Heirs of Gaite v. The Plaza, Inc.
REITERATIONFacts
1. The Antecedents: The underlying dispute arose from a contract for the construction of a restaurant building between The Plaza, Inc. (The Plaza) and Rhogen Builders (Rhogen), represented by Ramon C. Gaite. Rhogen commenced construction, but the project was halted by the Municipal Building Official of Makati due to numerous violations of the National Building Code, including lack of permits for temporary structures and non-compliance with approved plans. Rhogen, through Gaite, attempted to address these violations, but communication and cooperation with The Plaza's Project Manager proved difficult. Subsequently, Gaite notified The Plaza of his intent to suspend construction and later terminated the contract, citing The Plaza's alleged non-cooperation. The Plaza, in turn, asserted Rhogen's breach of contract due to non-performance and violations, leading to further disputes over payments, materials, and the project's completion. 2. Procedural History: Following the contract termination and subsequent disputes, The Plaza filed two civil cases against Rhogen, Gaite, and FGU Insurance Corporation (FGU). Civil Case No. 40755 was for breach of contract, sum of money, and damages, while Civil Case No. 1328 (43083) sought the nullification of a prior project development contract. These cases were consolidated and eventually heard by the Regional Trial Court (RTC) of Makati, Branch 63. The RTC rendered a decision on July 3, 1997, finding Rhogen, the Gaites, and FGU liable to The Plaza and granting various damages. Rhogen, the Gaites, and FGU appealed this decision to the Court of Appeals (CA). The CA, in a decision dated June 27, 2006, affirmed the RTC's ruling with modifications, deleting some damage awards and substituting actual damages for owner-furnished materials with temperate damages. A subsequent motion for reconsideration was denied by the CA on April 20, 2007. 3. The Petition: This case is before the Supreme Court on a petition for review under Rule 45 of the Rules of Civil Procedure, filed by the Heirs of Ramon C. Gaite, Cynthia Gorostiza Gaite, and Rhogen Builders. The petitioners seek to reverse and set aside the decision and resolution of the Court of Appeals. They argue that the CA erred in finding that Rhogen Builders lacked factual or legal basis to terminate the General Construction Contract, and consequently, in directing the return of the down payment and awarding temperate damages. Petitioners contend that Rhogen had valid grounds to terminate the contract due to The Plaza's failure to pay progress billings within the stipulated period and its uncooperative attitude. They also claim the CA erred in failing to award damages in favor of the petitioners. The core of their argument rests on the interpretation of contractual provisions regarding termination and the alleged breach by The Plaza.
Issue(s)
Whether the Court of Appeals erred in finding that Petitioner Rhogen had no factual or legal basis to terminate the General Construction Contract. Whether the Court of Appeals erred in directing Petitioners to return the downpayment paid by The Plaza. Whether the Court of Appeals erred in awarding temperate damages to The Plaza. Whether the Court of Appeals erred in failing to award damages in favor of Petitioners.
Ruling
The petition is denied. The Decision of the Court of Appeals is affirmed.
Ratio Decidendi
On the issue of whether Rhogen had a valid basis to terminate the contract: The Court held that Rhogen did not have a valid basis to terminate the contract. Reciprocal obligations require that the party seeking rescission must be the injured party who has fulfilled or is ready to fulfill their obligations. The Plaza had paid the down payment and furnished materials. However, Rhogen failed to comply with its contractual obligation to adhere to all laws, city and municipal ordinances, and government regulations. The stoppage and revocation orders were issued due to Rhogen's violations, not due to The Plaza's fault. Therefore, Rhogen was at fault for breaching the contract, and The Plaza was justified in withholding payment and subsequently terminating the contract. The Court reiterated that Rhogen's failure to have the stoppage and revocation orders lifted was its sole responsibility as per its contractual undertaking. On the issue of returning the down payment: The Court affirmed the CA's ruling that Rhogen must return the down payment. Under the principle of quantum meruit, a contractor is entitled to the reasonable value of services rendered to prevent unjust enrichment. However, Rhogen failed to complete a substantial portion of the work due to the stoppage order and, more importantly, the work it did perform was not in accordance with approved plans. Article 1167 of the Civil Code states that if an obligation is not performed, it shall be executed at the obligor's cost, and what has been poorly done may be undone. Furthermore, Article 122 of the General Conditions of the Contract explicitly states that the contractor is not entitled to further payment until the work is finished. Since Rhogen's work was not in accordance with approved plans, it should have been executed at its cost, or the down payment should be returned if the work was not completed properly. On the award of temperate damages: The Court upheld the award of temperate damages. Article 2224 of the Civil Code allows for temperate damages when pecuniary loss is suffered but its amount cannot be proved with certainty. The Plaza suffered a loss due to the owner-furnished materials that were under Rhogen's custody during the work stoppage and before contract termination. Rhogen failed to account for these materials, whether withdrawn, damaged, lost, or disappeared. Consequently, the exact quantity and cost could not be determined, making temperate damages appropriate to compensate for the loss without requiring precise proof of amount. On the petitioners' claim for damages: The Court found the petitioners' claim for actual, moral, and exemplary damages, as well as attorney's fees, to be without legal basis and thus denied it. The petitioners had breached their contract with The Plaza, and the damages awarded to The Plaza were justified by this breach. The petitioners' own failure to perform their contractual obligations, including compliance with building regulations, precluded them from claiming damages against The Plaza.
Main Doctrine
A party seeking to rescind a contract must be the injured party who has faithfully fulfilled or is ready to fulfill their obligations. Non-compliance with laws and regulations constitutes a substantial violation of a construction contract, justifying termination by the owner.