ERNESTO DEIPARINE, JR., PETITIONER, VS. THE HON. COURT OF APPEALS, CESARIO CARUNGAY AND ENGR. NICANOR TRINIDAD, RESPONDENTS.

This case involves not only the factual issue of breach of
contract and the legal questions of jurisdiction and rescission. The basic inquiry is whether the building
subject of this litigation is safe enough for its future occupants. The petitioner says it is, but the private
respondents demur. They have been
sustained by the trial court and the appellate court. The petitioner says they have all erred.

The spouses Cesario and Teresita Carungay entered into an
agreement with Ernesto Deiparine, Jr. on August 13, 1982, for the construction
of a three-story dormitory in Cebu City.^[1] The
Carungays agreed to pay P970,000.00, inclusive of contractor’s fee, and Deiparine bound himself to
erect the building “in strict accordance to (sic) plans and
specifications.” Nicanor Trinidad, Jr., a civil engineer, was designated
as the representative of the Carungay spouses, with powers of inspection and
coordination with the contractor.

Deiparine started the construction on September 1, 1982.^[2]
On November 6, 1982, Trinidad sent him a document entitled General Conditions
and Specifications which inter alia prescribed 3,000 psi (pounds
per square inch) as the minimum
acceptable compressive strength of the building.^[3]

In the course of the construction, Trinidad reported Cesario Carungay
that Deiparine had been deviating from the plans and specifications, thus
impairing the strength and safety of the building. On September 25, 1982, Carungay ordered Deiparine to first secure
approval from him before pouring cement.^[4] This
order was not heeded, prompting Carungay to send Deiparine another memorandum
complaining that the “construction works are faulty and done haphazardly
… mainly due to lax supervision coupled with … inexperienced and
unqualified staff.”^[5] This
memorandum was also ignored.

After several conferences,
the parties agreed to conduct cylinder tests to ascertain if the structure thus far built complied with safety
standards. Carungay suggested core
testing. Deiparine was reluctant at
first but in the end agreed. He even
promised that if the tests should show total failure, or if the failure should
exceed 10%, he would shoulder all expenses; otherwise, the tests should be for
the account of Carungay.

The core testing was conducted by Geo-Testing International, a
Manila-based firm, on twenty-four core samples. On the basis of 3,000 psi, all the samples failed; on the basis
of 2,500 psi, only three samples passed; and on the basis of 2,000 psi, nineteen samples failed.^[6]
This meant that the building was structurally defective.

In view of this
finding, the spouses Carungay filed a complaint with the Regional Trial Court
of Cebu for the rescission of the construction contract and for damages. Deiparine moved to dismiss, alleging that the court had no jurisdiction
over construction contracts, which were now cognizable by the Philippine
Construction Development Board pursuant
to Presidential Decree No.
1746. The motion was denied in an order dated April 12,
1984.

After trial on the merits, Judge Juanito A. Bernad rendered judgment: a) declaring the construction agreement
rescinded; b) condemning Deiparine to have forfeited his expenses in the construction in the sum of P244,253.70;
c) ordering Deiparine to reimburse to the spouses Carungay the sum of P15,104.33
for the core testing; d)
ordering Deiparine to demolish and
remove all the existing structures and restore the premises to their former condition
before the construction began, being allowed at the same time to take back with
him all the construction materials belonging to him; and e) ordering Deiparine to pay the Carungay spouses
attorney’s fees in the amount of P10,000.00 as well as the costs of the
suit.^[7]

On appeal, the decision was affirmed in toto by the
respondent court on August 14, 1990.^[8] His
motion for reconsideration having been denied, petitioner Ernesto Deiparine,
Jr. has come to this Court to question once more the jurisdiction of the
regular courts over the case and the power of the trial court to grant
rescission. He will lose again.

The challenge to the jurisdiction of the trial court is
untenable.

P.D. 1746 created the Construction Industry Authority of the
Philippines (CIAP) as the umbrella organization which shall exercise
jurisdiction and supervision over certain administrative bodies acting as its
implementing branches. The implementing
body in this case is the Philippine Domestic Construction Board (PDCB) and not the inexistent Philippine
Construction Development Board as maintained by Deiparine.

