Yu vs. Heirs of Manuel Sia

Where both the contractor and the owner knowingly agree to construct a building in violation of the minimum standards of the National Building Code (PD 1096), they are in pari delicto and barred from maintaining any action against each other under Article 1411 of the Civil Code.

On 18 March 2002, respondents Heirs of Manuel Sia, represented by Rosemarie Sia, and Ryu Construction, represented by its owner Engr. Ruben Y. Yu, entered into a Construction Contract for the construction of a four-storey commercial building in Legazpi City. The contract required the contractor to furnish labor and materials and to construct strictly in accordance with the plans and program of work signed by the parties, with the final payment of ₱842,240.00 conditioned upon remittance of the occupancy permit. The building was subject to PD 1096 (the National Building Code), which sets minimum standards for building design, construction, and occupancy, including a minimum airspace requirement of 14 cubic meters per person for habitable rooms.

On 18 March 2002, respondents Heirs of Manuel Sia, represented by Rosemarie Sia, and Ryu Construction, represented by its owner Engr. Ruben Y. Yu, entered into a Construction Contract for the construction of a four-storey commercial building located at F. Imperial St., Legazpi City. The contract price was ₱9,842,240.00, payable through an advance payment of ₱3,000,000.00 upon signing, six progress billings of ₱1,000,000.00 each every 30 days of accomplishment, and a final payment of ₱842,240.00 upon remittance of the occupancy permit. The contractor was required to furnish labor and materials and to construct strictly in accordance with the plans and program of work signed by the parties. The building plans were prepared by Architect Allan Luzuriaga, who testified that he followed Ruben's instructions to maximize the lot area by making smaller rooms, which was also the desire of the owner. Luzuriaga was aware that the rooms did not meet the minimum airspace requirement of 14 cubic meters per person under PD 1096, but he did not raise this with the owners because he had not met them prior to construction. The building permit was signed by Rosemarie, Luzuriaga, and Ruben.

The building was completed and turned over to Rosemarie in 2003. A partial occupancy permit was issued in 2004, and Rosemarie began operating a hotel in the building in 2005 despite the absence of a full occupancy permit. The full occupancy permit was not issued because the rooms on the third and fourth floors did not comply with the minimum airspace requirements under PD 1096. Rosemarie only communicated with the building official to inquire about the non-issuance of the full occupancy permit in 2007. In 2009, Rosemarie's counsel inquired with the Office of the City Engineer of Legazpi City, which issued an Inspection Report enumerating violations including non-compliant room sizes in rooms 304–319, 413–419, lack of ventilation in toilets of rooms 303 and 308, and unauthorized modifications to rooms 406 and 407. The report was communicated to Ruben for corrective measures, but he failed to act on it.

To address the violations, Rosemarie hired Architect Leo Del Rosario to prepare a renovation plan, which was approved by the Office of the City Engineer. The renovations were implemented in 2013 by Del Rosario and Engr. Fernando Joquico of J-Squared Construction at a cost of ₱1,576,163.86. After the renovations, a certificate of occupancy was finally issued for the third and fourth floors in 2014.

On 27 July 2006, Ruben filed a complaint against Rosemarie for collection of ₱448,240.00, representing the remaining balance from the contract price, alleging that the building had been completed in accordance with the plans and specifications and turned over in 2003, and that Rosemarie refused to pay despite written demand. Rosemarie admitted non-payment but argued that the balance could not be released until the issuance of the occupancy permit and the repair of defects, specifically the undersized rooms that failed to meet minimum standards under PD 1096. The RTC found that Ruben complied with his obligations, having built according to the approved plans, and that the non-issuance of the full occupancy permit could not be attributed to him. The CA reversed, finding that Ruben, as a licensed contractor and engineer, should have known the plans did not comply with PD 1096 and was responsible for rectifying the defects.

• Compliance with Contract Obligations: Petitioner alleged that the subject building was completed in accordance with the plans and specifications and had been turned over to Rosemarie in 2003, entitling him to the remaining balance of the contract price.
• Non-Liability for Occupancy Permit: Petitioner maintained that the non-issuance of the full occupancy permit could not be attributed to him because he merely built the rooms in accordance with the approved building plan, and that the ventilation defect — not the room size — was the cause of non-compliance, which could be remedied by artificial ventilation, an obligation that did not fall upon him under the contract.
• Acceptance and Use of Building: Petitioner argued that the subject building was accepted as early as 2003 and had been continuously used, as evidenced by the business permit issued since 2005 for the operation of the hotel.

