Construction Contract Breach by the Contractor or Architect in the Philippines
A comprehensive legal guide (2025 edition)
1. Overview
In Philippine law, a construction contract (often called a contract for a piece of work or contractor’s agreement) is governed primarily by Book IV, Title XV, Chapter 3 of the Civil Code (Arts. 1713-1723), supplemented by special statutes (e.g., E.O. 1008, RA 9184, RA 9266, RA 4566) and the parties’ written agreement. A breach occurs when (a) the contractor, architect, or engineer fails to perform an obligation, or (b) performs it defectively or tardily, causing loss or damage to the owner or project developer.
2. Sources of Legal Obligations
| Level | Key Provisions / Instruments | Remarks |
|---|---|---|
| Civil Code | Arts. 1713-1723 (contract for works); Arts. 1170-1174, 1191 (breach, rescission, damages); Art. 1144 (10-year prescriptive period for written contracts) | Default rules; parties may vary most obligations except those set by law for public order. |
| Special Laws | • E. O. 1008 (1985) – creates CIAC for mandatory arbitration of construction disputes. • RA 9266 (2004) – Architecture Act; Code of Ethical Conduct. • RA 4566 (1965) – Contractor’s License Law. • RA 9184 (2003) – Government Procurement Reform Act (public projects). |
These define licensing, professional conduct, public-sector rules. |
| Building Codes & Regulations | PD 1096 (National Building Code) + IRR; NBCP; LGU ordinances; DPWH specs. | Prescribe minimum technical standards; violation may constitute breach. |
| Professional Contracts & Industry Forms | CIAP Form Agreements (CIAP Docs. 201, 102, 301); FIDIC-adapted forms. | Often incorporated expressly; gaps are filled by Civil Code. |
| Jurisprudence | Nakpil & Sons v. CA (G.R. L-47851, 1986); F.F. Cruz v. CA (G.R. 77623, 1992); Heirs of Malate v. GMO Builders (G.R. 215091, 2019); many others. | Clarify liability tests, force-majeure defenses, prescription. |
3. Obligations of the Parties
3.1 Contractor
- Construction in strict accordance with plans, specs, timetable, laws, and professional standards (Arts. 1715-1716).
- Use first-class materials unless otherwise agreed (Art. 1715).
- Guarantee works for hidden defects / structural soundness – liable if collapse or major defect occurs within 15 years from completion (Art. 1723).
- Personnel, safety, permits, performance bonds, insurance (often contractual/ statutory requirements).
- Turn-over & defects-liability period (DLP) – usually 1 year after final acceptance; contractor must repair at own cost.
3.2 Architect / Engineer of Record (A/E)
- Prepare accurate plans & specifications with diligence of a good father of a family (Art. 1173).
- Coordinate & supervise construction if so engaged; otherwise, their duty centres on design (Art. 1723 ¶2).
- Professional Regulations Commission (PRC) Code – fidelity to safety, building code compliance.
- Solidary liability with contractor if the A/E also supervises or tacitly acquiesces in deviations (Art. 1723 last ¶).
4. What Constitutes a Breach?
| Category | Examples | Notes |
|---|---|---|
| Material/ Fundamental Breach | Deviation from structural specs; use of sub-standard rebar; unjustified stoppage; collapse of a portion of the structure. | Gives owner right to rescind, engage third party at contractor’s cost, claim full damages. |
| Minor / Remediable Breach | Hairline cracks, paint discoloration, late delivery within tolerances. | Owner must usually allow notice-and-opportunity-to-repair (Art. 1654 analog, CIAP Doc 201). |
| Delay (Mora) | Exceeding agreed milestones or completion date without excusable cause. | Triggers liquidated damages (usually ⁓ 0.10% of contract price per calendar day) or actual damages. |
| Legal / Statutory Breach | Working without PCAB license (RA 4566); non-compliance with safety laws; failure to secure building permit. | May nullify contract, expose contractor to fines & criminal penalties. |
| Professional Negligence | Architect miscalculates load; engineer ignores soil report. | Gives rise to quasi-delict liability (Art. 2176) in addition to contractual breach. |
5. Liability Rules under Article 1723
| Person | Triggers | Window | Standard | Prescriptive Period* |
|---|---|---|---|---|
| Architect / Engineer (designer) | Collapse within 15 yrs due to defects in plan, specs, or foundation. | 15 yrs from completion. | Strict – negligence presumed; they must prove external cause. | 10 yrs from date of collapse (Art. 1144) |
| Contractor | Collapse within 15 yrs due to defective construction, materials, or contract violations. | Same. | Same. | Same. |
*The SC in Nakpil paired Art. 1723 with Art. 1144 (10-year filing period). For latent (hidden) defects not causing collapse, ordinary actions for breach prescribe in 10 yrs from acceptance.
6. Defenses Commonly Invoked
- Force Majeure – must be truly unforeseeable & irresistible (Nakpil: flood + earthquake held insufficient because poor design magnified damage).
- Owner’s Design or Material Specification – contractor not liable if he warned owner in writing and owner insisted (Art. 1715, 1717).
