G.R. No. 121494 - Spouses Ong vs. Court of Appeals

Case Summary (G.R. No. 121494)

Factual Background

The spouses Cesario and Teresita Carungay entered into a written agreement with Ernesto Deiparine, Jr. on August 13, 1982 for the construction of a three‑story dormitory in Cebu City for PHP 970,000.00, with Deiparine promising to erect the building “in strict accordance to plans and specifications.” Engr. Nicanor Trinidad, Jr. was designated as the Carungays’ representative with inspection powers. Construction began on September 1, 1982, before Trinidad had submitted the detailed “General Conditions and Specifications,” which were later delivered on November 6, 1982 and prescribed a minimum structural compressive strength of 3,000 psi.

Complaints About Construction Practices

During construction Trinidad reported multiple deviations from the plans and specifications. The Carungays issued memoranda directing prior approval before pouring concrete and complaining of lax supervision, inexperienced staff, and faulty workmanship. Those instructions were ignored, and the petitioner’s project engineer testified that Deiparine instructed workers to disregard the owner’s specific orders. The contested practices included the use of inadequate vibrators during pouring, uncapped PVC conduits, undersized reinforcement bars, use of hollow block reinforcements contrary to specifications, and failure to secure owner approval before concrete pours.

Tests Conducted and Results

After repeated complaints the parties agreed to perform tests to determine the structure’s strength. A cylinder test was done first; the owner distrusted its susceptibility to manipulation and insisted on a core test. Geo‑Testing International extracted twenty‑four core samples from the existing structure. Tested against 3,000 psi, all samples failed; against 2,500 psi only three passed; against 2,000 psi nineteen failed. Those results demonstrated that the building was structurally defective.

Trial Court Proceedings and Relief Granted

The Carungays filed suit in the Regional Trial Court of Cebu for rescission of the construction contract and for damages. Deiparine moved to dismiss, contending lack of jurisdiction because construction disputes were within the administrative agency created by P.D. No. 1746. The trial court denied the motion, proceeded to trial, and rendered judgment rescinding the construction agreement. The court ordered forfeiture of petitioner’s construction expenses in the amount of PHP 244,253.70, reimbursement of PHP 15,104.33 to the Carungays for the core testing, demolition and removal of existing structures with restoration of the premises to preconstruction condition while allowing Deiparine to reclaim his construction materials, and awarded attorney’s fees of PHP 10,000.00 plus costs.

Appellate Review and Issues Brought to the Supreme Court

The Court of Appeals affirmed the trial court’s decision in toto on August 14, 1990. Petitioner’s motion for reconsideration was denied. In the petition for review to the Supreme Court petitioner renewed the jurisdictional challenge under P.D. No. 1746 and contested the authority of the trial court to rescind the contract. He further argued that the contract did not specify any compressive strength or testing regimen and that Articles 1385 and 1725, rather than Article 1191, governed the remedy.

Jurisdictional Issue and Supreme Court’s Ruling

The petitioner’s contention that the regular courts lacked jurisdiction was rejected. The Court analyzed P.D. No. 1746, noting that the decree created the Construction Industry Authority of the Philippines (CIAP) and an implementing body for domestic matters, the Philippine Domestic Construction Board (PDCB). The Court held that the PDCB’s adjudicatory powers applied to public construction contracts, while its role with respect to private construction contracts was limited to formulating and recommending rules and procedures. Therefore, disputes arising from private construction contracts like the one at bar remained within the competence of the regular courts. The Court found that petitioner’s counsel had intentionally misquoted Section 6(b), paragraph 3 of P.D. No. 1746 and that such deliberate alteration warranted contempt and a fine.

Findings on Good Faith and Breach of Contract

The Supreme Court affirmed the factual findings below that Deiparine did not act in good faith. The record established that the petitioner employed unqualified supervising personnel, ignored owner and representative directives, and declined appropriate testing until pressured. The Court found that these acts constituted a substantial violation of the reciprocal obligations of the construction contract and impaired the safety and fitness of the building for its intended use.

Legal Basis for Rescission and Rejection of Alternate Provisions

The Court explained that petitioner misconstrued the law on rescission. Article 1385 pertains to rescission of contracts of the rescissible class enumerated in Article 1381, which did not include the construction contract here. Article 1191 governs rescission of reciprocal obligations when one obligor fails to comply with what is incumbent upon him, and permits the injured party to choose fulfillment or rescission with damages; the court shall decree rescission unless just cause authorizes fixing of a period. The Court held that the construction contract was a reciprocal obligation subject to Article 1191, and that the Carungays properly sought judicial rescission for petitioner’s breach. The Court further held that Article 1725 was inapposite because it contemplates voluntary withdrawal by the owner without contractor fault, which did not occur here.

Secondary Civil Code Provisions Applied

The Court relied also on Article 1714, Article 1715, and Article 1727 to affirm the employer’s rights and the contractor’s responsibilities. Article 1715 required the contractor to deliver work with the agreed qualities and free from defects affecting fitness for its ordinary or stipulated use, and authorized the employer to have defects removed at the contractor’s expense if the contractor failed to do so. Article 1727 made the contractor responsible for the work of his employees. The Court observed that

Case Syllabus (G.R. No. 121494)

Parties and Procedural Posture

Ernesto Deiparine, Jr. was the petitioner who contracted to construct a three-story dormitory for Cesario and Teresita Carungay in Cebu City.
Engr. Nicanor Trinidad, Jr. was designated by the Carungays as their representative with inspection and coordination powers.
The Regional Trial Court of Cebu rendered judgment rescinding the construction agreement and awarding specific monetary and injunctive relief against the petitioner.
The Hon. Court of Appeals affirmed the trial court decision in toto on August 14, 1990.
The petitioner filed a petition for review before the Supreme Court, which denied the petition and affirmed the lower courts' rulings.

Key Factual Allegations

The parties executed the construction agreement on August 13, 1982, for P 970,000 inclusive of contractor's fee.
Deiparine commenced construction on September 1, 1982, prior to receipt of the detailed specifications submitted later by Trinidad.
Carungay repeatedly complained of deviations from plans and specifications and ordered prior approval before any concrete pouring, orders which Deiparine ignored.
Testimony established that the construction was supervised by persons lacking requisite professional qualifications and that the petitioner directed workers to disregard owner and representative instructions.

Contract Documents and Specifications

The parties relied on two different specification documents prepared by Trinidad, one labeled merely "Specifications" and another titled "General Conditions and Specifications."
The first "Specifications" were prepared to satisfy loan requirements and provided only a general summary of materials to be used.
The later General Conditions and Specifications, submitted in November 1982, expressly required a structural compressive strength of 3,000 psi.
Deiparine admitted that the plans and specifications referred to in the construction agreement were those later-submitted General Conditions and Specifications.

Tests and Technical Findings

The parties agreed to perform tests after disputes arose, and Geo-Testing International conducted core testing on twenty-four samples.
On the basis of 3,000 psi, all twenty-four core samples failed the test.
On the basis of 2,500 psi, only three samples passed and on the basis of 2,000 psi nineteen samples failed.
The record described cylinder tests as subject to manipulation and characterized core testing as the more reliable means to ascertain the actual strength of the hardened structure.

Trial Court Disposition

The trial court declared the construction agreement rescinded under applicable law.
The trial court ordered Deiparine to forfeit his construction expenses in the amount of P 244,253.70.
The trial court ordered Deiparine to reimburse the Carungays P 15,104.33 for the core testing expenses.
The trial court ordered Deiparine to demolish and remove the existing structures, restore the premises to preconstruction condition, and allowed him to remove his