CASE DIGEST: Heirs of Gaite vs. The Plaza

G.R. No. 177685, January 26, 2011




The Plaza, through its president, Jose C. Reyes, entered into a contract with Rhogen Builders, represented by Ramon C. Gaite, for the construction of a restaurant building in Greenbelt, Makati for the price of PhP7,600,00.00. To secure Rhogen's compliance with its obligation, Gaite and FGU Insurance corporation executed a surety bond in favor of the Plaza.

Subsequently, Gaite was ordered by Engineer Gonzales to stop construction due to violations of the National Building Code. This was referred to the Plaza's Project Manager, Tayzon.

Later, the permit for the construction of the restaurant was revoked for non-compliance with the National Building Code. Gaiterequested that they fix the problem with cooperation from the Plaza but the Reyes, on behalf of the Plaza, said that it was not their responsibility to help Rhogen after its failure to comply with the construction requirements. Because Reyes would neither cooperate with Rhogen to fix the problem nor compensate Rhogen for the percentage of work done, Gaite informed the Plaza that he would be terminating their contract based on the Contractor's Right to Stop Work or Terminate Contracts as provided for in their agreement.

Later, the Plaza filed a case against Gaite and FGU for breach of contract, sum of money and damages and also a separate case for nullification of the project development contract. The RTC ruled in favor of the Plaza saying that instead of rectifying the violations,Rhogen continued with the construction work thereby causing more damage. The trial court pointed out that Rhogen is not 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 comply with its obligations, Rhogen was thus declared guilty of breaching the Construction Contract and is liable for damages under Articles 1170 and 1167 of the Civil Code.

The CA affirmed the RTC decision saying that the Plaza cannot now be demanded to comply with its obligation under the contract since Rhogen has already failed to comply with its own contractual obligation. Thus, The Plaza had every reason not to pay the progress billing as a result of Rhogens inability to perform its obligations under the contract. Further, the stoppage and revocation orders were issued on account of Rhogens own violations involving the construction as found by the local building official. Clearly,Rhogen cannot blame The Plaza for its own failure to comply with its contractual obligations. The CA stressed that Rhogen obliged itself to comply with "all the laws, city and municipal ordinances and all government regulations insofar as they are binding upon or affect the parties to the contract, the work or those engaged thereon.

ISSUE: Whether the CA erred in not holding that there were valid and legal grounds for Rhogen to terminate the contract pursuant to Article 1191 of the Civil Code and its agreement with the Plaza.

HELD: The petition is unmeritorious.

CIVIL LAW - Contracts; reciprocal obligations

Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously such that the performance of one is conditioned upon the simultaneous fulfillment of the other. Respondent The Plaza predicated its action on Article 1191 of the Civil Code, which provides for the remedy of "rescission" or more properly resolution, a principal action based on breach of faith by the other party who violates the reciprocity between them. The breach contemplated in the provision is the obligors failure to comply with an existing obligation. Thus, the power to rescind is given only to the injured party. The injured party is the party who has faithfully fulfilled his obligation or is ready and willing to perform his obligation.

The construction contract between Rhogen and The Plaza provides for reciprocal obligations whereby the latters obligation to pay the contract price or progress billing is conditioned on the formers performance of its undertaking to complete the works within the stipulated period and in accordance with approved plans and other specifications 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 Article III of the Construction Contract. However, just two months after commencement of the project, construction works were ordered stopped by the local building official and the building permit subsequently revoked on account of several violations of the National Building Code and other regulations of the municipal authorities.

Since Rhogen had already breached its contractual obligation by not complying with the National Building Code, it had no right to terminate the contract based on the Plaza's refusal to compensate it for the percentage of work done.

Petition is DENIED.