FIRST DIVISION
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DEVELOPMENT BANK OF THE Petitioner, - versus - GLORIA
C. BALLESTEROS, represented by her Attorney-In-Fact, VALENTINO RIVERA,
Respondent. |
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G.R. No. 168794 Present: PANGANIBAN,
C.J. Chairperson, YNARES-SANTIAGO, AUSTRIA-MARTINEZ, CALLEJO, SR. and CHICO-NAZARIO, JJ. Promulgated: August 30, 2006 |
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CHICO-NAZARIO, J.:
Before Us is an amended
petition for review on certiorari which
seeks to set aside the decision[1] of the Court of Appeals in CA-G.R. CV
No. 58925 dated
WHEREFORE,
premises considered, judgment is hereby rendered in favor of the plaintiff and
against the defendant Development Bank of the Philippines, ordering the same to
pay the plaintiff the amount of P26,725.00, representing the total penalty
charges/liquidated damages less overpayment of the contract price, plus legal
interest at the rate of 6% per annum on the said amount from the time of filing
of the complaint up to the time payment is made before finality of
judgment. Thereafter, if the amount
adjudged remains unpaid, the interest rate shall be 12% per annum computed from
the time the judgment becomes final and executory until fully satisfied.[3]
and its Resolution[4]
dated
The
following are the antecedents as narrated by the Court of Appeals:
The plaintiff-appellee contractor
won the bidding for the refurbishing of the Development Bank of the
Under the said contract, the
contractor, agreed to refurbish/renovate the DBP, Cabanatuan Branch building, within
a period of thirty-five (35) days, commencing on P850,000.00. The parties
further agreed that in case the contractor fails to complete the work within
the stipulated period, a penalty of P2,000.00 per day of delay,
inclusive of Sundays and holidays, shall be deducted from any amount/s due the
said contractor.
To supervise the refurbishing work, the DBP hired the services of project architect, Jose Vicente Salazar III. The project architect was named as representative of DBP and was expressly authorized by DBP, to condemn or reject defective works or poor workmanship of the contractor at anytime before the completion, approval and acceptance of such work.
In accordance with the aforesaid
contract of service, the contractor commenced the refurbishing work on
Foreseeing that the refurbishing work would not be completed on 15 May 1988, for the following reasons: (1) problems encountered in the freight delivery service of some materials purchased in Metro Manila due to the negligence of the supplier; (2) unavailability of materials due to the hoarding of the same by suppliers anticipating price increases; and (3) refusal of some laborers to work on Sundays to attend their religious and family obligations; the contractor requested, on 13 May 1988, for an extension of one (1) week, from May 16-22, 1988, without penalty, from DBP to finish the work.
In a radio message, dated P2,000.00 per day
of delay corresponding to the period of extension.
On
However, in a meeting of the Refurbishing Committee held on 25 May 1988, the acceptance made by the project architect was repudiated by the said committee on account of some defects in the refurbishing work noted by the Evaluation Committee and Engineer Bettina Mari, Technical Audit Specialist of the Commission on Audit. In the said meeting, DBP required the contractor to make a correction of the defects noted.
The request of the contractor that
she be not charged with the stipulated penalty of P2,000.00 per day of
delay corresponding to the period of
On
On P215,475.00,
representing the outstanding balance of the contract price based on 97.35%
completion of the refurbishing work.
On P2,000.00 per day of delay from 16 May
1988 to the time of formal turnover of the refurbishing project, opined:
Due to the unexpected failure of the
contractor to finish the work on schedule, they requested for an extension of
contract time of seven (7) calendar days, the reasons are contained in their
letter-request dated
In as much as there seems to be no legal basis to grant the extension of contract time and even after the expiry date of the requested extension, the work remained incomplete, the imposition of liquidated damages as provided in Article III, Paragraph 2 of the contract should be observed, until the final turnover of the completed project.