- Compliance with Approved Change Orders – workmanship consistent with owner-approved variations.
- Prescription / Laches – action filed beyond 10 years or after DLP without timely notice.
- Independent Third-Party Acts – e.g., sabotage; but burden is on defendant to prove causal link.
7. Remedies of the Aggrieved Owner / Developer
| Remedy | Authority / Basis | Procedural Notes |
|---|---|---|
| Specific Performance | Art. 1165 | Compel contractor to finish or rectify. |
| Rescission / Termination | Art. 1191 & contract clauses | Often accompanied by forfeiture of performance bond. |
| Liquidated Damages | Contract (CIAP Doc 201 §10.4) | Daily LD until completion, capped (typ. 10-15% CP). |
| Actual & Consequential Damages | Arts. 1170-1174 | Must be proved with receipts, expert report. |
| Moral & Exemplary Damages | Arts. 2219-2220, 2232 | For bad faith, fraud, gross negligence. |
| Attorney’s Fees & Costs | Art. 2208 | Awarded when validly stipulated or Defendant acts in bad faith. |
| Retention of Unpaid Progress Billings | CIAP Doc 201 §11 | Up to 10% until issuance of Certificate of Acceptance. |
8. Dispute Resolution Pathways
- Engineer/Architect/Project Manager’s Decision – initial dispute step under most standard forms (14-day window to contest).
- Mediation – optional but encouraged; certain LGUs provide Katarungang Pambarangay for small disputes.
- CIAC Arbitration (E.O. 1008) – mandatory once one party elects; award in ~6 months; appealable only on questions of law to the Court of Appeals (Rule 43) then SC.
- Regular Courts – only if parties did not agree to CIAC or dispute is outside “construction dispute” definition, or for enforcement/annulment of arbitral award.
- Small Claims Court – if claim ≤ ₱ 1 million and meets Rule SMC requisites (rare for construction).
9. Prescription Cheat-Sheet
| Cause of Action | When Clock Starts | Period |
|---|---|---|
| Collapse liability (Art. 1723) | Date of collapse | 10 yrs |
| Hidden defects (non-collapse) | Date of acceptance / discovery | 10 yrs |
| Delay claims (liquidated damages) | Date of default notice | 10 yrs |
| Quasi-delict vs. third parties | Date of injury | 4 yrs |
| CIAC arbitration | Governed by above substantive limits; but must file Statement of Claim per CIAC Rules. |
10. Selected Supreme Court Cases
| Case | G.R. No. | Key Take-aways |
|---|---|---|
| Nakpil & Sons v. CA | L-47851 (Oct 3 1986) | Force majeure does not exculpate contractor/architect if they failed to observe “necessary or usual precautions.” |
| F.F. Cruz & Co. v. CA | 77623 (Mar 23 1992) | Builder stood liable for settlement cracks; prescriptive period counted from delivery, not discovery of defect. |
| Stronghold Ins. v. Tokyu Construction | 147561 (Jan 25 2006) | Surety remains solidarily liable up to penal sum; arbitration award binds surety. |
| Heirs of Malate v. GMO Builders | 215091 (Jan 31 2019) | Art. 1723 applies to residential buildings; 15-year window strictly counted from completion. |
11. Practical Compliance Blueprint
- Draft clear scopes & deliverables – reference CIAP Docs., adopt BIM for clash detection.
- Secure PCAB license & taxes – unlicensed contracting voids contract and bars recovery (except in equity).
- Maintain detailed site diaries & QA/QC records – crucial for defense or claim substantiation.
- Serve timely notices (delay, unforeseen conditions, variation orders) – preserve rights.
- Obtain adequate insurance – Contractor’s All-Risk (CAR), liability, professional indemnity.
- Conduct joint inspections before turnover – punch-list, defects-liability obligations.
12. Frequently Asked Questions
| Question | Short Answer |
|---|---|
| Can the owner sue both contractor and architect at the same time? | Yes; liability may be solidary if architect supervised, or concurrent if separate faults align. |
| Is the 15-year guaranty waivable? | No; Art. 1723 is a matter of public interest. Any waiver in advance is void. |
| Must I arbitrate with CIAC? | If the dispute “arises from or is connected with a construction contract” and one side opts for CIAC, arbitration is compulsory under E.O. 1008. |
| What if defects show up after 15 years? | Ordinary warranty expires; action may still lie in tort for gross negligence, but success is unlikely absent fraud. |
| Do liquidated damages need proof of loss? | No; but offending party may seek reduction if manifestly unconscionable under Art. 1229. |
13. Conclusion
Breach of a construction contract in the Philippines engages a layered legal framework: civil-law warranties, statutory safeguards, professional codes, and arbitration protocols. Both contractors and architects/engineers bear heavy—but defeasible—responsibilities that extend well beyond project completion. Owners, for their part, must observe contractual notice procedures and timely assert their rights. Knowing these rules not only reduces litigation risk but also promotes robust, safe, and economically efficient construction outcomes.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Consult a licensed Philippine lawyer for advice on specific cases.