Tan v. G.V.T. Engineering Services
REITERATIONFacts
The Antecedents: Spouses George and Susan Tan entered into a contract with G.V.T. Engineering Services (G.V.T.), owned by Gerino V. Tactaquin, for the construction of their residential house for P1,700,000.00. Due to the spouses Tan's changes in plans, specifications, and deletion of items, coupled with delays in material delivery, disagreements arose, leading G.V.T. to stop construction. Procedural History: G.V.T. filed a complaint for specific performance and damages against the spouses Tan and their supervising engineer, Rudy Cadag, alleging breach of contract due to changes, deletions, and delayed material delivery. The spouses Tan counterclaimed, alleging defective works and that G.V.T. lacked legal personality. The RTC ruled in favor of G.V.T., ordering the spouses Tan and Cadag to pay the balance of the contract price, retention fee, moral damages, attorney's fees, and litigation expenses. The CA modified the RTC decision by deleting the awards for moral damages, attorney's fees, and litigation expenses, and dismissing the case against Cadag, affirming the rest. Both parties' motions for reconsideration were denied. The Petition: The spouses Tan filed a petition for review on certiorari, arguing that they did not violate the agreement, that G.V.T. caused the delay, that the awards were erroneous, that Cadag should not be jointly liable, and that the RTC lacked jurisdiction due to G.V.T.'s lack of legal personality. They also contended that deleted items should be deducted from the contract price and that they should not pay for unfinished work.
Issue(s)
Whether the RTC acquired jurisdiction over the case despite G.V.T. Engineering Services, a sole proprietorship, allegedly lacking legal personality to sue. Whether the spouses Tan breached the construction contract. Whether the spouses Tan are liable for the balance of the contract price and the retention fee. Whether the spouses Tan are liable for damages and attorney's fees.
Ruling
The petition is partly granted. The Court affirmed the Court of Appeals' decision with modification, reducing the retention fee award. The spouses Tan are liable for the balance of the contract price and a reduced retention fee.
Ratio Decidendi
On the issue of G.V.T.'s legal personality: The Court held that while G.V.T. Engineering Services, as a sole proprietorship, is not a juridical person and thus lacks legal personality to sue in its own name, the defect was merely technical. The complaint and subsequent pleadings consistently referred to G.V.T. acting through its owner/manager, Gerino V. Tactaquin. Furthermore, the prayer for moral damages indicated that the suit was effectively brought by Tactaquin, a natural person. The Court applied the principle of liberal construction of rules to achieve substantial justice, citing Alonso v. Villamor and Barnes v. Quijano, and found no prejudice to the petitioners, thus upholding the jurisdiction of the lower courts. On the breach of contract: The Court upheld the factual findings of the RTC and CA that the spouses Tan breached the contract. The evidence showed that the spouses Tan caused delays in the delivery of construction materials and unjustifiably deleted major items from G.V.T.'s scope of work, such as skylight roofing, installation of cement tiles, soil poisoning, and finishing, awarding these to other contractors. These actions forced G.V.T. to withdraw from the project, constituting a breach of contract under Article 1170 of the Civil Code. On the liability for the balance of the contract price and retention fee: The Court found that G.V.T. had substantially performed its obligation in good faith, completing approximately 74% of the work before withdrawing. Applying Article 1234 of the Civil Code, which allows recovery for substantial performance less damages, the Court affirmed the award for the balance of the contract price. The Court reasoned that if the deleted items had been performed, the project would have been 96% complete. Regarding the retention fee, the Court ruled that G.V.T. was entitled to it because its failure to complete the project was due to the spouses Tan's breach, not its own fault. However, the award for the retention fee was reduced to P20,772.05, representing the sum of retention fees appearing in the bills presented as evidence, as actual damages must be proven with certainty. On the dismissal of the case against Cadag and the spouses Tan's liability: The Court affirmed the CA's dismissal of the case against Cadag, citing the principle of relativity of contracts, which states that contracts bind only the parties thereto. Since Cadag was not a party to the construction agreement between the spouses Tan and G.V.T., and his role was that of an agent supervising the construction for the principals (spouses Tan), he could not be held liable for the breach of contract. The spouses Tan, as principals, are answerable for the acts of their agent performed within the scope of his authority.
Main Doctrine
A sole proprietorship, though not a juridical person, can sue or be sued under its business name, with the proprietor being the real party in interest, provided no prejudice is caused to the other party and the defect is merely technical. Substantial performance of a construction contract allows recovery of the contract price less damages, and failure to complete due to the other party's breach does not forfeit earned retention fees.