Among the functions of the PDCB under Section 6 of the decree are
to:

x                                  x                                    x

3. Adjudicate and settle claims and
disputes in the implementation of public construction contracts and for
this purpose, formulate and adopt the necessary rules and regulations subject
to the approval of the President;

x                                 x
                                    x

5. Formulate and recommend rules and procedures for the adjudication and settlement of
claims and disputes in the implementation of contracts in private construction; (Emphasis supplied)

Deiparine argues that the Philippine Construction Development Board
(that is, the Philippine Domestic Construction Board) has exclusive
jurisdiction to hear and try disputes arising from domestic constructions. He invokes the above-mentioned functions to
prove his point.

His counsel is obviously trying to mislead the Court. First, he purposely misquotes Section 6(b),
paragraph 3, substituting the word “the” for “public,”
thus:

3. Adjudicate and settle
claims and disputes in the implementation of the construction contracts
and for this purpose, formulate and adopt the necessary rules and regulations
subject to the approval of the President; (Underscoring ours)

Second, he makes the wrong emphasis in paragraph 5, thus:

5. Formulate and recommend rules and procedures for the
ADJUDICATION and SETTLEMENT of CLAIMS and DISPUTES in the implementation of
CONTRACTS in PRIVATE CONSTRUCTIONS.

For deliberately changing the language of the above-quoted
paragraph 3, Atty. Gregorio B. Escasinas has committed contempt of this Court
and shall be disciplined. As for
paragraph 5, the correct stress should be on the words “formulate and
recommend,” which is all the body can do, rather than on “adjudication
and settlement.”

The wording of P.D. 1746 is clear. The adjudicatory powers of the Philippine Domestic Construction
Board are meant to apply only to public construction contracts. Its power over private construction
contracts is limited to the formulation and recommendation of rules and
procedures for the adjudication and settlement of disputes involving such
(private) contracts. It therefore has
no jurisdiction over cases like the one at bar which remain cognizable by the
regular courts of justice.

On the issue of rescission, Deiparine insists that the
construction agreement does not specify any compressive strength for the
structure nor does it require that the same be subjected to any kind of stress
test. Therefore, since he did not
breach any of his covenants under the agreement, the court erred in rescinding
the contract.

The record shows that Deiparine commenced the construction soon
after the signing of the contract, even before Trinidad had submitted the
contract documents, including the General Conditions and Specifications.

According to Eduardo Logarta, the petitioner’s own project
engineer, Deiparine actually instructed him and some of the other workers to
ignore the specific orders or instructions
of Carungay or Trinidad relative
to the construction.^[9] Most
of these orders involved safety measures such as: (1) the use of two concrete vibrators in the pouring of all
columns, beams and slabs; (2) making PVC pipes well-capped to prevent concrete
from getting inside them; (3) the use of 12-mm reinforcement bars instead of
10-mm bars; (4) the use of mixed concrete reinforcements instead of hollow
block reinforcements; and (5) securing the approval of the owner or his
representative before any concrete-pouring so that it could be determined
whether the cement mixture complied with safety standards. Deiparine obviously wanted to avoid
additional expenses which would reduce his profit.

Parenthetically, it is not disputed that Deiparine is not a civil
engineer or an architect but a master mariner and former ship captain;^[10]
that Pio Bonilla, a retainer of
Deiparine Construction, was not the supervising architect of the project;^[11] that the real supervisor of
construction was Eduardo Logarta, who was only a third year civil engineering
student at the time;^[12] that
his understudy was Eduardo Martinez, who had then not yet passed the board
examinations;^[13]
and that the supposed project engineer,
Nilo Paglinawan, was teaching full-time at the University of San Jose
Recoletos, and had in fact
entered the construction site only after November 4, 1982, although the
construction had already begun two months earlier.^[14]

It was after discovering that the specifications and the field
memorandums were not being
followed by Deiparine that Carungay insisted on the stress tests.

There were actually two sets of specifications. The first “Specifications” are
labeled as such and are but a general
summary of the materials to be used in the construction. These were prepared by Trinidad prior to the execution of the contract for the
purpose only of complying with
the document requirements of the loan application of Cesario Carungay with the
Development Bank of the Philippines. The other specifications, which were also prepared by Trinidad, are
entitled “General Conditions and Specifications” and laid down in
detail the requirements of the private respondent in the construction of his
building.

