11/15/2014

G.R. No. 177685

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RepublicofthePhilippines
SUPREMECOURT
Manila
THIRDDIVISION
G.R.No.177685January26,2011
HEIRSOFRAMONC.GAITE,CYNTHIAGOROSTIZAGAITEandRHOGENBUILDERS,Petitioners,
vs.
THEPLAZA,INC.andFGUINSURANCECORPORATION,Respondents.
DECISION
VILLARAMA,JR.,J.:
This is a petition for review under Rule 45 of the 1997 Rules of Civil Procedure, as amended, which seeks to
reverse and set aside the Decision1 dated June 27, 2006 and Resolution2 dated April 20, 2007 of the Court of
Appeals(CA)inCAG.R.CVNo.58790.TheCAaffirmedwithmodificationtheDecision3datedJuly3,1997ofthe
RegionalTrialCourt(RTC)ofMakatiCity,Branch63,inCivilCaseNos.1328(43083)and40755.
Thefactsareasfollows:
On July 16, 1980, The Plaza, Inc. (The Plaza), a corporation engaged in the restaurant business, through its
President,JoseC.Reyes,enteredintoacontract4withRhogenBuilders(Rhogen),representedbyRamonC.Gaite,
fortheconstructionofarestaurantbuildinginGreenbelt,Makati,MetroManilaforthepriceofP7,600,000.00.On
July 18, 1980, to secure Rhogens compliance with its obligation under the contract, Gaite and FGU Insurance
Corporation(FGU)executedasuretybondintheamountofP1,155,000.00infavorofThePlaza.OnJuly28,1980,
ThePlazapaidP1,155,000.00lesswithholdingtaxesasdownpaymenttoGaite.Thereafter,Rhogencommenced
constructionoftherestaurantbuilding.
InaletterdatedSeptember10,1980,EngineerAngelitoZ.Gonzales,theActingBuildingOfficialoftheMunicipality
of Makati, ordered Gaite to cease and desist from continuing with the construction of the building for violation of
Sections301and302oftheNationalBuildingCode(P.D.1096)anditsimplementingrulesandregulations.5 The
letterwasreferredtoThePlazasProjectManager,ArchitectRobertoL.Tayzon.
On September 15, 1980, Engr. Gonzales informed Gaite that the building permit for the construction of the
restaurantwasrevokedfornoncompliancewiththeprovisionsoftheNationalBuildingCodeandfortheadditional
temporaryconstructionwithoutpermit.6TheMemorandumReportofBuildingInspectorVictorGregoryenumerated
thefollowingviolationsofRhogenintheconstructionofthebuilding:
1)NopermitforTemporaryStructure.
2)Nonoticeofconcretepouring.
3)Someworkershavenosafetydevices.
4)TheSecretaryandConstructionForemanrefusedto[receive]theLetterofStoppagedatedSeptember10,
1980.
5)Mr.RamonGaite[is]questioningtheauthorityoftheBuildingOfficialsInspector.
6)Constructionplansuse[d]onthejobsiteisnotinaccordancetotheapprovedplan.7
OnSeptember19,1980,theProjectManager(Tayzon)inhisConstructionMemo#23reportedonhisevaluationof
Progress Billing #1 submitted by Rhogen. Tayzon stated that actual jobsite assessment showed that the finished
works fall short of Rhogens claimed percentage of accomplishment and Rhogen was entitled to only P32,684.16

