In characterizing contracts as having the force of law between the parties, the law stresses the

obligatory nature of a binding and valid agreement (William Golangco Construction Corporation vs. Phil.
Commercial International Bank, 485 SCRA 293 [2006].), absent any allegation that it is contrary to law,
morals, good customs, public order, or public policy. (Art. 1306.) De Leon, p.13.

Article 1159 – Binding Force

WILLIAM GOLANGCO CONSTRUCTION CORPORATION, petitioner, vs. PHILIPPINE COMMERCIAL

INTERNATIONAL BANK, respondent, G.R. No. 142830, 24 March 2006, Corona [J].

Facts: William Golangco Construction Corporation (WGCC) and the Philippine Commercial
International Bank (PCIB) entered into a contract for the construction of the extension of PCIB Tower II
(denominated as PCIB Tower II, Extension Project [project]) on October 20, 1989. The project included,
among others, the application of a granitite wash-out finish on the exterior walls of the building.
PCIB, with the concurrence of its consultant TCGI Engineers (TCGI), accepted the turnover of the
completed work by WGCC in a letter dated June 1, 1992. To answer for any defect arising within a period
of one year, WGCC submitted a guarantee bond dated July 1, 1992 issued by Malayan Insurance
Company, Inc. in compliance with the construction contract.
The controversy arose when portions of the granitite wash-out finish of the exterior of the
building began peeling off and falling from the walls in 1993. WGCC made minor repairs after PCIB
requested it to rectify the construction defects with another contractor amounting to over Php11M.
PCIB filed a petition to reimburse the expenses it incurred from the repair work against WGCC to
the Construction Industry Arbitration Commission (CIAC). The CIAC ruled in favor of the petitioner.
Hence this petition.

Issue: Whether WGCC is still liable to the repair work of the defects found int the building

Ruling: No, WGCC is no longer liable.

The autonomous nature of contracts is enunciated in Article 1306 of the Civil Code. Article 1306.
The contracting parties may establish such clauses, terms and conditions as they may deem convenient,
provided they are not contrary to law, morals, good customs, public order, or public policy. Obligations
arising from contracts have the force of law between the parties and should be complied with in good
faith. In characterizing the contract as having the force of law between the parties, the law stresses the
obligatory nature of a binding and valid agreement.
Here, it is expressly stated in the contract that “defects liability period was precisely to give
PCIB additional, albeit limited, opportunity to oblige WGCC to make good any defect, hidden or
otherwise, discovered within one year.” 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 lower courts conjectured that the peeling off
of the granitite wash-out finish was probably due to “defective materials and workmanship.” This they
characterized as hidden or latent defects. We, however, do not agree with the conclusion that the
alleged defects were hidden.

Fallo: WHEREFORE, the petition is hereby GRANTED. The decision of the Court of Appeals in CA-G.R.
SP No. 41152 is ANNULLED and SET ASIDE. SO ORDERED.