THIRD DIVISION

[G.R. No. 173155. March 21, 2012.]

R.S. TOMAS, INC., petitioner, vs. RIZAL CEMENT COMPANY,

INC., respondent.

DECISION

PERALTA, J :p

This is a petition for review on certiorari under Rule 45 of the Rules of

Court filed by petitioner R.S. Tomas, Inc. against respondent Rizal Cement
Company, Inc. assailing the Court of Appeals (CA) Decision 1 dated
December 19, 2005 and Resolution 2 dated June 6, 2006 in CA-G.R. CV No.
61049. The assailed decision reversed and set aside the Regional Trial Court
3 (RTC) Decision 4 dated June 5, 1998 in Civil Case No. 92-1562.IcEaST

The facts of the case, as culled from the records, are as follows:
On December 28, 1990, respondent and petitioner entered into a
Contract 5 for the supply of labor, materials, and technical supervision of the
following projects:
1. Â J.O. #P-90-212 — Wiring and installation of primary
and secondary lines system.
2. Â J.O. #P-90-213 — Supply and installation of primary
protection and disconnecting switch.
3. Â J.O. #P-90-214 — Rewinding and conversion of one (1)
unit 3125 KVA, 34.5 KV/2.4 KV, 3ø Transformer to 4000 KVA, 34.5
KV/480V, 3ø Delta Primary, Wye with neutral secondary. 6
Petitioner agreed to perform the above-mentioned job orders.
Specifically, it undertook to supply the labor, equipment, supervision, and
materials as specified in the detailed scope of work. 7 For its part,
respondent agreed to pay the total sum of P2,944,000.00 in consideration of
the performance of the job orders. Petitioner undertook to complete the
projects within one hundred twenty (120) days from the effectivity of the
contract. 8 It was agreed upon that petitioner would be liable to respondent
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. 9
To secure the full and faithful performance of all its obligations and
responsibilities under the contract, petitioner obtained from Times Surety &
Insurance Co., Inc. (Times Insurance) a performance bond 10 in an amount
equivalent to fifty percent (50%) of the contract price or P1,458,618.18.
Pursuant to the terms of the contract, respondent made an initial payment of
P1,458,618.18 on January 8, 1991. 11
In a letter 12 dated March 9, 1991, petitioner 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. 13 In another letter 14 dated March 27, 1991,
petitioner 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, 15 petitioner manifested its desire to complete the
project as soon as possible to prevent further losses and maintain goodwill
between the companies. Petitioner requested for respondent's 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 16 to petitioner's requests, respondent, through counsel,
manifested its observation that petitioner's financial status showed that it
could no longer complete the projects as agreed upon. Respondent also
informed petitioner that it was already in default having failed to complete
the projects within 120 days from the effectivity of the contract. Respondent
further notified petitioner that the former was terminating the contract. It
also demanded for the refund of the amount already paid to petitioner,
otherwise, the necessary action would be instituted. Respondent sent
another demand letter 17 to Times Insurance for the payment of
P1,472,000.00 pursuant to the performance bond it issued. DcTSHa

On November 14, 1991, 18 respondent entered into two contracts with

Geostar Philippines, Inc. (Geostar) for the completion of the projects
commenced but not completed by petitioner for a total consideration of
P3,435,000.00.
On December 14, 1991, petitioner reiterated its desire to complete J.O.
#P-90-212 and J.O. #P-90-213 and to exclude J.O. #P-90-214, 19 but the
same was denied by respondent in a letter 20 dated January 14, 1992. In the
same letter, respondent pointed out that amicable settlement is impossible.
Hence, the Complaint for Sum of Money 21 filed by respondent against
petitioner and Times Surety & Insurance Co., Inc. praying for the payment of
the following: P493,695.00 representing the amount which they owed
respondent from the downpayment and advances made by the latter vis-
à-vis the work accomplishment; 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. 22
Times Insurance did not file any pleading nor appeared in court. For its
part, petitioner denied 23 liability and claimed instead that it failed to
complete the projects due to respondent's fault. It explained that it relied in
good faith on respondent'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. Petitioner thus requested respondent for additional time within
which to complete the project and additional amount to finance the same.
Petitioner also insisted that the proximate cause of the delay is the
misrepresentation of the respondent on the extent of the defect of the
transformer.
After the presentation of the parties' respective evidence, the RTC
rendered a decision on June 5, 1998 in favor of petitioner, the dispositive
portion of which reads:

