Case Summary (G.R. No. 117009)
Contractual Background
The February 4, 1980 contract fixed the project price at ₱1,760,000 and mandated completion within 200 working days. Article IX provided that “if increase in prices of construction materials and/or labor … supervene through no fault of the contractor … OWNER shall equitably make the appropriate adjustment on mutual agreement of both parties.”
Trial Court Proceedings
Ferrer promptly notified SBTC of the excess expenses, supported by invoices, receipts, payrolls, and other documents. After independent verification, SBTC’s own consultants recommended settling for ₱200,000, but SBTC refused payment, insisting no mutual agreement had been reached. Ferrer sued for breach of contract with damages. The Regional Trial Court awarded him:
a) ₱259,417.23 plus 12% annual interest from August 15, 1980;
b) ₱24,000 actual damages;
c) ₱20,000 moral damages;
d) ₱20,000 exemplary damages;
e) attorney’s fees equivalent to 25% of the principal; and
f) costs of suit.
Appellate Ruling
The Court of Appeals affirmed, holding that Ferrer had satisfactorily proven his claim and that SBTC’s denial of liability conflicted with the equitable‐adjustment clause and general principles against unjust enrichment.
Issues on Review
Petitioners argued that under Article IX no obligation to pay excess costs arose without a “mutual agreement,” and that enforcing Ferrer’s claim violated their constitutional right against impairment of contracts.
Applicable Law
1987 Constitution – Contract Clause (non‐impairment of obligations)
Civil Code of the Philippines (1987):
• Article 22 (prohibiting unjust enrichment)
• Article 1182 (invalidating conditions dependent solely on the debtor’s will)
Supreme Court Analysis
1. Mutual agreement as a contractual condition was effectively at SBTC’s sole will: Ferrer had every reason to agree to recover his proven expenses, rendering the condition void under Article 1182.
2. SBTC’s own admission that excess costs were proper (recommendation to pay ₱200,000) and Ferrer’s documentary proof established unjust enrichment if SBTC
Case Syllabus (G.R. No. 117009)
Procedural History
- Petition for review under Rule 45 of the Rules of Court filed by Security Bank & Trust Company (SBTC) and Rosito C. Manhit
- Subject of review: Decision of the Court of Appeals in CA-G.R. CV No. 40450 (31 August 1994)
- Court of Appeals had affirmed the Regional Trial Court, Branch 63, Makati, decision in Civil Case No. 42712
- RTC case involved a complaint for breach of contract with damages
Facts of the Case
- Private respondent Ysmael C. Ferrer entered into a construction contract with SBTC and Rosito C. Manhit dated 4 February 1980
- Contract price: ₱1,760,000.00; completion period: 200 working days
- Building completed on 15 August 1980, within the stipulated period
- A drastic increase in the cost of materials and labor forced Ferrer to expend an additional ≈₱300,000.00
- Ferrer notified SBTC (through VP Fely Sebastian and Supervising Architect Rudy de la Rama) of added expenses as early as March 1980
- Timely demands for payment were supported by receipts, invoices, payrolls, and other documents
- In March 1981 SBTC (through Asst. VP Susan Guanio and an architectural consultant) verified the claim and recommended settlement of ₱200,000.00
- SBTC denied authority to pay any amount beyond the original contract price and disclaimed liability
Contract Provision (Article IX)
- “If at any time prior to the completion of the work to be performed hereunder, increase in prices of construction materials and/or labor shall supervene through no fault on the part of the contractor whatsoever or any act of the government and its instrumentalities whic