Case Summary (G.R. No. 191479)
Applicable Law and Legal Framework
Primary Civil Code provisions applied: Article 1715 (contractor’s obligation to execute work without defects and employer’s right to require removal or correction; employer may have defect corrected at contractor’s cost if contractor fails), Article 1167 (obligation to do something — execution at debtor’s cost if he fails), and Article 2199 (measure of damages). Penal provision relevant to antecedent criminal prosecution: Article 315 (estafa) of the Revised Penal Code. Evidentiary principles invoked: actual damages must be supported by competent proof (receipts/invoices); the demand to rectify need not be in any particular form; substantial compliance with Article 1715 may suffice.
Procedural History
Owen sued the Caswells for collection of P23,000 (unpaid contract balance) plus damages in MTC Civil Case No. 538. The MTC (June 29, 2006) dismissed Owen’s claims and ordered him to pay P46,205 representing rectification costs (after offsetting the P23,000). Owen appealed to the RTC, which reversed (October 31, 2006) and awarded him P23,000 plus moral and exemplary damages, attorney’s fees, and costs. The Caswells petitioned to the CA, which reinstated the MTC decision (April 30, 2008) and denied reconsideration (July 24, 2008). Owen filed a petition for review on certiorari to the Supreme Court, which denied the petition and affirmed the CA (final disposition).
Factual Background and Sequence of Events
The Caswells sought electrical installation for their newly built home. Zameco II quoted P456,000 for service connection; Owen offered to complete the installation for P250,000. Owen, with assistants, purportedly completed installation by August 1998; the Caswells paid P227,000. On inspection requested by the Caswells, Zameco II (through Engr. Pulangco) identified numerous defects and deficiencies in the installation that prevented energization, including improper materials and installations for pole construction, grounding defects, lack of required tapping/fuse cut‑out with lightning arrester, incorrect transformer distance from the neutral line, absence of required clamps, locknuts, and grounding rods, among other faults. Zameco II refused to energize until corrections and required documents/testing were provided. The Caswells thereafter engaged Zameco II to correct the work and obtain energization; energization occurred only after the distribution system was completed to Zameco II standards in January 1999.
Criminal Proceedings and Related Allegations
The Caswells executed a Joint Affidavit (September 4, 1998) alleging that Owen and his group misrepresented themselves (claiming to be from NAPOCOR) and thus swindled the Caswells of P227,000. An estafa case (Criminal Case No. RTC‑2533‑I) was filed but Owen was acquitted on the ground of reasonable doubt (May 15, 2003). The Supreme Court noted that statements in the criminal judgment suggesting delay might have been due to Zameco II employees’ resentment were obiter and not a basis to resolve the civil dispute.
Evidence Presented in the Civil Case
Caswells’ evidence included: Engr. Pulangco’s handwritten receipt for P15,400 (partial payment for materials used in correction); Sales Invoice No. 2029 from Peter A. Eduria Enterprises listing materials totalling P53,805; and a detailed list of materials with unit prices, labor costs and totals. Testimony of the Caswells recounted unsuccessful attempts to reach Owen and deficiencies identified by Zameco II. Owen and Badua testified that they rectified all discrepancies and that they informed Engr. Pulangco and the Caswells the installation was ready; Owen also claimed securing of permits was the Caswells’ responsibility.
MTC Ruling and Rationale
The MTC treated the contract as one for a piece of work and applied Article 1715. It concluded that the installation suffered defects impairing its fitness and value; Owen failed to remove the defects or to be available for rectification. Relying on Article 1167, the MTC held that the Caswells were entitled to have the defects corrected at Owen’s cost. The court accepted the Caswells’ proof of rectification expenses (total P69,205) and deducted the P23,000 Owen sought, entering judgment for the Caswells for P46,205 and dismissing Owen’s claim.