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andnotP260,649.91beingdemandedbyRhogen.Further,herecommendedthatsaidamountpayabletoRhogen
be withheld pending compliance with Construction Memo #18, resolution of cases regarding unauthorized
withdrawalofmaterialsfromjobsiteandstoppageofworkbytheMunicipalEngineersOfficeofMakati.8
OnOctober7,1980,GaitewroteMr.JoseC.Reyes,PresidentofThePlazaregardinghisactions/observationson
the stoppage order issued. On the permit for temporary structure, Gaite said the plans were being readied for
submission to the Engineering Department of the Municipality of Makati and the application was being resent to
Reyes for his appropriate action. As to the notice for concrete pouring, Gaite said that their construction setup
providesforaProjectManagertowhomthePouringRequestisfirstsubmittedandwhosejobistocleartowhoever
parties are involved (this could still be worked out with the Building Inspector). Regarding the safety devices for
workers,Gaiteaverredthathehadgivenstrictrulesonthisbutinthecourseofconstructionsomeworkershave
personalpreferences.Ontherefusalofthesecretaryandconstructionforemantoreceivethestoppageorderdated
September 10, 1980, Gaite took responsibility but insisted it was not a violation of the National Building Code.
Likewise,questioningtheauthorityoftheBuildingInspectorisnotaviolationoftheCodealthoughGaitedeniedhe
everdidso.Lastly,ontheconstructionplansusedinthejobsitenotbeinginaccordancewiththeapprovedplan,
GaitesaidhehadsentEngr.CristinoV.LaurelonOctober3,1980toReyesofficeandmakeacopyoftheonly
approvedplanwhichwasinthecareofReyes,butthelatterdidnotgiveittoEngr.Laurel.Gaitethusthoughtthat
Reyeswouldhandlethematterbyhimself.9
On the same day, Gaite notified Reyes that he is suspending all construction works until Reyes and the Project
Managercooperatetoresolvetheissuehehadraisedtoaddresstheproblem.10Thiswasfollowedbyanotherletter
datedNovember18,1980inwhichGaiteexpressedhissentimentsontheirabortedprojectandreiteratedthatthey
can still resolve the matter with cooperation from the side of The Plaza.11 In his replyletter dated November 24,
1980,ReyesassertedthatThePlazaisnottheonetoinitiateasolutiontothesituation,especiallyafterThePlaza
alreadypaidtheagreeddownpaymentofP1,155,000.00,whichcompensationsofarexceedstheworkcompleted
byRhogenbeforethemunicipalauthoritiesstoppedtheconstructionforseveralviolations.Reyesmadeitclearthey
have no obligation to help Rhogen get out of the situation arising from nonperformance of its own contractual
undertakings,andthatThePlazahasitsrightsandremediestoprotectitsinterest.12
Subsequently,thecorrespondencebetweenGaiteandReyesinvolvedthecustodyofremainingbagsofcementin
the jobsite, in the course of which Gaite was charged with estafa for ordering the removal of said items. Gaite
complainedthatReyescontinuedtobeuncooperativeinrefusingtomeetwithhimtoresolvethedelay.Gaitefurther
answered the estafa charge by saying that he only acted to protect the interest of the owner (prevent
spoilage/hardeningofcement)andthatReyesdidnotreplytohisrequestforexchange.13
OnJanuary9,1981,GaiteinformedThePlazathatheisterminatingtheircontractbasedontheContractorsRight
toStopWorkorTerminateContractsasprovidedforintheGeneralConditionsoftheContract.Inhisletter,Gaite
accused Reyes of not cooperating with Rhogen in solving the problem concerning the revocation of the building
permits,whichhedescribedasa"minorproblem."Additionally,GaitedemandedthepaymentofP63,058.50from
ThePlazarepresentingtheworkthathasalreadybeencompletedbyRhogen.14
OnJanuary13,1981,ThePlaza,throughReyes,counteredthatitwillholdGaiteandRhogenfullyresponsiblefor
failure to comply with the terms of the contract and to deliver the finished structure on the stipulated date. Reyes
arguedthatthedownpaymentmadebyThePlazawasmorethanenoughtocoverRhogensexpenses.15
In a subsequent letter dated January 20, 1981, Reyes adverted to Rhogens undertaking to complete the
constructionwithin180calendardaysfromJuly16,1980oruptoJanuary12,1981,andtopaytheagreedpayment
ofliquidateddamagesforeverymonthofdelay,chargeableagainsttheperformancebondpostedbyFGU.Reyes
invokedSection121oftheArticlesofGeneralConditionsgrantingtheownertherighttoterminatethecontractifthe
contractorfailstoexecutetheworkproperlyandtomakegoodsuchdeficienciesanddeductingthecostfromthe
payment due to the contractor. Reyes also informed Gaite that The Plaza will continue the completion of the
structure utilizing the services of a competent contractor but will charge Rhogen for liquidated damages as
stipulatedinArticleVIIIoftheContract.AfterproperevaluationoftheworkscompletedbyRhogen,ThePlazashall
thenresumetheconstructionandchargeRhogenforallthecostsandexpensesincurredinexcessofthecontract
price.InthemeantimethatThePlazaisstillevaluatingtheextentandconditionoftheworksperformedbyRhogen
to determine whether these are done in accordance with the approved plans, Reyes demanded from Gaite the
reimbursement of the balance of their initial payment of P1,155,000.00 from the value of the works correctly
completedbyRhogen,orifnone,toreimbursetheentiredownpaymentplusexpensesofremovalandreplacement.
Rhogenwasalsoaskedtoturnoverthejobsitepremisesassoonaspossible.16ThePlazasentcopyofsaidletter
toFGUbutthelatterrepliedthatithasnoliabilityunderthecircumstancesandhenceitcouldnotactfavorablyon
itsclaimagainstthebond.17
OnMarch3,1981,ThePlazanotifiedGaitethatitcouldnolongercreditanypaymenttoRhogenfortheworkithad

