Title
Salvador vs. Court of Appeals
Case
G.R. No. 124899
Decision Date
Mar 30, 2004
Romayne appointed Gilbert as attorney-in-fact to manage her property. Gilbert contracted Salvador for development, but disputes arose over additional costs and work stoppage due to lack of permits. Court dismissed Salvador’s claims, citing lack of written authorization for extra works and invalid escalation demands. Respondents’ counterclaims also denied due to mutual fault.
contractor
additional payment
escalation
A

Case Summary (G.R. No. 124899)

Factual Background

Maria Romayne Miranda owned a 17,748-square-meter parcel in Cabcaben, Mariveles, Bataan, registered under TCT No. T-129442. She executed a General Power of Attorney dated 15 April 1990 appointing her cousin, Gilbert Miranda, as attorney-in-fact to manage her properties. On 9 July 1990, Gilbert, as agent, entered into a Development and Construction Contract with Renato C. Salvador, contractor and proprietor of Montariza Construction, to develop the property into the Haven of Peace Memorial Park for a contract price of P3,986,643.50.

Contractual Terms and Obligations

The written Contract provided for completion within 180 working days from receipt of the down payment, with a 45-working-day grace period. Paragraph 17 required written agreement for changes. Paragraph 18 authorized escalation of the contract price only in the event of substantial increases in prices of particular materials such as cement and G.I. sheets, and paragraph 20 excluded matters not stipulated unless agreed in writing. Paragraph 3 placed the obligation to provide materials, equipment, manpower and supervision on the Contractor.

Performance and Dispute

Work commenced in July 1990 after a 20% down payment of P797,328.70. Salvador periodically submitted progress billings which Gilbert paid. By December 1990, Salvador demanded additional sums: P39,000 as a 20% fee on P196,000 of filling materials supplied by respondents; P637,862.96 as a 20% escalation on the unpaid balance; and P399,190.46 for alleged additional works. Salvador insisted that material prices had risen up to 40% and threatened to stop work if respondents did not accede. Gilbert requested detailed substantiation. On 25 December 1990 Salvador submitted a computation applying a uniform 20% increase on outstanding balances for services. Gilbert paid additional advances totaling P350,000 but retained that only P90,772.91 remained unpaid on the Contract. Salvador ceased work on 14 January 1991 and attached to his notice a DPWH cease-and-desist notice dated 8 January 1991, received by one of his engineers on 15 January 1991. On 31 January 1991 Salvador filed a complaint for collection and damages or for declaration of lien against Romayne and Gilbert. Respondents later engaged a new contractor and ejected Salvador’s crew.

Trial Court Proceedings and Ruling

After trial the Regional Trial Court dismissed Salvador’s complaint and dismissed respondents’ counterclaims for insufficiency of basis. The court found Salvador failed to identify particular materials whose prices had increased as required by paragraph 18 and failed to prove authorization or agreement on the alleged additional works and their prices as required by Article 1724. The court also found no contractual authority for a 20% charge on filling materials supplied and delivered by respondents. The trial court concluded that plaintiff’s cause of action was insufficiently supported and ordered dismissal of the complaint and the counterclaims.

Court of Appeals Ruling

The Court of Appeals affirmed the dismissal of Salvador’s claims but reversed on respondents’ counterclaims. The appellate court found respondents established their expenditures in completing the project and held Salvador acted in bad faith by halting work. It ordered Salvador to reimburse respondents P1,685,532.48 less P90,772.91, awarded P100,000 moral damages, P50,000 exemplary damages, and P20,000 attorneys fees, with costs against plaintiff-appellant.

Issues Presented to the Supreme Court

The petition contended that the Court of Appeals erred in ordering reimbursement of respondents’ claimed expenses, in holding that Salvador’s escalation claim lacked basis, in finding that alleged additional works were unauthorized, and in concluding that Salvador stopped work for lack of payment rather than in compliance with the DPWH notice. The central questions were whether Salvador’s claims for additional works, the 20% charge on materials, and escalation were valid, and whether respondents were entitled to the counterclaim and damages awarded by the appellate court.

Standard of Review and Scope of Review

The Court observed that review under Rule 45 was generally limited to questions of law and that factual findings of the Court of Appeals are ordinarily binding when affirmed by the trial court. The Court stated it would not disturb the lower courts’ factual findings that respondents did not authorize additional works nor agree on their price, and that Salvador failed to specify the particular materials whose prices allegedly rose.

Legal Basis for Denial of Additional Works Claim

The Court applied Civil Code, Art. 1724, and held two requisites were indispensable for a contractor to recover additional costs: written authorization by the proprietor for changes in plans and specifications; and a written determination by both parties of the additional price. The Court found Salvador presented no written authority for changes, no written agreement on prices for extra work, and no prior notice to respondents. The Contract did not permit unilateral determination of changes or prices. Therefore Salvador’s claim of P399,190.46 for alleged additional works had no legal basis.

Legal Basis for Denial of Escalation Claim and 20% Charge on Materials

The Court examined paragraph 18 of the Contract and the jurisprudence on escalation clauses, citing Baylen Corporation v. Court of Appeals and other authorities. It held paragraph 18 authorized escalation only upon substantial increases in prices of particular materials used in the project and required the contractor to show such increases. Salvador, who supplied materials, had the burden to produce receipts, supplier billings or similar documents. His December 25 computation merely applied a blanket 20% increase to outstanding balances for services and failed to identify particular materials and the actual increases. The Court held such blanket escalation was contrary to the clear terms of the Contract and, even if the Contract purported to permit unilateral escalation, such a provision would be void under the principle of mutuality as expressed in Art. 1308 and the Court’s prior rulings. The Court likewise found no basis for a 20% fee on filling materials that respondents purchased and delivered, given the Contract’s allocation of material supply to the Contractor and paragraph 20’s exclusion of matters not stipulated unless agreed in writing.

Counterclaim, Damages, and Effect of DPWH Notice

The Court considered the Court of Appeals’ finding that Salvador stopped work because respondents refused escalation and found documentary support for Salvador’s threats to halt work for that reason. The Court rejected Salvador’s contention th

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