SECOND DIVISION

[G.R. No. 26482. March 31, 1927.]

In the matter of the involuntary insolvency of Romulo

Machetti. EL HOSPICIO DE SAN JOSE, claimant-appellee, vs.
FINDLAY MILLAR TIMBER CO., ANG LENG, LEE QUI CHICAN,
and ESTEBAN PALO MARIA, objector-appellants.

Jos. N. Wolfson and Ohnick & McFie for appellants.

Feria & La O and Ramon R. San Jose for appellee.

SYLLABUS

1. CONTRACT; BUILDING CONTRACT; PAYMENTS MADE UPON

ARCHITECT'S CERTIFICATE; ESTOPPEL OF OWNER TO CLAIM DAMAGES FROM
CONTRACTOR. — In the absence of express stipulation to such effect, the
owner of a building constructed by a building contractor is not estopped from
claiming damages for inefficient construction by the circumstance that the
cost of construction has been paid to the contractor, before discovery of
defects, upon certificates as to progress of the work issued by the architect
representing the owner.

DECISION

STREET, J : p

This is an appeal from an order of the Court of First Instance of the City
of Manila in the matter of involuntary insolvency of Romulo Machetti,
allowing the claim of El Hospicio de San Jose against the insolvent in the
amount of P124,342.37, with lawful interest from November 18, 1922, and
with costs. In the court below the claim was opposed by Findlay Millar
Timber Co. and other Hospicio de San Jose vs. Findlay Millar Timber Co.
creditors of the insolvent, and by them the appeal is prosecuted in this court.
On July 17, 1916, the insolvent Romulo Machetti, then a building
contractor, entered into a contract with the claimant El Hospicio de San Jose,
by which he agreed to construct a building at 97-121 Rosario Street, District
of Binondo, in the City of Manila, according to the plans drawn up by
claimant's architects, Arellano Hermanos, which plans were expressly
incorporated in the contract. On October 19, 1916, the same parties made
another contract for the construction by the insolvent of warehouses in the
rear of the buildings then in construction on Rosario Street. These
warehouses were also to be built in conformity with plans drawn by the
claimant's architects, and, except as otherwise expressly specified, in
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 conformity with the stipulations contained in the first contract.
Among the provisions included in the main contract is one relative to
the manner of making payments to the contractor for work done, the
substance of which is that payment for work done during the progress of
construction shall be made at the end of each month in an amount
equivalent to 80 per cent of the value of the work accomplished during the
month, said payment to be made upon appraisal of the owner's architects
(art. 13). Delivery and reception of the work is dealt with in two articles of
the contract as follows:
"ART. 17. Recepcion de las obras. — La recepcion de las
obras sera hecha de conformidad con lo que se establece despues.
Debera constar de dos partes: Recepcion provisional y recepcion
definitiva, precediendo a la primera la liquidacion de las obras y
quedando en poder del propietario un veinte por ciento (20%) del
importe de la contrata para responder de los defectos que pudiera
encontrarse al hacer la recepcion definitiva.
"ART. 18. Recepcion definitiva.— La recepcion provisional se
hara en cuanto las obras especificadas en este contrato se hallen
completamente terminadas y la recepcion definitiva dos meses
despues, cesando despues de dicharecepcion definitiva toda
responsabilidad del contratista respecto a la obra."
From these provisions it will be seen that El Hospicio de San Jose was
at liberty to hold back 20 per cent of the value of the work done until it
should definitely receive the finished work, when the entire amount would be
paid.
During several months following the making of the above contracts,
work was prosecuted thereunder by the contractor and payments made by
the owner upon certification as to the progress of the work by the architects,
until in January, 1917, when the entire compensation for work done under
the major contract had been completely paid. Under the second contract
there still remains nominally due to the contractor the amount of P4,976.08,
which has been retained by El Hospicio de San Jose on account of defective
construction. After the stage above-mentioned had been reached,
application was made to the city engineer for approval of the work on
Rosario Street, but an examination revealed the fact that the building was
defectively constructed and for the most part unsafe for occupation. This led
to a careful inquiry into the condition of the structure and the character of
the materials used therein. The exact state of affairs is fully revealed in the
graphic statements of an engineer and builder. Mr. W. J. Odom, who was
called in to remedy the defects of the structure in order to satisfy the terms