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completed because the evaluation of the extent, condition, and cost of work done revealed that in addition to the
violations committed during the construction of the building, the structure was not in accordance with plans
approvedbythegovernmentandacceptedbyAyala.Hence,ThePlazademandedthereimbursementofthedown
payment,thecostofuprootingorremovalofthedefectivestructures,thevalueofownerfurnishedmaterials,and
paymentofliquidateddamages.18
On March 26, 1981, The Plaza filed Civil Case No. 40755 for breach of contract, sum of money and damages
against Gaite and FGU in the Court of First Instance (CFI) of Rizal.19 The Plaza later amended its complaint to
includeCynthiaG.GaiteandRhogen.20ThePlazalikewisefiledCivil Case No. 1328 (43083) against Ramon C.
Gaite,CynthiaG.Gaiteand/orRhogenBuildersalsointheCFIofRizalfornullificationoftheprojectdevelopment
contractexecutedpriortotheGeneralConstructionContractsubjectofCivilCaseNo.40755,whichwasallegedlyin
violation of the provisions of R.A. No. 545 (Architectural Law of the Philippines).21 After the reorganization of the
Judiciaryin1983,thecasesweretransferredtotheRTCofMakatiandeventuallyconsolidated.
On July 3, 1997, Branch 63 of the RTC Makati rendered its decision granting the claims of The Plaza against
Rhogen,theGaitesandFGU,andthecrossclaimofFGUagainstRhogenandtheGaites.Thetrialcourtruledthat
the Project Manager was justified in recommending that The Plaza withhold payment on the progress billings
submittedbyRhogenbasedonhisevaluationthatThePlazaisliabletopayonlyP32,684.16andnotP260,649.91.
TheothervalidgroundsforthewithholdingofpaymentwerethependingestafacaseagainstGaite,noncompliance
byRhogenwithConstructionMemorandumNo.18andthenonliftingofthestoppageorder.22
Regardingthenonliftingofthestoppageorder,whichthetrialcourtsaidwasbasedonsimpleinfractions,thesame
was held to be solely attributable to Rhogens willful inaction. Instead of readily rectifying the violations, Rhogen
continuedwiththeconstructionworkstherebycausingmoredamage.ThetrialcourtpointedoutthatRhogenisnot
only expected to be aware of standard requirements and pertinent regulations on construction work, but also
expressly bound itself under the General Construction Contract to comply with all the laws, city and municipal
ordinances and all government regulations. Having failed to complete the project within the stipulated period and
complywithitsobligations,RhogenwasthusdeclaredguiltyofbreachingtheConstructionContractandisliablefor
damagesunderArticles1170and1167oftheCivilCode.23
Thedispositiveportionofthetrialcourtsdecisionreads:
WHEREFORE,inCivilCaseNo.40755,defendantsRamonGaite,CynthiaGaiteandRhogenBuildersarejointly
andseverallyorderedtopayplaintiff:
1.theamountofP525,422.73asactualdamagesrepresentingownerfurnishedmaterialswithlegalinterest
fromthetimeoffilingofthecomplaintuntilfullpayment
2.theamountofP14,504.66asactualdamagesrepresentingexpensesforuprootingwithinterestfromthe
timeoffilingthecomplaintuntilfullpayment
3. the amount of P1,155,000.00 as actual damages representing the downpayment with legal interest from
thetimeoffilingthecomplaintuntilfullpayment
4.theamountofP150,000.00formoraldamages
5.theamountofP100,000.00forexemplarydamages
6.theamountofP500,000.00asliquidateddamages
7.theamountofP100,000.00asreasonableattorneysfeesand,
8.thecostofsuit.
Underthesuretybond,defendantsRhogenandFGUarejointlyandseverallyorderedtopayplaintifftheamountof
P1,155,000.00withlegalinterestfromthetimeoffilingthecomplaintuntilfullpayment.Intheevent[that]FGUpays
the said amount, thirdparty defendants are jointly and severally ordered to pay the same amount to FGU plus
P50,000.00asreasonableattorneysfees,thelatterhavingbeenforcedtolitigate,andthecostofsuit.
CivilCaseNo.1328isherebyordereddismissedwithnopronouncementastocost.
SOORDERED.24
Dissatisfied,RamonandCynthiaGaite,RhogenandFGUappealedtotheCA.25InviewofthedeathofRamonC.

