1-5 part 2.docx - G.R No 177685.\u2003 HEIRS OF RAMON C GAITE CYNTHIA GOROSTIZA GAITE and RHOGEN BUILDERS petitioners vs THE PLAZA INC and FGU INSURANCE

1-5 part 2.docx - G.R No 177685.  HEIRS OF RAMON C GAITE...

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Unformatted text preview: G.R. No. 177685. January 26, 2011.* HEIRS OF RAMON C. GAITE, CYNTHIA GOROSTIZA GAITE and RHOGEN BUILDERS, petitioners, vs. THE PLAZA, INC. and FGU INSURANCE CORPORATION, respondents. Civil Law; Obligations; Reciprocal obligations are to be performed simultaneously such that the performance of one is conditioned upon the simultaneous fulfillment of the other.—Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously such that the performance of one is conditioned upon the simultaneous fulfillment of the other. Same; Same; Contracts; Unjust Enrichment; Quantum Meruit; Words and Phrases; Quantum meruit means that in an action for work and labor, payment shall be made in such amount as the plaintiff reasonably deserves. —Under the principle of quantum meruntractor is allowed to recover the reasonable value of the thing or services rendereit, a cod despite the lack of a written contract, in order to avoid unjust enrichment. Quantum meruit means that in an action for work and labor, payment shall be made in such amount as the plaintiff reasonably deserves. To deny payment for a building almost completed and already occupied would be to permit unjust enrichment at the expense of the contractor. Same; Same; Same; Temperate Damages; The rationale behind temperate damages is precisely that from the nature of the case, definite proof of pecuniary loss cannot be offered.—As to temperate damages, Article 2224 of the Civil Code provides that temperate or moderate damages, which are more than nominal but less than compensatory damages, may be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be proved with certainty. The rationale behind temperate damages is precisely that from the nature of the case, definite proof of pecuniary loss cannot be offered. _______________ * THIRD DIVISION. 577 VOL. 640, JANUARY 26, 2011 Heirs of Ramon C. Gaite vs. The Plaza, Inc. 577 PETITION for review on certiorari of the decision and resolution of the Court of Appeals. The facts are stated in the opinion of the Court. Jaime G. Hofileña for petitioners. Jacinto Jimenez for FGU Insurance Corp. Balane, Tamase, Alampay Law Office for the Plaza, Inc. VILLARAMA, JR., J.: This is a petition for review under Rule 45 of the 1997 Rules of Civil Procedure, as amended, which seeks to reverse and set aside the Decision1 dated June 27, 2006 and Resolution 2 dated April 20, 2007 of the Court of Appeals (CA) in CA-G.R. CV No. 58790. The CA affirmed with modification the Decision3 dated July 3, 1997 of the Regional Trial Court (RTC) of Makati City, Branch 63, in Civil Case Nos. 1328 (43083) and 40755. The facts are as follows: On July 16, 1980, The Plaza, Inc. (The Plaza), a corporation engaged in the restaurant business, through its President, Jose C. Reyes, entered into a contract4 with Rhogen Builders (Rhogen), represented by Ramon C. Gaite, for the construction of a restaurant building in Greenbelt, Makati, Metro Manila for the price of P7,600,000.00. On July 18, 1980, to secure Rhogen’s compliance with its obligation under the contract, Gaite and FGU Insurance Corporation (FGU) executed a surety bond in the amount of P1,155,000.00 in favor of _______________ 1 Rollo, pp. 88-102. Penned by Associate Justice Aurora Santiago-Lagman, with Associate Justices Josefina Guevara-Salonga and Normandie B. Pizarro, concurring. 2 Id., at pp. 85-86. 3 Id., at pp. 440-444. Penned by Judge Salvador S. Abad Santos. 4 Records, pp. 202-210. 