016 Tan v GVT Engineering Services

G.R. No. 153057 August 7, 2006

TOPIC: Essential Characteristics of Agency
PONENTE: Austria-Martinez, J.

AUTHOR: Jade
NOTES: Please see Case Law/Doctrine portion for other
issues not related to Agency

FACTS:

18 October 1989 spouses George and Susan Tan entered into a contract with GVT Engineering Services ,
through its manager/owner Gerino Tactaquin for the construction of their residential house at Ifugao St., La Vista,
Quezon City. The contract price was P1.7M.
Tan have no knowledge about building construction so they hired Engr. Rudy Cadag to supervise the said
construction.
In the course of the construction, Tan caused several changes in the plans and specifications and ordered the
deletion of some items in GVTs scope of work.
These changes brought about differences between Tan and Cadag and Tactaquin. Subsequently, Tactaquin stopped
the construction of the subject house.
4 December 1990 GVT, through Tactaquin, filed a complaint for specific performance and damages against Tan
and Cadag with the QC RTC contending that due to the changes in the plans and specifications of the construction
project, GVT was forced to borrow money from 3rd persons at exorbitant interest; that several portions of their
contract were deleted only to be awarded later to other contractors; and that due to Tans delay in the delivery of
construction materials on the jobsite, GVT suffered tremendous delay in the completion of the project these acts
caused undue damage and prejudice to GVT
Tan and Cadag filed their Answer with Counterclaims alleging that GVT performed several defective works and to
avert further losses, Tan deleted some portions of the project covered by GVTs contract and awarded other
portions to another contractor and that the changes were agreed upon by the parties; It was also alleged that GVT
is a single proprietorship and cannot be a party in a civil action.
The trial court ruled that Tans and Cadags conclusions as to the workmanship and competence of GVT are
unsupported and without basis and that their act of deleting several major items from GVTs scope of work is
uncalled for, if not done in bad faith and these acts forced GVT to withdraw from the project. Tan and Cadag were
ordered to pay GVT jointly and severally and their counterclaims were dismissed:
a. the sum of P366,340.00 representing the balance of the contract price;
b. the amount of P49,578.56 representing the 5% retention fee;
c. the amount of P45,000.00 as moral damages;
d. the amount of P100,000.00 for and as attorneys fees; and
e. the amount of P17,000.00 as litigation expenses.
Tan appealed with the CA contending that the trial court erred in its decision. The CA affirmed the judgment of the
trial court with modification the case against Cadag was dismissed and the awards for moral damages,
attorneys fees and litigation expenses were deleted.
Both parties moved for partial reconsideration but these were denied by the CA.
Tan filed a petition for review on certiorari to the Supreme Court.

ISSUE(S): Whether or not Cadag is liable to GVT

HELD: There was no allegation that Cadag exceeded his authority as agent of Tan. As agent, all his acts are considered as
those of his principal, the spouses Tan, who are, therefore, the ones answerable for such acts.
RATIO:
Petitioners arguments:
Tactaquin consented and acquiesced to the changes and alterations made in the plan of the subject house, he cannot
complain and discontinue the construction of the said house. Tan asserted that it would be unfair and unjust for
them to be required to pay the amount of the cost of the remaining unfinished portion of the house after it was
abandoned by Tactaquin unjust enrichment at their expense.
Retention fee is payable only after the house is completed and turned over to them. GVT never completed the
house and therefore, not entitled to the retention fee.

GVT failed to prove that it is entitled to actual damages.

Tan only relied upon and followed the advice and instructions of Cadag whom they hired to supervise the
construction of their house.
GVT is a sole proprietorship and has no legal personality to institute the complaint with the trial court.
Under their contract, GVT agreed that they can employ only labor in the construction of the subject house and that
Tan shall supply the materials. It was an error on the part of the CA and the trial court to award the remaining
balance of the contract price to GVT despite the fact the some items from the GVTs scope of work were deleted
with its consent and due to deletion, GVT should not be compensated for the work it has not accomplished.
The value of the deleted items should be deducted from the original contract price.
The delay in the construction is due to GVTs failure to pay wages of its workers who in turn, refused to work;
Tan were forced to pay the workers wages.

