Case Summary (G.R. No. L-9305)
Factual Background
On June 29, 1948, the contractor agreed to construct the Zulueta or Antonio Apartments for the owner. The work had to follow plans and specifications prepared by Manalac Construction Co., which acted as the owner’s architects. Under the agreement, the owner furnished critical materials, including the reinforcing steel, cement, steel windows, and plumbing fixtures and accessories.
The contract price was P286,755. The parties expressly agreed that any change in construction, once agreed upon and made, would be treated as an addition to the contract price. The parties also fixed a construction period of two hundred and fifteen (215) days, with automatic extensions for delays caused by late deliveries and fortuitous events such as earthquakes and bad weather.
As to acceptance and final payment, Article 7 required, in general terms, final payment to be due ten days after “essential completion” and after the contract had been fully performed, subject to the contractor’s delivery of “Final Certificates as may be required by the public authorities.” The contractor also assumed an obligation to repair hidden defects and leaks discovered within six (6) months after final completion and acceptance. For final inspection and acceptance, the architect was required to issue a final certificate, after finding the work acceptable and the contract fully performed, reflecting the amount due to the contractor except the final ten per cent held back in the final certificate. Before the issuance of the final certificate, the contractor had to submit evidence that payrolls, material bills, and other indebtedness connected with the work were paid. Importantly, the contract contained a further proviso addressing situations beyond the contractor’s control: if the contractor could not supply the final certificate of acceptance by city authorities due to portions of the work being incomplete that were not part of the contractor’s work, final payment would still be made, provided the contractor certified to the owner’s satisfaction that all work and obligations described in the contract had been performed according to specifications.
The owner paid the original contract price in full. The suit sought recovery of additional costs incurred due to (a) the construction of a swimming pool and changes on the fourth floor, (b) the construction of a recreation room, and (c) electric wiring for the swimming pool and an additional pump.
Defenses Interposed by the Owner
The most important defenses raised by the owner were: (a) abandonment of the construction and delay in completion; (b) the contractor’s alleged failure to secure the final certificate from public authorities required by the contract; and (c) asserted defects in the construction, including leaks, unevenness of the terrace flooring, and cracks in the building walls.
The owner maintained that there was no completion and acceptance as required by Article 7, and on that premise the contractor was allegedly not entitled to the amount claimed, P46,093.77.
Trial Court Findings and Reasoning
The trial court found that the building was completed in accordance with the contract. It also ruled that any delay in completion was caused by delays in furnishing building materials and by additional work agreed upon by the parties, as well as substantial changes in the original plan. On the claimed defects, the trial court concluded that they were waived in advance by the owner and that the owner had insisted on the swimming pool construction against the contractor’s advice, among other considerations.
The Parties’ Contentions on Appeal
On appeal, the owner argued that the contractor failed to meet Article 7 requirements on completion and acceptance because the contractor allegedly had not secured the final certificate from the public authorities. He also raised the continued existence of alleged defects, despite the contractor’s performance and acceptance arrangements.
The contractor, in turn, relied on facts establishing final acceptance by the architects, the owner’s occupation of the building without objection to the manner of construction, the owner’s conduct that related to the certificate requirements, the contractual allocation of responsibility for hidden defects within a specified period, and the timing of the owner’s objections.
Facts Considered by the Appellate Court in Passing on “Completion and Acceptance”
Although it was undisputed that the work had been completed, it was also undisputed that there were leaks in some parts of the edifice and defects in drainage. It was likewise not shown at the time of filing that the contractor delivered the final certificate from public authorities required by the contract.
Against these objections, the Court relied on several significant facts:
First, on September 8, 1949, the owner’s architects issued a certificate of final acceptance regarding the work (Exhibit “B”). Second, the owner occupied the building without objection, including with respect to the absence of inspection certificates required by public authorities. Third, the contractor had asked the owner to exempt it from inability to secure the final certificate because the original plans and specifications were not followed and deviations were made from the building permit plans. The Court noted this request was supported by a letter from the contractor (Exhibit “FF-1”). The owner then expressly agreed, upon recommendation of his architects, to waive any civil liability that law might recognize in his favor as owner of the apartment, subject to holding the contractor responsible for defects and leaks arising from faulty waterproofing as to the swimming pool (Exhibit “II-2”).
