Golangco Construction Corp. v. Philippine Commercial International Bank
REITERATIONFacts
The Antecedents: William Golangco Construction Corporation (WGCC) and Philippine Commercial International Bank (PCIB) entered into a contract for the construction of the PCIB Tower II Extension Project. The contract included a provision for a one-year defects liability period after final acceptance. In 1993, portions of the granitite wash-out finish on the exterior walls began peeling off and falling. WGCC made minor repairs, but in 1994, PCIB hired another contractor to re-do the entire finish, incurring P11,665,000 in expenses, after WGCC stated it was not in a position to do the new finishing work, though willing to share costs. Procedural History: PCIB filed a request for arbitration with the Construction Industry Arbitration Commission (CIAC) seeking reimbursement for repair expenses, alleging WGCC's non-compliance with contractual terms on materials and workmanship. WGCC filed a counterclaim for material cost adjustment. The CIAC declared WGCC liable for the defects. WGCC filed a petition for review with the Court of Appeals (CA), which dismissed it for lack of merit. The CA also denied WGCC's motion for reconsideration. The Petition: WGCC filed a petition for review on certiorari with the Supreme Court, raising the main question of law: whether it is liable for defects in the granitite wash-out finish that occurred after the lapse of the one-year defects liability period.
Issue(s)
Whether petitioner WGCC is liable for defects in the granitite wash-out finish that occurred after the lapse of the one-year defects liability period provided in Article XI of the construction contract. Whether the alleged defects in the granitite wash-out finish were hidden defects under Article 1719 of the Civil Code.
Ruling
The petition is GRANTED. The decision of the Court of Appeals in CA-G.R. SP No. 41152 is ANNULLED and SET ASIDE.
Ratio Decidendi
On the liability for defects after the one-year defects liability period: The Court ruled in favor of WGCC. The construction contract stipulated a one-year defects liability period, which is a common and accepted practice in construction contracts. This period is intended to give the owner an opportunity to discover and require the contractor to rectify defects. The contract's Article XI, particularly the first paragraph, clearly states that the contractor guarantees the work and shall make good any defect in materials and workmanship that becomes evident within one year after final acceptance. The Court emphasized the autonomous nature of contracts under Article 1306 of the Civil Code, stating that stipulations freely and validly agreed upon should be complied with in good faith and will not be set aside by the courts. The provision limiting liability and fixing specific guarantee periods was deemed fair, equitable, and necessary to prevent perpetual guarantees. The Court found that the contract did not specify a different period for defects in the granitite wash-out finish, thus any defect should have been brought to WGCC's attention within the one-year period. On whether the alleged defects were hidden: The Court disagreed with the lower courts' conclusion that the peeling off of the granitite wash-out finish was due to hidden or latent defects. The Court enumerated several reasons: (1) PCIB had a team of experts to supervise WGCC's workmanship and detect defects early on; (2) WGCC submitted progress reports and photographs; (3) WGCC worked under fair and transparent circumstances with PCIB having access to the site and exercising reasonable supervision; (4) PCIB issued several "punch lists" for WGCC's compliance before final acceptance; (5) PCIB supplied the materials for the finish; and (6) PCIB's experts concurred with the project turnover. These factors indicated that PCIB had ample opportunity to discover any defects during the construction and the one-year defects liability period. The Court clarified that the purpose of the defects liability period was precisely to provide an additional, limited opportunity for the owner to discover defects, hidden or otherwise. The Court also noted that Article 1719 of the Civil Code, which addresses acceptance relieving the contractor of liability unless defects are hidden or rights are expressly reserved, was not applicable here because the defects were not considered hidden given the circumstances, and PCIB did not make any express reservation of rights.
Main Doctrine
A defects liability period stipulated in a construction contract, if not contrary to law, morals, good customs, public order, or public policy, is binding upon the parties. Acceptance of the work by the employer generally relieves the contractor of liability for defects, unless the defects are hidden and not recognizable by the employer, or the employer expressly reserves rights against the contractor.