EPG CONSTRUCTION COMPANY, INC., AND EMMANUEL P. DE GUZMAN, PETITIONERS, VS. HONORABLE COURT OF APPEALS (17TH DIVISION), (REPUBLIC OF THE PHILIPPINES), UNIVERSITY OF THE PHILIPPI…

Petitioner EPG Construction Co., Inc. and the University of the
Philippines, herein private respondent, entered into a contract for the
construction of the UP Law Library Building for the stipulated price of
P7,545,000. The agreement included the
following provision:

ARTICLE XI

GUARANTEE

CONTRACTOR guarantees that the work completed under the contract
and any change order, thereto, shall be in accordance with the plans and
specification prepared by ARCHITECT, and shall conform to the specific
requirements, performances, and capacities required by the contract, and shall
be free from imperfect workmanship or materials. CONTRACTOR shall repair at his own cost and expenses for a period
of one (1) year from date of
substantial completion and acceptance of the work by the OWNER, all the work
covered under the contract and change orders that may prove defective except
maintenance works. The CONTRACTOR shall
be liable in accordance with Art. 1723 of the Civil Code in case, within
15 years from completion of the project, the building collapses on
account of defects in the construction or the use of materials of inferior
quality furnished by him or due to any violation of the terms of contract.

Upon its completion, the building was formally turned over by EPG
to the private respondent. UP issued a
certification of acceptance dated January 13, 1983, reading as follows:

This is to certify that the General Construction Work of the College of Law Library Annex Building,
University of the Philippines, Diliman, Quezon City, has been satisfactorily
completed as per plans and specifications as of January 11, 1983 without any
defects whatsoever and therefore accepted.

Release of the 10% retention is hereby recommended in favor of EPG
Construction, Inc.

Sometime in July, 1983, the private respondent complained to the
petitioner that 6 air-conditioning units on the third floor of the building
were not cooling properly. After
inspection of the equipment, EPG agreed to shoulder the expenses for their
repair, including labor and materials, in the amount of P38,000.00.

For whatever reason, the repair was never undertaken. UP repeated its complaints to EPG, which
again sent its representatives to assess the defects. Finally, it made UP a written offer to repair the system for
P194,000.00.

UP insisted that EPG was obligated to repair the defects at its
own expense under the guarantee provision in their contract. EPG demurred. UP then contracted with another company, which repaired the
defects for P190,000.00.

The private respondent subsequently demanded from EPG
reimbursement of the said amount plus an equal sum as liquidated damages. When the demand was rejected, UP sued EPG
and its president, Emmanuel P. de Guzman, in the Regional Trial Court of Quezon
City. De Guzman moved to dismiss the
complaint as to him for lack of a cause of action, but the motion was denied.

After trial, judgment was rendered by Judge Antonio P. Solano
requiring both defendants jointly and severally to pay the plaintiff
P190,000.00 as actual damages, P50,000.00 as liquidated damages, P10,000.00 as
attorney’s fees, and costs.

The petitioners appealed to the Court of Appeals, which sustained
the trial court.^[1]
They then came to this Court to fault the respondent court for not holding
that: 1) UP was estopped by its
certificate of acceptance from imputing liability to EPG for the defects; 2)
the defects were due to force majeure or fortuitous event; and 3)
Emmanuel de Guzman has a separate personality from that of EPG Construction
Co., Inc.

The petitioners, argue that by issuing the certificate of
acceptance, UP waived the guarantee provision and is now estopped from invoking
it. The argument is absurd. All UP certified to was that the building
was in good condition at the time it was turned over to it on January 13,
1983. It did not thereby relieve the
petitioners of liability for any defect that might arise or be discovered later
during the one-year period of the guarantee. Any other interpretation would make the guarantee provision useless to
begin with as it would have automatically become functus
officio with the turn-over of the construction.

The petitioners bolster their argument by quoting Article 1719 of
the Civil Code thus, “Acceptance of the work by the employer relieves the
contractor of liability x x x” and
stopping there. The Article reads
in full as follows:

Art. 1719. Acceptance of the work by the employer relieves the
contractor of liability for any defect in the work, unless:

(1) The defect is hidden and the employer is not, by his special
knowledge, expected to recognize the same; or

(2) The employer expressly reserves his rights against the
contractor by reason of the defect.

The exceptions were omitted by the petitioners for obvious
reasons. The defects complained against
were hidden and the employer was not expected to recognize them at the time the
work was accepted. Moreover, there was
an express reservation by UP of its right to hold the contractor liable for the
defects during a period of one year.

