FIRST DIVISION
POWTON
CONGLOMERATE[1],
INC.,
AND PHILIP C. CHIEN,
Petitioners,
G.R.
No.
150978
April 3, 2003
-versus-
JOHNNY AGCOLICOL,
Respondent. chanrobles virtuallaw libraryred
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D E C I S I O N
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YNARES-SANTIAGO,
J.:cralaw:red
In a contract to build
a structure or any other work for a stipulated price, the contractor
cannot
demand an increase in the contract price on account of higher cost of
labor
or materials, unless there has been a change in the plan and
specification
which was authorized in writing by the other party and the price has
been
agreed upon in writing by both parties.[2]chanrobles virtuallaw libraryred
This is a petition for
review on certiorari assailing the September 3, 2001 Decision[3]
of the Court of Appeals in CA-G.R. CV No. 65100, and its December 5,
2001
Resolution[4]
denying petitioner’s motion for reconsideration.chanrobles virtuallaw libraryred
Sometime in November
1990, respondent Johnny Agcolicol, proprietor of Japerson Engineering,
entered into an "Electrical Installation Contract" with Powton
Conglomerate,
Inc. (Powton), thru its President and Chairman of the Board, Philip C.
Chien. For a contract price of P5,300,000.00, respondent
undertook
to provide electrical works as well as the necessary labor and
materials
for the installation of electrical facilities at the Ciano Plaza
Building
owned by Powton, located along M. Reyes Street, corner G. Mascardo
Street,
Bangkal, Makati, Metro Manila.[5]
In August 1992, the City Engineer’s Office of Makati inspected the
electrical
installations at the Ciano Plaza Building and certified that the same
were
in good condition. Hence, it issued the corresponding certificate of
electrical
inspection.chanrobles virtuallaw libraryred
On December 16, 1994,
respondent filed with the Regional Trial Court of Pasay City, Branch
115,
the instant complaint for sum of money against the petitioners.[6]
He alleged that despite the completion of the electrical works at Ciano
Plaza Building, the latter only paid the amount of P5,031,860.40, which
is equivalent to more than 95% of the total contract price, thereby
leaving
a balance of P268,139.80. Respondent likewise claimed the amount
of P722,730.38 as additional electrical works which were necessitated
by
the alleged revisions in the structural design of the building.[7]chanrobles virtuallaw libraryred
In their answer, petitioners
contended that they cannot be obliged to pay the balance of the
contract
price because the electrical installations were defective and were
completed
beyond the agreed period.[8]
During the trial, petitioner Chien testified that they should not be
held
liable for the additional electrical works allegedly performed by the
petitioner
because they never authorized the same.[9]chanrobles virtuallaw libraryred
At the pre-trial conference,
the parties stipulated, inter alia, that the unpaid balance claimed by
the respondent is P268,139.60 and the cost of additional work is
P722,730.38.[10]chanrobles virtuallaw libraryred
On August 16, 1999,
a decision was rendered awarding the respondent the total award of
P990,867.38
representing the unpaid balance and the costs of additional
works.
The dispositive portion thereof reads:chanrobles virtuallaw libraryred
Wherefore, this Court
renders its judgment in favor of the plaintiff and orders the
defendants
Powton Congolmerate and Philip C. Chien to pay the plaintiff, jointly
and
severally, the amount of P990,867.38 representing their total unpaid
obligations
plus legal interest from the time of the filing of this complaint. No
pronouncement
as to costs.chanrobles virtuallaw libraryred
SO ORDERED.[11]
Aggrieved, petitioners
appealed to the Court of Appeals which, however, affirmed the decision
of the trial court.[12]
The motion for reconsideration was likewise denied.[13]
Hence, the instant petition.cralaw:red
Is the petitioner liable
to pay the balance of the contract price and the increase in costs
brought
about by the revision of the structural design of the Ciano Plaza
Building?chanrobles virtuallaw libraryred
The petition is partly
meritorious.cralaw:red
We agree with the findings
of both the trial court and the Court of Appeals that petitioners
failed
to show that the installations made by respondent were defective and
completed
beyond the agreed period. The justification cited by petitioners
for not paying the balance of the contract price is the self-serving
allegation
of petitioner Chien. Pertinent portion of his testimony, reads:chanrobles virtuallaw libraryred
COURT:
Q: You are
telling the Court that you did not accept the job because it is not yet
complete. That is a general statement.cralaw:red
ATTY. FLORENCIO:
Q: Why did
you say that the job was not yet complete?
COURT: Specify.cralaw:red
WITNESS:
A:
I am not an electrical engineer but my men…we also get independent
engineer
to certify that the job was not complete, your Honor.cralaw:red
COURT:
Q: You mean
to say you hired an independent electrical engineer and he certified
that
the job is not yet complete and there is danger?