Fourth, the Court found that the cracks in some portions of the building were linked to the installation of the swimming pool on the fourth floor, which increased the weight of the building and the load on its beams, while the leaks on the walls were connected to the use of concrete blocks. The Court further emphasized that the specifications did not call for waterproofing materials and that the construction was according to the specifications. It also clarified that the leaks did not come from the swimming pool, which was not waived. The Court characterized the owner’s objections as not being due to defects in the form and manner of construction under the original and modified agreements, but rather due to defects in the plans and materials called for therein.
Finally, the Court underscored the contract’s limitation on responsibility for hidden defects and leaks: the contractor was to be responsible only for those that might be discovered within six (6) months after final acceptance. Final acceptance had occurred on September 8, 1949, while the action was brought on August 29, 1950. The Court treated the owner’s objections as raised too late in relation to the contractual framework and the evidence of acceptance and occupation, and therefore overruled the objections.
Review of the Trial Court’s Factual Conclusions
The appellate ruling stated that it had carefully reviewed the evidence and the trial judge’s appraisal. It found nothing that justified a modification or reversal of the trial court’s findings and legal conclusions on the main issues. The building was found to be completed in accordance with the contract, and the delay was attributable to material delivery delays and additional agreed work and plan changes.
Attorney’s Fees: Modification of the Judgment
The Court, however, was not in accord with the trial court’s grant of attorney’s fees as damages. The trial court had reasoned that the contractor showed that it retained counsel and agreed to pay counsel P9,218.75, and that the filing of the case should not have been necessary if the owner had paid his just and lawful obligation.
The appellate court held that, at common law, the successful party generally had no right to have attorney’s fees taxed against the opponent, absent circumstances justifying such recovery as damages. The Court cited doctrinal authority that counsel fees are not ordinarily an element of recoverable damages. It referenced prior Philippine rulings, including Tan Ti vs. Alvear, 26 Phil. 566, and The Borden Co. vs. Doctors Pharmaceuticals, Inc., 90 Phil. 500, and also the principle that counsel fees, other than those fixed in rules as costs, are not an element of recoverable damages, citing Jesswani vs. Massaram Dialdas, G. R. No. L-4651, May 12, 1952.
The Court further found that the owner’s refusal, although ultimately unsuccessful, could not be said to have been caused by mere bad faith. The defects were shown at trial, and the owner could not be blamed for having believed they resulted from faulty construction. The Court emphasized that sentencing the owner to pay the contractor’s lawyer’s fees would impose a penalty on the right to litigate.
The Court also considered the then New Civil Code provision, Article 2208, paragraph 5, and reasoned that even under that standard, the contractor would not be entitled to recover fees paid to its attorney as damages because no bad faith by the owner was shown.
Accordingly, the Court reversed that portion of the judgment requiring the owner to pay P9,218.75 as attorney’s fees and absolved him of that demand.
Disposition of the Appeal
With the modification described, the Court affirmed the trial court’s judgment in all other respects, with costs against the owner.
Resolution on Motion for Reconsideration
The owner later filed a motion for reconsideration, claiming that there was no sufficient evidence sustaining the finding that the leaks and defects he complained of were due to the modification of plans caused by constructing a swimming pool on the third floor, which pool allegedly was not in the original plan.
The Court denied
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Case Syllabus (G.R. No. L-9305)
Parties and Procedural Posture
- George Edward Koster Inc. appeared as plaintiff and appellee in the Court of First Instance of Manila.
- Jose C. Zulueta appeared as defendant and appellant in the same trial court.
- The trial court rendered judgment sentencing defendant and appellant to pay plaintiff and appellee (1) a principal sum of P46,093.77 with stipulated interest, (2) twenty percent of the full amount as attorney’s fees, and (3) the costs of the suit.
