G.R. No. 83748 - Flavio K. Macasaet and Associates, Inc. vs. Commission on Audit

Case Summary (G.R. No. 83748)

Petitioner

Flavio K. Macasaet & Associates, Inc. sought payment of an additional professional fee equal to seven percent (7%) of an escalation sum of P3,148,198.26 that PTA paid to the main contractor (Supra Construction Company) after project completion. The petitioner’s claimed additional amount was P219,302.47.

Respondents

Philippine Tourism Authority (PTA) refused the additional payment, contending that the price escalation reflected increased material costs and did not entail additional work by the petitioner. The Commission on Audit (COA) affirmed denial on the ground that, absent a showing that extra services were rendered, allowance of the claim would amount to an improper overpayment.

Key Dates

Contract execution: 15 September 1977 (originally with Flavio K. Macasaet personally, later with petitioner corporation).
PTA denial of additional payment: 3 July 1985.
Administrative endorsements and COA decision occurred prior to the petition to the Supreme Court.
Supreme Court decision: May 12, 1989 (proceeding under the 1987 Constitution provision invoked by the parties).

Applicable Law

Section 7, Article IX, 1987 Constitution (right to bring certiorari from decisions, orders, or rulings of each Commission).
Civil Code provisions invoked by the Court: Article 1370 (literal meaning of agreements controls when terms are clear) and Article 1159 (obligations arising from contracts have the force of law between the parties and must be performed in good faith).
Contractual provisions forming the basis of petitioner’s claim: Article IV and Article V (defining professional fee as seven percent of actual construction cost and prescribing schedule of payments culminating in computation on the “final actual project cost”) and Article VI (dealing with change orders and additional compensation for extra work).

Contractual Provisions Relevant to the Dispute

Article IV: the designer’s professional fee is seven percent (7%) of the actual construction cost.
Article V: establishes a schedule of partial payments during design stages calculated on a reasonable estimated construction cost; paragraph 5 requires payment of the balance upon completion and acceptance, “computed on the final actual project cost.”
Article VI: addresses additional compensation only where the Authority orders a major change in planning/engineering after designs are completed and such change results in additional work.

Factual Background and Payments

PTA made periodic payments to petitioner in accordance with the schedule in Article V. Upon project completion, PTA paid what it considered the balance of the professional fee. Subsequently, PTA paid the main contractor an additional P3,148,198.26 as escalation for increased construction material costs. Petitioner then claimed seven percent (7%) of that escalation amount as additional professional fees (P219,302.47). PTA denied the claim on the ground the escalation did not represent additional work by petitioner and thus did not trigger extra compensation under Article VI.

Claim and Administrative Determinations

Petitioner sought reconsideration administratively and then before COA. COA denied the claim, reasoning that absent a showing of extra or additional services rendered by petitioner, allowing the claim would result in overpayment to the prejudice of the government. Petitioner then filed a petition for certiorari with the Supreme Court.

Legal Issue

Whether the price escalation paid to the contractor should be included in the “final actual project cost” for purposes of computing the balance of the petitioner’s professional fee under the contract, thereby entitling petitioner to an additional seven percent.

Parties’ Contentions

Respondents: The professional fee had been fully paid; petitioner rendered no additional architectural services beyond those contracted, so no further fee is due. Article VI governs additional compensation for additional work and was not implicated.
Petitioner: The contractual language (Article IV and the final clause of Article V) ties the professional fee to the “actual construction cost” and directs the balance to be computed on the “final actual project cost,” so any post-contract adjustments to the project cost (including escalations) must be included in the final basis for computing the fee; entitlement does not depend on additional services.

Court’s Contractual Interpretation

The Court emphasized the plain meaning of the contract terms. Article IV defines the fee as seven percent of the “actual construction cost,” while Article V(5) requires that the balance be computed on the “final actual project cost.” The Court construed these terms as intentionally broader and sequential: periodic payments are based on a “reasonable estimated construction cost,” but the ultimate adjustment is to be made on the “final actual project cost,” which contemplates the totality of costs as finally determined. The Court held that “final actual project cost” logically includes escalation costs that alter the ultimate contract price, even if those costs do not reflect additional work by the designer.

