Title
Yu vs. Heirs of Sia
Case
G.R. No. 248495
Decision Date
Jul 6, 2022
Construction contract dispute over unpaid balance and building defects; SC ruled both parties equally at fault for violating building code, dismissing claims due to illegal contract.
construction contractor
building owner
minimum standards

Case Summary (G.R. No. 248495)

Factual Background

On 18 March 2002, the parties executed a written Construction Contract for the erection of a four-storey commercial building to be used as a hotel on F. Imperial Street, Legazpi City, with RYU Construction designated to furnish labor and materials, and a lump sum contract price of PHP 9,842,240.00 including an advance payment of PHP 3,000,000.00 and staged progress billings, the final payment being conditioned upon remittance of the occupancy permit. The building was substantially completed and turned over in 2003 according to Petitioner, but Respondents withheld the remaining contractual balance of PHP 448,240.00 alleging noncompliance with the minimum room volume and ventilation requirements of PD 1096 and the absence of a full certificate of occupancy.

Contract Terms and Performance Allegations

The Construction Contract expressly required the contractor to construct the project “strictly in accordance with the plans and program of work” signed by the parties and provided that the owner’s final payment would be made upon remittance of the occupancy permit. Petitioner asserted he complied with the contract and demanded payment of the remaining balance. Respondents admitted nonpayment but justified withholding final payment on the ground that certain third and fourth floor rooms were undersized and lacked the ventilation and other attributes required by PD 1096, thereby preventing issuance of the full occupancy permit.

Inspection, Remedial Work and Related Proceedings

A City Engineering inspection report identified multiple violations of PD 1096, including rooms below required volume and lack of ventilation, and advised corrective action. Respondents commissioned Architect Leo Del Rosario and Engr. Fernando Joquico to perform renovations in 2013, paying PHP 1,576,163.86, after which a certificate of occupancy for the third and fourth floors issued in 2014. Meanwhile, Petitioner filed suit in 2006 to collect the unpaid balance; he later amended his complaint in 2012 to add several heirs as defendants, but the RTC dropped all defendants except Mayor Rosemarie H. Sia.

Trial Court Proceedings and Findings

After trial, the RTC rendered judgment on 08 August 2016 in favor of Petitioner, ordering payment of PHP 448,240.00 with legal interest from 19 June 2006, attorney’s fees of PHP 25,000.00, and costs. The RTC found that Petitioner constructed the building according to the approved plans and specifications prepared by Architect Allan Luzuriaga, that the non‑issuance of a full occupancy permit was not attributable to Petitioner because the rooms were built in accordance with the plans and instructions of Respondents, and that any ventilation defect could be remedied by artificial ventilation which did not fall upon Petitioner under the contract.

Ruling of the Court of Appeals

On appeal, the Court of Appeals reversed and set aside the RTC Decision on 29 March 2019 and ordered Petitioner to reimburse Respondent Rosemarie H. Sia PHP 1,127,923.86 for renovation costs, plus awards for moral and exemplary damages, attorney’s fees, and costs. The CA concluded that payment of the remaining contract balance was properly conditioned on remittance of the occupancy permit which was not obtained by Petitioner; that Petitioner failed to prove construction in accordance with the agreed plan; and that as contractor and licensed engineer he should have known that the plans and work did not comply with PD 1096, rendering him liable and justifying Respondent’s remediation expenses.

Parties’ Contentions Before the Supreme Court

Petitioner contended that the RTC correctly found compliance with the contract and that the defects and the non‑issuance of the occupancy permit were not his responsibility since he merely implemented plans approved by Respondents and their architect. Respondents maintained that withholding final payment was justified because the certificate of occupancy had not issued due to the building’s noncompliance with PD 1096, that they incurred renovation expenses to cure defects, and that Petitioner as contractor bore responsibility for ensuring compliance with the National Building Code.

Issue Presented

The sole issue for the Supreme Court’s review was whether the Court of Appeals erred in reversing the RTC Decision and in awarding damages and reimbursement to Respondents rather than enforcing Petitioner’s claim for the unpaid contract balance.

Standard of Review on Certiorari

The Supreme Court noted that Rule 45 review generally does not entertain questions of fact, but recognized the exception where the CA’s findings are contrary to those of the trial court. Because the RTC and the CA had reached materially divergent factual conclusions on performance and compliance with legal obligations under the Construction Contract and PD 1096, the Court proceeded to examine the records and resolve the conflict.

Supreme Court’s Findings on Facts and Law

The Court found from the record several admissions and judicial affidavits establishing that the building plan approved by Respondents and implemented by Petitioner did not comply with the minimum volume and ventilation requirements of PD 1096. Architect Luzuriaga admitted that some rooms drawn in his plan were below the minimum requirement and that he followed instructions to maximize the number of rooms; Luzuriaga further testified that he had informed Petitioner of the deficiency. The City Engineer’s affidavit corroborated that the fourth floor rooms averaged ten cubic meters, below the fourteen cubic meters mandated by PD 1096. The Court further took judicial notice, under the appropriate exception, that Petitioner had been previously found guilty of violating PD 1096 in relation to this building, a conviction affirmed by appellate tribunals.

Application of the Illegal Contract and In Pari Delicto Doctrine

Applying CIVIL CODE, Article 1411, the Court concluded that the parties were in pari delicto because they agreed to and constructed a building in violation of PD 1096, an illegality that also constitutes a criminal offense under Section 213 of PD 1096. The Court explained that laws are presumed written in every contract under CIVIL CODE, Article 2257, and that the parties cannot obtain affirmative relief where the contract’s cause or object is illegal. The Court considered the recognized exceptions to the in pari delicto rule but found none applicable to the circumstances of this case.

Allocation of Responsibility under Statutory and Regulatory Scheme

The Court analyzed the regulatory scheme of PD 1096 and its IRR, noting the joint duties of owner, architect, and contractor in securing building permits and certificates of occupancy and the statutory expectation that licensed contractors possess knowledge of building codes as required by Republic Act No. 4556 and its IRR. The Court held that Petitioner, as a licensed contractor and engineer, should have known and should not have proceeded with construction despite knowledge of the defects, and that Respondents, as owner, also failed to exercise due diligence by approving plans that violated the Code and by operating the hotel without a full occupancy permit.

Dis

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