Mackay vs. Caswell

Under Article 1715 of the Civil Code, a contractor who executes work with defects that destroy or lessen its value or fitness for its ordinary or stipulated use may be required to remove the defect or execute another work; if the contractor fails or refuses, the employer may have the defect removed at the contractor’s cost, and the employer’s demand for rectification need not be in a particular form but may be satisfied by substantial efforts to communicate with the contractor to correct the flaws.

Spouses Dana and Cerelina Caswell engaged Owen Prosper A. Mackay to install electrical lines in their newly constructed home in San Narciso, Zambales, for a lump sum contract price of ₱250,000.00. After paying ₱227,000.00, the Caswells discovered that the installation contained numerous technical deficiencies preventing the local electric cooperative, Zambales II Electric Cooperative (Zameco II), from energizing the residence. Owen could not be located to rectify the defects, prompting the Caswells to engage Zameco II to correct the work at their own expense.

• The Contract: The Caswells engaged Owen to install electrical lines in their newly built home in San Narciso, Zambales for a lump sum price of ₱250,000.00, significantly lower than the ₱456,000.00 estimate quoted by Zameco II.
• Alleged Completion and Payment: Owen claimed completion of the installation in August 1998 with the assistance of Cesar Badua and Albert Galeng. The Caswells had paid ₱227,000.00, leaving a balance of ₱23,000.00.
• Inspection and Defects: At Cerelina Caswell’s request, Zameco II inspected the installation and discovered numerous defects, including: lack of guying; improper use of deadend materials for the neutral line; lack of armor tape; wrong phasing of pole top pin; substandard grounding wire; lack of fuse cut-out with lightning arrester at the tapping point; and wrong distance of the transformer from the neutral line.
• Refusal of Energization: Due to these deficiencies, Zameco II refused to provide electrical service to the Caswell residence.
• Failure to Rectify: The Caswells attempted to locate Owen to demand rectification of the defective work, but he and his group could not be found, performing what the Caswells described as a “vanishing act.” Owen testified that he had rectified the discrepancies and reminded Cerelina to submit documentary requirements to Zameco II, but the trial courts found this claim unsubstantiated.
• Rectification by Third Party: Constrained by the lack of electricity, the Caswells engaged Zameco II to correct the defects, completing the single phase distribution system in January 1999 according to standard specifications.
• Criminal Proceedings: On September 4, 1998, the Caswells executed a Joint Affidavit charging Owen with estafa under Article 315(2)(a) of the Revised Penal Code for allegedly misrepresenting themselves as National Power Corporation personnel. Owen was acquitted in Criminal Case No. RTC-2533-I on May 15, 2003 on reasonable doubt.
• Civil Action: Owen filed the civil action for collection of the unpaid balance. The Caswells counterclaimed for reimbursement of ₱69,205.00 in rectification expenses, supported by Engr. Pulangco’s receipt for ₱15,400.00 and Sales Invoice No. 2029 from Peter A. Eduria Enterprises for ₱53,805.00.

• Complete Performance: Owen maintained that he had completed the installation work as required and that the Caswells were obligated to pay the remaining ₱23,000.00 balance.
• Permit Responsibility: He argued that securing the necessary permits from Zameco II was not his duty but the responsibility of the Caswells as homeowners.
• Effect of Acquittal: Owen contended that his acquittal in the estafa case should have been considered as a factor for a favorable decision in the civil case, citing the trial court’s obiter in the criminal case suggesting that the delay in energization might have been due to resentment by Zameco II employees who were not awarded the project.
• Inadmissibility of Evidence: He assailed the admissibility of Sales Invoice No. 2029, arguing it was insufficient to prove damages because it lacked unit prices for the items listed and that Peter A. Eduria Enterprises was a non-existent business entity based on negative certifications from the Department of Trade and Industry, Valenzuela City Business Permit Office, and Securities and Exchange Commission.
• Lack of Demand: Owen argued that the Caswells never formally demanded that he remove the defects or execute another work in accordance with Article 1715 of the Civil Code before resorting to Zameco II.

• Defective Work: The Caswells countered that Owen failed to finish the job and walked out of the contract, rendering work replete with deficiencies that prevented the flow of electricity to their home.
• Right to Rectification: They argued that they were entitled to reimbursement of expenses incurred to correct Owen’s defective work pursuant to Articles 1715 and 1167 of the Civil Code.
• Substantial Compliance with Demand: They maintained that their efforts to communicate with Owen, including demands that he secure permits and subject the transformer to testing, constituted substantial compliance with the requirement to demand rectification under Article 1715.
• Futility of Further Demand: The Caswells argued that any further effort to require Owen to rectify the work would have been futile given his filing of the collection suit, which demonstrated his belief that his work was complete and his refusal to communicate with them.