Wherefore, finding defendant-contractor's evidence more

preponderant than that of the plaintiff, judgment is hereby rendered in
favor of the defendant-contractor against the plaintiff and hereby
orders:

(1) Â that the instant case be DISMISSED;

(2) Â that plaintiff pays defendant the amount of
P4,000,000.00; for moral and exemplary & other damages;
(3) Â P100,000.00 for attorney's fees and cost of suit.

SO ORDERED. 24

The RTC held that the failure of petitioner to complete the projects was
not solely due to its fault but more on respondent's misrepresentation and
bad faith. 25 Therefore, the Court dismissed respondent's complaint. Since
respondent was found to have committed deceit in its dealings with
petitioner, the court awarded damages in favor of the latter. 26 TAESDH

Respondent, however, successfully obtained a favorable decision when

its appeal was granted by the CA. The appellate court reversed and set aside
the RTC decision and awarded respondent P493,695.34 for the excess
payment made to petitioner, P508,510.00 for the amount spent in
contracting Geostar and P294,400.00 as liquidated damages. 27 Contrary to
the conclusion of the RTC, the CA found that petitioner failed to prove that
respondent made fraudulent misrepresentation to induce the former to enter
into the contract. It further held that petitioner was given the opportunity to
inspect the transformer before offering its bid. 28 This being so, the CA
added that petitioner's failure to avail of such opportunity is inexcusable,
considering that it is a company engaged in the electrical business and the
contract involved a sizable amount of money. 29 As to the condition of the
subject transformer unit, the appellate court found the testimony of
petitioner's president insufficient to prove that the same could no longer be
rewound or converted. 30 Considering that advance payments had been
made to petitioner, the court deemed it necessary to require it to return to
respondent the excess amounts, vis-à-vis its actual accomplishment. 31 In
addition to the refund of the excess payment, the CA also ordered the
reimbursement of what respondent paid to Geostar for the unfinished
projects of petitioner as well as the payment of liquidated damages as
stipulated in the contract. 32
Aggrieved, petitioner comes before the Court in this petition for review
on certiorari under Rule 45 of the Rules of Court raising the following issues:
(1) whether or not respondent was guilty of fraud or misrepresentation as to
the actual condition of the transformer subject of the contract; 33 (2)
whether or not the evidence presented by petitioner adequately established
the true nature and condition of the subject transformer; 34 (3) whether or
not petitioner is guilty of inexcusable delay in the completion of the projects;
35 (4) whether or not petitioner is liable for liquidated damages; 36 and (5)

whether or not petitioner is liable for the cost of the contract between
respondent and Geostar. 37
The petition is without merit.
The case stemmed from an action for sum of money or damages
arising from breach of contract. The contract involved in this case refers to
the rewinding and conversion of one unit of transformer to be installed and
energized to supply respondent's power requirements. 38 This project was
embodied in three (3) job orders, all of which were awarded to petitioner who
represented itself to be capable, competent, and duly licensed to handle the
projects. 39 Petitioner, however, failed to complete the projects within the
agreed period allegedly because of misrepresentation and fraud committed
by respondent as to the true nature of the subject transformer. The trial
court found that respondent indeed failed to inform petitioner of the true
condition of the transformer which amounted to fraud thereby justifying the
latter's failure to complete the projects. The CA, however, had a different
conclusion and decided in favor of respondent. Ultimately, the issue before
us is whether or not there was breach of contract which essentially is a
factual matter not usually reviewable in a petition filed under Rule 45. 40EcSCHD