In his testimony, Deiparine declared that when the contract was
signed on August 13, 1982, it was understood
that the plans and specifications would be given to him by Trinidad later.^[15] Deiparine thus admitted that the plans and specifications referred, to
in the construction agreement were not the first Specifications but the General
Conditions and Specifications submitted by Trinidad in November 1982. This second set of specifications required a
structural compressive strength of 3,000 psi.^[16] It
completely belies Deiparine’s contention that no compressive strength of the
dormitory was required.

Deiparine further argues that by following the concrete mixture
indicated in the first specifications, that is, 1:2:4, the structure would
still attain a compressive strength of 2,500 psi, which was acceptable for
dormitories. According to him, the
3,000 psi prescribed in the General Conditions and Specifications was
recommended for roads, not for buildings. In so arguing, he is interpreting the two specifications together but applying
only the first and rejecting the second.

Deiparine also avers that the contract does not also require any
kind of test to be done on the structure and that, test or no test, he has not
violated the agreement. Nevertheless,
he subjected the building to a cylinder test just to convince Carungay that the
unfinished dormitory was structurally sound.

A cylinder test is done by taking samples from fresh concrete,
placing them in a cylinder mold and allowing them to harden for a maximum of 28
days, following which they are subjected to compression to determine if the
cement mixture to be poured conforms to accepted standards in construction.^[17]
Carungay was not satisfied with the results of the cylinder test because they
were inconsistent and could easily be falsified by the simple expedient of
replacing the samples with a good mixture although a different mixture had been
used in the actual pouring. Consequently, Carungay requested core testing, a more reliable procedure
because the specimens obtained by extracting concrete from the hardened
existing structure would determine its actual strength. The core test is less prone to manipulation
than the cylinder test because the samples in the former are taken from the building
which is already standing.^[18]

Deiparine vehemently refused to go along with the core test,
insisting that the results of the cylinder test earlier made were conclusive
enough to prove that the building was structurally sound. What was the real reason for this
refusal? After all, Carungay would shoulder the expenses if the specimens
passed the core test, unlike the cylinder test, which was for the petitioner’s
account. The only logical explanation
would be that Deiparine was not sure that the core test would prove favorable
to him.

We see no reason to disturb the factual finding of the courts
below that Deiparine did not deal with the Carungays in good faith. His breach of this duty constituted a substantial violation of the
contract correctible by judicial rescission.

The petitioner challenges the application by the lower court of
Article 1191 of the Civil Code in rescinding the construction agreement. His position is that the applicable rules
are Articles 1385 and 1725 of the Civil Code.

Article 1385 states:

Rescission creates the obligation to return the things which were
the object of the contract, together with their fruits, and the price with its
interest; consequently, it can be carried out only when he who demands
rescission can return whatever he may be obliged to restore.

Article 1725 provides that in a contract for a piece of work:

The owner may withdraw at will from the construction of the work,
although it may have been commenced, indemnifying the contractor for all the
latter’s expenses, work, and the usefulness which the owner may obtain
therefrom, and damages.

Deiparine seems to be confused over the right of rescission,
which is used in two different contexts in the Civil Code.

Under the law on contracts, there are what are called
“rescissible contracts” which are enumerated in Article 1381 thus:

(1) Those which are entered
into by guardians whenever the wards whom they represent suffer lesion by more
than one-fourth of the value of the things which are the object thereof;

(2) Those agreed upon in
representation of absentees, if the latter suffer the lesion stated in the preceding number;

(3) Those undertaken in
fraud of creditors when the latter cannot in any other manner collect the
claims due them;

(4) Those which refer to
things under litigation if they have been entered into by the defendants without the knowledge
and approval of the litigants or of competent judicial authority;

(5) All other contrasts
specially declared by law to be subject to rescission.

Article 1385, upon which Deiparine relies, deals with the
rescission of the contracts enumerated above, which do not include the
construction agreement in question.