• Conditional Payment: Respondent countered that the remaining balance could not be released because payment was conditioned upon the remittance of the occupancy permit, which was not obtained by Ruben.
• Building Code Violations: Respondent argued that the undersized rooms on the third and fourth floors failed to meet the minimum standards under PD 1096, constituting defects that Ruben was responsible for rectifying.
• Reliance on Professional Expertise: Respondent maintained that as a layperson, she merely relied on the expertise of Architect Luzuriaga and Ruben in relation to the design and construction of the building, and could not be faulted for the non-compliance.

• In Pari Delicto and Illegal Contract: Whether the Court of Appeals erred in reversing the RTC decision — which found that the defects in the subject building were not the fault of Ruben — and in awarding monetary claims to Rosemarie, or whether both parties are instead in pari delicto and barred from maintaining any action against each other.

• In Pari Delicto and Illegal Contract: No. The petition was denied, the CA decision was reversed and set aside, and both the complaint and counterclaim were dismissed. Both parties were in pari delicto under Article 1411 of the Civil Code because they agreed to construct a building whose approved plans already violated the minimum standards of PD 1096, rendering the contract illegal and barring either party from maintaining an action against the other.

• In Pari Delicto and Illegal Contract: The Construction Contract imposed on the contractor the obligation to construct strictly in accordance with the plans and program of work, while the owner was obligated to pay the contract price, with the final payment conditioned on remittance of the occupancy permit. Beyond the contract, the parties also had obligations arising from law — specifically PD 1096 — consistent with the principle that laws are deemed written in every contract. The Court found that the building plans approved by Rosemarie and implemented by Ruben already violated the minimum airspace requirements under PD 1096 from the very start. Luzuriaga testified that he knew the rooms were below the minimum requirement but followed Ruben's instructions to maximize the lot area, which was also the owner's desire. Ruben, as a licensed contractor and engineer required under RA 4556 to have knowledge of Philippine construction-building codes, was expected to know and follow PD 1096 and should not have blindly agreed to the construction. Rosemarie was likewise not an innocent party: as owner, she had the responsibility to ensure compliance with PD 1096, and ignorance of the law excuses no one. She approved the building plan without even meeting the architect, failed to exercise due diligence in reviewing the plans, chose the plan with the most number of rooms, began operating the hotel in 2005 without a full occupancy permit, and only inquired about the non-issuance of the permit in 2007 despite the partial permit being issued in 2004. Because both parties knowingly agreed to construct a building in violation of PD 1096, the contract was illegal under Article 1411 of the Civil Code. None of the recognized exceptions to the in pari delicto rule applied. The Court distinguished Spouses Francisco vs. DEAC Construction, Inc., where the owner was allowed to rescind because the contractor made unauthorized deviations from the plan; here, the violations were already reflected in the building plan approved by the owner. The Court also took judicial notice of Ruben's prior criminal conviction for violation of PD 1096 in relation to the subject building, as that case had a close connection with the matter in controversy.

• In Pari Delicto — A universal doctrine holding that no action arises, in equity or at law, from an illegal contract; no suit can be maintained for its specific performance, or to recover the property agreed to be sold or delivered, or the money agreed to be paid, or damages for its violation; and where the parties are in pari delicto, no affirmative relief of any kind will be given to one against the other. The Court applied this doctrine under Article 1411 of the Civil Code, finding that both the contractor and the owner knowingly agreed to construct a building in violation of PD 1096, making the contract illegal and barring both parties from maintaining any action against each other. Recognized exceptions include: (a) the innocent party (Arts. 1411–1412); (b) the debtor who pays usurious interest (Art. 1413); (c) the party repudiating the void contract before the illegal purpose is accomplished (Art. 1414); (d) the incapacitated party if justice so demands (Art. 1415); (e) the party for whose protection the law is intended if the agreement is not illegal per se but merely prohibited (Art. 1416); and (f) the party for whose benefit the law was intended, such as in price ceiling and labor laws (Arts. 1417–1419). None of these exceptions applied.

• Ignorantia Legis Non Excusat — Ignorance of the law excuses no one from compliance therewith. The Court invoked Article 3 of the Civil Code to reject Rosemarie's contention that as a layperson she merely relied on the expertise of the architect and contractor, holding that when she approved the building plan, she was deemed to have done so with knowledge of the minimum standard requirements under PD 1096.