- Defendant and appellant appealed, challenging the entitlement to the awarded amount on contractual and evidentiary grounds.
- The Court affirmed the judgment with modification only as to the award of attorney’s fees.
- After the decision, defendant and appellant filed a motion for reconsideration, which the Court denied.
Contract and Undertakings
- The parties entered into a contract dated June 29, 1948 for the construction of the Zulueta or Antonio Apartments, a four-story reinforced concrete building located at the north corner of Mabini and Arquiza Streets, City of Manila.
- Manalac Construction Co. acted as defendant and appellant’s architects and prepared the plans and specifications.
- The contract allocated supply obligations to owner for reinforcing steel, cement, steel windows, and plumbing fixtures and accessories.
- The contract price totaled P286,755.
- The parties agreed that any change in construction would increase the contract price as an addition upon agreement and execution.
- The parties fixed a construction period of two hundred and fifteen days, with automatic extension for late deliveries and for fortuitous cases such as earthquakes and bad weather.
- The contract addressed acceptance and final payment in Article 7, and included a term on hidden defects and leaks to be repaired within a defined post-acceptance period.
Acceptance and Final Payment Terms
- Article 7 provided that final payment would be due ten (10) days after essential completion, full contract performance, and delivery by the contractor of Final Certificates required by public authorities.
- The contract required the contractor to repair hidden defects and leaks discovered within six (6) months after final completion and acceptance.
- The contract required the architect to issue a final certificate after receiving written notice that the work was ready for final inspection and when the architect found the work acceptable and the contract fully performed, with the certificate stating the accepted completion and the balance due except the final ten percent (10%) noted in the final certificate.
- The contract required proof of payment of payrolls, material bills, and other indebtedness connected with the work before issuance of the final certificate.
- The contract also contained a contingency clause that contemplated situations where the contractor could not supply the final certificate of acceptance from city authorities due to reasons beyond the contractor’s control, including portions of work incomplete but not part of the contractor’s work.
- The contingency clause still allowed final payment notwithstanding non-issuance of the public authority certificate, provided the contractor certified to the owner’s satisfaction that the contract terms and specifications were performed.
Scope of Recoverable Work Claimed
- The action sought to recover the additional cost of construction items and modifications, specifically:
- a swimming pool and changes on the fourth floor,
- a recreation room, and
- electric wiring for the swimming pool and an additional pump.
- The original contract price was stated to have been paid in full, with the suit centered on additional agreed construction costs.
Trial Court Findings
- The trial court found that the building was completed in accordance with the contract.
- The trial court attributed delay in completion to late furnishing of building materials and to additional work agreed upon by the parties, including substantial changes in the original plan.
- The trial court found that alleged defects were waived in advance by defendant and appellant, who allegedly insisted on construction of the swimming pool despite plaintiff’s advice.
Core Defenses on Appeal
- Defendant and appellant contended that there was no completion and acceptance as required by Article 7, and therefore plaintiff and appellee was not entitled to recover P46,093.77.
- Defendant and appellant also pointed to the undisputed existence of leaks in parts of the edifice, and to the contractor’s failure at the time of suit to deliver the final certificate from the public authorities required by the contract.
- Defendant and appellant raised defenses involving abandonment of the construction and delay in completion.
- Defendant and appellant further invoked defects in construction, including leaks, unevenness of the terrace flooring, cracks on the building walls, and related conditions.
- The Court treated the acceptance-and-certification objection and the defects objection as the principal points for determination, while recognizing the trial court’s findings on waiver and causes of delay.
Evidence of Acceptance and Waiver
- The Court found it undisputed that the work had been completed, while also acknowledging the existence of leaks and the absence of the required public authority final certificates at the time of action.
- The Court relied on the following acceptance-related facts:
- The owner’s architects issued a certificate of final acceptance on September 8, 1949 as to the work (Exhibit “B”).
- The owner occupied the edifice without objection to the manner of construction and without objection regarding absence of certificates required of public authorities.
- The contractor asked the owner to exempt it from liability due to ina