G.R. No. 142830 March 24, 2006
William Golangco Construction Corporation, Petitioner, vs. Philippine Commercial International Bank, Respondent.

FACTS

Petitioner William Golangco Construction Corporation (WGCC) and respondent Philippine Commercial International Bank (PCIB) entered into a construction contract for the PCIB Tower II Extension Project on October 20, 1989. The project included applying a granitite wash-out finish on the building’s exterior walls. PCIB, with its consultant’s concurrence, accepted the completed work via a letter dated June 1, 1992. In compliance with the contract, WGCC submitted a one-year guarantee bond effective July 1, 1992, to answer for any defects.
In 1993, after the one-year period, portions of the granitite finish began peeling off. WGCC performed minor repairs. In 1994, after WGCC stated it was not in a position to re-do the work, PCIB engaged another contractor to re-finish the entire exterior at a cost of P11,665,000. PCIB then filed for arbitration with the Construction Industry Arbitration Commission (CIAC) to recover this expense, alleging defective materials and workmanship. The CIAC ruled against WGCC, a decision affirmed by the Court of Appeals.

ISSUE

Whether WGCC is liable for defects in the granitite wash-out finish that became evident after the lapse of the one-year defects liability period stipulated in the construction contract.

RULING

The Supreme Court ruled in favor of WGCC, absolving it from liability. The decision hinges on the principle of autonomy of contracts under Article 1306 of the Civil Code, whereby valid contractual stipulations have the force of law between the parties. The construction contract’s Article XI explicitly guaranteed the work against defects in materials and workmanship evident “within one (1) year after the final acceptance of the work.”
The Court emphasized that this one-year defects liability period is a standard and fair provision in construction contracts, preventing an indefinite or perpetual guarantee obligation on the contractor. Since the granitite defects manifested in 1993, beyond the one-year period from the June 1, 1992 acceptance, WGCC’s liability under the specific contract had expired. PCIB’s invocation of another contract article (62.2) concerning unfulfilled obligations prior to the issuance of a Defects Liability Certificate was unavailing, as the obligation to guarantee against defects was specifically defined and limited by Article XI. The Court cannot rewrite the contract or relieve a party from its clear terms, which were freely agreed upon.