Case Digest (G.R. No. 188866)
Facts:
The parties were Philippine Economic Zone Authority (PEZA), formerly Export Processing Zone Authority (EPZA), and Green Asia Construction & Development Corporation. They contracted on 14 September 1992 for a road network and drainage project with a fixed contract price and related payment provisions, and Green Asia later claimed price escalation under PD 1594 and its IRR.
Green Asia first asserted a price-escalation claim in 1996 which PEZA denied as not shown to be caused by the direct acts of the government; after repeated correspondence and a final demand, the Office of the President (OP) granted the claim subject to computation by the parametric formula, and the Court of Appeals (CA) affirmed but required computation under the IRR, prompting PEZA’s petition to the Supreme Court.
Issues:
- Does PD 1594 require a contractor to prove that increases in construction costs were caused by the *direct acts of the government* before price escalation may be granted?
- Is the contractor entitled to price escalation computed under the IRR’s parametric formula when the contract does not prohibit escalation?
Ruling:
The Supreme Court affirmed the Court of Appeals’ judgment in toto. The Court held that proof that price increases were caused directly by the government was not a prerequisite because PD 1594 is to be read in pari materia with PD 454, and Green Asia was entitled to price escalation to be computed under the IRR’s parametric formula.
The Court also held that the contract did not contain a prohibitory clause against escalation, so the statutory right to adjustment applied and the parties were to compute the amount using the parametric formula stated in the IRR.
Ratio:
The Court reasoned that PD 1594 and PD 454 are in pari materia and must be harmonized; where PD 454 had defined direct acts of the government to include increases in gasoline, fuel oils, and cement, that meaning carried into PD 1594. Accordingly, requiring proof that the government caused price increases was unnecessary when the decrees, read together, authorize adjustment and the IRR prescribes the parametric computation.
The Court further noted that the contract contained no express waiver of price escalation, and prior doctrine recognized the statutory allowance of escalation in government contracts; therefore the IRR’s parametric formula governed the computation and interest accrual was subject to the factual determinations directed by the CA.
Doctrine:
- Statutes in *pari materia* must be construed together to produce a harmonious and coherent system.
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