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GaiteonApril21,1999,theCAissuedaResolutiondatedJuly12,2000grantingthesubstitutionoftheformerby
hisheirsCynthiaG.Gaite,RhoelSantiagoG.Gaite,GenevieveG.GaiteandRomanJuanG.Gaite.26
Intheirappeal,theheirsofRamonC.Gaite,CynthiaG.GaiteandRhogenassignedthefollowingerrors,towit:
I. THE TRIAL COURT ERRED IN DECLARING THAT THE GROUNDS RELIED UPON BY DEFENDANT
APPELLANTRHOGENBUILDERSINTERMINATINGTHECONTRACTAREUNTENABLE
II.THETRIALCOURTERREDINDECLARINGTHATTHENONLIFTINGOFTHESTOPPAGEORDEROF
THE THEN MUNICIPAL GOVERNMENT OF MAKATI WAS SOLELY ATTRIBUTABLE TO DEFENDANT
APPELLANTRHOGENSWILLFULINACTION
III. THE TRIAL COURT ERRED IN FAILING TO CONSIDER THAT IT WAS THE WILLFUL INACTION OF
PLAINTIFFAPPELLEE WHICH MADE IT IMPOSSIBLE FOR DEFENDANTAPPELLANT RHOGEN TO
PERFORMITSOBLIGATIONSUNDERTHECONTRACT
IV.THETRIALCOURTERREDINAWARDINGACTUALDAMAGESASWELLASMORAL,EXEMPLARY,
ANDLIQUIDATEDDAMAGESANDATTORNEYSFEESSINCETHEREWERENOFACTUALANDLEGAL
BASESTHEREFORAND
V.THETRIALCOURTERREDINFAILINGTOAWARDACTUAL,MORALANDEXEMPLARYDAMAGES
ANDATTORNEYSFEESINFAVOROFDEFENDANTSAPPELLANTS.27
Foritspart,FGUinterposedthefollowingassignmentoferrors:
I. THE REGIONAL TRIAL COURT ERRED IN NOT RULING THAT DEFENDANTAPPELLANT RAMON
GAITEVALIDLYTERMINATEDTHECONTRACTBETWEENHIMANDPLAINTIFFAPPELLEE.
II. THE REGIONAL TRIAL COURT ERRED IN HOLDING DEFENDANTAPPELLANT RAMON GAITE
RESPONSIBLEFORTHESTOPPAGEOFTHECONSTRUCTION.
III.THEREGIONALTRIALCOURTERREDINORDERINGDEFENDANTAPPELLANTRAMONGAITETO
PAYTHEAMOUNTOFP525,422.73FORTHEOWNERFURNISHEDMATERIALS.
IV.THEREGIONALTRIALCOURTERREDINORDERINGDEFENDANTAPPELLANTRAMONGAITETO
PAYPLAINTIFFAPPELLEETHEAMOUNTOFP14,504.66ASALLEGEDEXPENSESFORUPROOTING
THEWORKHEPERFORMED.
V.THEREGIONALTRIALCOURTERREDINORDERINGDEFENDANTAPPELLANTRAMONGAITETO
REFUNDTHEDOWNPAYMENTOFP1,155,000.00PLAINTIFFAPPELLEEPAIDHIM.
VI.THEREGIONALTRIALCOURTERREDINAWARDINGMORALDAMAGESTOPLAINTIFFAPPELLEE.
VII. THE REGIONAL TRIAL COURT ERRED IN AWARDING EXEMPLARY DAMAGES TO PLAINTIFF
APPELLEE.
VIII. THE REGIONAL TRIAL [COURT] ERRED IN AWARDING LIQUIDATED DAMAGES TO PLAINTIFF
APPELLEE.
IX. THE REGIONAL TRIAL COURT ERRED IN AWARDING ATTORNEYS FEES TO PLAINTIFF
APPELLEE.
X. THE REGIONAL TRIAL COURT ERRED IN HOLDING DEFENDANTAPPELLANT FGU INSURANCE
CORPORATIONLIABLETOPLAINTIFFAPPELLEE.28
OnJune27,2006,theCAaffirmedtheDecisionofthetrialcourtbutmodifiedtheawardofdamagesasfollows:
WHEREFORE,theDecisiondatedJuly3,1997renderedbytheRegionalTrialCourtofMakatiCity,Branch63in
Civil Case Nos. 40755 and 1328 is AFFIRMED with the modification that: (a) the award for actual damages
representing the ownerfurnished materials and the expenses for uprooting are deleted, and in lieu thereof, the
amountofP300,000.00astemperatedamagesisawardedand(b)theawardsformoral,exemplary,liquidatedand
attorneysfeesarelikewisedeleted.
SOORDERED.29

