DIGEST OF SUPREME COURT CASES INVOLVING THE CONSTRUCTION INDUSTRY

Deipairne v. Court of Appeals

FULL TITLE: Ernesto Deiparine, Jr. v. Court of Appeals
CASE No.: G.R. No. 96643
DATE: April 23, 1993
PONENTE: CRUZ, J.
DOCTRINE: The difference between the two kinds of rescission in the Civil Code, to
wit: that in Art. 1191 and that in Art. 1385. Article 1191, unlike Article 1385, is not
predicated on economic prejudice to one of the parties but on breach of faith by one
of them that violates the reciprocity between them. The violation of reciprocity
between Deiparine and the Carungay spouses, to wit, the breach caused by
Deiparine's failure to follow the stipulated plans and specifications, has given the
Carungay spouses the right to rescind or cancel the contract.
DOCTRINE: Article 1725 contemplates a voluntary withdrawal by the owner
without fault on the part of the contractor, who is therefore entitled to indemnity, and
even damages, for the work he has already commenced.
FACTS: The spouses Cesario and Teresita Carungay entered into an agreement
with Ernesto Deiparine, Jr. on August 13, 19B2, for the construction of a three-story
dormitory in Cebu City, wherein the spouses shall pay Php 970,000.00 to the former,
who shall in turn erect the building according to strict specifications. In the course of
the construction, deviations from the plans and specifications were reported, thus
impairing the strength and safety of the building.
In view of this finding, the spouses Carungay filed complaint with the Regional Trial
Court of Cebu for the rescission of the construction contract and for damages.
Applying Art. 1191 of the Civil Code, the Trial Court ruled in their favour and
rescinded the agreement. The CA affirmed the RTCs ruling in toto.
In questioning the power of the trial court to grant rescission, Deiparine insists that
the construction agreement does not specify any compressive strength for the
structure nor does it require that the same be subjected to any kind of stress test.
Therefore, since he did not breach any of his covenants under the agreement, the
court erred in rescinding the contract.
[THIS MIGHT BE A BAD DECISION, see Gotesco v. Eugenio, G.R. No. 201167,
February 27, 2013] The SC here is of the opinion, I think, that under 1191, the
Spouses get their money back and Deipairne get nothing back, but that under 1385
rescision only allowed if the objects can be returned to each other, and that under
1725, Deipairne gets partial compensation and damages.

Art. 1191.
The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with what is incumbent
upon him.
The injured party may choose between the fulfillment and the rescission of
the obligation, with the payment of damages in either case. He may also
seek rescission, even after he has chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who
have acquired the thing, in accordance with articles 1385 and 1388 and the
Mortgage Law.
Art. 1191 was the provision that the trial court and the respondent court correctly
applied because it relates to contracts involving reciprocal obligations like the
subject construction contract. The construction contract fails squarely under the
coverage of Article 1191 because it imposes upon Deiparine the obligation to build
the structure and upon the Carungays the obligation to pay for the project upon its
completion.
Article 1385, upon which Deiparine relies, deals with the rescission of the contracts
enumerated in Art. 1381, which do not include the construction agreement in
question.
Article 1191, unlike Article 1385, is not predicated on economic prejudice to one of
the parties but on breach of faith by one of them that violates the reciprocity between
them. The violation of reciprocity between Deiparine and the Carungay spouses, to
wit, the breach caused by Deiparine's failure to follow the stipulated plans and
specifications, has given the Carungay spouses the right to rescind or cancel the
contract.
Article 1725 cannot support the petitioner's position either, for this contemplates a
voluntary withdrawal by the owner without fault on the part of the contractor, who is
therefore entitled to indemnity, and even damages, for the work he has already
commenced. there is no such voluntary withdrawal in the case at bar. On the
contrary, the Carungays have been constrained to ask for judicial rescission
because of the petitioner's failure to comply with the terms and conditions of their
contract.
==oOo==

ISSUE: Does the trial court have the authority to order the rescission? YES
HELD: Art. 1191 reads, to wit:

The President of the COJCOLDS v. BTL Construction

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DIGEST OF SUPREME COURT CASES INVOLVING THE CONSTRUCTION INDUSTRY

FULL TITLE: The President of the Church of Jesus Christ of Latter Day Saints v.
BTL Construction Corp.
CASE No.: G.R. No. 176439
DATE: 15 January 2014
PONENTE: Perlas-Bernabe, J.
DOCTRINE: Based on Art. 1724 of the Civil Code, added costs in contracts for a
stipulated price can only be allowed upon the: (a) written authority from the
developer or project owner ordering or allowing the written changes in work; and (b)
written agreement of parties with regard to the increase in price or cost due to the
change in work or design modification. Compliance with these two (2) requisites is a
condition precedent for recovery, and the absence of one or the other condition bars
the claim of additional costs.
DOCTRINE: In the construction industry, the 10% retention money is a portion of the
contract price automatically deducted from the contractors billings, as security for
the execution of corrective work if any becomes necessary. Retention money
should not be treated as a separate and distinct liability from the contract price.
DOCTRINE: In cases with counterclaims, when neither party was shown to have
acted in bad faith in pursuing their respective claims against each other, as when the
parties original claims were found to be partially meritorious, attorneys fees cannot
be recovered, pursuant to Art. 2208 of the Civil Code.
FACTS: COJCOLDS and BTL entered into a contract for the construction of the
formers meetinghouse facility in Medina, Misamis Oriental. However, due to bad
weather conditions, power failures, and revisions in the construction plans, among
others, the completion date was extended. Later, BTL informed COJCOLDS that it
suffered financial losses from another project and soon ceased its operations in the
Medina Project because of its lack of funds to advance the cost of labor necessary
to complete the said project, as well as the supervening increase in the prices of
materials and other items for construction. Consequently, COJCOLDS terminated its
contract with BTL and, thereafter, engaged the services of another contractor, Vigor
Construction (Vigor), to complete the Medina Project, using the retention money
specified in the contract in the amount of 10% thereof.
About 2 years later, BTL filed a complaint against COJCOLDS before the
Construction Industry Abritration Commission (CIAC) for the collection of the cost of
labor, materials, equipment, overhead expenses, lost profits and interests, the 10%
retention money stipulated in the contract and interest on said retention money,
actual damages, attorneys fees, moral and exemplary damages and costs of
arbitration.
For its part, COJCOLDS filed its answer with compulsory counterclaim, praying for
the award of liquidated damages in view of BTLs delay in completing the pending
project, reimbursement of the payments it directly made to BTLs suppliers as per
the latters request, cost overrun and attorneys fees.

