 4 storey residential/commercial building for Colorite on a parcel of l and in Makati City. 2. The parties agreed to a full contract price of P33 million subject to the following stipulations: stipulations: a.
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The project will commence commence in seven days from from the time KKCA received a notice to proceed from from Colorite and will be completed within 365 days reckoned from the seventh day after the release of the down payment. b. In the event the project project is not completed completed on time, the amount of P10,000 P10,000 for each calendar day of delay shall be paid by KKCA to Colorite. c. Only a maximum of 20% slippage, or 73 calendar days of delay is allowed, allowed, and Colorite has the right to to terminate the contract if the delay exceeded the maximum number of days allowed d. Colorite has the right right to take over and complete the construction of the the project and all all costs incurred thereby will be deducted from the amount due to KKCA. Colorite issued a Notice to Proceed and paid the P6.6 million downpayment (20% of contract price) Colorite engaged the services of WE Construction Company (WCC) (WCC) to undertake excavation excavation work. However, on January 17, 2004, the excavation resulted in erosion, which caused damage to the adjacent property owned by the Hontiveros family. The Hontiveros family family filed a complaint and a Hold Order was was issued directing KKCA KKCA to stop immediately all its excavation activities in the premises, and to restore the eroded portion of the adjacent property. This incident resulted in the delay of the project because the Hontiveros family refused to sign a waiver that was required for the lifting of the Hold Order unless their property was res tored.
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After 878 days of delay, Colorite demanded from KKCA to pay damages pursuant to the contract. KKCA refused contending that (a) the agreed completion period was suspended because of the hold order and (b) Colorite failed to pay the costs of soil protection as well as 70% of the restoration cost of the Hontiveros property, which allegedly formed part of the agreement. Colorite filed a claim with the Construction Industry Arbitration Committee (CIAC) saying that KKCA is liable for liquidated damages for the amount of P8,780,000 plus P10,000 per additional day of delay until the project is completed. KKCA said that his liability does not extend to excavation works done by the sub-contractor (WCC) and that the design fees were not paid.
Ruling o f CIAC -
Colorite is entitled to 50% of the liquidated damages because it was equally responsible for the delay, while KCCA is entitled to soil protection works fee, design fee, 50% of the restoration costs, and claim for recovery of the costs maintaining the project site, and damages.
Ruling of CA -
Removed the price of construction materials and damages for KKCA. Both parties were at fault, but not in bad faith.
Motions for reconsideration denied, case was brought to SC. Issues
Ruling
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W/N KKCA is liable for restoration cost of the erosion
Yes. It is expressly stated in the contract.
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W/N KKCA is liable for liquidated damages for the amount of P8,780,000 plus P10,000 per additional day of delay until the project is completed.
No. It is iniquitous or unconscionable
Rationale/Analysis/Legal Basis 1. KKCA is at fault for the erosion which damages Hontiveros propert y. The parties expressly agreed that a ll excavation works are included in KKCA’s scope of work, as the general contractor of the project. This is shown in Paragraph 21 of Addendum #01. WCC was placed under KKCA’s supervision and control. KKCA cannot deny its contractual obligation to ensure that the excavation works were properly done. While KKCA imputes negligence on the part of WCC, they fail to specifically mention how. KKCA argues that there were already excavation works before contract was signed. This is untenable because the contract was signed freely without duress. 3. Soil protection is within the contractor’s scope of work; hence, deemed included in the cont ract price KKCA claims it is entitled to reimbursement for the cost spent for soil protection. They cannot be reimbursed because it was stipulated in their con tract under Addendum #01 which placed excavation and soil protection within the scope of its undertakings. The consent was not vitiated. The interpretation of contracts Is clear Arti cle 1370: “If the terms of a contract are clear a nd leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control.” 4. -
There was no agreement that Color ite has to share in the restoration of the Hontiveros prop erty. There was no evidence to sufficiently prove that an agreement to share in the restoration cost of the Hontiveros property was perfected between the parties.
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KKCA is under obligation to secure the quitclaim of the Hontiveros family and the lifting of the Hold Order issued b y the City Government of Makati. The obligation is deemed written under Article XIII of the construction contract, which states that “the owner shall be held free and harmless from any liability arising from claims of third parties arising from the construction such as but not limited to wages, pay, compensation for injury, or death to laborers, SSS premiums, adjoining property settlement, etc. all of which shall be for the account of the contractor. ” Articl e 1315: the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the
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consequences which, according to their nature, may be in keeping with good faith, usage and law. 6. -
Colorite is equally at fault for the protracted delay of the project Their inaction cannot be justified and they acted in bad faith, contributing to the unnecessary delay.
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On claims of Damages Court prays for damages alleging that the subject property could have been rented for P460,189 per month. However there is no showing that an actual lease agreement exists, so the loss of rentals is factual and not speculative. The liquidated damages was not meant to penalize the contractor for the delay but to compensate the owner for the loss it may suffer. It does not operate to remove the stipulation’s character as a penal clause. Neither does it require that the loss suff ered be p roved. Applying the stipulated rate shall amount to P43,800,000 which even surpasses the total contract price. Under Articl e 1229 of t he Civil Co de: “even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or un conscionable.”
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KKCA is ordered to finish the project. The parties are to share in the increase in the construc tion cost over and above the contract price. Parties should comply with their contractual obligations. One injured by a breach of contract, or by wrongful or negligent act or omission shall have a fair and just compensation commensurate to the loss sustained as a consequence of defendant’s act. It would be unjust to rule that KKCA should shoulder the entire amount. It will tantamount to unjust enrichment. The court deems that a sharing of the increase in the construction cost at a ratio of 40% for Colorite and 60% for KKCA is equitable. Maintenance cost up to April 30, 2006 shall be for the sole account of KKCA Disposition WHEREFORE, the Decision and Resolution of the Court of Appeals, dated July 28, 2009 and October 4, 2010, respectively in CA-GR SP Nos. 103892 and 103899 are AFFIRMED with MODIFICATIONS. Separate Opinions None.
