Francisco v. Deac Construction, Inc.
REITERATIONFacts
The Antecedents: Spouses Lino and Guia Francisco (Spouses Francisco) engaged DEAC Construction, Inc. (DEAC) to construct a 3-storey residential building for P3,500,000.00. Spouses Francisco paid P2,000,000.00 as downpayment and subsequent installments totaling P2,830,000.00. DEAC commenced construction in October 1994 without a building permit, leading to a violation charge against Lino Francisco, which was later dismissed upon issuance of the permit in March 1995. The permit's release was delayed due to an erroneous lot designation and subsequent corrections, during which DEAC allegedly forged Guia Francisco's signature on amended plans. Building inspectors noted several deviations from the approved plans, including reduced setback, covered open patio, and provision of window openings on a firewall, issuing a Notice of Violation. Spouses Francisco denied receiving these notices. In a letter, Spouses Francisco complained of DEAC's infractions, including lack of building permit, unauthorized plan alterations, forgery, deletion of open space, poor workmanship, and supervision, demanding compliance and withholding the final installment. DEAC countered that it complied with the contract and that Spouses Francisco breached by not paying the final installment. A Work Stoppage Order was issued due to violations. Spouses Francisco filed a complaint with the Office of the Building Official, leading to a criminal case against DEAC and its engineer. Subsequently, Spouses Francisco filed a civil case for rescission and damages. Procedural History: The Regional Trial Court (RTC) ruled that DEAC breached the contract by constructing without a permit and deviating from plans without owner approval. It ordered partial rescission and awarded damages, holding DEAC and its president, Geomar Dadula, solidarily liable. The Court of Appeals (CA) reversed the RTC, finding that Spouses Francisco authorized the deviations and that DEAC fully complied, ordering Spouses Francisco to pay the balance and damages. The Petition: Spouses Francisco assailed the CA decision, questioning its finding that they authorized the deviations and arguing they did not waive their right to rescind, especially given DEAC's initial construction without a permit and Dadula's criminal conviction for violations.
Issue(s)
Whether the Court of Appeals erred in finding that Spouses Francisco authorized the deviations from the building plan, specifically the closing of the open space and reduction of the setback. Whether Spouses Francisco waived their right to rescind the contract. Whether partial rescission of the contract was warranted.
Ruling
The Supreme Court granted the petition, reversed the Court of Appeals' decision, and reinstated the Regional Trial Court's decision. The Court found that DEAC breached the contract by failing to secure a building permit before commencing construction and by making unauthorized deviations from the approved plans, including closing the open space and reducing the setback without the Spouses Francisco's approval. The Court held that the Spouses Francisco did not waive their right to rescind and that partial rescission was appropriate given the 75% completion of the construction.
Ratio Decidendi
On the issue of whether Spouses Francisco authorized the deviations: The Supreme Court found that the Court of Appeals erred in concluding that Spouses Francisco authorized the deviations. The records revealed that DEAC admitted to closing the open space "in order to give extra space for the building," not because the Spouses Francisco requested it. Furthermore, the Court noted that DEAC forged petitioner Guia Francisco's signature on amended plans to facilitate the approval of the building permit, which clearly indicated a lack of authorization from the owners. The appellate court's interpretation of an agreement regarding a balcony extension as approval for the closure of the open space and reduction of the setback was deemed a misinterpretation, as these were distinct matters. The Court found DEAC's actions, including the forgery and the initial errors leading to permit delays, indicative of a "proclivity for error and taking the easy way out," which did not sit well with the Court. Therefore, the Spouses Francisco should be allowed to rescind the contract to the extent possible. On the issue of waiver of the right to rescind: The Supreme Court held that Spouses Francisco did not waive their right to seek rescission. The Court pointed to the fact that Spouses Francisco promptly complained about DEAC's infractions in their letter dated July 1, 1995, which included the belated building permit, unauthorized corrections, forgery of signatures, and deletion of the open space. Their subsequent filing of a criminal case against respondent Dadula and the present civil case for rescission and damages within a reasonable time after discovering the violations demonstrated their vigilance in guarding their rights. The appellate court's conclusion that Spouses Francisco should be deemed to have waived their right to seek rescission was therefore found to be clearly unfounded. On the issue of partial rescission: The Supreme Court affirmed the trial court's ruling that partial rescission was warranted. The Court cited Article 1191 of the Civil Code, which provides for the power to rescind reciprocal obligations when one obligor fails to comply with what is incumbent upon him. The Court clarified that rescission, or more appropriately resolution, is based on a breach of faith by the defendant, violating the reciprocity between the parties. Given that the construction was already 75% complete, the trial court was correct in ordering partial rescission of the undelivered or unfinished portion of the construction. Equitable considerations justified rescission of the portion of the obligation which had not been delivered, aligning with the trial court's computation and award.
Main Doctrine
The Supreme Court reinstated the trial court's decision ordering partial rescission of the construction contract due to the contractor's failure to secure a building permit and unauthorized deviations from the approved plans, finding that the homeowners did not waive their right to rescind.