016 Tan v GVT Engineering Services

016 Tan v GVT Engineering Services G.R. No. 153057 August 7, 2006 TOPIC: Essential Characteristics of Agency PONENTE: Austria-Martinez, J.

AUTHOR : Jade  NOTES: Please see Case Law/Doctrine portion for other issues not related to Agency

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18 October 1989  –   spouses George and Susan Tan entered into a contract with GVT Engineering Services , through its manager/owner Gerino Tactaquin for the construction of their residential house at Ifugao St., La Vista, Quezon City. The contract price was P1.7M. Tan have no knowledge about building construction so they hired Engr. Rudy Cadag to supervise the said construction. In the course of the construction, Tan caused several changes in the plans and specifications and ordered the deletion of some items in GVT’s scope of work. These changes brought about differences between Tan and Cadag and Tactaquin. Subsequently, Tactaquin stopped the construction of the subject house. 4 December 1990 –  1990 –  GVT,   GVT, through Tactaquin, filed a complaint for specific performance and damages against Tan and Cadag with the QC RTC contending that due to the changes in the plans and specifications of the construction  project, GVT was forced to borrow money from 3rd persons at exorbitant interest; that several portions of their contract were deleted only to be awarded later to other contractors; and that due to Tan’s delay in the delivery of construction materials materials on the jobsite, GVT suffered tremendous tremendous delay in the completion completion of the project  these acts caused undue damage and prejudice to GVT Tan and Cadag filed their Answer with Counterclaims alleging that GVT performed several defective works and to avert further losses, Tan deleted some portions of the project covered by GVT’s contract and awarded other  portions to another contractor and that the changes were agreed upon by the parties; It was also alleged that GVT is a single proprietorship and cannot be a party in a civil action. The trial court ruled that Tan’s Tan ’s and Cadag’s conclusions as to the workmanship and competence of GVT are unsupported and without basis and that their act of deleting several major items from GVT’s scope of work is uncalled for, if not done in bad faith and these acts forced GVT to withdraw f rom the project. Tan and Cadag were ordered to pay GVT jointly and severally and their counterclaims were dismissed: a. the sum of P366,340.00 representing the balance of the contract price;  b. the amount of P49,578.56 representing the 5% retention fee; c. the amount of P45,000.00 as moral damages; d. the amount of P100,000.00 P100,000.00 for and as attorney’s fees; and e. the amount of P17,000.00 as litigation expenses . Tan appealed with the CA contending that the trial court erred in its decision. The CA affirmed the judgment of the trial court with modification   the case against Cadag was dismissed and the awards for moral damages, attorney’s fees and litigation expenses were deleted. Both parties moved for partial reconsideration but these were denied by the CA. Tan filed a petition for review on certiorari to the Supreme Court.

ISSUE(S): Whether or not Cadag is liable to GVT HELD: There was no allegation that Cadag exceeded his authority as agent of Tan. As agent, all his acts are considered as those of his principal, the spouses Tan, who are, therefore, the ones answerable for such acts. RATIO:

Petitioner’s arguments: Tactaquin consented and acquiesced to the changes and alterations made in the plan of the subject house, he cannot complain and discontinue the construction of the said house. Tan asserted that it would be unfair and unjust for them to be required to pay the amount of the cost of the remaining unfinished portion of the house after it was abandoned by Tactaquin  unjust enrichment at their expense. Retention fee is payable only after the house is completed and turned over to them. GVT never completed the house and therefore, not entitled to the retention fee. 

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GVT failed to prove that it is entitled to actual damages. Tan only relied upon and followed the advice and instructions of Cadag whom they hired to supervise the construction of their house. GVT is a sole proprietorship and has no legal personality to institute the complaint with the trial court. Under their contract, GVT agreed that they can employ only labor in the construction of the subject house and that Tan shall supply the materials. It was an error on the part of the CA and the trial court to award the remaining  balance of the contract price to GVT despite the fact the some items from the GVT’s scope of work were deleted with its consent and due to deletion, GVT should not be compensated for the work it has not accomplished. The value of the deleted items should be deducted from the original contract price. The delay in the construction is due to GVT’s failure to pay wages of its workers who in turn, refused to work; Tan were forced to pay the workers’ wages.