of the con- tract and the requirements of the city engineer. The following
excerpts from the testimony of Odom shows what had to be done by him and
the nature of the troubles which he was called upon to remedy:
"The beams which had been constructed defectively by the
previous contractor, Mr. Machetti, who had the contract, were
removed. Some of the foundations were removed as being nothing
more than steel sticking down in the dirt with no concrete around
them. New beams, properly designed beams, were put in. Some of
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 the beams which were removed were nothing more than concrete,—
just a mixture of gravel, lime and cement, with no steel, not one bar
of steel.
"The floor slabs and roof slabs were so badly deflected that by
placing the beam as it was originally designed on the Arellano
Hermanos plans it would not straighten the floor slab. The deflection
had gone so far that one beam across the center of the store, or even
the second floor, would not take the deflection out of the slab, so I
placed another beam through the center in the opposite direction,
which answered the purpose, and which did remove the deflection,
that is, as much as possible to do so.
"As near as I can give it to you, there were several foundations
knocked down where the steel was exposed and sticking in the dirt,
which required the foundations to be removed, and new foundations
placed in a proper manner. Many of the columns from the foundation
to the second floor were removed, due to the fact that they were
badly cracked and opened up, and new properly constructed columns
were put in their places, with proper material. I think all the beams on
the second floor, including the roof slab, were removed. The roof slab
was so badly cracked, due to deflection of the slab, that it was
necessary to remove it. We could not save it, — it was an
impossibility, and it was removed and replaced with proper mixture of
concrete. Of course, the front wall in many places was bulging out
where in some places he had put two or two and one-half inches of
plaster on the out-side of the concrete, and it did not stick and left the
concrete, and was loose from the body of the structure, and had it
fallen, which it surely would have done, it would have been
dangerous to the people in the street. The parapet wall, — there was
no connection between it and the structure itself. It simply set on the
face of the building, and was leaning out on the street about eight
inches, and the city engineer ordered it removed, which was done,
and a new parapet wall put on. As I remember it, that was all that
was done on the main building. . . ."
The work of repairing the defective construction was done by Mr. Odom
upon a contract for compensation calculated at the rate of 10 per cent of the
necessary outlay, with the result that the remedying of the defects in
Machetti's work cost the owner the sum of P57,342.37. Each of the two
contracts contained a penalty clause stipulating for the payment, in case of
the major contract, of P150 per day for delayed construction, and in case of
the second contract, at the rate of P50 per day. Upon taking account of the
delay that occurred in this case, in relation with the stipulations mentioned,
the penalties to which El Hospicio de San Jose is entitled amount to P95,000.
But from this the referee and court below deducted P28,000 which had
accrued to the owner from the rental of part of the property on Rosario
Street, leaving only P67,000 due upon account of the penalties and
P57,342.37 upon cost of repair and completion, making a total of
P124,342.37 for which the lower court gave judgment as stated at the
beginning of this opinion.
After this claim had been put in against Machetti in the insolvency
proceeding, a referee (Mr. A. D. Tanner) was appointed with the consent of
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 the parties concerned and his findings were afterwards adopted by the Court
of First Instance. This report has considerable importance in the case, from
the light which it sheds upon various aspects of the controversy; and we
therefore incorporate a portion thereof in this opinion, beginning with
paragraph 5 of said report and continuing to the end:
"(5) During the month of April, 1917, and after the receipt
by Mr. Miguel Velasco, who was acting on behalf of the claimant, of
letter, Exhibit H from the city engineer, it was discovered that the
work done by Machetti on the 'accesorias' as also on the 'bodegas'
was defective, either because of the inferior grade of materials used
or as not being in accordance with the plans and specifications. The
city engineer refused to issue the final certificate of inspection but, on
the contrary ordered certain portions of the buildings removed or
replaced and others reconstructed or reinforced, inasmuch as the
