072. Epg Construction Vs Ca 233t4c

072. EPG CONSTRUCTION vs CA EPG CONSTRUCTION COMPANY, INC., and EMMANUEL P. DE GUZMAN, petitioner, vs. HONARABLE COURT OF APPEALS (17th Division), ( Republic of the Philippines), UNIVERSITY OF THE PHILIPPINES, respondents. June 22, 1992 CRUZ, J. SHORT VERSION: EPG contracted with UP for the construction of the UP Law Library. EPG did the work with a guarantee that it will be liable for all the defects of the construction within 1 year after turning it over to UP. After the turnover to UP, various defects were reported to EPG regarding the cooling system. EPG repaired it at first, but refused when asked to do so again. UP went to another contractor to have the defects fixed and sued EPGs and its President De Guzman for damages. The RTC and CA ruled for UP, holding that EPG and its President are solidarily liable for the damages. The issue pertinent is WON the President of EPG is liable with EPG. The SC says that there is no reason to hold the President of EPG solidarily liable with EPG. It is an established doctrine that a corporation is a distinct legal entity to be considered as separate and apart from the individual stockholders or who compose it, and is not affected by the personal rights, obligations and transactions of its stockholders or . Without valid reason to hold its president liable, only the corporation will shoulder the damages. FACTS: EPG Construction Co, Inc. entered into a contract with the University of the Philippines to construct the UP Law Library Building for P7,545,000.00. The contract also included an agreement which stated that upon the guaranty of the contractor, the work was completed in accordance with the architect's prepared plans and specifications. And, that the contractor would repair at his own cost and expenses for a period of 1 year from the completion date all work covered under their contract and change any order that would prove to be defective except maintenance works. The guarantee clause of the contract also expressly provided for the contractor's liability under Art.1723 should the building collapse because of any defects in construction or use of materials of inferior quality furnished by him or due to any violation of the of their contract. EPG turned the building over to UP upon its completion and the latter institution issued a certification of acceptance on January 3, 1983. Sometime in July of the same year, the UP complained to EPG that 6 air-conditioning units on the third floor of the building were not cooling properly. After inspecting the equipment, EPG agreed to shoulder the expenses to get the air-conditioning units repaired, including labor and materials amounting to P38K. However, the units were not repaired. Upon filing another complaint with EPG, the latter sent its representatives to check the broken units. After inspection, EPG made a written offer to repair the cooling system for P194K. When EPG demurred to UP's insistence that it was it's obligation to repair the defects under the guarantee clause of their contract, the school had to contract another company for repairs and the costs totaled to P190K. UP demanded reimbursement from EPG plus damages for the cost of repairs, but it was rejected. So, the UP sued EPG and its president Emmanuel P. De Guzman in the RTC. RTC ruled in favor of UP and ordered the company and its president to pay the plaintiff tly and severally for the repairs, damages and other costs. The company elevated the case to the CA, which affirmed the ruling of the RTC. In its petition, EPG argues that the CA was at fault for not holding that the certificate of acceptance in their contract rendered the university in estoppel for the defects discussed in the case. They also argue that the defect were fortuitous in origin because of frequent blackouts in Metro Manila. Also, EPG argues that it was UP’s lack of maintenance of the cooling systems that caused the defects. ISSUE(S):

WON EPG is liable for damages on the defects. (YES) WON EPG President De Guzman is liable tly and severally with UP. (NO)

DISPOSITIVE: Decision of CA is AFFIRMED with MODIFICATION that EPG Construction be solely liable. RATIO: As to EPG’s liability on the defects

All UP certified to was that the building was in good condition at the time it was turned over to it, this does not relieve EPG of liability for any defect that might arise or be discovered later during the one-year period of the guarantee. EGP attempts to bolster their argument by quoting Article 1719 of the Civil Code thus, "Acceptance of the work by the employer relieves the contractor of liability . . . " and stopping there. The Article reads in full as follows: Art. 1719. Acceptance of the work by the employer relieves the contractor of liability for any defect in the work, unless: (1) The defect is hidden and the employer is not, by his special knowledge, expected to recognize the same; or (2) The employer expressly reserves his rights against the contractor by reason of the defect. Both exceptions apply in this case as the defects complained against were hidden and the employer was not expected to recognize them at the time the work was accepted; moreover, there was an express reservation by UP of its right to hold the contractor liable for the defects during a period of one year. EPG’s argument that the defects were fortuitous in origin cannot be accepted. It has not been shown that the cooling system in buildings within the same area have been similarly damaged by the power cut-offs. The brown-outs have become an intolerable annoyance, but they cannot excuse all contractual irregularities, including the EPG's shortcomings. The real cause of the problem, according to EPG’s own sub-contractor, was poor workmanship, as discovered upon inspection of the cooling system. It is also not the fault of UP’s alleged lack of maintenance of the cooling systems that caused the defects. The defects were mechanical and because of misaligned and missing parts—not something any amount of maintenance could have fixed. Absence of a clear showing that the findings of fact of the RTC regarding the maintenance and nature of the defects, the decision of the lower court is binding upon the SC. As to the liability of EPG’s President Emmanuel P. de Guzman has a separate legal personality from EPG Construction Co., Inc. and should not be held solidarity liable with it. The acts of the company are its own responsibility and there is no reason why any liability arising from such acts should be ascribed to him. It is a doctrine well-established and obtains both at law and in equity that a corporation is a distinct legal entity to be considered as separate and apart from the individual stockholders or who compose it, and is not affected by the personal rights, obligations and transactions of its stockholders or . Neither the RTC, the CA, nor UP in its comment gave reason why De Guzman should be solidarily liable with EPG. UP said in its opposition to the motion (to dismiss the case against De Guzamn filed in the RTC) that it was suing him "in his official capacity and not in his personal capacity." His inclusion as President of the company was therefore superfluous because his acts as such were corporate acts imputable to EPG itself as his principal. It is settled that a corporation is invested by law with a personality separate and distinct from those of the persons composing it as well as from that of any other entity to which it may be related. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personality. The exception noted is where the official "had acted maliciously or in bad faith," in which event he may be made personally liable for his own act. That exception is not applicable in the case at bar, because it has not been proved that De Guzman acted maliciously or in bad faith when, as President of EPG, he sought to protect its interests and resisted UP's claims. Whatever damage was caused to UP as a result of his acts is the sole responsibility of EPG even though De Guzman was its principal officer and controlling stockholder. -Mike