578 578 SUPREME COURT REPORTS ANNOTATED Heirs of Ramon C. Gaite vs. The Plaza, Inc. The Plaza. On July 28, 1980, The Plaza paid P1,155,000.00 less withholding taxes as down payment to Gaite. Thereafter, Rhogen commenced construction of the restaurant building. In a letter dated September 10, 1980, Engineer Angelito Z. Gonzales, the Acting Building Official of the Municipality of Makati, ordered Gaite to cease and desist from continuing with the construction of the building for violation of Sections 301 and 302 of the National Building Code (P.D. 1096) and its implementing rules and regulations.5 The letter was referred to The Plaza’s Project Manager, Architect Roberto L. Tayzon. On September 15, 1980, Engr. Gonzales informed Gaite that the building permit for the construction of the restaurant was revoked for non-compliance with the provisions of the National Building Code and for the additional temporary construction without permit. 6 The Memorandum Report of Building Inspector Victor Gregory enumerated the following violations of Rhogen in the construction of the building: 1) No permit for Temporary Structure. 2) No notice of concrete pouring. 3) Some workers have no safety devices. 4) The Secretary and Construction Foreman refused to [receive] the Letter of Stoppage dated September 10, 1980. 5) Mr. Ramon Gaite [is] questioning the authority of the Building Official’s Inspector. 6) Construction plans use[d] on the job site is not in accordance to the approved plan.7 On September 19, 1980, the Project Manager (Tayzon) in his Construction Memo #23 reported on his evaluation of Progress Billing #1 submitted by Rhogen. Tayzon stated that actual jobsite assessment showed that the finished works fall _______________ 5 Rollo, p. 139. 6 Id., at p. 140. 7 Id., at p. 141. 579 VOL. 640, JANUARY 26, 2011 Heirs of Ramon C. Gaite vs. The Plaza, Inc. 579 short of Rhogen’s claimed percentage of accomplishment and Rhogen was entitled to only P32,684.16 and not P260,649.91 being demanded by Rhogen. Further, he recommended that said amount payable to Rhogen be withheld pending compliance with Construction Memo #18, resolution of cases regarding unauthorized withdrawal of materials from jobsite and stoppage of work by the Municipal Engineer’s Office of Makati.8 On October 7, 1980, Gaite wrote Mr. Jose C. Reyes, President of The Plaza regarding his actions/observations on the stoppage order issued. On the permit for temporary structure, Gaite said the plans were being readied for submission to the Engineering Department of the Municipality of Makati and the application was being resent to Reyes for his appropriate action. As to the notice for concrete pouring, Gaite said that their construction set-up provides for a Project Manager to whom the Pouring Request is first submitted and whose job is to clear to whoever parties are involved (this could still be worked out with the Building Inspector). Regarding the safety devices for workers, Gaite averred that he had given strict rules on this but in the course of construction some workers have personal preferences. On the refusal of the secretary and construction foreman to receive the stoppage order dated September 10, 1980, Gaite took responsibility but insisted it was not a violation of the National Building Code. Likewise, questioning the authority of the Building Inspector is not a violation of the Code although Gaite denied he ever did so. Lastly, on the construction plans used in the jobsite not being in accordance with the approved plan, Gaite said he had sent Engr. Cristino V. Laurel on October 3, 1980 to Reyes’ office and make a copy of the only approved plan which was in the care of Reyes, but the latter did not give it to Engr. Laurel. Gaite thus thought that Reyes would handle the matter by himself.9 _______________ 8 Records, Exhibits “DD” to “HH”. 9 Rollo, pp. 368-370. 580 580 SUPREME COURT REPORTS ANNOTATED Heirs of Ramon C. Gaite vs. The Plaza, Inc. On the same day, Gaite notified Reyes that he is suspending all construction works until Reyes and the Project Manager cooperate to resolve the issue he had raised to address the problem.10 This was followed by another letter dated November 18, 1980 in which Gaite expressed his sentiments on their aborted project and reiterated that they can still resolve the matter with cooperation from the side of The Plaza. 