buildings were endangering or might endanger the lives of persons
occupying the same or passing in the proximity;
"(6) To remedy these defects and to correct the faulty
construction done by Machetti, it became necessary for the claimant
to employ another contractor, and Mr. Odom was engaged for the
purpose (see Exhibits R, S, T, and U). The condition of the buildings,
as also the extent of reconstruction required, is described more or
less in detail by both Mr. Velasco (transcript pages 8 to 10) and Mr.
Odom (transcript pages 40 to 48); the latter testifying that the
buildings or portions thereof were about to collapse when he
undertook the work.
"(7) All efforts on the part of the claimant to get in touch
with Mr. Machetti, with a view to having him conform to the terms of
his contract, were of no avail and the Hospicio necessarily had to take
charge of the work and comply with the requirements of the city
engineer. To do this, the claimant incurred expenditures amounting
to P57,342.37 as evidenced by Exhibits P and Q;
"(8) Under the terms of the first contract, Exhibit A,
paragraphs 5 and 6, Machetti was obliged to terminate the work on
the 'accesorias' in 150 days and, in case of failure so to do, to pay a
penalty of P150 per day thereafter until completion thereof. In
accordance with the 6th paragraph of Exhibit D, Machetti was to
complete the work on the 'bodegas' one month later than the
preceding contract and, in case of failure to do so, to pay a penalty of
P50 per day until completion. During the course of construction, he
was allowed an extension of 25 days so that under the terms of the
first contract, de- livery of the 'accesorias' was to be made on
February 16th, 1917, and of the 'bodegas' on March 16th, 1917. Due
to faulty construction discovered, the condition in which the buildings
were found, and the fact that claimant was forced to continue the
work in conformity, as nearly as possible, with the original plans and
specifications and the requirements of the city engineer, the
'accesorias' and 'bodegas' were not terminated until June 18, 1918.
Thus, for failure to deliver within the time prescribed, Machetti
incurred the obligation to pay claimant the sum of P95,000 under the
penalty clauses referred to.
"Claimant, however, admits that, from the time it undertook the
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 work of reconstruction until the buildings were completed, it rented
certain of the 'accesorias' from which it derived the sum of P28,000
as rental: The latter amount should be deducted from the total
penalty of P95,000, leaving only P67,000 as the net amount due
claimant.
"From the foregoing, and other evidence of record, the referee
has concluded that Machetti made no effort whatever to construct the
buildings in accordance with the terms and conditions of the contract
but, on the contrary, actually acted in bad faith, and furthermore
abandoned the work. As a consequence, claimant is entitled to the
approval of its claim for the damages represented by expenditures
incurred by it in saving the building and reconstructing same, as also
for the amounts stipulated under the penalty clauses of the contract.
"The opponents vigorously contend that the payment of the
entire sum due Machetti under contract Exhibit A constituted an
acceptance of the 'accesorias' and that, therefore, he Machetti,
contractor, should be relieved from further responsibility to the
claimant. Likewise opponents contend that because claimant
employed a supervising architect who approved the work and
certified payments, it now has no claim whatsoever against the con-
tractor, Machetti, but one solely against the said architect. Opponents
also contend that the work done by Odom for the Hospicio was not in
conformity with the original plans and specifications but in
accordance with modified ones and hence Machetti is not responsible
for the expenditures.
"The referee fails to see the logic of any of these contentions. In
the first place, Machetti entered into a contract to erect buildings in
accordance to certain plans and specifications (Exhibit A). The very
first condition in Chapter I, article 1, of the said specifications
provides:
" 'Intencion. . . . Su construccion se sujetara a las ordenanzas
municipales vigentes al tiempo de la construccion, y a las ordenes e
instrucciones que de el Director facultativo y a los planos que, unidos
a este pliego de condiciones forman el proyecto completo de
construccion. . . .'
"Article 2 of the same specifications reads:
" 'Definiciones. . . . Se entendera por contratista a quien asume
la obligacion de ejecutar y terminar las obras que son objeto de este
proyecto, cumpliendo al pie de la letra cuanto en sus planos y en este
pliego de condiciones se prescriben. . . .'
"Machetti most certainly violated both of the above quoted