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According to the CA, The Plaza cannot now be demanded to comply with its obligation under the contract since
Rhogenhasalreadyfailedtocomplywithitsowncontractualobligation.Thus,ThePlazahadeveryreasonnotto
paytheprogressbillingasaresultofRhogensinabilitytoperformitsobligationsunderthecontract.Further,the
stoppageandrevocationorderswereissuedonaccountofRhogensownviolationsinvolvingtheconstructionas
found by the local building official. Clearly, Rhogen cannot blame The Plaza for its own failure to comply with its
contractualobligations.TheCAstressedthatRhogenobligeditselftocomplywith"allthelaws,cityandmunicipal
ordinancesandallgovernmentregulationsinsofarastheyarebindinguponoraffecttheparties[tothecontract],
the work or those engaged thereon."30 As such, it was responsible for the lifting of the stoppage and revocation
orders. As to Rhogens act of challenging the validity of the stoppage and revocation orders, the CA held that it
cannot be done in the present case because under Section 307 of the National Building Code, appeal to the
SecretaryoftheDepartmentofPublicWorksandHighways(DPWH)whosedecisionissubjecttoreviewbythe
OfficeofthePresidentisavailableasremedyforRhogen.31
However, the CA modified the award of damages holding that the claim for actual damages of P525,422.73
representingthedamagedownerfurnishedmaterialswasnotsupportedbyanyevidence.Instead,theCAgranted
temperatedamagesintheamountofP300,000.00.Astomoraldamages,nospecificfindingforthefactualbasisof
saidawardwasmadebythetrialcourt,andhenceitshouldbedeleted.Likewise,liquidateddamagesisnotproper
consideringthatthisisnotacaseofdelaybutnoncompletionoftheproject.ThePlazasimilarlyfailedtoestablish
that Rhogen and Gaite acted with malice or bad faith consequently, the award of exemplary damages must be
deleted. Finally, there being no bad faith on the part of the defendants, the award of attorneys fees cannot be
sustained.32
ThemotionforreconsiderationoftheaforesaidDecisionwasdeniedintheResolutiondatedApril20,2007forlack
ofmerit.Hence,thisappeal.
Beforeus,petitionerssubmitthefollowingissues:
I.
Whether or not the Court of Appeals acted without or in excess of jurisdiction, or with grave abuse of
discretionamountingtolackoforexcessofjurisdiction,whenitfoundthatPetitionerRhogenhadnofactual
orlegalbasistoterminatetheGeneralConstructionContract.
II.
Whether or not the Court of Appeals acted without or in excess of jurisdiction, or with grave abuse of
discretionamountingtolackoforexcessofjurisdiction,when,asaconsequenceofitsfindingthatPetitioners
did not have valid grounds to terminate the Construction Contract, it directed Petitioners to return the
downpaymentpaidbyThePlaza,withlegalinterest.
III.
Whether or not the Court of Appeals acted without or in excess of jurisdiction, or with grave abuse of
discretion amounting to lack of or excess of jurisdiction, when, in addition thereto, it awarded temperate
damagestoThePlaza.
IV.
Whether or not the Court of Appeals acted without or in excess of jurisdiction, or with grave abuse of
discretion amounting to lack of or excess of jurisdiction, when it failed to award damages in favor of
Petitioners.33
PetitionerscontendthattheCAgravelyerredinnotholdingthattherewerevalidandlegalgroundsforRhogento
terminatethecontractpursuanttoArticle1191oftheCivil Code and Article 123 of the General Conditions of the
Construction Contract. Petitioners claim that Rhogen sent Progress Billing No. 1 dated September 10, 1980 and
demandedpaymentfromThePlazainthenetamountofP473,554.06fortheworkithadaccomplishedfromJuly
28, 1980 until September 7, 1980. The Plaza, however, failed to pay the said amount. According to petitioners,
Article123oftheGeneralConditionsoftheConstructionContractgivesThePlazasevendaysfromnoticewithin
which to pay the Progress Billing otherwise, Rhogen may terminate the contract. Petitioners also invoke Article
1191oftheCivilCode,whichstatesthatthepowertorescindobligationsisimpliedinreciprocalones,incaseone
oftheobligorsshouldnotcomplywithwhatisincumbentuponhim.
Wedenythepetition.
Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a

