Title
Systems Energizer Corp. vs. Bellville Development, Inc.
Case
G.R. No. 205737
Decision Date
Sep 21, 2022
SECOR and BDI's construction agreements led to disputes over superseding terms, completed work, and unjust enrichment, resolved via arbitration and court rulings.

Case Summary (G.R. No. 142985)

Key Dates

First Agreement executed May 21, 2009. Notice of Award/Notice to Proceed issued March 25, 2010. Second Agreement executed April 5, 2010. WAO No. 20 dated August 24, 2010. CIAC Final Award promulgated July 16, 2012. CA Decision promulgated January 31, 2013. Petition for review to the Supreme Court decided September 21, 2022. (Applicable constitutional framework: 1987 Philippine Constitution, as decision date is 1990 or later.)

Applicable Law and Rules

Primary legal sources invoked: Civil Code of the Philippines (Articles 1291, 1292, 1370, 1371) on obligations, novation, and contract interpretation; Rules of Court (Rule 45 and Rule 43 provisions cited in the record, and Rule 133 evidentiary standard); CIAC Revised Rules of Procedure Governing Construction Arbitration (Section 18.2, Rule 13.5, Section 13.5); administrative-law principles on substantial evidence and relaxed technical rules on evidence in administrative proceedings. Doctrines applied: express/objective novation, solutio indebiti (recovery of undue payment), unjust enrichment, compensation between mutual creditors and debtors, and de minimis non curat lex.

Core Factual Background

SECOR was engaged to perform electrical works under a First Owner–Contractor Agreement (fixed lump sum P15,250,000.00). Work was suspended after a few months. BDI later issued a Notice of Award/Notice to Proceed (March 25, 2010) reflecting substantially expanded works and higher amounts, and the parties executed a Second Agreement (April 5, 2010) with a contract price of P51,550,000.00. Numerous Work Authorization Orders (WAOs) followed. The total actual cost alleged by respondent amounted to P80,711,308.05. Respondent paid petitioner amounts apparently covering full contract prices less contested retention sums; the contested unpaid items/consolidated demand amounted to P8,030,000.00 (two retention fees and unpaid WAO No. 20).

Important Contractual Provisions

First Agreement: fixed lump sum P15,250,000.00; Article 2.02 incorporated mutually agreed documents into contract; Article 5.05 addressed adjustments for additional or reduced work. Second Agreement: Article 2.4 declared the contract documents as containing the entire agreement, superseding all prior agreements and deeming prior documents not forming part as waived/abandoned. Second Agreement expanded the scope to include new major structures (vault substation, CCTV, FDAS) and amended contract price and billing scheme (monthly billings based on percent accomplished).

Parties’ Performance, Payments and Claims

Certificates of Final Inspection (September 1 and 7, 2010) issued for completion of certain works under the revised plan. Respondent paid considerable sums to petitioner; retention fees (10% under each contract) and unpaid WAO No. 20 remained disputed. Petitioner demanded payment of P8,030,000.00; respondent requested documentary support for the cost escalation from P15,250,000.00 to P80,711,308.05. Petitioner filed CIAC arbitration (September 13, 2011). Respondent counterclaimed for reimbursement of alleged excess payments under the First Agreement (asserting novation by the Second Agreement).

CIAC Proceedings and Final Award

After hearings, CIAC awarded petitioner the three contested amounts totaling P8,030,000.00 plus 12% legal interest from finality of the award; denied exemplary damages, attorney’s fees, and respondent’s counterclaims. CIAC’s findings emphasized (a) that the Second Agreement did not contain a specific stipulation expressly declaring the First Agreement superseded; (b) that the core issue was petitioner’s proper compensation for services rendered and billed; (c) that no fraud or vitiation of consent justified undoing contractual terms; and (d) that respondent’s professionals’ evaluations did not show irregularities, binding respondent to pay for services rendered.

CA Decision and Modifications

BDI sought judicial review under Rule 43; the CA modified CIAC’s Final Award. The CA concluded insufficient evidentiary basis for CIAC’s monetary awards because petitioner failed to prove completion of work under the First Agreement. The CA found the Second Agreement had superseded the First (relying on an as-built plan matching the revised plan and an unsigned Jarhaus Options & Trends report indicating only 6.774% completion under the original plan). The CA ordered SECOR to reimburse BDI P13,593,273.00, computed by offsetting amounts paid against petitioner’s entitlement (one retention fee for the Second Agreement, 6.774% attributable to the First Agreement, and WAO No. 20), and denied other damages and fees.

Issues Presented to the Supreme Court

  1. Whether Article 2.4 of the Second Agreement was ambiguous or whether doubt existed as to its interpretation and effect on the First Agreement. 2) Whether the Second Agreement effected an objective (express) novation extinguishing the First Agreement. 3) Whether sufficient evidence established the percentage of accomplished work by petitioner under the First Agreement.

Procedural Consideration on Reconsideration and Reviewability

The Supreme Court noted petitioner failed to file a motion for reconsideration of the CA decision but observed Rule 45 of the 1997 Rules of Court does not strictly require such motion for an appeal by certiorari. Although petitioner should ordinarily have afforded the CA the opportunity to reconsider, the Court proceeded to resolve substantive issues given the case’s importance and protracted duration.

Principles of Contract Interpretation and Novation Applied

The Court applied Civil Code Article 1370 (literal meaning and prevailing intent) and Article 1371 (contemporaneous and subsequent acts as guides). It emphasized that an express novation (objective novation under Articles 1291–1292) requires clear agreement of the parties to extinguish the old obligation or that the new and old be incompatible on every point; novation is not presumed. The Court treated Article 2.4 as an express novation clause put in issue by petitioner, thereby requiring judicial inquiry into the parties’ contemporaneous and subsequent acts and admissions to determine true intent.

Factual and Expert Evidence on Difference Between Original and Revised Plans

The Court found substantial evidence that the revised plan materially changed the project’s subject matter: a substantially higher contract price, inclusion of vault substation and CCTV (not in the original), and technical differences demonstrated by respondent’s project engineer’s affidavits comparing Design 1 (original) and Design 2 (revised) and the as-built plan. Petitioner’s own president conceded significant increases in scope and cost in the revised plan, although he maintained the First Agreement subsisted. Given the disparity in scope and the single as-built output satisfying the revised specifications, the Court concluded the change was essential (principal) rather than merely accidental.

Critique of CIAC’s Evidentiary Approach

The Supreme Court found that CIAC erred by failing to resolve the critical evidentiary question whether the revised plan was substantially different. CIAC’s omission to make c

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