• Demand for Rectification: Whether the Caswells complied with the requirement under Article 1715 of the Civil Code to demand that Owen remove the defects or execute another work before having the defects corrected by a third party.
• Contractual Breach: Whether Owen failed to execute the work in such a manner that it has the qualities agreed upon and has no defects which destroy or lessen its value or fitness for its ordinary or stipulated use.
• Admissibility of Evidence: Whether Sales Invoice No. 2029 is admissible as competent proof of the actual amount of rectification costs notwithstanding the lack of unit prices and questions regarding the business registration of the seller.
• Effect of Criminal Acquittal: Whether Owen’s acquittal in the estafa case should affect the resolution of the civil case for collection of sum of money.
• Set-off: Whether the unpaid contract balance of ₱23,000.00 may be set off against the rectification costs awarded to the Caswells.

• Demand for Rectification: The Caswells’ efforts to communicate with Owen to rectify the flaws, including demands that he secure permits and subject the transformer to testing, effectively served as a request for rectification and constituted substantial compliance with Article 1715 of the Civil Code; the demand required thereunder need not be in a particular form.
• Contractual Breach: Owen failed to execute the work in accordance with Article 1715, as evidenced by the extensive list of defects found by Zameco II which prevented energization of the Caswell residence; the obligation was not merely to install materials but to ensure quality work that would allow electricity to flow safely and efficiently.
• Admissibility of Evidence: Sales Invoice No. 2029 is admissible as evidence of actual damages; the failure to indicate unit prices does not defeat the claim where the total price is stated and supported by a separate list of unit prices, and negative certifications regarding the seller’s business registration do not overcome the fact that a sale actually transpired as proven by the receipt and testimony.
• Effect of Criminal Acquittal: The acquittal in the estafa case has no bearing on the civil liability arising from contract; the obiter dictum in the criminal case regarding possible resentment by Zameco II employees was mere conjecture and insufficient to negate Owen’s failure to perform satisfactorily.
• Set-off: The unpaid balance of ₱23,000.00 due to Owen is properly set off against the ₱69,205.00 rectification costs incurred by the Caswells, leaving a net award of ₱46,205.00 in favor of the Caswells as actual damages proven by competent receipts.

• Article 1715, Civil Code (Contract for a Piece of Work): A contractor is bound to execute the work in such a manner that it has the qualities agreed upon and has no defects which destroy or lessen its value or fitness for its ordinary or stipulated use. Should the work be not of such quality, the employer may require that the contractor remove the defect or execute another work. If the contractor fails or refuses to comply, the employer may have the defect removed or another work executed at the contractor’s cost.
• Demand for Rectification: The demand required of the employer under Article 1715 need not be in a particular form; substantial compliance suffices where the employer demonstrates due diligence in attempting to communicate with the contractor to correct the defects, and the contractor’s refusal to communicate or rectify renders further demand futile.
• Actual Damages: To justify an award of actual damages, there must be competent proof of the actual amount of loss, credence being given only to claims duly supported by receipts; the claimant must prove the actual amount of loss with a reasonable degree of certainty premised upon competent proof and on the best evidence obtainable.

• "The demand required of the employer under the subject provision need not be in a particular form." — Establishing that formalistic requirements do not govern the employer’s remedy under Article 1715.
• "Had [Owen] been willing to make good his obligation, then it would not have been necessary for [the Caswells] to file the said criminal case. Instead of complying with his end of the bargain, [Owen] opted to file a case for collection of sum of money with damages. Thus, any effort to require [Owen] either to rectify his flawed work or to remove the same would have been futile since [Owen’s] act of demanding payment through the said complaint showed his belief that his work in the house was done." — Explaining the futility of further demand and the substantial compliance by the Caswells.
• "One is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved." — Stating the principle governing actual damages under Article 2199 of the Civil Code.
• "To justify an award of actual damages, there must be competent proof of the actual amount of loss, credence can be given only to claims which are duly supported by receipts." — Emphasizing the evidentiary requirement for actual damages.
• "The failure to indicate the unit price of each item in the sales invoice does not defeat the claim of the Caswells for reimbursement." — Clarifying that minor documentary imperfections do not invalidate otherwise proven actual damages.

• Viron Transportation Company Inc. v. Delos Santos, 399 Phil. 243 (2000) — Cited for the principle that to justify an award of actual damages, there must be competent proof of the actual amount of loss supported by receipts.
• G.Q. Garments, Inc. v. Miranda, 528 Phil. 341 (2006) — Cited for the requirement that the claimant must prove the actual amount of loss with a reasonable degree of certainty premised upon competent proof and on the best evidence obtainable.

• Article 1715, Civil Code — Governs the obligations of a contractor in a contract for a piece of work and the remedies of the employer for defective work.
• Article 1167, Civil Code — Provides that if a person obliged to do something fails to do it, the same shall be executed at his cost.
• Article 2199, Civil Code — Entitles a plaintiff to adequate compensation only for such pecuniary loss as he has duly proved.

Antonio T. Carpio (Chairperson), Arturo D. Brion, Jose Catral Mendoza, Marvic M.V.F. Leonen