Respondents arguments:
The CA and the trial court both found that the petitioners are the ones responsible for breach of contract, for
unjustified deletion of items agreed upon and delay in delivery of construction materials never rebutted by
contrary evidence.
The dismissal of the case against Cadag is based on the fact that there is no privity of contract between him and
respondent.
Liability of Cadag (related to ATP)
Tan could not argue that since Cadag was absolved by the court from liability, Tan should not also be held liable.
The Court finds no error on the part of the CA in ruling that it is a basic principle in civil law that contracts can only bind
the parties who had entered into it and it cannot favor or prejudice 3 rd persons. Contracts take effect only between the
parties, their successors in interest, heirs and assigns. Every cause of action ex contractu must be founded upon a contract,
oral or written, either express or implied.
In this case, GVTs complaint was based on Tans failure to faithfully comply with the provisions of their contract. Cadag
is not a party to this contract. He did not enter into any contract with GVT regarding the construction of the said house.
Considering that GVTs cause of action was breach of contract and since there is no privity of contract between GVT and
Cadag, Cadag should not be made to answer for Tans default.
Cadag was employed by the spouses to supervise the construction of their house. His role is merely that of an agent. The
essence of agency being the representation of another, it is evident that the obligations contracted are for and on behalf of
the principal. A consequence of this representation is the liability of the principal for the acts of his agent performed within
the limits of his authority that is equivalent to the performance by the principal himself who should answer therefor. In the
present case, since there is neither allegation nor evidence that Cadag exceeded his authority, all his acts are considered as
those of his principal, the spouses Tan, who are, therefore, the ones answerable for such acts.

CASE LAW/ DOCTRINE:

Lack of legal personality to sue
It is true that GVT is not vested with a legal personality to bring suit or defend an action in court. Records show that the
case was captioned as GVT acting through its owner/manager Gerino V. Tactaquin. However, several allegations in the
complaint show that the suit is actually brought by Tactaquin. Averments therein refere to the plaintiff as a natural person.
In fact, one of the prayers in the complaint is for the recovery of moral damages. It is a settled rule that juridical persons
are not entitled to moral damages because it cannot experience physical suffering or sentiments. From such prayer, it can
be inferred that it was actually Tactaquin who is the complainant and the proper caption should be Gerino Tactaquin
doing business under the name and style of GVT. However, there are matters of form and this defect is found to me
technical only which does not affect jurisdiction.
Breach of Contract
GVT did not refute Tans contention that he consented and acquiesced to Tans decision to change or alter the construction
plan of the subject house but respondent contended that he did not agree to the deletion of some of the items of work
covered by their contract. The Court upheld the factual findings of the trial court and CA with respect to Tans liability for

breach of contract factual findings of the trial court, when affirmed by the CA are generally binding on SC.
There is no question that petitioners are liable for damages for breach of contract (Art. 1170 of the Civil Code). Moreover,
the Court agreed with the trial court that GVT performed its obligations in good faith and entitled to recover as though
there had been strict and fulfillment less damages suffered by the obligee (Art. 1234 of the Civil Code). It is not disputed
that GVT withdrew from the project on 23 November 1990. It gave Tan its 22 nd billing on 29 October 1990 where the
approximated percentage of work completed as 74% and the portion of the contract paid by Tan so far was P1,265,660.60.
This was not disputed by Tan.
Petitioners are also guilty of breach of contract by deleting items from GVTs scope of work and value of those items
should be credited in GVTs favor.
Retention fee
GVT was not able to complete the project but this failure was not due to his fault but because he was forced to withdraw
therefrom by reason of the breach committed by petitioners. At the time GVT withdrew from the contract, it has already
performed in good faith a substantial portion of his obligation. Considering that he was not at fault, the law provides that
he is entitled to recover s though there has been a strict and complete fulfillment of his obligation. Therefore, GVT is
entitled to the recovery of 5% retention fee.
DISSENTING/CONCURRING OPINION(S):