11 In his reply-letter dated November 24, 1980, Reyes asserted that The Plaza is not the one to initiate a solution to the situation, especially after The Plaza already paid the agreed down payment of P1,155,000.00, which compensation so far exceeds the work completed by Rhogen before the municipal authorities stopped the construction for several violations. Reyes made it clear they have no obligation to help Rhogen get out of the situation arising from nonperformance of its own contractual undertakings, and that The Plaza has its rights and remedies to protect its interest.12 Subsequently, the correspondence between Gaite and Reyes involved the custody of remaining bags of cement in the jobsite, in the course of which Gaite was charged with estafa for ordering the removal of said items. Gaite complained that Reyes continued to be uncooperative in refusing to meet with him to resolve the delay. Gaite further answered the estafa charge by saying that he only acted to protect the interest of the owner (prevent spoilage/hardening of cement) and that Reyes did not reply to his request for exchange.13 On January 9, 1981, Gaite informed The Plaza that he is terminating their contract based on the Contractor’s Right to Stop Work or Terminate Contracts as provided for in the General Conditions of the Contract. In his letter, Gaite accused Reyes of not cooperating with Rhogen in solving the _______________ 10 11 12 13 Id., Id., Id., Id., at at at at p. 388. pp. 389-390. pp. 391-392. pp. 393-396. 581 VOL. 640, JANUARY 26, 2011 Heirs of Ramon C. Gaite vs. The Plaza, Inc. 581 problem concerning the revocation of the building permits, which he described as a “minor problem.” Additionally, Gaite demanded the payment of P63,058.50 from The Plaza representing the work that has already been completed by Rhogen.14 On January 13, 1981, The Plaza, through Reyes, countered that it will hold Gaite and Rhogen fully responsible for failure to comply with the terms of the contract and to deliver the finished structure on the stipulated date. Reyes argued that the down payment made by The Plaza was more than enough to cover Rhogen’s expenses.15 In a subsequent letter dated January 20, 1981, Reyes adverted to Rhogen’s undertaking to complete the construction within 180 calendar days from July 16, 1980 or up to January 12, 1981, and to pay the agreed payment of liquidated damages for every month of delay, chargeable against the performance bond posted by FGU. Reyes invoked Section 121 of the Articles of General Conditions granting the owner the right to terminate the contract if the contractor fails to execute the work properly and to make good such deficiencies and deducting the cost from the payment due to the contractor. Reyes also informed Gaite that The Plaza will continue the completion of the structure utilizing the services of a competent contractor but will charge Rhogen for liquidated damages as stipulated in Article VIII of the Contract. After proper evaluation of the works completed by Rhogen, The Plaza shall then resume the construction and charge Rhogen for all the costs and expenses incurred in excess of the contract price. In the meantime that The Plaza is still evaluating the extent and condition of the works performed by Rhogen to determine whether these are done in accordance with the approved plans, Reyes demanded from Gaite the reimbursement of the balance of their initial payment of P1,155,000.00 from the _______________ 14 Id., at pp. 146-147. 15 Id., at pp. 149-150. 