LILIA Y. FINGLETON, PLAINTIFF-APPELLEE, VS. HENRY D. RAMOS AND CAPITAL INSURANCE AND SURETY COMPANY, INC. DEFENDANTS-APPELLANTS,
COSICO, J.:
On appeal is the Decision, dated July 24, 2003, of the Regional Trial Court (RTC) of Baguio City, Branch 3, rendered in Civil Case No. 4483-R. Under the said decision, the lower court granted the plaintiff Lilia Y. Fingleton’s complaint for damages arising from breach of contract, and ordered the defendants Henry D. Ramos and Capital Insurance and Surety Company, Inc. to pay damages to the plaintiff, as follows:
“WHEREFORE, by preponderance of evidence, the Court rules in favor of plaintiff Lilia Fingleton. Defendant Henry Ramos is hereby ordered to pay Actual Damages of One Million Five Hundred Thousand Pesos (P1,500,000.00); Moral Damages of One Hundred Fifty Thousand Pesos (P150,000.00); Nominal Damages of Fifty Thousand Pesos (P50,000.00; Exemplary Damages of Thirty Thousand Pesos (P30,000.00); and Attorney’s Fees of Two Hundred Fifty Thousand Pesos (P250,000.00), plus costs of suit. Likewise, co-defendant Capital Insurance Company is hereby ordered to pay plaintiff Lilia Fingleton One Million Five Hundred Thousand Pesos (P1,500,000.00) representing the Performance Bond as part of Liquidated Damages in favor of said plaintiff. Costs of suit against both defendants.
“IT IS SO ORDERED.” (p.857-858 IV Records)
In a complaint filed with the Baguio City RTC on August 11, 1999, complainant Lilia Fingleton sued defendants Henry Ramos and Capital Insurance & Surety Company, Inc. (Capital Insurance, for brevity) for damages, arising from the uncompleted construction of her and her husband’s residential house in Baguio City. Complainant recounts that she and defendant Henry Ramos entered into a construction contract in May 1997, whereby Ramos obligated himself to construct plaintiff’s two storey residential house, for the agreed price of P2,919,000.00. To guarantee the faithful compliance of his obligation, defendant Ramos secured from Defendant Capital Insurance a performance bond in the amount of P1,500,000.00. Defendant insurance company bound itself to be jointly and severally liable to plaintiff in the event of noncompliance by defendant of his obligation under the construction contract.
Later on, defendant Ramos abandoned the project, and thus failed to comply with his obligation to build plaintiff’s house. At the time he left the project, the house was only 60% completed, although defendant had already collected P2,206,140.00 from the plaintiff. There was allegedly an overpayment of P366,412.00 by plaintiff to defendant.
As a result of the non-completion of the house, plaintiff had to spend an additional P1,157,769.00 for labor and materials for the completion of the same. Thus, plaintiff instituted the instant suit to recover various damages from the defendants.
Defendant Henry Ramos, for his part, claimed that he and the Fingletons entered into a building contract on May 6, 1997. Pursuant to the contract, Ramos secured the necessary permits and immediately started construction of plaintiff’s house. Defendant Ramos had already accomplished more than sixty percent (60%) of the total project as of October 1997, even though plaintiff had defaulted and had been remiss in her obligations to pay for the additional works requested by her and her husband during the progress of the construction, and for which defendant had to advance payment for costs and labor, in the amount of P358,753.00. Defendant waited in vain for plaintiff to pay her overdue financial obligations and to defray the cost of labor and materials needed on the project.
In November, 1997, plaintiff, in violation of the building contract, and in utter bad faith, allowed other contractors and workers to take over and proceed with the remaining construction works of the project, without the knowledge and approval of defendant Ramos. Because of this, defendant made several demands to plaintiff about her outstanding obligations amounting to P353,753.00. His requests were however unheeded. Thus, it was the plaintiff who violated her contract with the defendant, and she should be the one ordered to pay damages to him.
Defendant Capital Insurance, on the other hand, claimed that the performance bond it issued in favor of the plaintiff is limited only to guaranteeing the faithful performance of the contract on the supply of labor and materials for the construction of plaintiff’s house and not on the workmanlike manner of building the house and/or its accomplishment within the term stipulated in the construction contract.