In resolving the issues, the Court inquires into the probative value of
the evidence presented before the trial court. 41 Petitioner, indeed,
endeavors to convince us to determine once again the weight, credence, and
probative value of the evidence presented before the trial court. 42 While in
general, the findings of fact of the CA are final and conclusive and cannot be
reviewed on appeal to the Court because it is not a trier of facts, 43 there are
recognized exceptions 44 as when the findings of fact are conflicting, which
is obtaining in this case. The conflicting conclusions of the trial and appellate
courts impel us to re-examine the evidence presented.
After a thorough review of the records of the case, we find no reason to
depart from the conclusions of the CA.
It is undisputed that petitioner and respondent entered into a contract
for the supply of labor, materials, and technical supervision primarily for the
rewinding and conversion of one (1) unit of transformer and related works
aimed at providing the power needs of respondent. As agreed upon by the
parties, the projects were to be completed within 120 days from the
effectivity of the contract. Admittedly, however, respondent failed, not only
to perform its part of the contract on time but, in fact, to complete the
projects. Petitioner tried to exempt itself from the consequences of said
breach by passing the fault to respondent. It explained that its failure to
complete the project was due to the misrepresentation of the respondent. It
claimed that more time and money were needed, because the condition of
the subject transformer was worse than the representations of respondent.
Is this defense tenable?
We answer in the negative.
Records show that petitioner indeed asked for price adjustment and
extension of time within which to complete the projects. In its letter 45 dated
March 9, 1991, petitioner anchored its request for extension on the following
grounds:

1. Â To maximize the existing 3125 KVA to 4000 KVA capacity

using the same core, we will replace the secondary windings from
rectangular type to copper sheet which is more accurate in winding to
the required number of turns than using parallel rectangular or circular
type of copper magnet wires. However, these copper sheets are not
readily available locally in volume quantities, and therefore, we will be
importing this material and it will take 60 days minimum time for its
delivery.

2. Â We also find it difficult to source locally the replacement

for the damaged high voltage bushing. ECaScD

3. Â The delivery of power cable no. 2/0 will also be delayed.

This will take 90 days to deliver from January 1991. 46

Also in its letter 47 dated March 27, 1991, petitioner informed

respondent that the projects would be completed within the contract time
table but explained that the delivery of the transformer would only be
delayed. The reasons advanced by petitioner to justify the delay are as
follows:

1. Â Our supplier for copper sheets cannot complete the

delivery until April 30, 1991.

2. Â Importation of HV Bushing will take approximately 45

days delivery per advice of our supplier. . . . 48

Clearly, in the above letters, petitioner justified its inability to complete

the projects within the stipulated period on the alleged unavailability of the
materials to be used to perform the projects as stated in the job orders.
Nowhere in said letters did petitioner claim that it could not finish the
projects, particularly the conversion of the transformer unit because the
defects were worse than the representation of respondent. In other words,
there was no allegation of fraud, bad faith, concealment or
misrepresentation on the part of respondent as to the true condition of the
subject transformer. Even in its letter 49 dated May 25, 1991, petitioner only
requested respondent that payment to the first progress billing be released
as soon as possible and without deduction. It further proposed that
respondent make a direct payment to petitioner's suppliers.
It was only in its June 14, 1991 letter 50 when petitioner raised its
observations that the subject transformer needed more repairs than what it
knew during the bidding. 51 In the same letter, however, petitioner repeated
its request that direct payment be made by respondent to petitioner's
suppliers. 52 More importantly, petitioner admitted that it made a judgment
error when it quoted for only P440,770.00 for the contract relating to J.O. #P-
90-214 based on limited information.
It can be inferred from the foregoing facts that there was not only a
delay but a failure to complete the projects as stated in the contract; that
petitioner could not complete the projects because it did not have the
materials needed; and that it is in need of financial assistance.
As the Court sees it, the bid submitted by petitioner may have been
sufficient to be declared the winner but it failed to anticipate all expenses
necessary to complete the projects. 53 When it incurred expenses it failed to
foresee, it began requesting for price adjustment to cover the cost of high
voltage bushing and difference in cost of copper sheet and rectangular wire.
54 However, the scope of work presented by respondent specifically stated

that the wires to be used shall be pure copper and that there was a need to
supply new bushings for the complete rewinding and conversion of 3125
KVA to 4 MVA Transformer. 55 In other words, petitioner was aware that
there was a need for complete replacement of windings to copper and of
secondary bushings. 56 It is, therefore, improper for petitioner to ask for
additional amount to answer for the expenses that were already part and
parcel of the undertaking it was bound to perform. For petitioner, the
contract entered into may have turned out to be an unwise investment, but
there is no one to blame but petitioner for plunging into an undertaking
without fully studying it in its entirety. 57
EAICTS

