R.S. Tomas, Inc. vs. Rizal Cement Company, Inc. G.R. No. 173155. March 21, 2012.

FACTS

On December 28, 1990, respondent and petitioner entered into a contract for the supply of labor, materials, and technical supervision for (3) job orders. Rizal agreed to pay P2,944,000.00 for the job orders while RS Tomas undertook to complete the project within 120 days and 10% of the contract price amount for damages for any delay.

RS Tomas failed to fulfill the commitment, thus requested for an extension – 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. Through counsel, the respondent found out that the  financial status of petitioners showed that it could no longer complete the projects as agreed upon which made them decide to terminate the contract.

A complaint for a sum of money was filed by respondent against petitioner and Times Surety & Insurance Co., Inc praying for the payment of the down payment and advances, plus interest and attorney’s fees. Petitioner denied liability and claimed that it failed to complete the projects due to respondent’s fault. It also insisted that the proximate cause of the delay is the misrepresentation of the respondent on the extent of the defect of the transformer.

RTC rendered a decision in favor of the petitioner and dismissed the case with damages to be paid to R.S Tomas. The court 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.

The CA, however, had a different conclusion and decided in favor of respondent. It held that petitioner failed to prove that respondent made fraudulent misrepresentations to induce the former to enter into the contract.

ISSUE

Whether or not R.S Tomas Inc. was guilty of breach of contract – inexcusable delay in the completion of the projects

HELD

Yes, 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. Records show that petitioner through letters asked for price adjustment and extension of time within which to complete the projects and Nowhere in the said letter 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. In this case, the evidence presented is insufficient to prove that respondent acted in bad faith or fraudulently in dealing with petitioner. Petitioner was given the opportunity to inspect the subject transformer; failed to obtain as much information and as a big electrical company its failure to conduct an inspection of the subject transformer is inexcusable. 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.

DISPOSITIVE PORTION

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.

DOCTRINE

            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.

            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.

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

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