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creditoroftheother,suchthattheobligationofoneisdependentupontheobligationoftheother.Theyaretobe
performedsimultaneouslysuchthattheperformanceofoneisconditioneduponthesimultaneousfulfillmentofthe
other. Respondent The Plaza predicated its action on Article 119134 of the Civil Code, which provides for the
remedyof"rescission"ormoreproperlyresolution,aprincipalactionbasedonbreachoffaithbytheotherpartywho
violates the reciprocity between them. The breach contemplated in the provision is the obligors failure to comply
withanexistingobligation.Thus,thepowertorescindisgivenonlytotheinjuredparty.Theinjuredpartyistheparty
whohasfaithfullyfulfilledhisobligationorisreadyandwillingtoperformhisobligation.35
The construction contract between Rhogen and The Plaza provides for reciprocal obligations whereby the latters
obligationtopaythecontractpriceorprogressbillingisconditionedontheformersperformanceofitsundertaking
tocompletetheworkswithinthestipulatedperiodandinaccordancewithapprovedplansandotherspecifications
by the owner. Pursuant to its contractual obligation, The Plaza furnished materials and paid the agreed down
payment. It also exercised the option of furnishing and delivering construction materials at the jobsite pursuant to
ArticleIIIoftheConstructionContract.However,justtwomonthsaftercommencementoftheproject,construction
workswereorderedstoppedbythelocalbuildingofficialandthebuildingpermitsubsequentlyrevokedonaccount
ofseveralviolationsoftheNationalBuildingCodeandotherregulationsofthemunicipalauthorities.
Petitionersreiteratetheirpositionthatthestoppageorderwasunlawful,citingthefactthatwhenthenewcontractor
(ACK Construction, Inc.) took over the project, the local government of Makati allowed the construction of the
building using the old building permit moreover, the basement depth of only two meters was retained, with no
furtherexcavationmade.TheycitethetestimonyofthelateRamonGaitebeforethetrialcourtthatatthetime,he
hadincurredtheireofthenMayorofMakatibecausehis(Gaite)brotherwastheMayorspoliticalopponenthence,
theysoughttofilewhateverchargetheycouldagainsthiminordertocalltheattentionofhisbrother.This"political
harassment"defensewasraisedbypetitionersintheirAmendedAnswer.Gaitestestimonywasintendedtoexplain
thecircumstancesleadingtohisdecisiontoterminatetheconstructioncontractandnottoquestiontherevocationof
the building permit. As the available remedy was already foreclosed, it was thus error for the CA to suggest that
Rhogen should have appealed the stoppage and revocations orders issued by the municipal authorities to the
DPWHandthentotheOP.36
Article123oftheArticlesofGeneralConditionsstatesthegroundsfortheterminationoftheworkorcontractbythe
Contractor:
123.CONTRACTORSRIGHTTOSTOPWORKORTERMINATE
CONTRACT
Ifworkshouldbestoppedunderorderofanycourt,orotherpublicauthority,forperiodofthree(3)monthsthrough
noactorfaultofContractororofanyoneemployedbyhim,orifOwnersRepresentativeshouldfailtoissueany
certificate of payment within seven (7) days after its maturity and presentation of any sum certified by Owners
Representative or awarded arbitrator, then contractor, may, stop work or terminate Contract, recover from Owner
paymentforworkexecuted,losssustaineduponanyplantormaterials,reasonableprofit,damages.37(Emphasis
supplied.)
PetitionersmaynotjustifyRhogensterminationofthecontractupongroundsofnonpaymentofprogressbillingand
uncooperativeattitudeofrespondentThePlazaanditsemployeesinrectifyingtheviolationswhichwerethebasis
for issuance of the stoppage order. Having breached the contractual obligation it had expressly assumed, i.e., to
comply with all laws, rules and regulations of the local authorities, Rhogen was already at fault. Respondent The
Plaza,ontheotherhand,wasjustifiedinwithholdingpaymentonRhogensfirstprogressbilling,onaccountofthe
stoppageorderandadditionallyduetodisappearanceofownerfurnishedmaterialsatthejobsite.Infailingtohave
thestoppageandrevocationordersliftedorrecalled,Rhogenshouldtakefullresponsibilityinaccordancewithits
contractualundertaking,thus:
Intheperformanceoftheworks,services,andobligationssubjectofthisContract,theCONTRACTORbindsitselfto
observeallpertinentandapplicablelaws,rulesandregulationspromulgatedbydulyconstitutedauthoritiesandto
bepersonally,fullyandsolelyliableforanyandallviolationsofthesame.38(Emphasissupplied.)
Significantly,RhogendidnotmentioninitscommunicationstoReyesthatGaitewasmerelyavictimofabusebya
local official and this was the primary reason for the problems besetting the project. On the contrary, the site
appraisal inspection conducted on February 12 and 13, 1981 in the presence of representatives from The Plaza,
Rhogen, FGU and Municipal Engineer Victor Gregory, disclosed that in addition to the violations committed by
Rhogen which resulted in the issuance of the stoppage order, Rhogen built the structure not in accordance with
government approved plans and/or without securing the approval of the Municipal Engineer before making the
changesthereon.39