The Court likewise notes that petitioner repeatedly asked for extension
allegedly because it needed to import the materials and that the same could
not be delivered on time. Petitioner also repeatedly requested that
respondent make a direct payment to the suppliers notwithstanding the fact
that it contracted with respondent for the supply of labor, materials, and
technical supervision. It is, therefore, expected that petitioner would be
responsible in paying its suppliers because respondent is not privy to their
(petitioner and its suppliers) contract. This is especially true in this case
since respondent had already made advance payments to petitioner. It
appears, therefore, that in offering its bid, the source and cost of materials
were not seriously taken into consideration. It appears, further, that
petitioner had a hard time in fulfilling its obligations under the contract that
is why it asked for financial assistance from respondent. This is contrary to
petitioner's representation that it was capable, competent, and duly licensed
to handle the projects.
As to the alleged damaged condition of the subject transformer, we
quote with approval the CA conclusion in this wise:

In the same vein, We cannot readily accept the testimony of

Tomas that the transformer unit was severely damaged and was
beyond repair as it was not substantiated with any other evidence. R.S.
Tomas could have presented an independent expert witness whose
 opinion may corroborate its stance that the transformer unit was
indeed incapable of being restored. To our mind, the testimony of
Tomas is self-serving as it is easy to concoct, yet difficult to verify. 58

This lack of evidence, coupled with petitioner's failure to raise the

same at the earliest opportunity, belies petitioner's claim that it could not
complete the projects because the subject transformer could no longer be
repaired.
Assuming for the sake of argument that the subject transformer was
indeed in a damaged condition even before the bidding which makes it
impossible for petitioner to perform its obligations under the contract, we
also agree with the CA that petitioner failed to prove that respondent was
guilty of bad faith, fraud, deceit or misrepresentation.
Bad faith does not simply connote bad judgment or negligence; it
imports a dishonest purpose or some moral obliquity and conscious doing of
a wrong, a breach of a known duty through some motive or interest or ill will
that partakes of the nature of fraud. 59 Fraud has been defined to include an
inducement through insidious machination. Insidious machination refers to a
deceitful scheme or plot with an evil or devious purpose. Deceit exists where
the party, with intent to deceive, conceals or omits to state material facts
and, by reason of such omission or concealment, the other party was
induced to give consent that would not otherwise have been given. 60 These
are allegations of fact that demand clear and convincing proof. They are
serious accusations that can be so conveniently and casually invoked, and
that is why they are never presumed. 61 In this case, the evidence presented
is insufficient to prove that respondent acted in bad faith or fraudulently in
dealing with petitioner.
Petitioner in fact admitted that its representatives were given the
opportunity to inspect the subject transformer before it offered its bid. If
indeed the transformer was completely sealed, it should have demanded
that the same be opened if it found it necessary before it offered its bid. As
contractor, petitioner had been remiss in its obligation to obtain as much
information as possible on the actual condition of the subject transformer or
at least it should have provided a qualification in its bid so as to make clear
its right to claim contract price and time adjustment. 62 As aptly held by the
CA, considering that petitioner is a company engaged in the electrical
business and the contract it had entered into involved a sizable amount of
money, its failure to conduct an inspection of the subject transformer is
inexcusable. 63 HEaCcD