582 582 SUPREME COURT REPORTS ANNOTATED Heirs of Ramon C. Gaite vs. The Plaza, Inc. value of the works correctly completed by Rhogen, or if none, to reimburse the entire down payment plus expenses of removal and replacement. Rhogen was also asked to turn over the jobsite premises as soon as possible.16 The Plaza sent copy of said letter to FGU but the latter replied that it has no liability under the circumstances and hence it could not act favorably on its claim against the bond.17 On March 3, 1981, The Plaza notified Gaite that it could no longer credit any payment to Rhogen for the work it had completed because the evaluation of the extent, condition, and cost of work done revealed that in addition to the violations committed during the construction of the building, the structure was not in accordance with plans approved by the government and accepted by Ayala. Hence, The Plaza demanded the reimbursement of the down payment, the cost of uprooting or removal of the defective structures, the value of owner-furnished materials, and payment of liquidated damages.18 On March 26, 1981, The Plaza filed Civil Case No. 40755 for breach of contract, sum of money and damages against Gaite and FGU in the Court of First Instance (CFI) of Rizal.19 The Plaza later amended its complaint to include Cynthia G. Gaite and Rhogen.20 The Plaza likewise filed Civil Case No. 1328 (43083) against Ramon C. Gaite, Cynthia G. Gaite and/or Rhogen Builders also in the CFI of Rizal for nullification of the project development contract executed prior to the General Construction Contract subject of Civil Case No. 40755, which was allegedly in violation of the provisions of R.A. No. 545 (Architectural Law of the Philippines). 21 After the reorganization of the Judiciary in 1983, the cases were transferred to the RTC of Makati and eventually consolidated. _______________ 16 17 18 19 20 21 Id., Id., Id., Id., Id., Id., at at at at at at pp. pp. pp. pp. pp. pp. 151-154. 156-158, 161-162. 159-160. 103-120. 299-319. 276-282. 583 VOL. 640, JANUARY 26, 2011 Heirs of Ramon C. Gaite vs. The Plaza, Inc. 583 On July 3, 1997, Branch 63 of the RTC Makati rendered its decision granting the claims of The Plaza against Rhogen, the Gaites and FGU, and the cross-claim of FGU against Rhogen and the Gaites. The trial court ruled that the Project Manager was justified in recommending that The Plaza withhold payment on the progress billings submitted by Rhogen based on his evaluation that The Plaza is liable to pay only P32,684.16 and not P260,649.91. The other valid grounds for the withholding of payment were the pending estafa case against Gaite, non-compliance by Rhogen with Construction Memorandum No. 18 and the non-lifting of the stoppage order. 22 Regarding the non-lifting of the stoppage order, which the trial court said was based on simple infractions, the same was held to be solely attributable to Rhogen’s willful inaction. Instead of readily rectifying the violations, Rhogen continued with the construction works thereby causing more damage. The trial court pointed out that Rhogen is not only expected to be aware of standard requirements and pertinent regulations on construction work, but also expressly bound itself under the General Construction Contract to comply with all the laws, city and municipal ordinances and all government regulations. Having failed to complete the project within the stipulated period and comply with its obligations, Rhogen was thus declared guilty of breaching the Construction Contract and is liable for damages under Articles 1170 and 1167 of the Civil Code.23 The dispositive portion of the trial court’s decision reads: “WHEREFORE, in Civil Case No. 40755, defendants Ramon Gaite, Cynthia Gaite and Rhogen Builders are jointly and severally ordered to pay plaintiff: 1. the amount of P525,422.73 as actual damages representing ownerfurnished materials with legal interest from the time of filing of the complaint until full payment; _______________ 22 Id., at p. 442. 23 Id., at pp. 442-443. 