Relevance of Article VI

Article VI concerns additional compensation for major changes in planning or engineering that result in additi

Case Syllabus (G.R. No. 83748)

Case Citation and Decision Information

Supreme Court En Banc decision reported at 255 Phil. 341; G.R. No. 83748; dated May 12, 1989.
Decision written by Justice Melencio-Herrera.
Petition for certiorari filed pursuant to Section 7, Article IX of the 1987 Constitution.
Relief sought: overturning the Commission on Audit's denial of petitioner’s claim for completion of payment of professional fees.

Parties

Petitioner: Flavio K. Macasaet & Associates, Inc. (originally contracted with Flavio K. Macasaet alone).
Respondents: Commission on Audit (COA) and Philippine Tourism Authority (PTA).
Solicitor General appeared for public respondents in opposing the claim.

Procedural Posture

Petition filed as certiorari review of COA ruling denying additional payment.
COA had denied the claim and expressed an opinion that allowance without showing of extra services would result in overpayment to the prejudice of the Government (1st Indorsement, July 10, 1987, p. 3, Rollo, p. 42).
Supreme Court granted due course to the petition and resolved the basic issue raised.

Facts — Contract Formation and Terms

On 15 September 1977, PTA entered into a Contract titled "Project Design and Management Services for the development of the proposed Zamboanga Golf and Country Club, Calarian, Zamboanga City" with petitioner (originally with Flavio K. Macasaet alone).
Under the Contract, PTA obligated to pay a professional fee of seven percent (7%) of the actual construction cost.
Relevant Contract provisions quoted in the source:
- Article IV — PROFESSIONAL FEE: "In consideration for the professional services to be performed by Designer under Article I of this Agreement, the Authority shall pay seven percent (7%) of the actual construction cost."
- Article V — SCHEDULE OF PAYMENTS: provides staged payments during design/construction and a final balance based on the "final actual project cost."

Contract — Schedule of Payments (Article V) — Detailed Terms Quoted

Paragraph 1: Upon execution of the Agreement but not more than fifteen (15) days, a minimum payment equivalent to 10 percent of the professional fee as provided in Art. IV computed upon a reasonable estimated construction cost of the project.
Paragraph 2: Upon completion of the schematic design services, but not more than 15 days after submission of the schematic design to the Authority, a sum equivalent to 15% of the professional fee as stated in Art. IV computed upon the reasonable estimated construction cost of the project.
Paragraph 3: Upon completion of the design development services, but not more than 15 days after submission of the design development to the authority, a sum equivalent to 20% of the professional fee as stated in Art. IV, computed upon the reasonable estimated construction cost.
Paragraph 4: Upon completion of the contract document services but not more than 15 days after submission of the contract document to the Authority, a sum equivalent to 25% of the professional fee as stated in Art. IV, shall be paid computed on the same basis as above.
Paragraph 5: Upon completion of the work and acceptance thereof by the Authority, the balance of the professional fee, computed on the final actual project cost shall be paid.

Facts — Payments, Escalation, and Claim

PTA made periodic payments to petitioner in accordance with the Schedule of Payments.
Upon completion of the project, PTA paid what it perceived to be the balance of petitioner’s professional fees.
Subsequently, PTA paid Supra Construction Company (the main contractor) an additional sum of P3,148,198.26 as escalation cost of the contract price due to an increase in the price of construction materials.
Upon learning of that price escalation, petitioner demanded payment of P219,302.47, representing seven percent (7%) of P3,148,198.26, as additional professional fee.

PTA Denial of Claim and Grounds

On 3 July 1985, PTA denied petitioner’s demand for additional professional fee.
Ground of denial: the subject price escalation referred to increased cost of construction materials and did not entail additional work on the part of petitioner as to entitle it to additional compensation under Article VI of the Contract.

Commission on Audit (COA) Position

COA denied reconsideration and opined that allowing the claim in the absence of a showing that extra or additional services had been rendered