In sum, the evidence presented by the parties lead to the following

conclusions: (1) that the projects were not completed by petitioner; (2) that
petitioner was given the opportunity to inspect the subject transformer; (3)
that petitioner failed to thoroughly study the entirety of the projects before it
offered its bid; (4) that petitioner failed to complete the projects because of
the unavailability of the required materials and that petitioner needed
financial assistance; (5) that the evidence presented by petitioner were
inadequate to prove that the subject transformer could no longer be
repaired; and (6) that there was no evidence to show that respondent was in
bad faith, acted fraudulently, or guilty of deceit and misrepresentation in
dealing with petitioner.
In view of the foregoing disquisitions, we find that there was not only
delay but non-completion of the projects undertaken by petitioner without
justifiable ground. Undoubtedly, petitioner is guilty of breach of contract.
Breach of contract is defined as the 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. 64 In the present case, petitioner did not complete the projects.
This gives respondent the right to terminate the contract by serving
petitioner a written notice. The contract specifically stated that it may be
terminated for any of the following causes:

1. Â Violation by Contractor of the terms and conditions of this

Contract;

2. Â Non-completion of the Work within the time agreed upon,

or upon the expiration of extension agreed upon;

3. Â Institution of insolvency or receivership proceedings

involving Contractor; and

4. Â Other causes provided by law applicable to this contract.

65

Consequently, and pursuant to the agreement of the parties, 66

petitioner is liable for liquidated damages in the amount of P29,440.00 per
day of delay, which shall be limited to a maximum of 10% of the project cost
or P294,400.00. In this case, petitioner bound itself to complete the projects
within 120 days from December 29, 1990. However, petitioner failed to fulfill
the same prompting respondent to engage the services of another
contractor on November 14, 1991. Thus, despite the lapse of eleven months
from the time of the effectivity of the contract entered into between
respondent and petitioner, the latter had not completed the projects.
Undoubtedly, petitioner may be held to answer for liquidated damages in its
maximum amount which is 10% of the contract price. While we have
reduced the amount of liquidated damages in some cases, 67 because of
partial fulfillment of the contract and/or the amount is unconscionable, we do
not find the same to be applicable in this case. It must be recalled that the
contract entered into by petitioner consists of three projects, all of which
were not completed by petitioner. Moreover, the percentage of work
accomplishment was not adequately shown by petitioner. Hence, we apply
the general rule not to ignore the freedom of the parties to agree on such
terms and conditions as they see fit as long as they are not contrary to law,
morals, good customs, public order or public policy. 68 Thus, as agreed upon
by the parties, we apply the 10% liquidated damages.
Considering that petitioner was already in delay and in breach of
contract, it is liable for damages that are the natural and probable
consequences of its breach of obligation. 69 Since advanced payments had
been made by respondent, petitioner is bound to return the excess vis-à-
vis its work accomplishments. In order to finish the projects, respondent had
to contract the services of another contractor. We, therefore, find no reason
to depart from the CA conclusion requiring the return of the excess
payments as well as the payment of the cost of contracting Geostar, in
addition to liquidated damages. 70
WHEREFORE, premises considered, the petition is hereby DENIED.
The Court of Appeals Decision dated December 19, 2005 and Resolution
dated June 6, 2006 in CA-G.R. CV No. 61049 are AFFIRMED. acHETI

SO ORDERED.
Velasco, Jr., Abad, Mendoza and Perlas-Bernabe, JJ., concur.
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Footnotes

1.Penned by Associate Justice Japar B. Dimaampao, with Associate Justices Martin

S. Villarama, Jr. (now a member of this Court) and Edgardo F. Sundiam,
concurring, rollo, pp. 57-68.

2.CA rollo, pp. 110-111.

3.Branch 150, City of Makati.

4.Penned by Judge Zeus C. Abrogar; records, pp. 611-625.

5.Exhibit "A," Exhibits for the Plaintiff, pp. 1-8.

6.Id. at 1.

7.Id. at 2.

8.Id. at 3.

9.Id. at 4.

10.Exhibit "C," Exhibits for the Plaintiff, pp. 20-21.

11.Exhibits for the Plaintiff, pp. 22-23.

12.Exhibit "2," records, pp. 447-449.

13.Records, p. 447.