Pursuant to the letter, dated P88,890.45, representing the 10% retention fee
owing the contractor less liquidated damages/penalty in the total amount of P14,000.00
for the period corresponding to P74,890.45,
deducting from the P88,890.45 recommended by the DBP, liquidated
damages/penalty in the additional amount of P14,000.00 corresponding to
the period May 16 to 22, 1988.
Alleging that the DBP’s imposition of the stipulated penalty
in the total amount of P14,000.00 for the period May 22 to 29, 1988, was
unjustified inasmuch as the refurbishing project was turned over and accepted
by its project architect on 22 May 1988; alleging further, that DBP’s
imposition of the additional penalty in the total amount of P14,000.00,
for the period May 16 to 22, 1988, was likewise without basis since she was
granted an extension of one (1) week from 15 May 1988 by the DBP to finish the
refurbishing project; alleging that it was through the instigation and prodding
of Marcelita Sarmiento that the penalties were imposed upon her; and finally,
alleging that DBP failed to pay for the additional work performed by her in the
amount of P28,000.00; plaintiff-appellee Gloria C. Ballesteros, through
her attorney-in-fact, Valentino Rivera filed, on 17 August 1988, a complaint
for Collection and Damages against defendants-appellants DBP and Marcelita
Sarmiento. Said complaint was docketed
as Civil Case No. 486-AF before the
After
the case was submitted for decision, the presiding judge of Branch 24 of the RTC,
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendants as follows:
1.
Directing and ordering the defendant DBP to pay the
plaintiff the amount of P28,000.00 with legal rate of interest of 12%
from the date of filing of this case up to its payment for the imposed penalty;
2.
Ordering and directing the defendant Marcelita
Sarmiento in her personal capacity to pay the plaintiff the amount of P30,000.00
as incidental, moral and exemplary damages;
3.
Directing and ordering the defendant DBP to pay
plaintiff the sum of P28,000.00 for the additional work with legal rate
of interest of 12% from date of filing of this case up to its payment;
4.
Ordering and directing both defendants to pay jointly
and severally the plaintiff the sum of P10,000.00 as attorney’s fees;
and
5. To pay the costs of suit.[7]
The trial court held inter alia that the imposition of a P2,000.00
penalty for every day of delay in the completion of the project has no leg to
stand on, because prior to the lapse of the period stipulated in the Contract
for Services, respondent filed on 13 May 1998 a letter-request for a one-week
extension (16 May 1998 to 22 May 1998) to complete the project without the
imposition of any penalty, and that the extension was approved by the DBP. It explained that since the refurbishing/renovation
of the DBP building, Cabanatuan Branch, was completed, turned over and accepted
by Architect Jose Vicente Salazar III, DBP Project Architect, on
In ruling the way it did, the trial
court disregarded the argument of defendant Marcelita A. Sarmiento, Branch
Auditor,
Aggrieved, petitioner and defendant Sarmiento
appealed to the Court of Appeals via
a Notice of Appeal.[9] On
The Court of Appeals ruled that the
extension of the contract time from 16 May to
Moreover, the Court of Appeals concluded
that it is Architect Jose Vicente Salazar III, DBP Project Architect, who was
clothed with the authority to approve and accept the refurbishing project,
which he did on
The Court of Appeals, finding no
basis to hold petitioner and defendant Sarmiento guilty of bad faith
considering that they were merely implementing the opinion of the Acting Chief
of the Regional Office No. III, Commission on Audit (COA), in the imposition of
the stipulated penalty/liquidated damages upon respondent, deleted the award of
incidental, moral and exemplary damages, and attorney’s fees in favor of the
latter.
