Case Summary (G.R. No. 103372)
Contractual Guarantee and Acceptance of Work
The contract between EPG Construction and UP included a guarantee clause obligating EPG to repair defects within one year from the substantial completion of the project. The guarantee also held EPG liable under Article 1723 of the Civil Code for up to 15 years if the building collapses due to defective construction or inferior materials. Upon completion, UP issued a certificate of acceptance on January 13, 1983, asserting that the work was satisfactorily completed without defects, and recommended release of the 10% retention money. Despite this, UP later reported defects in six air-conditioning units, which EPG initially agreed to repair but ultimately did not. UP then contracted a third party to fix the defect and sought reimbursement plus liquidated damages from EPG.
UP’s Certificate of Acceptance Does Not Bar Later Claims
The petitioners argued that UP’s certificate of acceptance waived the one-year guarantee and that UP was estopped from claiming defects thereafter. This argument was rejected. The Court explained that the certificate only confirmed that the building was defect-free at the time of turnover, without releasing EPG from subsequent liability under the contract. Acceptance does not relieve a contractor from liability for hidden defects unknown and not recognizable by the employer at acceptance, especially where there was an express reservation of rights during the guarantee period, as provided under Article 1719 of the Civil Code.
Defects Not Caused by Force Majeure or Maintenance Lapses
EPG claimed that the defects were due to frequent power outages (brownouts) constituting force majeure or fortuitous events, or due to UP’s failure to perform maintenance. The Court found these arguments unmeritorious. Brownouts were held not to constitute force majeure, and inspection revealed that the defects resulted from poor workmanship and defective installation of the electrical components of the air-conditioning units. Furthermore, whether the needed repairs were maintenance or actual defects was a factual question resolved by the lower courts, and there was no clear showing of error warranting reversal.
Separate Legal Personality of Emmanuel P. De Guzman
The petitioners contended that Emmanuel P. De Guzman, as President of EPG, should not be held personally liable since a corporation is a distinct legal entity separate from its officers and shareholders. The Court agreed, emphasizing the established doctrine that corporate acts are imputable to the corporation, not to its office
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Facts of the Case
- EPG Construction Company, Inc. ("EPG") entered into a contract with the University of the Philippines ("UP") for the construction of the UP Law Library Building at a stipulated price of ₱7,545,000.
- The contract included Article XI - Guarantee, wherein EPG guaranteed that the work completed would comply with plans and specifications, be free from defective workmanship or materials, and conform to contract requirements.
- EPG was obligated to repair defects at its own expense for one (1) year from the date of substantial completion and acceptance.
- Additionally, EPG's liability extended for fifteen (15) years for any collapse caused by defects or use of inferior materials under Article 1723 of the Civil Code.
- Upon completion, UP issued a Certificate of Acceptance dated January 13, 1983, certifying that the project was completed satisfactorily without defects and recommended release of the 10% retention in favor of EPG.
- In July 1983, UP complained about malfunctioning air-conditioning units on the third floor. EPG initially agreed to shoulder repair expenses but never proceeded with the repair.
- UP contracted another company to repair the defects for ₱190,000 after persistent complaints.
- UP demanded reimbursement plus an equal sum as liquidated damages from EPG, which was refused.
- A suit was filed by UP against EPG and its president Emmanuel P. de Guzman in the Regional Trial Court (RTC) of Quezon City.
- The RTC ruled in favor of UP, awarding actual damages of ₱190,000, liquidated damages of ₱50,000, attorney’s fees of ₱10,000, and costs against both defendants jointly and severally.
- The Court of Appeals affirmed the RTC decision.
- EPG and De Guzman filed a petition for review to the Supreme Court, challenging (1) estoppel by reason of Certificate of Acceptance; (2) force majeure as defense; and (3) separate legal personality of De Guzman from EPG.
Legal Issues Presented
- Whether the Certificate of Acceptance issued by UP estops UP from holding EPG liable for latent defects discovered post-acceptance.
- Whether the defects in the air-conditioning units were caused by force majeure or fortuitous event exempting EPG from liability.
- Whether Emmanuel P. de Guzman, as president of EPG, can be held solidarily liable with the corporation for the damages.
Analysis on Estoppel and Guarantee Provision
- The Certificate of Acceptance only acknowledged the satisfactory completion of the work as of January 11, 1983, with no defects apparent at that time.
- The guarantee clause explicitly provides for repairs of defects discovered within one (1) year, which applies notwithstanding the acceptance.
- Acceptance under Article 1719 of the Civil Code relieves liability for defects except for those hidden or expressly reserved against; both exceptions apply here.
- The defects com