Respondent’s arguments: The CA and the trial court both found that the petitioners are the ones responsible for breach of contract, for unjustified deletion of items agreed upon and delay in delivery of construction materials   never rebutted by contrary evidence. The dismissal of the case against Cadag is based on the fact that there is no privity of contract between him and respondent. 

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Liability of Cadag  –  (related to ATP) Tan could not argue that since Cadag was absolved by the court from liability, Tan should not also be held liable.

The Court finds no error on the part of the CA in ruling that it is a basic principle in civil law that contracts can only bind the parties who had entered into it and it cannot favor or prejudice 3 rd  persons. Contracts take effect only between the  parties, their successors in interest, heirs and assigns. Every cause of action ex contractu must be founded upon a contract, oral or written, either express or implied. In this case, GVT’s complaint was based on Tan’s failure to faithfully comply with  the provisions of their contract. Cadag is not a party to this contract. He did not enter into any contract with GVT regarding the construction of the said house. Considering that GVT’s cause of action was breach of contract and since there is no privity of contract between GVT and Cadag, Cadag should not be made to answer for Tan’s default. Cadag was employed by the spouses to supervise the construction of their house. His role is merely that of an agent. The essence of agency being the representation of another, it is evident that the obligations contracted are for and on behalf of the principal. A consequence of this representation is the liability of the principal for the acts of his agent performed within the limits of his authority that is equivalent to the performance by the principal himself who should answer therefor. In the  present case, since there is neither allegation nor evidence that Cadag exceeded his authority, all his acts are considered as those of his principal, the spouses Tan, who are, therefore, the ones answerable for such acts.

CASE LAW/ DOCTRINE:

Lack of legal personality to sue It is true that GVT is not vested with a legal personality to bring suit or defend an action in court. Records show that the case was captioned as GVT acting through its owner/manager Gerino V. Tactaquin. However, several allegations in the complaint show that the suit is actually brought by Tactaquin. Averments therein refere to the plaintiff as a natural person. In fact, one of the prayers in the complaint is for the recovery of moral damages. It is a settled rule that juridical persons are not entitled to moral damages because it cannot experience physical suffering or sentiments. From such prayer, it can  be inferred that it was actually Tactaquin who is the complainant and the proper caption should be “Gerino Tactaquin doing business under the name and style of GVT….” However, there are matters of form and this defect is found to me technical only which does not affect jurisdiction. Breach of Contract GVT did not refute Tan’s contention that he consented and acquiesced to Tan’s decision to change or alter the construction  plan of the subject house but respondent contended that he did not agree to the deletion of some of the items of work covered by their contract. The Court upheld the factual findings of the trial court and CA with respect to Tan’s liability for

 breach of contract  factual findings of the trial court, when affirmed by the CA are generally binding on SC. There is no question that petitioners are liable for damages for breach of contract (Art. 1170 of the Civil Code). Moreover, the Court agreed with the trial court that GVT performed its obligations in good faith and entitled to recover as though there had been strict and fulfillment less damages suffered by the obligee (Art. 1234 of the Civil Code). It is not disputed nd that GVT withdrew from the project on 23 November 1990. It gave Tan its 22   billing on 29 October 1990 where the approximated percentage of work completed as 74% and the portion of the contract paid by Tan so far was P1,265,660.60. This was not disputed by Tan. Petitioners are also guilty of breach of contract by deleting items from GVT’s scope of work and value of those items should be credited in GVT’s favor. Retention fee GVT was not able to complete the project but this failure was not due to his fault but because he was forced to withdraw therefrom by reason of the breach committed by petitioners. At the time GVT withdrew from the contract, it has already  performed in good faith a substantial portion of his obligation. Considering that he was not at fault, the law provides that he is entitled to recover s though there has been a strict and complete fulfillment of his obligation. Therefore, GVT is entitled to the recovery of 5% retention fee. DISSENTING/CONCURRING OPINION(S):