There is also a right of rescission under the law on obligations
as granted in Article 1191, providing as follows:

Art. 1191. The power to
rescind obligations is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he
has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third
persons who have acquired the thing, in accordance with articles 1385 and 1388
and the Mortgage Law.

This was the provision the trial court and the respondent court
correctly applied because it relates to contracts involving reciprocal
obligations like the subject construction contract. The construction contract falls squarely under the coverage of
Article 1191 because it imposes upon Deiparine the obligation to build the
structure and upon the Carungays the obligation to pay for the project upon its
completion.

Article 1191, unlike Article 1385, is not predicated on economic
prejudice to one of the parties but on breach of faith by one of them that
violates the reciprocity between them.^[19] The
violation of reciprocity between Deiparine and the Carungay spouses, to wit,
the breach caused by Deiparine’s failure to follow the stipulated plans and
specifications, has given the Carungay spouses the right to rescind or cancel
the contract.

Article 1725 cannot support the petitioner’s position either, for
this contemplates a voluntary withdrawal by the owner without fault on the part
of the contractor, who is therefore entitled to indemnity, and even damages,
for the work he has already commenced. There is no such voluntary withdrawal in the case at bar. On the contrary, the Carungays have been
constrained to ask for judicial rescission because of the petitioner’s failure
to comply with the terms and conditions of their contract.

The other applicable provisions are:

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.

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. Should
the work be not of such quality, the employer may require that the contractor
remove the defect or execute another work. If the contractor fails or refuses to comply with this obligation, the
employer may have the defect removed or another work executed, at the
contractor’s cost.

Article 1727.   The
contractor is responsible for the work done
by persons employed by him.

While it is true that the stress test was not required in any of
the contract documents, conducting the test was the only manner by which the
owner could determine if the contractor had been faithfully complying with his
prestations under their agreement. Furthermore, both parties later
agreed in writing that the core test should be conducted. When the structure failed under this test,
the Carungay spouses were left with no other recourse than to rescind their
contract.

It is a basic principle in human relations, acknowledged in
Article 19 of the Civil Code, that “every person must, in the performance
of his duties, act with justice, give everyone his due, and observe honesty and
good faith.” This admonition is reiterated in Article 1159, which states
that “obligations arising from contracts have the force of law between the contracting parties and should
be complied with in good faith.” The petitioner has ignored these
exhortations and is therefore not entitled to the relief he seeks.

WHEREFORE, the challenged decision is hereby AFFIRMED and the
instant petition for review is DENIED, with costs against the petitioner. For deliberately changing the language of
Section 6(b), paragraph 3, of P.D. No. 1746, Atty. Gregorio B. Escasinas is
hereby fined P1,000.00, with the warning that repetition of a similar
offense will be dealt with more severely. It is so ordered.

SO ORDERED.

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

^[1]
Exhibit “A,” Records, p. 7.

^[2]
TSN, June 9, 1983, p. 19.

^[3]
Exhibits “B” and “19,” Records, Bundle of Exhibits, p. 31.

^[4]
Exhibit “D,” Records, Vol. I, p. 2.

^[5]
Exhibits “E” and “E-1,” Records, Vol. I, p. 4.

^[6]
Exhibits “H” to “H-6,” Records, Vol. I, pp.14-19.

^[7]
Rollo, pp. 362-376.

^[8]
Ibid., pp. 30-37A. Decision penned by Justice Antonio M. Martinez, with Melo and Lapeña, JJ.,
concurring.

^[9]
TSN, January 16, 1985, pp. 77-87; 93-94.

^[10]
TSN, August 17, 1984, pp. 4, 47.

^[11]
TSN, March 17, 1986, pp. 36-40.

^[12]
TSN, January 16, 1985, p. 13.

^[13]
Ibid., pp. 42, 46.

^[14]
Id., pp. 48-51; 104.

^[15]
TSN, August 30, 1984, pp. 70-72.

^[16]
Exhibits “B” and “19,”
Records, Bundle of Exhibits, p. 31.

^[17] TSN, January 3, 1984, p. 21. The definitions are derived from the 1980
Annual Book of ASTM Standards, Part 14.

^[18]
Ibid., pp. 21, 28, 48.

^[19]
Universal Food Corporation v. Court of Appeals, L-29155, May 13, 1970.