WT Construction, Inc. vs. Province of Cebu

Liabilities arising from construction contracts are in the nature of contracts for services and do not partake of loans or forbearance of money, and therefore warrant the imposition of legal interest at the rate of 6% per annum from the time of demand or filing of the complaint until finality of judgment, and 6% per annum from finality until satisfaction.

Former President Gloria Macapagal-Arroyo selected the Province of Cebu to host the 12th Association of Southeast Asian Nations (ASEAN) Summit scheduled for December 10, 2006. To accommodate the event, the Province decided to construct the Cebu International Convention Center (CICC) at the New Mandaue Reclamation Area in Mandaue City. The Province conducted public bidding for the project, and on February 22, 2006, WT Construction, Inc. (WTCI) emerged as the winning bidder for Phase I (substructure). After completing Phase I and receiving payment, WTCI again won the bidding for Phase II (adjacent works) on July 26, 2006. As Phase II neared completion, the Province required additional works including site development and supplementary structural, architectural, electric, and plumbing works to meet the Summit deadline. Cognizant of the urgency and assured of prompt payment, WTCI performed these additional works without public bidding. The project was completed in November 2006, weeks before the scheduled Summit.

• The Additional Works: As Phase II of the CICC project neared completion, the Province of Cebu required WTCI to perform additional works including site development, additional structural, architectural, electric, and plumbing works. These works were undertaken without public bidding due to the urgency of completing the project before the December 2006 ASEAN Summit, with the Province assuring prompt payment.
• Completion and Billing: WTCI completed the project in November 2006. On February 8, 2007, WTCI billed the Province ₱175,951,478.69 for site development and extended structural/architectural works. On February 12, 2007, it billed ₱85,266,407.97 for additional electrical and plumbing works. A Final Billing dated February 21, 2007 demanded payment of the aggregate sum of ₱261,217,886.66.
• Demand Letters and Refusal: WTCI sent demand letters dated March 20, 2007 and September 11, 2007, but the Province refused to pay, prompting the collection suit.
• Defense: The Province admitted the existence of additional works but denied the existence of a contract, contending that the works did not undergo public bidding as required by Republic Act No. 9184 (Government Procurement Reform Act).
• Valuation: Upon joint verification, the parties pegged the value of the additional works at ₱263,263,261.41, though the Province later argued its valuation was only ₱257,413,911.73.
• RTC Findings: The RTC found a perfected oral contract for the additional works and held the Province liable under quantum meruit to prevent unjust enrichment, awarding ₱263,263,261.41 with 12% interest from the filing of the complaint on January 22, 2008.
• Post-Judgment Developments: The Province paid ₱257,413,911.73 to WTCI during the pendency of the appeal, leaving only the issues of interest, attorney's fees, and costs in controversy.

• Forbearance Characterization (WTCI): WTCI maintained that the obligation constituted a forbearance of money because its performance of the additional works was a mere financial accommodation to the Province of Cebu, thereby warranting the imposition of legal interest at 12% per annum as originally decreed by the RTC.
• Reckoning Point of Interest (WTCI): WTCI argued that interest should be computed from the date of extrajudicial demand, specifically from the dates of receipt of the Province of Cebu of its February 8 and February 12, 2007 billing letters, rather than from the filing of the complaint.
• Validity of Contract (Province): The Province of Cebu contended that no perfected contract existed between the parties for the additional works, and that even if one existed, it was void for lack of public bidding as required under Republic Act No. 9184.
• Absence of Bad Faith (Province): While admitting payment of ₱257,413,911.73 under the principle of quantum meruit, the Province argued that it could not be held liable for interest, attorney's fees, and costs of suit because no valid contract existed, and that its inability to pay sooner was due to lack of documentation rather than malice or bad faith.

• Nature of Obligation (Province vs. WTCI): The Province countered that the liability did not arise from a loan or forbearance of money but from non-payment of services, warranting only 6% interest.
• Finality of Judgment (Province vs. WTCI): The Province argued that the reckoning point for interest computation had become final as against WTCI because WTCI neither appealed from nor sought reconsideration of the RTC judgment which fixed the computation from the filing of the complaint.
• Existence of Contract (WTCI vs. Province): WTCI maintained that a perfected oral contract existed for the additional works, and that the Province was estopped from denying liability after admitting the amount due and making partial payment.

• Nature of Liability: Whether the liability of the Province of Cebu is in the nature of a loan or forbearance of money warranting 12% interest, or a non-forbearance obligation warranting 6% interest.
• Reckoning Point of Interest: Whether the interest due should be computed from the date of the filing of the complaint or from the time extrajudicial demand was made.