At the close of pre-trial proceedings, the parties agreed on the witnesses and exhibits that they will present, as well as the schedule of trial dates. The parties also advanced the following issues for resolution:
For the plaintiff:
1. Whether or not defendant Henry Ramos is relieved of his obligation under the contract of work?
2. Whether or not defendant Henry Ramos should be held liable for the damages sustained by the plaintiff in this case?
3. Whether or not defendant Capital Insurance should be held liable based on the performance bond executed by the plaintiff and the defendant Ramos in this particular case?
For Defendant Henry Ramos:
1. Whether or not the plaintiff was the one who breached the contract?
2. Whether or not plaintiff is liable for outstanding obligation in the amount of P356,753.00 to defendant Ramos?
3. Whether or not the defendant insurance company should be the one held liable for damages claimed by the plaintiff and not defendant Ramos?
For Defendant Capital Insurance;
1. Whether or not defendant Ramos violated his building contract with the plaintiff?
2. If there exists a violation, whether or not the violation is covered by the performance bond issued by defendant Capital Insurance as bondsman?
At the trial, plaintiff presented as her witnesses, herself (TSNs February 8, 2001, February 15, 2001, February 22, 2001, February 28, 2001, March 7, 2001, March 8, 2001 and March 14, 2001); her husband, Donald Fingleton, (TSNs March 14, 2001, March 21, 2001, and June 13, 2001, Manuel Robert Domondon, (TSNs September 6, 2001, September 13, 2001, September 20, 2001 and September 26, 2001), and Josefino Realina, (TSNs September 26, 2001, October 2, 2001, December 13, 2001 and December 19, 2001). Plaintiff also offered in evidence Exhibits “A” to “P”, with sub-markings.
Defendant Henry Ramos, on the other hand, presented himself, (TSNs, March 7, 2002, March 13, 2001, April 4, 2002, April 11, 2002, April 12, 2002, April 25, 2002 and April 26, 2002). Ramos also offered exhibits marked “1” to “5”, with sub-markings.
Defendant Capital Insurance’s only witness was Teofilo Malapit (TSNs, May 6, 2002 and May 30, 2002), who identified Capitol Insurance’s documentary Exhibits “1” to “3” (TSN, May 30, 2002, pp. 15-17).
Eventually, the lower court rendered its ruling in the case, granting the plaintiff’s complaint. The RTC ordered the defendants Henry Ramos and Capitol Insurance to pay actual damages of P1,500,000.00 each to the plaintiff. Defendant Ramos was also ordered to pay plaintiff moral damages of P150,000.00, nominal damages of P50,000.00, exemplary damages of P30,000.00 and attorney’s fees of P250,000.00, plus costs of suit.
The RTC justified its ruling in this manner:
“Firstly, the Court believes that defendant Henry Ramos presented himself to Lilia Fingleton, Filipino citizen, and her husband Paddy Fingleton, an Irish citizen. at Q.M., Baguio City in the Fingletons’ rented house, as an architect. According to Lilia Fingleton, she recalls immediately that even over the phone when defendant Henry Ramos called up, she asked him if he is an architect, because they were building their dream house and to which defendant Henry Ramos declared that he is an architect and defendant Henry Ramos went to the house of the Fingletons. He was asked by both spouses if he is an architect and in both the phone conversation and at the house of the Fingletons, defendant Henry Ramos declared that he is an architect, and a US-licensed at that. He also told the Fingletons that he is the owner of the HD Ramos And Associates, thus giving the impression further to the Fingletons that he is an architect and such conglomerate HD Ramos and Associates could only be established by an architect.
“Defendant Henry Ramos denies that he told the Fingletons that he is an architect and stated that what he told the Fingletons is that he is like an architect. The demeanor of Henry Ramos on the witness stand does not convince the Court of his sincerity. This Court believes that defendant Henry Ramos misrepresented himself as an architect to the Fingletons, coupled with mention of the many buildings he has completed under the HD Ramos and Associates. In fact, when defendant Henry Ramos abandoned the project, Lilia Fingleton had to write the Professional Regulatory Commission or PRC if there is a Henry D. Ramos in the roll of architects to which the PRC replied in a letter that no Henry D. Ramos appears in their list of architects. As to the PRC Number of the architect used by Henry D. Ramos in his plans, the same belongs to a certain Architect Rolando C. Calma and not to Henry Ramos. Why would Henry D. Ramos be using the Architect PRC Number of another architect, if not to defraud or deceive the Fingletons?
“Clearly, there is an element of deceit on the part of defendant Henry Ramos in misrepresenting himself as an architect, considering the Fingletons, particularly paddy Fingleton, husband of Lilia Fingleton is an Irish, and he would not settle for a non-architect to build his house.
