Case Summary (G.R. No. 171312)
Factual Background
The parties entered into a contract for the construction of a three-storey residential building with mezzanine and roof deck on the Spouses Francisco's lot at 118 Pampanga Street, Gagalangin, Tondo, Manila for a contract price of P3,500,000.00. The contract provided for a downpayment of P2,000,000.00 and two equal installments of P750,000.00. The Spouses Francisco paid P2,000,000.00 on or about September 12, 1994, followed by payments of P200,000.00 on February 27, 1995, P550,000.00 on April 2, 1995, and P80,000.00 on June 5, 1995 for additional works. Respondent DEAC Construction, Inc. engaged a subcontractor and commenced work in October 1994 before the requisite building permit was secured. The Office of the Building Official issued notices of violations citing deviations from approved plans, including reduction of the required setback, covering of a required open patio, and excessive roof projection. The Spouses Francisco later alleged forgery of Guia Francisco's signature on amended plans and filed administrative, criminal, and civil complaints against respondents.
Procedural History
The Spouses Francisco instituted Civil Case No. 95-75430 in the Regional Trial Court of Manila, Branch 28, seeking rescission of the contract and damages. The trial court found respondents in breach, ordered partial rescission, and awarded refund and damages. The Court of Appeals reversed and awarded respondents the remaining balance of the contract price plus damages and attorneys' fees. The Spouses Francisco petitioned this Court for review. The Supreme Court granted the petition, reversed the Court of Appeals, and reinstated the RTC decision.
Issues Presented
The principal issues were whether the deviations from the approved building plans were authorized by Sps. Lino Francisco and Guia Francisco; whether respondents' commencement of construction without a building permit and the alterations justified rescission of the contract; whether the Spouses Francisco waived the right to rescind by delayed protest; and whether partial rescission and the monetary awards ordered below were appropriate.
Parties' Contentions
The Spouses Francisco contended that they did not authorize the deviations, that respondents commenced and proceeded with construction without first obtaining the building permit as required by the contract, and that their withholding of the final installment was justified and timely followed by civil and criminal actions. Respondents maintained that the Spouses Francisco requested or authorized the deviations, attributed the permit delay to a subordinate's error in designating the lot, and argued that the owners waived their right to rescind by raising complaints only after construction was several months underway.
Trial Court Findings
The Regional Trial Court found that respondents had breached their contractual obligations by commencing construction without the necessary building permit as required under Section 3, Article IV of the Construction Contract and by deviating from the approved building plan without the owners' consent. The RTC concluded that withholding the final installment was justified and that rescission of the reciprocal obligation was warranted in part because the building was already approximately seventy to seventy-five percent complete. The RTC ordered partial rescission, directed refund of P205,000.00 for unfinished work, awarded moral damages of P250,000.00, exemplary damages of P250,000.00, attorneys' fees of P100,000.00, and held Geomar A. Dadula solidarily liable with DEAC Construction, Inc.
Court of Appeals Ruling
The Court of Appeals reversed the RTC. The appellate court concluded that the Spouses Francisco had initiated or requested the deviations, and that respondents had substantially complied with the contract. The CA ordered the Spouses Francisco to pay P670,000.00 as the remaining balance of the contract price, awarded P100,000.00 as moral damages, P50,000.00 as attorneys' fees, and costs of suit.
Supreme Court Ruling
The Supreme Court granted the petition. The Court found that respondents admitted commencing construction before securing the building permit and that evidence showed forgery of petitioner Guia Francisco's signature on amended plans and unauthorized closure of the open space in violation of the National Building Code (P.D. No. 1096). The Court held that the deviations were not authorized by the Spouses Francisco and that the owners did not waive their right to seek rescission. The Court concluded that the RTC correctly ordered partial rescission of the undelivered portion of the obligation and that equitable considerations supported rescission insofar as performance remained unfinished. Accordingly, the Supreme Court reversed the Court of Appeals Decision dated July 28, 2005 and its Resolution dated January 31, 2006, and reinstated the RTC Decision dated February 2, 1998.
Legal Basis and Reasoning
The Court applied Article 1191, New Civil Code, observing that the power to rescind is implied in reciprocal obligations when one obligor fails to comply with what is incumbent upon him. The Court emphasized that rescission addresses breach of faith and violation of reciprocity rather than mere economic injury. The Court found that respondents' failure to obtain the building permit, their deviations from the approved plans, and the forgery of the owner's signature demonstrated a breach of the reciprocal obligation and caused prejudice to the owners. The Court rejected the appellate court's view of waiver because the Spouses Francisco had promptly raised complaints, filed criminal charges, and instituted this civil action within a reasonable time after d
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Case Syllabus (G.R. No. 171312)
Parties and Posture
- Sps. Lino Francisco & Guia Francisco were plaintiffs below and petitioners before the Court seeking rescission and damages for alleged contract breaches in a construction contract.
- DEAC Construction, Inc. and Geomar A. Dadula were respondents below and defendants in the civil action, and appellees in the Court of Appeals.
- The petition assailed a Court of Appeals decision dated 28 July 2005 that reversed the Regional Trial Court, Manila, Branch 28 decision dated 2 February 1998.
- The RTC had ordered partial rescission, awarded moral and exemplary damages and attorneys fees to petitioners, and held respondents jointly and severally liable.
- The Court of Appeals reversed the RTC and awarded respondents monetary recovery and damages against petitioners, prompting this petition for review.
Key Facts
- The parties executed a construction contract dated 13 September 1994 for a three-storey residential building with mezzanine and roof deck for a contract price of P3,500,000.00.
- The agreed payments included a downpayment of P2,000,000.00 and two equal installments of P750,000.00 each tied to construction milestones.
- Petitioners paid P2,000,000.00 on September 12, 1994, and later payments of P200,000.00 on February 27, 1995, P550,000.00 on April 2, 1995, and P80,000.00 on June 5, 1995, totaling P2,830,000.00.
- Construction commenced in October 1994 before respondents had secured the building permit, which was issued by the Office of the Building Official of the City of Manila only on March 7, 1995.
- The City issued Notices of Violation on April 7, 1995 for deviations from the approved plans including reduction of the required setback, covering of the required open patio, excessive roof projection, unauthorized window openings on a firewall, stockpiling of materials on the sidewalk, and lack of safety measures.
- Petitioners alleged that respondents forged Mrs. Guia Francisco's signature on amended building plans to facilitate permit approval.
- Petitioners filed a criminal complaint and this civil case for rescission and damages on September 21, 1995.
Procedural History
- The Metropolitan Trial Court tried a criminal case for illegal construction that resulted in a conviction of respondent Dadula, a result affirmed by higher courts and this Court in separate proceedings cited in the records.
- The RTC, Branch 28 rendered judgment on February 2, 1998 ordering partial rescission and awarding refund and damages to petitioners.
- The Court of Appeals reversed the RTC on 28 July 2005 and ordered petitioners to pay the remaining balance and awarded damages to respondents.
- Petitioners filed a petition for review on certiorari with this Court challenging the CA decision.
Issues Presented
- Whether the Spouses Francisco authorized or requested the deviations from the approved building plans, specifically the closure of the open space and reduction of the setback.
- Whether respondents violated their contractual obligation by commencing construction without a building permit and by deviating from the approved plans.
- Whether petitioners waived their right to rescind by delaying objection to the deviations.
- Whether partial rescission and the RTC's award of refund and damages were warranted.
Parties' Contentions
- Petitioners contended that respondents uni