The CIAC found COJCOLDS liable to BTL for 98% of the contract price, based on
the percentage of completion of the project, less previous payments, and for the cost
of additional works and attorneys fees. On the other hand, BTL was ordered to pay
COJCOLDS liquidated damages pursuant to the contract due to delay.
On appeal, the CA modified the CIACs ruling by requiring COJCOLDS to return the
10% retention money to BTL, in addition to the balance of the contract price. The
CA, however, deleted the award in favour of BTL for additional works, ruling that it
should properly deemed as part of the original works, considering that it was not
covered by any change order. In addition, the CA deleted the award for Attorneys
fees in favour of BTL as COJCOLDS was not in bad faith. Both parties filed their
respective MRs, which were both denied. Hence, this Petition for Review on
Certiorari.
ISSUES: (1) Whether or not COJCOLDS is liable for the "additional works"
performed by BTL that were not covered by an approved change order NO
(2) Whether or not BTL is entitled to the return of the Retention money, on top of the
balance of the Contract Price NO
(3) Is either party entitled to an award for Attorneys fees?
HELD: (1) Article 1724 of the Civil Code governs the recovery of additional costs in
contracts for a stipulated price (such as fixed lump-sum contracts), as well as the
increase in price for any additional work due to a subsequent change in the original
plans and specifications. Based on the same provision, such added costs can only
be allowed upon the: (a) written authority from the developer or project owner
ordering or allowing the written changes in work; and (b) written agreement of
parties with regard to the increase in price or cost due to the change in work or
design modification. Case law instructs that compliance with these two (2) requisites
is a condition precedent for recovery. The absence of one or the other condition thus
bars the claim of additional costs. Notably, neither the authority for the changes
made nor the additional price to be paid therefor may be proved by any evidence
other than the written authority and agreement as above-mentioned.
In this case, records reveal that there is neither a written authorization nor
agreement covering the additional price to be paid for the concrete retaining wall.
This confirms the CAs finding that the construction of the perimeter wall of the
Medina Project, which is included in the original plans and specifications for the
same, already subsumes the construction of the concrete retaining wall.43
Accordingly, COJCOLDS should not pay the amount claimed by BTL as additional
cost for the same.
(2) As to Retention Money - In H.L. Carlos Construction, Inc. v. Marina Properties
Corp. (466 Phil. 182, 2004) the Court had held that in the construction industry, the
10% retention money is a portion of the contract price automatically deducted from

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DIGEST OF SUPREME COURT CASES INVOLVING THE CONSTRUCTION INDUSTRY

the contractors billings, as security for the execution of corrective work if any
becomes necessary. As such, the 10% retention money should not be treated as a
separate and distinct liability of COJCOLDS to BTL as it merely forms part of the
contract price. While COJCOLDS is bound to eventually return to BTL the retention
money, the said amount should be automatically deducted from BTLs outstanding
billings.

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(3) The general rule is that attorneys fees cannot be recovered as part of damages
because of the policy that no premium should be placed on the right to litigate. They
are not to be awarded every time a party wins a suit. The power of the court to
award attorneys fees under Article 2208 of the Civil Code demands factual, legal,
and equitable justification. Even when a claimant is compelled to litigate with third
persons or to incur expenses to protect his rights, still attorneys fees may not be
awarded where no sufficient showing of bad faith could be reflected in a partys
persistence in a case other than an erroneous conviction of the righteousness of his
cause. In this case, the Court observes that neither party was shown to have acted
in bad faith in pursuing their respective claims against each other. The existence of
bad faith is negated by the fact that the CIAC, the CA, and the Court have all found
the parties original claims to be partially meritorious. Thus, absent no cogent reason
to hold otherwise, the Court deems it inappropriate to award attorneys fees in favor
of either party. Finally, in view of their legitimate claims against each other, each
party should bear its own arbitration costs and costs of suit.

FACTS:

DOCTRINE:

ISSUE:
HELD:
[SHORT TITLE]
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DOCTRINE:
FACTS:

==oOo==
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ISSUE:
HELD:

FACTS:

[SHORT TITLE]
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ISSUE:

DOCTRINE:

HELD:

FACTS:

DOCTRINE:

ISSUE:
[SHORT TITLE]

HELD:

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