FEDERAL BUILDERS, INC. v. FOUNDATION SPECIALISTS, INC.

G.R. No. 194507

September 08, 2014

PERALTA, J.
Facts:
Federal Builders, Inc. made an agreement with Foundation Specialists, Inc on August 20,
1990 to undertake as a sub-contractor, the construction of the Trafalgar Plaza for a total
contract price of P7,400,000.00. Under the contract, FBI was to pay an installment equal to
20% of the contract price, and the balance will be billed every fifteen (15) days, to be paid not
less than 1 week from the presentation of the billing.
Then on January 9, 1992, FSI filed a complaint against the FBI seeking to collect the amount
of P1,635,278.91, representing Billings No. 3 and 4, with accrued interest from August 1, 1991
with other fees.9 In the complaint, FSI purported that FBI refused to pay said amount despite
demand and its completion of ninety-seven percent (97%) of the contracted works.
In a counterclaim, FBI claimed that FSI completed only 85% of the contracted works, failing
to finish the building and abandoning the jobsite. FBI also stated that because of FSI’s
shortfall, its schedule in finishing the Project has been delayed resulting in the Project
owner’s deferment of its own progress billings.
Issue:
Is the FBI obliged to pay the 12% interest of the 3rd and 4th billing considering the nature of
the obligation?
Ruling:
Yes, the FBI is obliged to pay the interest rate. The Supreme Court held that when the
obligation is breached, the interest due should be that which may have been postulated in
writing. In the absence of such, the interest rate shall be 12% per annum to be computed
from default and is subject to the provisions of Article 1169 of the Civil Code.
Furthermore, the new rate could only be applied prospectively and not retroactively.
Therefore, the twelve percent (12%) per annum legal interest shall apply only until June 30,
2013. On July 1, 2013, the new rate of six percent (6%) per annum shall be the prevailing rate
of interest when relevant.