RTC Ruling and Rationale
The RTC reversed the MTC. It held that the Caswells should have instituted an action for specific performance (or otherwise afforded Owen a judicial opportunity to establish quality and acceptability of his work) before hiring Zameco II to effect corrections. The RTC relied in part on testimony suggesting Owen had completed work and on Engr. Pulangco’s remark that electricity could still flow without certain replacements. The RTC concluded Owen had complied with his obligations and therefore awarded him the unpaid balance (P23,000) with legal interest, moral damages (P25,000), exemplary damages (P20,000), attorney’s fees (P30,000), and costs.
Court of Appeals Ruling and Rationale
The CA reinstated the MTC decision. It found that the Caswells’ repeated efforts to communicate with Owen, their request that he secure permits and submit the transformer for testing, and Owen’s refusal to comply or even to be available for rectification amounted to a substantial compliance with the demand required under Article 1715. The CA concluded that Owen’s subsequent filing of a collection suit evidenced his belief that his work was complete and indicated futility in further demands for rectification. The CA invoked res ipsa loquitur to observe that the circumstances and the defective nature of the work spoke for themselves. On damages, the CA accepted Engr. Pulangco’s handwritten receipt and Sales Invoice No. 2029 as competent proof of actual rectification expenses, rejecting Owen’s attacks on the invoice’s admissibility and on the supplier’s registration. The CA ordered Owen to reimburse rectification costs but permitted set‑off of the unpaid P23,000 against the Caswells’ monetary claims, resulting in the same net amount ordered by the MTC.
Supreme Court Ruling and Rationale
The Supreme Court denied Owen’s petition and affirmed the CA’s decision in toto. The Court held that Owen failed to execute the contract in a manner free of defects which would not destroy or lessen the work’s fitness for its intended use (Article 1715). The Court found the Caswells’ Joint Affidavit and other trial evidence sufficient to show that they exer
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Citation and Procedural Posture
- Supreme Court decision reported at 747 Phil. 1, Second Division, G.R. No. 183872, November 17, 2014; opinion penned by Justice Del Castillo.
- Petition for Review on Certiorari challenges:
- April 30, 2008 Decision of the Court of Appeals in CA-G.R. SP No. 97146 (which granted the petition for review, reversed the RTC October 31, 2006 decision, and reinstated the MTC June 29, 2006 decision).
- July 24, 2008 Resolution of the Court of Appeals denying petitioner's motion for reconsideration.
- Case originated as:
- Municipal Trial Court (MTC), San Narciso, Zambales — Civil Case No. 538 — June 29, 2006 decision dismissing petitioner's claims and ordering petitioner to pay rectification cost of P46,205.00.
- Regional Trial Court (RTC), Branch 70, Iba, Zambales — Civil Case No. RTC-2426-I — October 31, 2006 decision reversing MTC and awarding petitioner recovery of unpaid balance plus damages and attorney’s fees.
- Court of Appeals — April 30, 2008 decision reinstating MTC and denying petitioner’s motion for reconsideration July 24, 2008.
- Supreme Court disposition: Petition denied; Court of Appeals April 30, 2008 Decision and July 24, 2008 Resolution affirmed in toto; no costs.
Parties and Contractual Arrangement
- Petitioner: Owen Prosper A. Mackay (referred to as Owen).
- Respondents: Spouses Dana Caswell and Cerelina Caswell (the Caswells).
- Agreement: Lump-sum contract price of P250,000.00 for electrical installation in the Caswell newly built home in San Narciso, Zambales.
- Payments: The Caswells paid Owen P227,000.00; Owen sought the unpaid balance of P23,000.00.
Relevant Facts — Performance, Inspection, and Deficiencies
- The Caswells sought an electrical installation provider; local distributor ZAMECO II (through Engr. Victor Pulangco) estimated P456,000.00, but Owen offered and contracted to perform the work for P250,000.00.
- Owen, with assistants Cesar Badua and Albert Galeng, claimed installation was completed and ready for connection by August 1998.