Petitioner and respondent filed their
respective motions for reconsideration, but same were denied by the Court of
Appeals in its resolution dated
Not satisfied, petitioner is now
before this Court by way of a Petition[11]
for Review on Certiorari under Rule
45 of the 1997 Rules of Civil Procedure.[12]
Petitioner assigns a solitary error:
THE HONORABLE COURT OF APPEALS GRAVELY ERRED WHEN IT ORDERED THE PETITIONER DBP TO RETURN THE AMOUNT OF P26,725.00 REPRESENTING THE LIQUIDATED DAMAGES ASSESSED/DEDUCTED FROM THE RETENTION FEE PAID TO RESPONDENT –
1. THE ASSAILED DECISION AND RESOLUTION ISSUED BY THE COURT OF APPEALS FAILED TO CONSIDER THE CONSTITUTIONAL POWERS OF THE COMMISSION ON AUDIT (COA) TO REVIEW CONTRACTS INVOLVING THE DISBURSEMENT OF GOVERNMENT FUNDS.
2. RESPONDENT FAILED TO EXHAUST ADMINISTRATIVE REMEDIES AND ELEVATE THE ADVERSE DECISION OF COA ACTING CHIEF GREGORIO YAMZON, REGIONAL OFFICE NO. III AND COA AUDITOR MARCELITA SARMIENTO FOR REVIEW BY HIGHER COA AUTHORITIES AS MANDATED BY SECTION 48 OF PD 1594 (sic), OTHERWISE KNOWN AS THE GOVERNMENT AUDITING CODE OF THE PHILIPPINES.[13]
For the proper resolution of the
instant case, the following issues must be resolved: (1) whether or not the
extension of contract time was in accordance with the implementing rules and
regulations of Presidential Decree No. 1594; and (2) whether or not Architect
Jose Vicente Salazar III, DBP Project Architect, was authorized to accept the
refurbishing project.
Before we resolve these issues, we
first rule on whether respondent failed to exhaust administrative remedies when
she did not elevate the adverse decisions of COA Regional Office No. III Acting
Chief Gregorio B. Yamzon and DBP Cabanatuan City Branch Auditor Marcelita Sarmiento
to higher COA authorities in accordance with Section 48 of Presidential Decree
No. 1445.[14]
Respondent failed to exhaust
administrative remedies when she did not appeal to higher COA authorities the
imposition of the P2,000.00 a day penalty. This, notwithstanding, the trial court
properly took cognizance of the case and proceeded in hearing the same there
being no motion to dismiss filed by petitioner or by defendant Sarmiento on the
ground of lack of cause of action. Having
failed to invoke this ground at the proper time, that is, in a motion to
dismiss, petitioner cannot raise it for the first time on appeal. In Sunville
Timber Products, Inc. v. Abad,[15]
this Court explained:
The doctrine of exhaustion of administrative remedies calls for resort first to the appropriate administrative authorities in the resolution of a controversy falling under their jurisdiction before the same may be elevated to the courts of justice for review. Non-observance of the doctrine results in lack of a cause of action which is one of the grounds allowed in the Rules of Court for the dismissal of the complaint. The deficiency is not jurisdictional. Failure to invoke it operates as a waiver of the objection as a ground for a motion to dismiss and the court may then proceed with the case as if the doctrine had been observed.
In the Contract for Services entered
into by petitioner and respondent for the refurbishing/renovation of the
building/furniture of DBP Cabanatuan Branch, the latter agreed to finish the
project within a period of 35 calendar days commencing from P2,000.00 penalty per day of delay which amount is
to be deducted from any amount due her. The
pertinent portion of the contract reads:
III. Time of Completion
The Project Contractor shall
complete the works called for herein in accordance with the plans and
specifications and related contract documents within a period of thirty-five
calendar days, commencing on
It is understood that time is of the
essence of this Contract and that upon failure of the Project Contractor to
complete the work within the period stated above, the Project Contractor shall
pay the DBP the sum of TWO THOUSAND (P2,000.00) PESOS, per each day of
delay (Sundays and Holidays included) in the completion of work, by way of
penalty, which amounts shall be deducted from any amount/s due the Project
Contractor.[16]
On
1. A problem was encountered by us in the freight delivery service of some materials purchased in Metro Manila due to the negligence of the supplier inspite of our repeated follow-ups;
2. Procurement of materials were hard as some were not readily available due to the hoarding of materials by the suppliers anticipating price increases;
3. The 35-working day period included Sundays. Hired laborers usually go on half-day on whole day leave to attend to their religious and family obligations.[17]
The request was approved by the DBP
Head Office on P28,000.00 for the fourteen-day delay was deducted from the 10%
retention fee that was still due the petitioner.
