G.R. No. 124899 - Salvador vs. Court of Appeals

Maria Romayne Miranda, the owner of a parcel of land in Cabcaben, Mariveles, Bataan, held under TCT No. T-129442, is at the center of the dispute.
Romayne appointed her cousin, Gilbert Miranda, as her attorney-in-fact through a General Power of Attorney dated 15 April 1990, empowering him to execute contracts and manage her properties, including the disputed property.

On 9 July 1990, acting as Romayne’s agent, Gilbert Miranda entered into a Development and Construction Contract with Renato C. Salvador, a licensed contractor and proprietor of Montariza Construction.
The Contract was intended for the development of the property into the Haven of Peace Memorial Park, involving the construction of various structures, for a Contract Price of P3,986,643.50, with Salvador committed to completing the Project within 180 working days (with an additional grace period of 45 days).
Key contractual provisions included:

Written mutual agreement required for modifications in plans, specifications, and materials.
An escalation clause that provided for adjustment in the Contract Price if there were substantial increases in the prices of materials such as cement and G.I. corrugated sheets.
A stipulation that matters not expressly covered by the contract were not deemed included unless later agreed in writing.

Work on the Project commenced in July 1990 following the payment of a 20% down payment amounting to P797,328.70 by Gilbert.
Salvador submitted periodic progress billings which were promptly paid by Gilbert, covering both the stipulated works and additional services arising from change orders.
As construction progressed, issues arose regarding additional charges not originally contemplated in the Contract.

P39,000 or a 20% fee on filling materials (worth P196,000) provided by respondents.
A 20% escalation applied to the unpaid balance of the Contract Price (P637,862.96).
Billing for alleged additional works amounting to P399,190.46.

Salvador emphasized a significant increase (about 40%) in the prices of construction materials and warned that failure by Gilbert to approve the escalation would force him to suspend the work.
Gilbert, seeking clarity, requested a detailed computation of the proposed escalation; Salvador provided a breakdown that imposed a uniform 20% increase on the outstanding balance, but failed to specify the particular materials and corresponding price increases.
Additional payments were made by Gilbert (including advances of P100,000 and P150,000 on the escalation), yet he maintained that further escalating charges were baseless, noting that paragraph 17 of the Contract did not authorize such arbitrary increases.

On 11 January 1991, Salvador issued a final demand totaling P1,076,253.32 covering the additional charges, threatening to cease work if payment was not received within five days.
Salvador stopped construction work on 14 January 1991.
On 16 January 1991, he notified Gilbert of a notice from the Department of Public Works and Highways (DPWH) concerning illegal construction due to the absence of a building permit, emphasizing that obtaining such permits was Gilbert’s responsibility under the Contract.

Salvador filed a complaint for collection of sums and damages on 31 January 1991 after work had ceased and legal notices were exchanged.
The Regional Trial Court of San Mateo, Rizal, Branch 76, dismissed Salvador’s complaint, ruling that:

The escalation clause was inoperative since Salvador failed to specify the particular materials whose prices had increased.
There was no valid or written agreement authorizing additional work beyond the Contract’s stipulations.
The 20% charge on filling materials was unsupportable as respondents had purchased and supplied these materials themselves.

The Court of Appeals reversed the trial court’s dismissal regarding Salvador’s claims by:

Upholding that although Salvador’s claim for additional works and escalation lacked a factual basis under the Contract, the respondents sustained damages from the work stoppage.
Ordering Salvador to reimburse respondents an amount (net of the remaining Contract balance) and imposing additional awards for moral and exemplary damages, as well as attorney’s fees.

The appellate court found Salvador acted in bad faith by suspending work without valid justification, and it credited respondents’ proof through receipts showing expenses incurred when completing the Project themselves.

Whether Salvador’s claims for a 20% charge on filling materials, additional work worth P399,190.46, and escalation of the Contract Price were valid under the terms of the Contract.
Whether sufficient evidence, such as detailed receipts and explicit written authorization, was provided to substantiate claims of a substantial price increase for specific construction materials.

If the escalation clause was properly invoked in light of the contractual provision that required an itemized proof of increased material prices.
Whether Salvador met the requirements under Art. 1724 of the Civil Code regarding approved changes in plans and specifications, including written agreement and determination of the additional price.

Whether Salvador’s cessation of construction was justified by the receipt of a DPWH notice or if it was primarily due to non-payment of the alleged escalated price and additional charges by respondents.
The impact of respondent’s failure to secure a building permit on the contractual obligations and whether this breach contributed to the work stoppage.

Whether respondents were entitled to recover damages for costs incurred in completing the Project and if the reimbursement order by the Court of Appeals was proper.
The extent to which both parties’ failures (Salvador’s unilateral escalation and respondents’ non-compliance regarding permit procurement) contributed to the breach, affecting the award of moral, exemplary damages, and attorney’s fees.

Whether the Supreme Court should disturb the factual findings of the trial and appellate courts concerning the authorization of additional works and the computation of the escalation charges.