In the Philippine construction industry, the relationship between a project owner and a contractor is governed by the Civil Code, specialized construction laws, and the specific terms of the construction contract. When a contractor abandons a project or delivers substandard work, the owner is not without recourse.
The following are the primary legal avenues and remedies available under Philippine law.
1. Breach of Contract and Rescission
Under Article 1191 of the Civil Code, the power to rescind obligations is implied in reciprocal ones, such as construction agreements. If a contractor fails to comply with their substantial obligations—such as finishing the project on time or adhering to specifications—the owner has two choices:
- Specific Performance: Demanding that the contractor fulfill the obligation (finish the work or fix the defects) with payment of damages.
- Rescission (Resolution): Seeking the cancellation of the contract with payment of damages.
If a contractor abandons the work, the owner may treat the contract as breached, terminate the engagement, and hire a third party to complete the project at the original contractor's expense.
2. Liability for Poor Workmanship
The Civil Code provides specific protections against structural defects and poor execution of work:
Article 1723 (15-Year Liability): The engineer or architect who drew up the plans and specifications is liable for damages if, within fifteen (15) years from the completion of the structure, the same should collapse due to a defect in those plans or the ground.
Crucially, the contractor is also held liable for the same period if the edifice falls due to defects in construction, use of materials of inferior quality, or any violation of the terms of the contract.
Article 1715: If the contractor does not execute the work in the manner stipulated, the owner may demand that the contractor execute it again at their own expense. If the contractor fails to do so, the owner may have it done by another person at the contractor’s expense.
3. Damages Recoverable
An aggrieved owner may seek various types of damages under the Civil Code (Articles 2195 to 2235):
| Type of Damage | Description |
|---|---|
| Actual or Compensatory | Covers the cost of hiring a new contractor, repairing defects, and any documented financial loss resulting from the delay or abandonment. |
| Liquidated Damages | Pre-agreed amounts stated in the contract (e.g., a specific penalty for every day of delay). Philippine courts generally uphold these unless they are proved to be iniquitous or unconscionable. |
| Moral Damages | May be awarded if the contractor acted in bad faith, with gross negligence, or in a fraudulent manner. |
| Exemplary Damages | Imposed by way of example or correction for the public good, typically if the contractor acted in a wanton, fraudulent, or oppressive manner. |
| Attorney’s Fees | Recoverable when the contractor's act or omission has compelled the owner to litigate with third persons or to incur expenses to protect their interest. |
4. Venue for Dispute Resolution
Construction Industry Arbitration Commission (CIAC)
By virtue of Executive Order No. 1008, if the construction contract contains an arbitration clause, the dispute falls under the jurisdiction of the CIAC. Even if the contract does not explicitly mention CIAC, if there is a general agreement to submit disputes to arbitration, the CIAC assumes jurisdiction. This is often a faster and more technical alternative to regular courts.
Civil Courts
In the absence of an arbitration agreement, the owner must file a civil action for "Sum of Money and Damages" or "Breach of Contract" in the Regional Trial Court (RTC) or Municipal Trial Court (MTC), depending on the amount involved.
5. Criminal Liability: Estafa
While construction disputes are primarily civil in nature, a contractor may be held criminally liable for Estafa under Article 315 of the Revised Penal Code if it can be proven that the contractor:
- Used deceit or false representations to obtain an advance payment.
- Misappropriated or converted the funds for personal use instead of purchasing materials or paying labor for the project.
- Had no intention of finishing the work from the outset.
6. Administrative Sanctions (PCAB)
The Philippine Contractors Accreditation Board (PCAB) oversees the licensing of contractors. An owner can file an administrative complaint against a licensed contractor for:
- Willful abandonment of the project without reasonable cause.
- Gross negligence or incompetence in the performance of work.
- Misrepresentation in obtaining the license.
Penalties may include the suspension or revocation of the contractor’s license, effectively barring them from legally operating in the Philippines.
Summary of Steps for Owners
- Notice of Default: Formally write to the contractor (via registered mail) demanding they remedy the workmanship or return to the site.
- Documentation: Take photos/videos of the current state of the project and hire an independent engineer to conduct a "Joint Inspection" or a "Technical Audit" to quantify the remaining work and defects.
- Notice of Termination: Officially terminate the contract based on the breach.
- Demand Letter: Issue a final demand for the refund of overpayments, costs of repair, and damages before filing a formal suit.