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Suchnonobservanceoflawsandregulationsofthelocalauthoritiesaffectingtheconstructionprojectconstitutesa
substantialviolationoftheConstructionContractwhichentitlesThePlazatoterminatethesame,withoutobligation
to make further payment to Rhogen until the work is finished or subject to refund of payment exceeding the
expensesofcompletingtheworks.ThisisevidentfromareadingofArticle122whichstates:
122.OWNERSRIGHTTOTERMINATECONTRACT
A. If Contractor should be adjudged bankrupt, or if he should make general assignment for benefit of his
creditors, or if receiver should be appointed on account of his insolvency, or if he should persistently or
repeatedly refuse or should fail, except in cases for which extension of time is provided, to supply enough
properlyskilledworkmenorpropermaterials,orifheshouldfailtomakepromptpaymenttoSubContractors
orformaterialsoflabor,orpersistentlydisregardlaws,ordinances,orinstructionsofOwnersRepresentative
orotherwisebeguiltyofsubstantialviolationofanyprovisionof[the]Contract,thenOwner,uponcertification
by Owners Representative that sufficient cause exists to justify such action, may, without prejudice to any
right or remedy, after giving Contractor seven days written notice, terminate contract with Contractor, take
possessionofpremises,materials,tools,appliances,thereon,finishworkbywhatevermethodhemaydeem
expedient.Insuchcases,Contractorshallnotbeentitledtoreceiveanyfurtherpaymentuntilworkisfinished.
B. If unpaid balance of Contract sum shall exceed expense of finishing work including compensation for
additionalmanagerialandadministrativeservices,suchexcess,paidtoContractor.Refundthedifferenceto
Ownerifsuchexpenseshallexceedunpaidbalance.40(Emphasissupplied.)
Uponthefactsdulyestablished,theCAthereforedidnoterrinholdingthatRhogencommittedaseriousbreachof
its contract with The Plaza, which justified the latter in terminating the contract. Petitioners are thus liable for
damagesforhavingbreachedtheircontractwithrespondentThePlaza.Article1170oftheCivilCodeprovidesthat
those who in the performance of their obligations are guilty of fraud, negligence or delay and those who in any
mannercontravenethetenorthereofareliablefordamages.
Petitionersassailtheorderforthereturnofdownpayment,assertingthattheprincipleofquantummeruitdemands
thatRhogenascontractorbepaidfortheworkalreadyaccomplished.
Wedisagree.
Under the principle of quantum meruit, a contractor is allowed to recover the reasonable value of the thing or
servicesrendereddespitethelackofawrittencontract,inordertoavoidunjustenrichment.Quantummeruitmeans
thatinanactionforworkandlabor,paymentshallbemadeinsuchamountastheplaintiffreasonablydeserves.To
deny payment for a building almost completed and already occupied would be to permit unjust enrichment at the
expenseofthecontractor.41
Rhogen failed to finish even a substantial portion of the works due to the stoppage order issued just two months
fromthestartofconstruction.DespitethedownpaymentreceivedfromThePlaza,Rhogen,uponevaluationofthe
Project Manager, was able to complete a meager percentage much lower than that claimed by it under the first
progressbillingbetweenJulyandSeptember1980.Moreover,afteritrelinquishedtheprojectinJanuary1981,the
site inspection appraisal jointly conducted by the Project Manager, Building Inspector Engr. Gregory and
representativesfromFGUandRhogen,Rhogenwasfoundtohaveexecutedtheworksnotinaccordancewiththe
approvedplansorfailedtoseekpriorapprovaloftheMunicipalEngineer.Article1167oftheCivilCodeisexpliciton
thispointthatifapersonobligedtodosomethingfailstodoit,thesameshallbeexecutedathiscost.
Art.1167.Ifapersonobligedtodosomethingfailstodoit,thesameshallbeexecutedathiscost.
Thissameruleshallbeobservedifhedoesitincontraventionofthetenoroftheobligation.Furthermore,itmaybe
decreedthatwhathasbeenpoorlydonebeundone.
In addition, Article 122 of the Articles of General Conditions provides that the contractor shall not be entitled to
receivefurtherpayment"untiltheworkisfinished."AstheworkscompletedbyRhogenwerenotinaccordancewith
approvedplans,itshouldhavebeenexecutedatitscosthaditnotrelinquishedtheprojectinJanuary1981.TheCA
thusdidnoterrinsustainingthetrialcourtsorderforthereturnofthedownpaymentgivenbyThePlazatoRhogen.
Astotemperatedamages,Article2224oftheCivilCodeprovidesthattemperateormoderatedamages,whichare
more than nominal but less than compensatory damages, may be recovered when the court finds that some
pecuniarylosshasbeensufferedbutitsamountcannot,fromthenatureofthecase,beprovedwithcertainty.The
rationalebehindtemperatedamagesispreciselythatfromthenatureofthecase,definiteproofofpecuniaryloss
cannotbeoffered.Whenthecourtisconvincedthattherehasbeensuchloss,thejudgeisempoweredtocalculate
moderate damages, rather than let the complainant suffer without redress from the defendants wrongful act.42
PetitionerscontentionthatsuchawardisimproperbecauseThePlazacouldhavepresentedreceiptstosupportthe

