CAROLINA L. ORDOÑEZ, PLAINTIFF-APPELLANT, VS. JONATHAN U. LIM, DEFENDANT-APPELLEE.

Ordoñez versus Lim

The Case

This is an appeal by Carolina Ordoñez against her first cousin, the contractor and civil engineer Jonathan Lim, arising from the construction of a three-storey warehouse in Dumaguete City. She sued him for breach of contract with damages, complaining that the finished building departed from the approved building plan and the cost estimate. The case matters because the Supreme Court uses it to teach two foundational lessons: how a consensual contract is perfected, and what happens when both parties to a construction contract are in default. It is a compact review of consent, ratification, and the equitable tempering of a first infractor's liability.

Procedural History

The complaint for breach of contract with damages was filed with the Regional Trial Court of Dumaguete City. During pre-trial, the parties agreed to retain a commissioner, Engineer Gregorio Uymatiao, Junior, to inspect the building, and later Engineer Capistrano Ramientos, Junior, to conduct a load test. The trial court conducted an ocular inspection, received the evidence of both sides, and rendered judgment dismissing the complaint, holding that the evidence was in equipoise and that the plaintiff, who bore the burden of proof, failed to establish her case. The trial court nonetheless ordered the plaintiff to pay the balance of 450,000 pesos and ordered the defendant to make certain rectifications. Aggrieved, the plaintiff appealed to the Supreme Court, assigning as errors the trial court's finding of only three defects, its reliance on the commissioners' findings, and its ruling on the balance and on damages.

Facts

Sometime in January 2003, Carolina Ordoñez engaged the services of Jonathan Lim to construct a three-storey warehouse on her lot. The cost was originally set at 10.1 Million Pesos but was reduced to 7.6 Million Pesos after negotiations. No written contract was executed. The parties merely signed a Cost Estimate, coupled with a Building Plan approved by the City Engineer's Office. Construction began in February 2003 after an initial payment of One Million Pesos, and the plaintiff made a series of deposits thereafter.

When the warehouse was almost complete, the defendant turned it over to the plaintiff for inspection. She discovered several defects: thin roofing sheets, small truss angle bars, galvanized iron sheets used on the door instead of steel plate, cracks on the walls and floor through which water could seep, undersized electrical wirings, defective drainage, unstable railings, and windows and doors without canopy. She refused to pay the balance of 450,000 pesos and sent a letter detailing her complaints and the cost of damaged stocks stored in the warehouse.

The defendant responded that the materials used conformed to the structural design, that minor cracks are common, that waterproofing and painting were not included in the quotation, and that canopies were likewise excluded. The barangay settlement failed, so the plaintiff sued. The commissioner found the building structurally sound but noted evident cracks needing rectification, unsealed catch basins, and the need for canopies. The second engineer's load test showed the building safe under the design live load, but identified an inadequate drainage system and inadequate main stairs. The trial court dismissed the complaint, and the plaintiff appealed.

Issues

• Whether or not a contract for the construction of the warehouse was perfected between the parties, such that an action for breach of contract could lie.
• Whether or not the parties ratified the construction contract despite the lack of perfection.
• Whether or not both parties committed a breach of their obligations, and who between them is the first infractor.
• Whether or not the plaintiff is liable to pay the balance of 450,000 pesos and the defendant is liable to rectify the defects.

Applicable Provisions

Article 1393 of the Civil Code provides:

Article 1393. Ratification may be effected expressly or tacitly. It is understood that there is a tacit ratification if, with knowledge of the reason which renders the contract voidable and such reason having ceased, the person who has a right to invoke it should execute an act which necessarily implies an intention to waive his right.

This governs whether the parties, by partially performing, validated the construction contract despite the defect in consent.

Article 1192 of the Civil Code provides:

Article 1192. In case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, the same shall be deemed extinguished, and each shall bear his own damages.

This is the rule the Court applies to apportion liability when both parties are in default.

Article 1714 of the Civil Code provides:

Article 1714. If the contractor agrees to produce the work from material furnished by him, he shall deliver the thing produced to the employer and transfer dominion over the thing. This contract shall be governed by the following articles as well as by the pertinent provisions on warranty of title and against hidden defects and the payment of price in a contract of sale.

This establishes the contractor's obligation to deliver the work and answer for its defects.

Article 1715 of the Civil Code provides:

Article 1715. The contractor shall execute the work in such a manner that it has the qualities agreed upon and has no defects which destroy or lessen its value or fitness for its ordinary or stipulated use.

This is the source of the contractor's duty to execute the work with efficiency and quality, which makes the defendant the first infractor.

Ruling

On the first issue, the Court held that no contract was perfected. A contract is consensual and is perfected by mere consent, but the offer must be certain and the acceptance seasonable and absolute. Here, the parties did not agree on the essential elements. What was clearly agreed upon was merely the cost estimate; the details of the building plan were not settled, since the plan was signed by Carolina but bore the printed name of Edward Ordoñez, and the defendant believed he had negotiated with the brother. The plaintiff's acceptance varied from the defendant's offer, so consent was wanting.

On the second issue, the Court held that the contract was nevertheless ratified and validated. Both parties proceeded with their obligations, the plaintiff depositing payments and the defendant constructing the warehouse, thereby retaining benefits. Under Article 1393, tacit ratification arises from acts that necessarily imply an intention to waive the right to invoke the defect.

On the third issue, the Court held that both parties were equally in default. The plaintiff failed to pay the balance, and the defendant failed to comply with the demands regarding the defects. The defendant is the first infractor because, as contractor, he had the bounden duty under Articles 1714 and 1715 to execute the work with efficiency and quality. Under Article 1192, the first infractor's liability is equitably tempered by the courts.

On the fourth issue, the Court held that the plaintiff must pay the balance of 450,000 pesos, while the defendant must rectify the defects recommended by the commissioners: installation of a wider drainage, reinforcement of the stairs, and installation of a canopy or waterproofing of the walls.

Doctrine

A contract is perfected by mere consent, but the offer must be certain and the acceptance absolute; a qualified acceptance is merely a counter-offer, and where the parties never agreed on the essential elements, no contract arises. Even without perfection, a contract may be ratified expressly or tacitly, and tacit ratification arises when a party, with knowledge of the defect, executes an act implying a waiver of the right to invoke it, such as partial performance and retention of benefits. When both parties breach, the liability of the first infractor is equitably tempered by the courts, and the second infractor is not liable for damages at all. In construction contracts, the contractor is bound to execute the work with the qualities agreed upon and without defects, and his failure to do so makes him the first infractor.

Disposition

The appeal was partly granted: the plaintiff was ordered to pay the balance of 450,000 pesos, and the defendant was ordered to rectify the defects in the warehouse as recommended by the commissioners.

Remember This

Memorize this line: no perfection, but ratification by partial performance, and the first infractor's liability is equitably tempered. Examiners use this case to test the stages of a contract, tacit ratification under Article 1393, and the application of Article 1192 when both parties are in default.