Heirs of Ramon C. Gaite vs. The Plaza Inc. and FGU Insurance Corp.

Heirs of Ramon C. Gaite vs. The Plaza, Inc. & FGU Insurance Corp.
G.R. No. 177685 | Villarama Jr., J. | Jan. 26, 2011
DOCTRINE:
Reciprocal obligations are those which arise from the same cause, and in which each party is a
debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation
of the other. They are to be performed simultaneously such that the performance of one is
conditioned upon the simultaneous fulfillment of the other.
FACTS:
On July 16, 1980, The Plaza, Inc. (The Plaza), a corporation engaged in the restaurant business,
through its President, Jose C. Reyes, entered into a contract with Rhogen Builders (Rhogen),
represented by Ramon C. Gaite, for the construction of a restaurant building in Greenbelt, Makati,
Metro Manila for the price of P7,600,000. On July 28, 1980, The Plaza paid P1,155,000 down
payment to Gaite and soon after Rhogen commenced construction of the restaurant building.
Two months later, Engr. Angelito Z. Gonzales, the Acting Building Official of the Municipality of
Makati, ordered Gaite to cease and desist from continuing with the construction of the building for
violation of The National Building Code.
The Plaza’s Project Manager Architect Roberto evaluated the Progress Billing and Tayzon stated
that actual jobsite assessment showed that the finished works fall short of Rhogen’s claimed
percentage of accomplishment and Rhogen was entitled to only P32,684.16 and not P260,649.91
being demanded by Rhogen. On the same day, Gaite notified Reyes that he is suspending all
construction works until Reyes and the Project Manager cooperate to resolve the issue he had
raised to address the problem.
Gaite informed The Plaza that he is terminating their contract based on the Contractor’s Right to
Stop Work or Terminate Contracts as provided for in the General Conditions of the Contract
and demanded the payment of P63,058.50 representing the work that has already been completed
by Rhogen. Reyes also informed Gaite that The Plaza will continue the completion of the structure
utilizing the services of a competent contractor but will charge Rhogen for liquidated damages as
stipulated in Article VIII of the Contract
The Plaza filed a civil case for breach of contract, sum of money and damages against Gaite and FGU
in the Court of First Instance (CFI) of Rizal. The RTC Makati rendered its decision granting in favor
of the Plaza against Gaite. The Court of Appeals affirmed such decision with modification.
ISSUE:
Whether or not the contract between The Plaza and Rhogen provides for a reciprocal obligation
which gives the latter valid grounds for contract termination pursuant to Article 1192 of the New
Civil Code. – YES.
HELD:
Reciprocal obligations are those which arise from the same cause, and in which each party is a
debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation
of the other. They are to be performed simultaneously such that the performance of one is
conditioned upon the simultaneous fulfillment of the other. Respondent The Plaza predicated its
action on Article 1191 of the Civil Code, which provides for the remedy of "rescission" or more
properly resolution, a principal action based on breach of faith by the other party who violates the
reciprocity between them. The breach contemplated in the provision is the obligor’s failure to
comply with an existing obligation. Thus, the power to rescind is given only to the injured party.
The injured party is the party who has faithfully fulfilled his obligation or is ready and willing to
perform his obligation.
The construction contract between Rhogen and The Plaza provides for reciprocal obligations
whereby the latter’s obligation to pay the contract price or progress billing is conditioned on the
former’s performance of its undertaking to complete the works within the stipulated period and in
accordance with approved plans and other specifications by the owner. Pursuant to its contractual
obligation, The Plaza furnished materials and paid the agreed down payment. It also exercised the
option of furnishing and delivering construction materials at the jobsite pursuant to Article III of
the Construction Contract. However, just two months after commencement of the project,
construction works were ordered stopped by the local building official and the building permit
subsequently revoked on account of several violations of the National Building Code and other
regulations of the municipal authorities.
Significantly, Rhogen did not mention in its communications to Reyes that Gaite was merely a
victim of abuse by a local official and this was the primary reason for the problems besetting the
project. On the contrary, the site appraisal inspection conducted on February 12 and 13, 1981 in the
presence of representatives from The Plaza, Rhogen, FGU and Municipal Engineer Victor Gregory,
disclosed that in addition to the violations committed by Rhogen which resulted in the issuance of
the stoppage order, Rhogen built the structure not in accordance with government approved plans
and/or without securing the approval of the Municipal Engineer before making the changes
thereon.
Such non-observance of laws and regulations of the local authorities affecting the construction
project constitutes a substantial violation of the Construction Contract which entitles The Plaza to
terminate the same, without obligation to make further payment to Rhogen until the work is
finished or subject to refund of payment exceeding the expenses of completing the works.
Upon the facts duly established, the CA therefore did not err in holding that Rhogen committed a
serious breach of its contract with The Plaza, which justified the latter in terminating the contract.
Petitioners are thus liable for damages for having breached their contract with respondent The
Plaza. Article 1170 of the Civil Code provides that those who 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.
WHEREFORE, the petition is DENIED. The Decision dated June 27, 2006 and the Resolution dated
April 20, 2007 of the Court of Appeals in CA-G.R. CV No. 58790 are AFFIRMED.
With costs against petitioners.
SO ORDERED

Heirs of Ramon C. Gaite vs. The Plaza Inc. and FGU Insurance Corp.

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Heirs of Ramon C. Gaite vs. The Plaza, Inc. & FGU Insurance Corp.

G.R. No. 177685 | Villarama Jr., J. | Jan. 26, 2011

With costs against petitioners.

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