• Laws Deemed Written in Every Contract — The principle that obligations arising from law are deemed incorporated into every contract. The Court applied this to hold that beyond the parties' Construction Contract, they were also bound by the provisions of PD 1096, the violation of which rendered the contract illegal.

• "Upon meticulous examination of the records, the Court finds that Ruben and Rosemarie are in pari delicto and thus have no action against each other pursuant to Article 1411 of the Civil Code." — This is the ratio decidendi of the case, establishing that both parties' knowing participation in a building code violation rendered them equally at fault and barred from seeking relief against each other.

• "In pari delicto is 'a universal doctrine which holds that no action arises, in equity or at law, from an illegal contract; no suit can be maintained for its specific performance, or to recover the property agreed to be sold or delivered, or the money agreed to be paid, or damages for its violation; and where the parties are in pari delicto, no affirmative relief of any kind will be given to one against the other.'" — This is the canonical formulation of the in pari delicto doctrine as adopted by the Court, frequently cited in subsequent jurisprudence on illegal contracts.

• "The failure to exercise due diligence and prudence cannot be used to justify or exculpate oneself from non-compliance with the law." — This passage articulates the principle that a party's own negligence cannot serve as a defense against liability for statutory violations, applied to reject Rosemarie's claim of innocent reliance on professionals.

• Spouses Francisco vs. DEAC Construction, Inc., 567 Phil. 610 (2008) — Distinguished. In that case, the Court upheld the owners' right to rescind the construction contract due to unauthorized deviations by the contractor that violated PD 1096. Here, the violation was already reflected in the building plan approved by the owner, so the owner could not claim to be an innocent party.

• Hulst vs. PR Builders, Inc., 558 Phil. 683 (2007) — Followed for the definition of in pari delicto and the enumeration of recognized exceptions to the rule, none of which were found applicable in this case.

• Unera vs. Shin Heung Electro Digital, Inc., G.R. No. 228328, 11 March 2020 — Cited for the exception to the rule that questions of fact are not reviewable under Rule 45, specifically when the CA's findings are contrary to those of the trial court.

• Yu vs. People, G.R. No. 241907, 07 January 2019 — The Court took judicial notice of this case, where Ruben was found guilty of violation of PD 1096 in relation to the subject building, as evidence of the illegality of the construction contract.

• Werr Corp. International vs. Highlands Prime, Inc., 805 Phil. 415 (2017) — Cited for the principle that laws are deemed written in every contract, supporting the imposition of PD 1096 obligations on the parties beyond their Construction Contract.

• Article 1411, Civil Code — Provides that when the nullity proceeds from the illegality of the cause or object of the contract, and the act constitutes a criminal offense, both parties being in pari delicto, they shall have no action against each other. Applied to bar both parties from maintaining any action against each other because the construction contract's object — a building violating PD 1096 — was illegal.

• Article 3, Civil Code — Provides that ignorance of the law excuses no one from compliance therewith. Applied to reject Rosemarie's defense that as a layperson she relied on the expertise of the architect and contractor.

• Article 2257, Civil Code — Provides that obligations arising from law are also obligations. Cited to support the proposition that the parties had obligations under PD 1096 in addition to their contractual obligations.

• Presidential Decree No. 1096 (National Building Code) — Sections 2 (declared policy to safeguard life, health, property, and public welfare), 301 (requirement to secure a building permit), 304 (issuance of building permit when plans conform to the law), 309 (requirement for certificate of occupancy), 807 (minimum airspace requirement of 14 cubic meters per person for habitable rooms), and 213 (unlawful to erect or construct a building contrary to the Code). Applied to establish that the building plans and construction violated minimum standards, rendering the contract illegal.

• Republic Act No. 4556 (Contractor's License Law) — Section 20 requires an applicant for a contractor's license to demonstrate knowledge of Philippine construction-building codes and ordinances. Applied to establish that Ruben, as a licensed contractor, was expected to know and follow the provisions of PD 1096.

• Rule 45, Section 1, Rules of Court — Governs petitions for review on certiorari, generally limited to questions of law. The Court noted the petition raised questions of fact but allowed review under the exception that the CA's findings were contrary to those of the RTC.

Gesmundo, C.J. (Chairperson), Hernando, Rosario, and Marquez, JJ., concur.