Are the reasons mentioned by respondent
allowed under Presidential Decree No. 1594?
Reasons 1 and 2 involve problems regarding materials to be used in the
project, while reason number 3 deals with labor or manpower problems.
After going over the implementing
rules and regulations of Presidential Decree No. 1594 on the matter, we find
that the extension should not have been granted because the reasons for its
asking are not those allowed.
CI 10 Extension of Contract Time
x x x x
No extension of contract time shall be granted the contractor due to (1) ordinary unfavorable weather conditions (2) non-availability of equipment, supplies or materials, to be furnished him or (3) other causes for which Government is not directly responsible. Extension of contract time may be granted only when the affected activities fall within the critical path of the PERT/CPM network. No extension of contract time shall be granted when the reason given to support the request for extension was already considered in the determination of the original contract time during the conduct of detailed engineering as agreed upon by the parties before contract perfection. Extension of contract time shall be granted only for the equivalent period of delay due to major calamities such as exceptionally destructive typhoons, floods and earthquakes, and epidemics, and for causes such as non-delivery on time of materials, working drawings, or written information to be furnished by the Government, non-acquisition of permit to enter private properties within the right-of-way resulting in complete paralization of construction activities, and other meritorious causes as determined by the Government’s authorized Engineer and approved by the Government, provided that the written consent of bondsmen must be attached to any request of the contractor for extension of contract time and submitted to the Government for consideration and that the validity of the Performance Bond shall be correspondingly extended. (Underscoring supplied.)
The first two reasons cited by respondent
refer to non-availability of materials which is clearly a ground not allowed
for the extension of the contract time.
As regards the third reason – laborers not working on Sundays due to
religious and family obligations – this is also not a valid reason to grant a
contract time extension. The contract
entered into by petitioner and respondent is clear that the project shall be
completed within 35 calendar days from commencement, including Sundays. The penal clause of the contract provides for
a P2,000.00 penalty for each day of delay in the completion of the work,
Sundays and holidays included. The
contract is explicit that Sunday is part of the contract time. Work during Sundays was already considered in
the determination of the original contract time. The fact that respondent encountered problems
because her employees were not willing to work on a Sunday is not an excuse for
not complying with the contract she entered into. She could have refrained from accepting the
project if her workers were not willing to work on a Sunday, or could have asked
petitioner prior to the perfection of the contract that Sunday be not part of
the contract time. These, she did not
do. Having accepted the project, she has
no choice but to comply with its terms and conditions; otherwise the sanctions
agreed upon must be imposed.
This Court notes that the Court of
Appeals in upholding the extension of the contract time said:
x x x [T]he granting of extension of contract time to the contractor is disallowed only when the failure or neglect to provide the required equipment, supplies or materials is inexcusable; and, in the present case, the reason for the unavailability of the materials needed to finish the refurbishing work was satisfactorily explained by the contractor x x x.[19] (Underscoring supplied.)
Nowhere in the implementing rules and
regulations of Presidential Decree No. 1594 does it say that if the failure or
neglect to provide equipment, supplies or materials is excusable, then the extension
of contract time shall be granted. As
quoted above, the second reason for the non-extension of contract time is non-availability
of equipment, supplies, or materials to be furnished him. As long as the materials are not available,
regardless of whether it is through his failure or neglect, excusable or
inexcusable, the non-availability thereof will not allow the extension of the
contract time.