provisions of his contract and consequently the Hospicio's claim is
legitimate and just.
"Aside from the foregoing articles of the contract the law itself
makes specific provision for cases of this nature. Article 1591 of the
Civil Code reads as follows:
" 'Art. 1591. The contractor of a building which becomes
ruinous by reason of defects in the construction shall be liable in
damages if such ruin occurs within ten years, to be counted from the
completion of the construction. The architect who directed the work
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 shall be subject to the same liability and for the same length of time if
the ruin should be due to defects in the ground or to improper
direction.
"'If the cause should be non-compliance on the part of the
contractor with the conditions of the contract, the action for damages
may be brought within fifteen years.'
"Said article clearly shows that liability of the contractor, whose
work is defective, may be enforced at any time during 10 years
succeeding the completion of the construction, and 16 years in case
of non-compliance with the conditions of the contract, irrespective of
any responsibility incurred by the architect who supervised and
directed the work.
"In view of the above findings of facts and provisions of law
your referee is of the opinion that claimant is entitled to the
allowance of its claim for
"(1) Fifty-seven thousand three hundred and forty-two
pesos and thirty-seven centavos (P57,342.37) as damages suffered
by it arising from the necessity to remedy and reconstruct the faulty
work of Machetti;
"(2) Sixty-seven thousand pesos (P67,000) as the next
amount due claimant under the penalty clauses of the contracts;
" (3) Legal interest on both of the above-mentioned sums
from the date of filing its claim; and
" (4) Costs."
Upon the submission of the foregoing report, the trial court approved
the same, with the following comment:
"A careful examination of the report of the referee filed in this
court on June 16, 1926, shows that the findings of facts are in
accordance with the evidence and the conclusions of law are in
accordance with the legal principles applicable thereto. The court
approves said report in all its parts and by reference makes it a part
of this judgment."
In this instance error is now assigned to the action of the lower court in
admitting various exhibits, and especially the Exhibits B and C, which are the
plans of construction under the two contracts. In view of the reference to the
plan in the main contract and their necessary relation to the controversy, as
explanatory of the obligations of the contractor, we are of the opinion that
they were properly admitted. Some of the other exhibits, to the reception of
which error is assigned, are possibly of doubtful admissibility, but they
exercise no material influence over the determination of the case, and error
in their admission, if any, was error without injury. The testimony of Odom
and that of Velasco, in connection with the plans, show clearly the
deplorable lack of honesty and good faith which went to the performance of
the contracts in question.
The principal contention of the appellants in this court is based upon
articles 13, 17, and 18 of the contract of July 17, 1916, and it is insisted that
the payments for the work done, having been made upon certification of the
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 plaintiff's architect, the plaintiff is estopped from raising the question that
the work was not done according to contract. A careful reading of the
contract, however, shows that there is no stipulation to the effect that the
certificates of the architects will be final and conclusive, though it may be
conceded that they raise a prima facie presumption that the work was
satisfactorily done. A court will not consider the architect's certificate
conclusive in the absence of express stipulation to that effect. It is evident
that the provisions relied upon were intended chiefly to define the conditions
under which installments of the price would be paid to the contractor; and
the contract evinces no intention, in our opinion, to make the certificate of
the architects conclusive as to compliance on the part of the contractor with
the terms of the contract. Moreover, it will be observed that the provision
concerning the holding back of 20 per cent of the value of the work was to
cover defects that might be discovered before the owner should definitely
receive the work. The defects from which this work was found to suffer were
largely of a hidden character and not obvious upon casual examination.
The judgment appealed from will be affirmed, and it is so ordered, with
costs against the appellants.
Johnson, Malcolm, Villamor, Ostrand, and Villa-Real, JJ., concur.

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