- At Cerelina Caswell’s request, ZAMECO II inspected and tested the distribution transformers and found multiple defects (as itemized in Engr. Pulangco’s August 11, 1998 letter), including but not limited to:
- No guying; improper use of dead-end materials for neutral line; lack of armor tape; lack of clamp loop dead-end materials; no locknuts on bolts.
- Improper pole top pin materials; lack of pole top pin; wrong phasing of pole top pin; lack of armor rod.
- Substandard grounding wire; wrong pole grounding wire installation; lack of grounding rods.
- Lack of fuse cut-out with lightning arrester at tapping point.
- Wrong distance of transformer from neutral line.
- Because of these deficiencies and incomplete requirements, ZAMECO II refused energization; rectification by ZAMECO II per its standard specifications was completed January 1999, after which electricity was finally supplied.
- The Caswells executed a Joint Affidavit on September 4, 1998, alleging misrepresentation and swindling by Owen and his group and filed an estafa criminal complaint (Article 315, paragraph 2(a) cited) — Criminal Case No. RTC-2533-I. Owen was acquitted on May 15, 2003 on grounds of reasonable doubt.
Procedural Moves and Claims in the Civil Case
- Owen, unpaid for P23,000, filed Complaint for Collection of Sum of Money with Damages (MTC Civil Case No. 538) claiming:
- Recovery of unpaid P23,000.00 balance of the contract.
- Damages for sleepless nights, anxiety, social humiliation due to the Caswells’ filing of estafa case against him.
- Caswells’ defense and counterclaim:
- Alleged Owen failed to finish the job and “walked out,” making them entitled to reimbursement for expenses incurred to correct defective work.
- Submitted evidentiary support for rectification costs: Engr. Pulangco’s handwritten receipt for P15,400.00, Sales Invoice No. 2029 (Peter A. Eduria Enterprises) totaling P53,805.00, and a list of materials with unit prices, labor cost and total charged.
MTC Decision (June 29, 2006) — Findings and Ruling
- Characterized the contract as a contract for a piece of work governed by Article 1715 of the Civil Code.
- Found Owen’s work suffered from deficiencies; did not credit Owen’s claim that he remedied deficiencies for lack of proof.
- Found Caswells had no opportunity to demand remedy from Owen because he was unavailable.
- Relied on Article 1167 (work not done or done contrary to tenor executed at obligor’s cost) and held rectification costs of P69,205.00 should be borne by Owen.
- Offset the P23,000.00 Owen claimed against the P69,205.00 rectification cost, resulting in an award of P46,205.00 in favor of the Caswells.
- Disposition: dismissed Owen’s claims and ordered Owen to pay P46,205.00.
RTC Decision (October 31, 2006) — Findings and Rationale
- Reversed and set aside the MTC decision.
- RTC view: Caswells should have filed a judicial action for specific performance first to determine quality and acceptability of work; by immediately resorting to ZAMECO II’s corrective work, Caswells denied Owen opportunity to correct deficiencies under Article 1715.
- Noted testimony that Cerelina said Owen did not come to her and she went to ZAMECO II when she could no longer wait for electricity.
- Emphasized Engr. Pulangco’s cross-examination remark that electricity could function in Caswells’ home even without replacing the fuse cut-out connection, suggesting Owen performed his obligations.
- RTC awarded Owen:
- P23,000.00 (balance) with 6% legal interest from complaint filing.
- Moral damages P25,000.00.
- Exemplary damages P20,000.00.
- Attorney’s fees P30,000.00.
- Costs of suit.
Court of Appeals Decision (April 30, 2008) — Findings and Rationale
- Reinstated the MTC decision.
- Held efforts by the Caswells to communicate with Owen constituted a demand for rectification — substantial compliance with Article 1715’s requirement that the employer require contractor to remove defects or execute another work.
- Emphasized that Owen’s refusal to secure permits and lack of communication impelled the Caswells to