In the Philippines, the construction industry is governed by a robust framework of laws primarily found in the Civil Code, supplemented by special laws and the rules of the Construction Industry Arbitration Commission (CIAC). When a contractor fails to complete a project or deviates from agreed specifications, the project owner is not left without recourse.
1. Defining Breach and Abandonment
A breach of contract occurs when a party fails, without legal reason, to comply with the terms of the agreement. In construction, this typically manifests as:
- Delay: Failure to meet the project timeline (mora solvendi).
- Defective Workmanship: Failure to meet quality standards or plans.
- Abandonment: The unilateral cessation of work without a valid cause and with no intention of returning.
Under Article 1170 of the Civil Code, 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.
2. Primary Legal Remedies
The aggrieved owner has several paths under Article 1191 of the Civil Code, which provides the "power to rescind" obligations in reciprocal contracts.
A. Specific Performance
The owner may demand that the contractor fulfill the obligation as stipulated. This is often accompanied by a claim for damages due to the delay. However, in construction, courts rarely force a contractor to physically perform if the relationship has soured; instead, they allow the owner to have the work finished by a third party at the original contractor's expense (Article 1167).
B. Rescission (Resolution)
The owner may seek to cancel the contract entirely. This seeks to restore the parties to their original status before the contract. If the breach is substantial and fundamental—such as total abandonment—rescission is a primary remedy.
C. Substitute Performance
Per Article 1167, if the contractor fails to do what they were bound to do, or does it in contravention of the agreement, the owner can have the work executed by another at the cost of the first contractor. This includes the cost of undoing poor workmanship.
3. Damages and Compensation
An owner can claim various types of damages depending on the circumstances:
| Type of Damage | Legal Basis / Purpose |
|---|---|
| Liquidated Damages | Pre-agreed amounts in the contract (usually 1/10 of 1% of the cost of the unperformed portion for every day of delay). |
| Actual/Compensatory | Proven pecuniary loss, such as the cost of hiring a new contractor or lost rental income. |
| Moral Damages | In cases of breach where the contractor acted fraudulently or in bad faith. |
| Exemplary Damages | Imposed by way of example or correction for the public good, if the contractor acted in a wanton or oppressive manner. |
| Attorney's Fees | Recoverable when the owner is compelled to litigate to protect their interests. |
4. The Role of the CIAC
Most commercial and large-scale construction contracts in the Philippines include an Arbitration Clause. Under Executive Order No. 1008, the Construction Industry Arbitration Commission (CIAC) has original and exclusive jurisdiction over disputes arising from, or connected with, contracts entered into by parties involved in construction in the Philippines.
- Finality: CIAC awards are generally final and unappealable regarding factual findings; only questions of law may be raised before the Supreme Court.
- Speed: Arbitration is typically faster than filing a civil case in the Regional Trial Court (RTC).
5. Contractor’s Liability for Hidden Defects
Even after the project is "turned over," the contractor remains liable under Article 1723 of the Civil Code.
- Structural Collapse: The engineer or architect who drew up the plans is liable for 15 years if the building collapses due to defects in the plans.
- Workmanship: The contractor is likewise liable for 15 years if the collapse is due to defects in construction, use of inferior materials, or violation of contract terms.
- Action Period: The owner must file the legal action within 10 years from the time of the collapse.
6. Procedural Steps for the Owner
To successfully pursue a remedy, the owner should generally follow these steps:
- Notice of Default: Formally notify the contractor of the breach and provide a period to cure the defect (as required by most contracts).
- Documentation: Secure a "Certificate of Non-Completion" or an "Assessment Report" from an independent engineer to document the extent of abandonment or defects.
- Termination: Formally terminate the contract based on the default provisions.
- Demand for Payment: Issue a formal demand for the refund of overpayments or payment of liquidated damages.
- Litigation/Arbitration: File a request for arbitration with the CIAC or a complaint with the RTC, depending on the contract’s dispute resolution clause.