584 584 SUPREME COURT REPORTS ANNOTATED Heirs of Ramon C. Gaite vs. The Plaza, Inc. 2. the amount of P14,504.66 as actual damages representing expenses for uprooting with interest from the time of filing the complaint until full payment; 3. the amount of P1,155,000.00 as actual damages representing the downpayment with legal interest from the time of filing the complaint until full payment; 4. the amount of P150,000.00 for moral damages; 5. the amount of P100,000.00 for exemplary damages; 6. the amount of P500,000.00 as liquidated damages; 7. the amount of P100,000.00 as reasonable attorney’s fees; and, 8. the cost of suit. Under the surety bond, defendants Rhogen and FGU are jointly and severally ordered to pay plaintiff the amount of P1,155,000.00 with legal interest from the time of filing the complaint until full payment. In the event [that] FGU pays the said amount, third-party defendants are jointly and severally ordered to pay the same amount to FGU plus P50,000.00 as reasonable attorney’s fees, the latter having been forced to litigate, and the cost of suit. Civil Case No. 1328 is hereby ordered dismissed with no pronouncement as to cost. SO ORDERED.”24 Dissatisfied, Ramon and Cynthia Gaite, Rhogen and FGU appealed to the CA.25 In view of the death of Ramon C. Gaite on April 21, 1999, the CA issued a Resolution dated July 12, 2000 granting the substitution of the former by his heirs Cynthia G. Gaite, Rhoel Santiago G. Gaite, Genevieve G. Gaite and Roman Juan G. Gaite.26 In their appeal, the heirs of Ramon C. Gaite, Cynthia G. Gaite and Rhogen assigned the following errors, to wit: _______________ 24 Id., at p. 444. 25 Docketed as CA-G.R. CV No. 58790. 26 CA Rollo, p. 84. 585 VOL. 640, JANUARY 26, 2011 Heirs of Ramon C. Gaite vs. The Plaza, Inc. 585 I. THE TRIAL COURT ERRED IN DECLARING THAT THE GROUNDS RELIED UPON BY DEFENDANT-APPELLANT RHOGEN BUILDERS IN TERMINATING THE CONTRACT ARE UNTENABLE; II. THE TRIAL COURT ERRED IN DECLARING THAT THE NON-LIFTING OF THE STOPPAGE ORDER OF THE THEN MUNICIPAL GOVERNMENT OF MAKATI WAS SOLELY ATTRIBUTABLE TO DEFENDANT-APPELLANT RHOGEN’S WILLFUL INACTION; III. THE TRIAL COURT ERRED IN FAILING TO CONSIDER THAT IT WAS THE WILLFUL INACTION OF PLAINTIFF-APPELLEE WHICH MADE IT IMPOSSIBLE FOR DEFENDANT–APPELLANT RHOGEN TO PERFORM ITS OBLIGATIONS UNDER THE CONTRACT; IV. THE TRIAL COURT ERRED IN AWARDING ACTUAL DAMAGES AS WELL AS MORAL, EXEMPLARY, AND LIQUIDATED DAMAGES AND ATTORNEY’S FEES SINCE THERE WERE NO FACTUAL AND LEGAL BASES THEREFOR; AND V. THE TRIAL COURT ERRED IN FAILING TO AWARD ACTUAL, MORAL AND EXEMPLARY DAMAGES AND ATTORNEY’S FEES IN FAVOR OF DEFENDANTS-APPELLANTS.27 For its part, FGU interposed the following assignment of errors: I. THE REGIONAL TRIAL COURT ERRED IN NOT RULING THAT DEFENDANTAPPELLANT RAMON GAITE VALIDLY TERMINATED THE CONTRACT BETWEEN HIM AND PLAINTIFF-APPELLEE. II. THE REGIONAL TRIAL COURT ERRED IN HOLDING DEFENDANTAPPELLANT RAMON GAITE RESPONSIBLE FOR THE STOPPAGE OF THE CONSTRUCTION. _______________ 27 Rollo, pp. 450-451. 586 586 SUPREME COURT REPORTS ANNOTATED Heirs of Ramon C. Gaite vs. The Plaza, Inc. III. THE REGIONAL TRIAL COURT ERRED IN ORDERING DEFENDANTAPPELLANT RAMON GAITE TO PAY THE AMOUNT OF P525,422.73 FOR THE OWNER FURNISHED MATERIALS. IV. THE REGIONAL TRIAL COURT ERRED IN ORDERING DEFENDANTAPPELLANT RAMON GAITE TO PAY PLAINTIFF-APPELLEE THE AMOUNT OF P14,504.66 AS ALLEGED EXPENSES FOR UPROOTING THE WORK HE PERFORMED. V. THE REGIONAL TRIAL COURT ERRED IN ORDERING DEFENDANTAPPELLANT RAMON GAITE TO REFUND THE DOWN PAYMENT OF P1,155,000.00 PLAINTIFF-APPELLEE PAID HIM. VI. THE REGIONAL TRIAL COURT ERRED IN AWARDING MORAL DAMAGES TO PLAINTIFF-APPELLEE. VII. THE REGIONAL TRIAL COURT ERRED IN AWARDING EXEMPLARY DAMAGES TO PLAINTIFF-APPELLEE. VIII. THE REGIONAL TRIAL [COURT] ERRED IN AWARDING LIQUIDATED DAMAGES TO PLAINTIFF-APPELLEE. IX. THE REGIONAL TRIAL COURT ERRED IN AWARDING ATTORNEY’S FEES TO PLAINTIFF-APPELLEE. X. THE REGIONAL TRIAL COURT ERRED IN HOLDING DEFENDANTAPPELLANT FGU INSURANCE CORPORATION LIABLE TO PLAINTIFFAPPELLEE.28 On June 27, 2006, the CA affirmed the Decision of the trial court but modified the award of damages as follows: “WHEREFORE, the Decision dated July 3, 1997 rendered by the Regional Trial Court of Makati City, Branch 63 in Civil Case Nos. 40755 and 1328 ...
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