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claim for actual damages, must fail considering that Rhogen never denied the delivery of the ownerfurnished
materialswhichwereunderitscustodyatthejobsiteduringtheworkstoppageandbeforeitterminatedthecontract.
SinceRhogenfailedtoaccounteitherforthoseitemswhichithadcausedtobewithdrawnfromthepremises,or
those considered damaged or lost due spoilage, or disappeared for whatever reason there was no way of
determining the exact quantity and cost of those materials. Hence, The Plaza was correctly allowed to recover
temperatedamages.
1wphi1

Upontheforegoing,wefindpetitionersclaimforactual,moralandexemplarydamagesandattorneysfeeslacking
inlegalbasisandundeservingoffurtherdiscussion.
WHEREFORE,thepetitionisDENIED.TheDecisiondatedJune27,2006andtheResolutiondatedApril20,2007
oftheCourtofAppealsinCAG.R.CVNo.58790areAFFIRMED.
Withcostsagainstpetitioners.
SOORDERED.
MARTINS.VILLARAMA,JR.
AssociateJustice
WECONCUR:
CONCHITACARPIOMORALES
AssociateJustice
Chairperson
ANTONIOEDUARDOB.NACHURA*
AssociateJustice

ARTUROD.BRION
AssociateJustice

MARIALOURDESP.A.SERENO
AssociateJustice
ATTESTATION
IattestthattheconclusionsintheaboveDecisionhadbeenreachedinconsultationbeforethecasewasassigned
tothewriteroftheopinionoftheCourtsDivision.
CONCHITACARPIOMORALES
AssociateJustice
Chairperson,ThirdDivision
CERTIFICATION
PursuanttoSection13,ArticleVIIIofthe1987ConstitutionandtheDivisionChairpersonsAttestation,Icertifythat
theconclusionsintheaboveDecisionhadbeenreachedinconsultationbeforethecasewasassignedtothewriter
oftheopinionoftheCourtsDivision.
RENATOC.CORONA
ChiefJustice

Footnotes
*DesignatedadditionalmemberperSpecialOrderNo.937datedJanuary24,2011.
1Rollo,pp.88102.PennedbyAssociateJusticeAuroraSantiagoLagman,withAssociateJusticesJosefina

GuevaraSalongaandNormandieB.Pizarro,concurring.
2Id.at8586.
3Id.at440444.PennedbyJudgeSalvadorS.AbadSantos.
4Records,pp.202210.

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5Rollo,p.139.
6Id.at140.
7Id.at141.
8Records,Exhibits"DD"to"HH".
9Rollo,pp.368370.
10Id.at388.
11Id.at389390.
12Id.at391392.
13Id.at393396.
14Id.at146147.
15Id.at149150.
16Id.at151154.
17Id.at156158,161162.
18Id.at159160.
19Id.at103120.
20Id.at299319.
21Id.at276282.
22Id.at442.
23Id.at442443.
24Id.at444.
25DocketedasCAG.R.CVNo.58790.
26CArollo,p.84.
27Rollo,pp.450451.
28Id.at544545.
29Id.at101102.
30Art.II,paragraph(4),GeneralConstructionContract,records,pp.733734.
31Rollo,pp.9698.
32Id.at98101.
33Id.at44.
34 ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors

shouldnotcomplywithwhatisincumbentuponhim.
The injured party may choose between the fulfillment and the rescission of the obligation, with the

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paymentofdamagesineithercase.Hemayalsoseekrescission,evenafterhehaschosenfulfillment,
ifthelattershouldbecomeimpossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
period.
Thisisunderstoodtobewithoutprejudicetotherightsofthirdpersonswhohaveacquiredthething,in
accordancewithArticles1385and1388andtheMortgageLaw.
35HeirsofAntonioF.Bernabev.CourtofAppeals,G.R.No.154402,July21,2008,559SCRA53,66,citing

Ong v. Court of Appeals, 369 Phil. 243, 252 (1999), Sps. Velarde v. Court of Appeals, 413 Phil. 360, 373
(2001)andAlmirav.CourtofAppeals,447Phil.467,482(2003).
36Rollo,pp.5558.
37Records,Exhibit"AAA".
38Art.IX,paragraph(2),GeneralConstructionContract,records,p.737.
39Records,Exhibits"T,""RR"and"SS".
40Id.,Exhibit"AAA".
41H.L.CarlosConstruction,Inc.v.MarinaPropertiesCorporation,G.R.No.147614,January29,2004,421

SCRA428,439,citingMelchorv.CommissiononAudit,G.R.No.95398,August16,1991,200SCRA704,
713Republicv.CourtofAppeals,359Phil.530,640(1998)andEslaov.CommissiononAudit,G.R.No.
89745,April8,1991,195SCRA730,738739.
42 Government Service Insurance System v. LabungDeang, G.R. No. 135644, September 17, 2001, 365

SCRA341,350.
TheLawphilProjectArellanoLawFoundation

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