• Nature of Liability: The liability of the Province of Cebu is not in the nature of a forbearance of money. Forbearance requires an acquiescence to the temporary use of money, goods, or credits pending the happening of certain events, whereas this case involves the performance of specific construction services (site development, structural, architectural, plumbing, and electrical works). Citing Federal Builders, Inc. v. Foundation Specialists, Inc., the Court held that liabilities arising from construction contracts partake of contracts for services, not loans or forbearance. Accordingly, the legal interest rate imposable is 6% per annum pursuant to the guidelines in Eastern Shipping Lines, Inc. v. Court of Appeals, as modified by Nacar v. Gallery Frames.
• Reckoning Point of Interest: The interest shall be computed from the time of the filing of the complaint. Although merit exists in WTCI's argument that interest should run from extrajudicial demand (February 2007), the RTC's determination fixing the reckoning point at the filing of the complaint (January 22, 2008) had already become final and conclusive as against WTCI because WTCI neither appealed from nor sought reconsideration of the May 20, 2009 RTC judgment. A decision becomes final as against a party who does not appeal.
• Post-Judgment Interest: From the finality of the judgment until satisfaction thereof, the obligation assumes the nature of a forbearance of credit subject to legal interest at 6% per annum, consistent with Eastern Shipping Lines as modified by Nacar.

• Forbearance of Money: 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 fulfillment of certain conditions such that if these conditions are breached, the person is entitled not only to the return of the principal amount but also to compensation for the use of his money equivalent to legal interest. The use or deprivation of funds must be akin to a loan.
• Construction Contracts as Service Contracts: Liabilities arising from construction contracts do not partake of loans or forbearance of money but are in the nature of contracts of service. Therefore, the applicable legal interest rate for unpaid construction work is 6% per annum from the time of demand or filing of the complaint until finality of judgment.
• Interest Rate Guidelines (Eastern Shipping Lines-Nacar Rule):
  1. For obligations involving loans or forbearance of money: 6% per annum (formerly 12%, reduced by BSP Circular No. 799) from default.
  2. For obligations not constituting loans or forbearance: 6% per annum at the discretion of the court from the time the claim is made judicially or extrajudicially (or from judgment if the amount cannot be established with reasonable certainty).
  3. From finality of judgment until satisfaction: 6% per annum (the interim period being deemed a forbearance of credit).
  4. Finality of Judgment: A decision becomes final as against a party who does not appeal the same. Issues not raised on appeal cannot be raised for the first time in a petition for review before the Supreme Court.

• "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."
• "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."
• "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."
• "It is settled that a decision becomes final as against a party who does not appeal the same."

• Sunga-Chan v. Court of Appeals, 578 Phil. 262 (2008): Defined forbearance of money within the context of usury law; followed.
• Estores v. Supangan, G.R. No. 175139, April 18, 2012, 670 SCRA 95: Explained forbearance of money, goods, or credit as arrangements involving acquiescence to temporary use of funds; followed.
• Federal Builders, Inc. v. Foundation Specialists, Inc., G.R. Nos. 194507 and 194621, September 8, 2014, 734 SCRA 379: Held that liabilities arising from construction contracts are in the nature of contracts of service, not loans or forbearance; followed.
• Eastern Shipping Lines, Inc. v. Court of Appeals, G.R. No. 97412, July 12, 1994, 234 SCRA 78: Established the guidelines for the application of legal interest rates depending on the nature of the obligation; followed and applied.
• Nacar v. Gallery Frames, G.R. No. 189871, August 13, 2013, 703 SCRA 439: Modified Eastern Shipping Lines to reduce the interest rate for loans or forbearance from 12% to 6% per annum pursuant to BSP Circular No. 799, and similarly reduced the post-judgment rate to 6%; followed.

• Republic Act No. 9184 (Government Procurement Reform Act): Cited by the Province of Cebu as requiring public bidding for government contracts; the Court noted that the existence of a perfected contract was a factual finding beyond the scope of review under Rule 45.
• Article 1169, Civil Code: Referenced regarding the computation of interest from the time of judicial or extrajudicial demand.
• Rule 45, Rules of Court: Governs petitions for review on certiorari, limiting review to questions of law and excluding questions of fact absent exceptional circumstances.

Sereno, C.J., (Chairperson), Leonardo-De Castro, Bersamin, and Perez, JJ.