14.Exhibit "3," id. at 448-449.

15.Exhibit "7," id. at 461-463.

16.Embodied in a letter dated June 25, 1991, Exhibit "G," Exhibits for the Plaintiff,
p. 26.

17.Exhibit "H," id. at 27.

18.Exhibits "M" and "N," id. at 35-50.

19.Exhibit "J," id. at 31-32.

20.Exhibit "K," id. at 33.

21.Records, pp. 1-6.

22.Id. at 5.

23.Embodied in its Answer dated November 23, 1992, id. at 59-65.

24.Records, p. 620.

25.Id.

26.Id.

27.Rollo , p. 67.

28.Id. at 64-65.

29.Id. at 65.

30.Id.

31.Id. at 66.

32.Id. at 66-67.

33.Id. at 19-20.

34.Id. at 30-34.

35.Id. at 19.

36.Id. at 34.

37.Id. at 37.

38.Exhibit "A," Exhibits for the Plaintiff, pp. 1-2.

39.Id. at 2.

40.Dueñas v. Guce-Africa , G.R. No. 165679, October 5, 2009, 603 SCRA 11, 20.

41.Heirs of Jose Marcial K. Ochoa namely: Ruby B. Ochoa, Micaela B. Ochoa and
Jomar B. Ochoa v. G & S Transport Corporation, G.R. No. 170071, March 9,
2011.

42.Dueñas v. Guce-Africa , supra note 40, at 19.

43.Japan Airlines v. Simangan, G.R. No. 170141, April 22, 2008, 552 SCRA 341,
357.

44.Among the recognized exceptions are: (a) when the conclusion is a finding
grounded entirely on speculations, surmises or conjectures; (b) when the
 inference made is manifestly mistaken, absurd or impossible; (c) where there
is grave abuse of discretion; (d) when the judgment is based on a
misapprehension of facts; (e) when the findings of facts are conflicting; and
(f) when the CA, in making its findings, went beyond the issues of the case
and the same is contrary to the admissions of both appellant and appellee.
(Id. at 357-358.)

45.Exhibit "2," records, p. 447.

46.Id.

47.Exhibit "3," records, pp. 448-449.

48.Id. at 448.

49.Exhibit "4," records, p. 450.

50.Exhibit "7," id. at 461-463.

51.Records, p. 462.

52.Id. at 463.

53.See National Power Corporation v. Premier Shipping Lines, Inc. , G.R. Nos.
179103 and 180209, September 17, 2009, 600 SCRA 153, 176.

54.Records, p. 447.

55.Exhibit "A-3," Exhibits for the Plaintiff, p. 12.

56.Exhibit "A-5," id. at 16.

57.National Power Corporation v. Premier Shipping Lines, Inc. , supra note 53.

58.Rollo , p. 65.

59.Cathay Pacific Airways, Ltd. v. Vasquez , G.R. No. 150843, March 14, 2003, 399
SCRA 207, 220.

60.Id.

61.Id.

62.But see Advanced Foundation Construction Systems Corporation v. New World

Properties and Ventures, Inc., G.R. Nos. 143154 and 143177, June 21, 2006,
491 SCRA 557, 564.

63.Rollo , p. 65.

64.Cathay Pacific Airways, Ltd. v. Vasquez , supra note 59, at 219.

65.Exhibit "A," Exhibits for the Plaintiff, p. 5.

66.Id. at 4.

67.Urban Consolidated Constructors Philippines, Inc. v. Insular Life Assurance Co.,

Inc., G.R. No. 180824, August 28, 2009, 597 SCRA 450; Filinvest Land, Inc. v.
 Court of Appeals, G.R. No. 138980, September 20, 2005, 470 SCRA 260.

68.Urban Consolidated Constructors Philippines, Inc. v. Insular Life Assurance Co.,

Inc., G.R. No. 180824, supra, at 461; Filinvest Land, Inc. v. Court of Appeals ,
supra, at 269.

69.H.L. Carlos Construction, Inc. v. Marina Properties Corp., 466 Phil. 182, 204
(2004).

70.Id.