“Secondly, in many receipts, plaintiff Lilia Fingleton enumerated the amounts spent by defendant Henry Ramos. Plaintiff is not anymore claiming the whole amount of P2,000,100.00, but the amount of P1.5 Million representing the defective structure of defendant Henry Ramos. According to Lilia Fingleton, the original plan of the house is supposed to be on top of a hill, but because of the mistake of defendant Henry Ramos, who is an architect in building columns within the prohibited area, the columns had to be moved backward for about three (3) meters away, resulting in the house to be behind the hill.
“Defendant Henry Ramos’ construction was defective considering the house which should have been on top of a hill, now behind the hill with a basement excavation which was not authorized by the Fingletons and to the moving of the house and backwards. The rooms became smaller and the stairs which should have been connected to certain rooms were no longer there. The roofing and the walling are defective and plaintiff Lilia Fingleton believes that this is so, because the man who constructed their house is not an architect and to top it all, defendant Henry Ramos abandoned the project when it was only 60% completed. The reason for the abandonment of the project is because defendant Henry Ramos was asking for an advance of P300,000.00 to be deducted on the final payment of P750,000.00 and the said P300,000.00 was not yet due in accordance with the contract.
“In fact, the P2.1 million expense of defendant Henry Ramos was over by P400,000.00 considering the 60% completion of the house would only amount to P1.8 Million. Thus, with the abandonment of the house Lilia Fingleton contacted foreman Realina to finish the house for another P1.5 Million. Thus, not only lack of expertise but also abandonment of work cost the Fingletons much damage.
“Finally, the Court believes that there is indeed Breach of Contract in this case for defendant Henry Ramos did not complete the house that he was supposed to finish coupled initially with misrepresentation that he was an architect. He did not finish his work under the contract accordingly due to the fact that plaintiff and her husband had to finish the unfinished work of defendant Henry Ramos. Another P1.5 Million was spent to complete the house on top of the P2.2 Million already spent. Thus, giving rise to actual damages in the amount of P1.5 Million as alleged in the Complaint.
“There is no dispute that Nominal Damages which represents violation of right is present in this case in the amount of P50,000.00, and to serve as example to others not to commit the same act, the amount of P30,000.00 shall be awarded as Exemplary Damages, and for the wounded feelings and anxiety of the plaintiff, Moral Damages in the amount of P150,000.00 is in order, plus Attorney’s Fees of P250,000.00 considering 15% of P1.5 Million is P250,000.00 (Arts. 2208, 2215, 2221, and 2229, New Civil Code). Also, as part of Liquidated Damages, co-defendant Capital Insurance Company thru its President Teofilo Malapit shall pay the plaintiff P1.5 Million for the performance bond when the project was abandoned by defendant Henry Ramos (Art. 2226, id.)
“Breach of Contract is present in the instant case when defendants with fraud, negligence, and delay did not comply with their obligation. Those who are remiss in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages without the need for a contractual stipulation or prior agreement (Art. 1170, id.; Araneta v. Naric, 10 SCRA 79; Magat v. Medialdea, 121 SCRA 418, among the cases).
“Let this Decision be a warning to all planning to build a house that they have to check carefully the person telling them that he is an architect because in the instant case, the dream house of the Fingletons became a horrible house with all its delay and defects and the abandonment in the process of construction. The dream house of the Fingletons which should have been on top of a hill is now located behind the hill.
“According to reports, the husband of Lilia Fingleton in the person of Paddy Fingleton died several months ago probably in distress over the mess in the building of his dream house at Camp 7. It is not far-fetched to think that the troubles of his house contributed to his death. For the surviving wife, plaintiff Lilia Fingleton, it is on a fair note that she has gotten her justice in this case finally.” (pp. 855-857, IV Records)
On appeal now, defendant-appellant Henry Ramos claims that the lower court erred in granting the plaintiff’s claim.
In the first place, appellant did not commit any breach of his contract with the plaintiff. Appellant, particularly, is not guilty of fraud, whether in obtaining the consent of the plaintiff and her husband to construct their house, or in the performance of his obligations in the construction contract. Appellant did not misrepresent himself as an architect to the Fingletons. In fact, it was plaintiff who sought the appellant to build her house.
