G.R. No. 248495 . July 06, 2022
ENGR. RUBEN Y. YU, DOING BUSINESS UNDER THE NAME AND STYLE RYU CONSTRUCTION, PETITIONER, VS. HEIRS OF MANUEL SIA, REPRESENTED BY MAYOR ROSEMARIE H. SIA, RESPONDENTS.

FACTS

Petitioner Engr. Ruben Y. Yu (Ruben), doing business as Ryu Construction, entered into a Construction Contract with respondents, the Heirs of Manuel Sia, for a four-storey commercial building. The contract stipulated a lump sum price of P9,842,240.00, with an advance payment and subsequent progress billings. The final payment of P842,240.00 was contingent upon the remittance of an occupancy permit. Ruben completed and turned over the building in 2003. He filed a complaint in 2006 to collect the unpaid balance of P448,240.00, alleging respondents refused payment despite demand.
Respondents admitted non-payment but argued it was justified because no occupancy permit had been issued for the third and fourth floors due to building code violations, specifically undersized hotel rooms and unventilated toilets. An official Inspection Report from the City Engineer’s Office in 2009 confirmed these violations. Respondents claimed they communicated this to Ruben for correction, but he failed to act. Consequently, respondents hired another architect and contractor to undertake corrective renovations at a cost of over P1.5 million, after which a certificate of occupancy was issued in 2014.

ISSUE

Whether petitioner Ruben Yu is entitled to collect the final payment under the construction contract despite the building’s failure to comply with the National Building Code (PD 1096) at the time of completion.

RULING

No, petitioner is not entitled to the final payment. The Supreme Court affirmed the Court of Appeals’ reversal of the Regional Trial Court’s decision. The legal logic rests on the principle that a contractor’s fundamental obligation is to deliver a structure that complies with law, specifically the National Building Code. Compliance with the contract’s plans and specifications is not sufficient if those plans themselves result in a building that violates mandatory statutory requirements.
The contract explicitly conditioned the final payment on the remittance of an occupancy permit. The Court ruled that this condition was not a mere technicality but a substantive requirement linked to legal compliance. Since the building, as constructed based on the owner’s architect’s plans, contained rooms that did not meet the minimum airspace and ventilation standards under PD 1096, it was legally defective. The issuance of the occupancy permit only after costly corrections by a third party proved that the structure, as originally delivered by petitioner, was non-compliant. Therefore, petitioner failed to fulfill his essential obligation to construct a lawful building, precluding his right to the final payment. The contract, to the extent it called for an illegal structure, could not be enforced in his favor. The expenses incurred by respondents for the corrective renovations were properly offset against the claimed balance, extinguishing petitioner’s monetary claim.