The petitioners’ contention that the defects were caused by force
majeure or fortuitous event as a result of the frequent brown-outs in
Metro Manila is not meritorious. The
Court is not prepared to accept that the recurrent power cut-offs can be
classified as force majeure or a fortuitous event. We agree that the real cause of the problem,
according to the petitioners’ own subcontractor, was poor workmanship, as
discovered upon inspection of the cooling system. Among the defects noted were improper interlocking of the entire
electrical system in all the six units: wrong specification of the time delay relay, also in all the six units;
incorrect wiring connections on the oil pressure switches; improper setting of
the Hi and Lo pressure switches; and many missing parts like bolts and screws
of panels, and the compressor terminal insulation, and the terminal screws of a
circuit breaker.^[2]

Curiously, it has not been shown that the cooling system in
buildings within the same area have been similarly damaged by the power
cut-offs. The brown-outs have become an
intolerable annoyance, but they cannot excuse all contractual irregularities,
including the petitioners’ shortcomings.

The petitioners also claim that the breakdown of the cooling
system was caused by the failure of UP to do maintenance work thereon. We do not see how mere maintenance work
could have corrected the above-mentioned defects. At any rate, whether the repairs in the air-conditioning system
can be considered mere maintenance work is a factual issue. The resolution thereof by the lower courts
is binding upon this Court in the absence of a clear showing that it comes
under the accepted exceptions to the rule. There is no such showing here.

The final point of the petition is that Emmanuel P. de Guzman has
a separate legal personality from EPG Construction Co., Inc. and should not be
held solidarily liable with it. He
stresses that the acts of the company are its own responsibility and there is
no reason why any liability arising from such acts should be ascribed to him. Thus:

It is a doctrine well-established and obtains both at law and in
equity that a corporation is a distinct legal entity to be considered as
separate and apart from the individual stockholders or members who compose it,
and is not affected by the personal rights, obligations and transactions of its
stockholders or members.^[3]

The trial court did not explain why Emmanuel de Guzman was held
solidarily liable with EPG Construction Co., Inc., and neither did the
respondent court when it affirmed the appealed decision. In its Comment on the present petition, UP
also did not refute the petitioners’ argument and simply passed upon it sub
silentio although the matter was
squarely raised and discussed in the petition.

Notably, when Emmanuel de Guzman moved to dismiss the complaint
as to him, UP said in its opposition to the motion that it was suing him
“in his official capacity and not in his personal capacity.”
His inclusion as President of the company was therefore superfluous, as De
Guzman correctly contended, because his acts as such were corporate acts
imputable to EPG itself as his principal. It is settled that:

A corporation is invested by law with a personality separate and
distinct from those of the persons composing it as well as from that of any
other entity to which it may be related. Mere ownership by a single stockholder or by another corporation of all
or nearly all of the capital stock of a corporation is not of itself sufficient
ground for disregarding the separate corporate personality. The general manager of a corporation
therefore should not be made personally answerable for the payment of the
employee’s backwages unless he had acted maliciously or in bad faith in
terminating the services of the employee.^[4]

The exception noted is where the official “had acted
maliciously or in bad faith,” in which event he may be made personally
liable for his own act. That exception
is not applicable in the case at bar, because it has not been proved that De
Guzman acted maliciously or in bad faith when, as President of EPG, he sought
to protect its interests and resisted UP’s claims. Whatever damage was caused to UP as a result of his acts is the
sole responsibility of EPG even though De Guzman was its principal officer and
controlling stockholder.

In sum, we hold that the lower court did not err in holding EPG
liable for the repair of the air-conditioning system at its expense pursuant to
the guarantee provision in the construction contract with UP. However, Emmanuel de Guzman is not solidarily
liable with it, having acted on its behalf within the scope of his authority
and without any demonstrated malice or bad faith.

WHEREFORE, the appealed decision is AFFIRMED but with the
modification that EPG Construction Co., Inc. shall be solely liable for the
damages awarded in favor of the
University of the Philippines. It is so
ordered.

Griño-Aquino, Medialdea, and
Bellosillo, JJ., concur.

^[1]
Penned by Justice Fernando A. Santiago, with Ramirez and Martin, JJ.
concurring.

^[2]
Records, pp. 17-18.

^[3]
Sulo ng Bayan, Inc. v. Araneta, 72 SCRA 347, 353.

^[4]
Lim v. NLRC, 171 SCRA 328.