There being no fraud or default attendant as ground for damages, there is no basis to rule that appellant was guilty of negligence. The RTC therefore erred when it ruled that the appellant was negligent just because the construction was not finished. The appellant had actually accomplished the construction according to their agreement, but plaintiff refused to release the payment for the additional costs incurred by reason of additional works required by the plaintiff. Appellant had every right to stop working as plaintiff was not ready, willing or able to perform her part of the contract. The trial court therefore erred in awarding damages to plaintiff.
By and large, appellant’s position is that the decision has no basis in fact and law, as plaintiff had not discharged her burden of proof by preponderance of evidence. The trial court affirmed the plaintiff’s position by resorting to suppositions and presumptions. This reasoning, however, has no place in a decision by a court of law.
A construction contract necessarily involves reciprocal obligations, as it imposes upon the contractor, the obligation to build the structure subject of the contract, and upon the owner, the obligation to pay for the project upon its completion, (Deiparine, Jr. v. Court of Appeals, 221 SCRA 503 [1993]). The violation of such reciprocity by the contractor gives the owners the right to rescind or cancel the contract, (Ibid., Article 1191, Civil Code)
Appellant Ramos is guilty of breach of contract, because, he abandoned the construction of the project even before it was completed in accordance with the target and purpose of the parties’ construction contract. Undeniably, appellant agreed to construct the Fingletons’ house on a straight or “pakyaw” basis, (Exhibit “B”, “1”), which implies that the contractor undertakes to complete the construction of the project, for a price certain, to be paid by the owner. However, in the instant case, notwithstanding that appellant Ramos had received P2,206,140.00 from plaintiff, (Exhibits “L”, “L-1” to “L-8” and “F”, pp. 352-361, III Records; TSN, April 25, 2002, p. 3), which is almost commensurate with the contract price of P2,919,000.00, he has only completed 60% of the project, and, worse, abandoned the same after an apparent disagreement with the Fingleton spouses about further payments on alleged additional works.
The fact that Ramos abandoned the project is satisfactorily shown by the testimony of his own former foreman, Josefino Realina, who stated that in October, 1997, defendant Ramos left the project and did not return, except to collect his equipment, (TSN, October 2, 2001, pp. 11-12). Plaintiff was even constrained to talk to Ramos’ foreman about the extent of work done and to locate Ramos, (Id., at 12-13). Finally, the Fingletons decided to continue the project themselves, and sought the help of Ramos’ foreman to complete the unfinished work on their house, resulting in inconvenience and additional cost and expenses above the parties’ agreed price, (TSN, February 28, 2001, pp. 6-7; March 21, 2001, pp. 26-27).
At the time of the negotiation of the parties’ agreement, Ramos presented himself as a competent and expert contractor, in his own words, he was “like an architect”, (TSN, Match 7, 2002, p. 4), in an effort to convince the Fingletons of his ability to complete construction of the project in accordance with the agreed plans, timetable and cost projection. The fact that he failed to abide by his obligation and complete the construction in accordance with the construction agreement compounds the grave nature of defendant’s breach, and the lower court noted this in its decision.
Defendant Ramos argues that he was not in breach, and was in fact justified in leaving the project because plaintiff and her husband refused to make payments on the additional works on the project, which had to be advanced by him. The Court is not convinced, as it appears more likely that the additional works on the project were caused by mistakes committed by appellant Ramos himself in the preparation of plans of the house before construction began. The mistakes were found after appellant’s construction crew already laid-out the area for the foundations of the house, following appellant Ramos’ plans. It was discovered that the foundation fronting the house was too near the property line, in violation of the restrictions of the property developer, Fil-Estate. Thus, the construction had to be moved or re-made further from the property line, which entailed added work and costs. (TSN, February 15, 2001, pp. 11-18; October 2, 2001, pp. 1-10).
It also appears that appellant himself, when preparing the plans for the construction, failed to adequately study the terrain of the property, and the presence of trees, which plaintiff and her husband did not want removed. He discovered these problems only during the construction, and thus, the original plans could not be faithfully followed, (TSN, March 13, 2002, pp. 29-32).
These mistakes are traceable to the appellant because as expert contractor and the one who designed the plans of the construction, it was his duty to make the proper measurements and supervise the construction, and make sure that all is well before and during construction.