This Court has the suspicion that the
Court of Appeals used the Implementing Rules and Regulations of Presidential
Decree No. 1594 that was amended in
CI 10 Extension of Contract Time
x x x x
No
extension of contract time shall be granted the contractor due to (1) ordinary
unfavorable weather conditions (2) inexcusable failure or negligence of
contractor to provide the required equipment, supplies or materials, or (3)
other causes for which Government is not directly responsible.
Inasmuch as the contract was entered
into in
It is the argument of respondent that
since the DBP Head Office has approved the extension of the contract time for
one week, no penalty of P2,000.00 per day should be imposed on her.
We do not agree. Petitioner is a government-owned financial
institution created and operated in accordance with Executive Order No. 81.[21] As such, its receipt and disbursement of
funds are subject to audit by the COA. The
powers and duties of the COA are provided for in Article IX(D), Section 2,
subsections 1 and 2, of the 1987 Constitution, as follows:
SECTION
2(1). The Commission on Audit shall have the power, authority, and duty to
examine, audit, and settle all accounts pertaining to the revenue and receipts
of, and expenditures or uses of funds and property, owned or held in trust by,
or pertaining to, the Government, or any of its subdivisions, agencies, or
instrumentalities, including government-owned or controlled corporations with
original charters, and on a post-audit basis: (a) constitutional bodies,
commissions and offices that have been granted fiscal autonomy under this
Constitution; (b) autonomous state colleges and universities; (c) other
government-owned or controlled corporations and their subsidiaries; and (d)
such non-governmental entities receiving subsidy or equity, directly or
indirectly, from or through the government, which are required by law or the
granting institution to submit to such audit as a condition of subsidy or
equity. However, where the internal control system of the audited agencies is
inadequate, the Commission may adopt such measures, including temporary or
special pre-audit, as are necessary and appropriate to correct the
deficiencies. It shall keep the general accounts of the Government and, for
such period as may be provided by law, preserve the vouchers and other
supporting papers pertaining thereto.
(2) The Commission shall have exclusive authority, subject to the limitations in this Article, to define the scope of its audit and examination, establish the techniques and methods required therefor, and promulgate accounting and auditing rules and regulations, including those for the prevention and disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures, or uses of government funds and properties.
The
determination of whether to allow the extension of the contract time, which
necessarily includes the waiver of the penalty to be imposed, is within the
scope of its authority considering that what is involved are the funds of
petitioner. The initial granting of the
extension of contract by the DBP Head Office cannot bind or preclude the COA to
exercise its constitutionally mandated function in reviewing the same and to
ensure its conformity with the law. We thus
find the imposition of the penalty to be in order inasmuch as the grounds in
support of the extension are prohibited under the implementing rules and
regulations of Presidential Decree No. 1594.
We now go to the issue of whether or
not Arch. Jose Vicente Salazar III, DBP Project Architect, was authorized to
accept the refurbishing project. Respondent’s
contention that Arch. Salazar has the authority to accept the project was sustained
by the Court of Appeals.
We reverse. Arch. Salazar is not authorized to accept the
project.
The General Conditions in the
Specifications[22] read:
All construction work hereinafter described and stipulated shall be done by contract and under the periodic inspection and supervision by the Project Architect as the Owner’s representative, hence all materials, labor, plant and equipment necessary for the satisfactory completion of this project shall be furnished by the Contractor.
x x x x
Defective works and/or poor workmanship may be condemned or rejected by the Project Architect at anytime before the completion, approval, and acceptance of such work.
In
the provision just quoted, it is stated that the Project Architect, as the
owner’s representative, has the authority to inspect and supervise the
construction work, condemn or reject defective works and/or poor workmanship
anytime before the completion, approval and acceptance of such work. The contract,
however, did not authorize Arch. Salazar to accept the project. The fact that he has the authority to inspect
and supervise, and to condemn or reject does not mean he already has the power
to accept. His authority is limited to
what is contained in the contract.
