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
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
* 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
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
_______________ 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
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
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
at p. 388.
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
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
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
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.
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;
V. THE TRIAL COURT ERRED IN FAILING TO AWARD ACTUAL, MORAL AND
EXEMPLARY DAMAGES AND ATTORNEY’S FEES IN FAVOR OF
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
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
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
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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- Spring '19
- marjun sarmiento
- The Plaza, Ramon C. Gaite, Petitioner Rhogen