In any case, assuming that the plaintiff and her husband indeed owed appellant payment for additional works required by the latter, it does not appear that such payment has become due. Be it noted that the construction contract itself provides that costs and payment of any extra or additional work will have to be determined and implemented by mutual agreement of the owner and contractor, (p. 272, III Records). Nor does it appear that non-payment thereof constitutes a serious violation of the construction contract, to merit his unilateral abandonment of the project. The same would be too trivial a breach of the parties’ construction contract to merit the appellant’s unilateral cancellation of his obligation to finish the house. It bears noting that the construction of the plaintiff’s house on a “straight” basis, and the payment for the completion of the construction are the main conditions and objects of the parties’ construction contract, and any additional work agreed upon and performed later would be extraneous to the main purpose, and a breach on such matters would be too slight to cause the rescission of the construction contract. Rescission may be had only for such breaches that are so substantial and fundamental as to defeat the object of the parties in making the agreement. Rescission will not be permitted for a slight or casual breach of a contract. (Ang v. Court of Appeals, 170 SCRA 286 [1989]).
On the other hand, the abandonment by the appellant of the completion of the final 40% of the project, despite receipt of an amount almost commensurate with the agreed contract price of the project is a serious and fundamental breach of the contract, as it involves a violation of the very purpose of the construction contract, and entitles the plaintiff to damages.
Evidence show that plaintiff and her husband incurred expenses for materials and labor needed to complete their house, to the extent of P1,157,769.00. Receipts painstakingly collected and kept and payrolls signed by the workers engaged to complete the house, bear out this amount, (Exhibits “P”, “P-1” to “P-255”; TSN, February 28, 2001, pp. 9-10). In addition, considering that appellant admitted having finished only 60% percent of the construction of the project, he is entitled to only 60% of the contract price of P2,919,000.00, or P1,751,400.00. Considering that he had received a total of P2,206,140 from the Fingletons before he abandoned the project, (Exhibits “L”, “L-1 to “L-8” and “F”), there is a cost difference of P454,740.00 in favor of the plaintiff, which should be reimbursed by the appellant, besides the P1,157,769.00 indemnity for labor and materials for the completion of the project, or a total of P1,612,509.00, as compared to the lower court’s liquidated award of P1,500,000.00.
To such extent, plaintiffs should be indemnified for actual damages, as this is the amount established to be suffered by them by reason of appellant’s abandonment of the project. This amount should be borne jointly and severally by the defendants Henry Ramos and Capital Insurance, the latter being liable as surety with the former to the extent of P1,500,000.00 which is the amount of the Performance Bond it issued in favor of the plaintiff, (Exhibit “C-1”).
Because the actual damages borne by the plaintiffs is established by evidence, there is no reason for the lower court’s award of nominal damages, as the violation of the plaintiff’s rights have already been vindicated and indemnified by the award of actual damages.
However, the award of moral and exemplary damages and attorney’s fees should be affirmed, being justified by the attendant circumstances. Moral damages should be paid to plaintiff to compensate for wounded feelings, serious anxiety and sleepless nights, and inconvenience of having to complete construction of her house herself because of the unjustified abandonment by the appellant of the project. Exemplary damages are also owing, in order to warn against similar transgressions in the future. Attorney’s fees should also be paid, inasmuch as plaintiff and her husband were forced to enter into litigation and suffer litigation expenses in order to defend their rights, against the unjustified abandonment by the appellant of the construction project.
It is remarked that the lower court’s decision to grant the plaintiff’s claim for damages, for the appellant’s breach of the construction contract, was based on supposition and presumption. Such observation was brought about by remarks by the trial judge in the decision when he referred to reports about the demise of plaintiff’s husband, that was probably brought on by distress over the non-completion of the plaintiff’s house, and similar observations. Such personal comments by the trial judge, however, do not render the decision itself without basis in fact and law. The plaintiff’s entitlement to payment of damages, as heretofore discussed, is merited by the matters appearing on record, and warranted by the application of pertinent law and jurisprudence.
WHEREFORE, premises considered, the Decision of the lower court is hereby AFFIRMED with MODIFICATION, in that, defendants Henry Ramos and Capital Insurance & Surety Company, Inc. are hereby ordered to pay, jointly and severally, actual damages of P1,612,509.00, to plaintiff. In addition, defendant-appellant Henry Ramos is hereby ordered to pay Moral Damages of P150,000.00, Exemplary Damages of P30,000.00 and Attorney’s Fees of P250,000.00 to plaintiff. The lower court’s award of Nominal Damages is hereby DELETED. Costs against both defendants.
SO ORDERED.
Sundiam, and Librea-Leagogo, JJ., concur.