Respondent’s
contention that Arch. Salazar has the authority to accept the project is
untenable. She failed to substantiate
this claim with evidence. Her bare
allegation will not suffice. The
fundamental rule is that he who alleges must prove.[23] In the case at bar, respondent failed to
prove her claim. In fact, when Arch.
Salazar testified for her, the former failed to show proof of his alleged
authority to accept. When asked if he
saw in his contract with the petitioner any kind of authority giving him the
power to accept the project, he merely answered that he does not remember. He testified:
ATTY. VILLAR: I am asking the particular contract of the architect with the DBP?
A- Yes sir.
Q- Now in that contract of yours with the DBP did you see any kind of authority authorizing you to accept the project when it is completed?
ATTY. VILLARIN: I think Exh. C is the best evidence your Honor. The specification is the best evidence your Honor.
COURT: Objection overruled. Witness may answer.
A- I just do not remember sir.[24]
The answer of Arch. Salazar that he
does not remember is not the answer expected of someone who claims to possess
the authority to accept a project. If,
indeed, he were authorized to accept the project when completed, he could have
easily and directly answered yes and immediately produced the document showing
his authority. This, he failed to
do. His continued reliance on his
authority to supervise and to reject the work is not tantamount to an authority
to accept the work.
In the case at bar, the acceptance of
the project was made by the Bidding Committee of the DBP, Cabanatuan City
Branch, on P2,000.00 penalty per day of delay
shall be paid by respondent to petitioner.
The penalty for the fourteen days of delay amounts to P28,000.00
which is the amount that petitioner deducted from the ten (10%) percent
retention fee that was returned to petitioner.
WHEREFORE, the
petition is GRANTED. The Decision of the Court of Appeals in
CA-G.R. CV No. 58925 dated 18 March 2003 and its resolution dated 28 June 2005,
as well as the decision of Branch 26 of the Regional
Trial Court of Cabanatuan City in Civil Case No. 486-AF dated 17 October 1997 are REVERSED and SET ASIDE.
The complaint in Civil Case No. 486-AF against
petitioner is DISMISSED.
SO ORDERED.
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MINITA V. CHICO-NAZARIOAssociate Justice |
WE
CONCUR:
Chief Justice
Chairperson
Associate Justice Associate
Justice
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ROMEO J.
CALLEJO, SR. Associate Justice |
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Pursuant to Article VIII,
Section 13 of the Constitution, it is hereby certified that the conclusions in
the above Decision were reached in consultation before the case was assigned to
the writer of the opinion of the Court’s Division.
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ARTEMIO V.
PANGANIBAN Chief Justice |
[1] Penned by Associate Justice Perlita J. Tria Tirona with Associate Justices Roberto A. Barrios and Edgardo F. Sundiam, concurring; rollo, pp. 9-21.
[2] Records, pp. 281-302.
[3] Rollo, pp. 20-21.
[4]
[5]
[6] Records, p. 280.
[7]
[8] PRESCRIBING POLICIES, GUIDELINES,
RULES AND REGULATIONS FOR GOVERNMENT INFRASTRUCTURE CONTRACTS effective
[9] Records, pp. 303-304, 308-309.
[10] Rollo, pp. 23-26
[11] Filed Amended Petition dated
[12] Rollo, pp. 29-46.
[13]
[14] Government Auditing Code of the
[15] G.R. No. 85502,
[16] Exh. B; Records, p. 9.
[17] Exh. 3-Sarmiento;
[18] Exh. A;
[19] Rollo,
p. 17.
[20] O.G. Vol. 84, No. 23, p. 3360.
[21] 1986 Revised Charter of the
Development Bank of the
[22] Exhibit C; Records, p. 11.
[23] Bejoc
v. Cabreros, G.R. No. 145849,
[24] TSN,
[25] Exh. 2-Sarmiento; Records, p. 170.