WITNESS:
A:
Yes, your Honor.cralaw:red
COURT:
Q: You have
to present that engineer.cralaw:red
ATTY. FLORENCIO:
A:
Yes, your Honor.[14]
Notwithstanding the
above promise, petitioners never presented the engineer or any other
competent
witness to testify on the matter of delay and defects. Having
failed
to present sufficient proof, petitioners’ bare assertion of
unsatisfactory
and delayed installation will not justify their non-payment of the
balance
of the contract price. Hence, we affirm the ruling of the trial
court
and the Court of Appeals ordering petitioners to pay the balance of
P268,139.80.chanrobles virtuallaw libraryred
In awarding additional
costs to respondent, both the trial court and the Court of Appeals
sweepingly
applied the principle of unjust enrichment without discussing the
relevance
in the instant case of Article 1724 of the Civil Code, which provides:chanrobles virtuallaw libraryred
Art. 1724.
The contractor who undertakes to build a structure or any other work
for
a stipulated price, in conformity with plans and specifications agreed
upon with the landowner, can neither withdraw from the contract nor
demand
an increase in the price on account of the higher cost of labor or
materials,
save when there has been a change in the plans and specifications,
provided:chanrobles virtuallaw libraryred
(1)
Such change has been authorized by the proprietor in writing; andchanrobles virtuallaw libraryred
(2)
The additional price to be paid to the contractor has been determined
in
writing by both parties.chanrobles virtuallaw libraryred
Article 1724 of the
Civil Code was copied from Article 1593 of the Spanish Civil Code,[15]
which provided as follows:chanrobles virtuallaw libraryred
No architect or contractor
who, for a lump sum, undertakes the construction of a building, or any
other work to be done in accordance with a plan agreed upon with the
owner
of the ground, may demand an increase of the price, even if the costs
of
the materials or labor has increased; but he may do so when any change
increasing the work is made in the plans, provided the owner has given
his consent thereto.[16]chanrobles virtuallaw libraryred
The present Civil Code
added substantive requisites before recovery of the contractor may be
validly
had. It will be noted that while under the precursor provision,
recovery
for additional costs may be allowed if consent to make such additions
can
be proved, the present provision clearly requires that the changes
should
be authorized, such authorization by the proprietor in writing. The
evident
purpose of the amendment is to prevent litigation for additional costs
incurred by reason of additions or changes in the original plan.
Undoubtedly, it was adopted to serve as a safeguard or a substantive
condition
precedent to recovery.[17]
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In Weldon Construction
Corporation v. Court of Appeals,[18]
involving a contract of supervision of construction of a theater, we
denied
the contractor’s claim to recover costs for additional works. It
was held that the contract entered into by the parties was one for a
piece
of work for a stipulated price, wherein the right of the contractor to
recover the cost of additional works is governed by Article 1724 of the
Civil Code. Thus –chanrobles virtuallaw libraryred
In addition to the owner's
authorization for any change in the plans and specifications, Article
1724
requires that the additional price to be paid for the contractor be
likewise
reduced in writing. Compliance with the two requisites in Article
1724, a specific provision governing additional works, is a condition
precedent
to recovery (San Diego v. Sayson, supra.). The absence of one or the
other
bars the recovery of additional costs. Neither the authority for the
changes
made nor the additional price to be paid therefor may be proved by any
other evidence for purposes of recovery.chanrobles virtuallaw libraryred
In the case before this
Court, the records do not yield any written authority for the changes
made
on the plans and specifications of the Gay Theater building. Neither
can
there be found any written agreement on the additional price to be paid
for said "extra works." While the trial court may have found in the
instant
case that the private respondent admitted his having requested the
"extra
works" done by the contractor (Record on Appeal, p. 66 [C.F.I.
Decision]),
this does not save the day for the petitioner. The private respondent
claims
that the contractor agreed to make the additions without additional
cost.
Expectedly, the petitioner vigorously denies said claim of the private
respondent. This is precisely a misunderstanding between parties to a
construction
agreement which the lawmakers sought to avoid in prescribing the two
requisites
under Article 1724 (Report of the Code Commission, p. 148). And this
case
is a perfect example of a tedious litigation which had ensued between
the
parties as a result of such misunderstanding. Again, this is what the
law
endeavors to prevent (San Diego v. Sayson, supra.)chanrobles virtuallaw libraryred
In the absence of a
written authority by the owner for the changes in the plans and
specifications
of the building and of a written agreement between the parties on the
additional
price to be paid to the contractor, as required by Article 1724, the
claim
for the cost of additional works on the Gay Theater building must be
denied.[19]
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In the instant case,
the parties entered into a contract for the execution of all the
electrical
works at the Ciano Plaza "as shown and described in the plans and
specification
prepared by RCG Consult (hereinafter referred to as the
ARCHITECT/ENGINEER)."[20]
The contract was for a fixed price of P5,300,000, with the stipulation
that "any addition… or reduction in the cost of work shall be mutually
agreed in writing by both the OWNER and [the] CONTRACTOR upon
recommendation/advisement
of the ARCHITEC/ENGINEERS before execution."[21]
As admitted by both parties, several revisions and deviations from the
original plan and specification of the building were introduced during
the construction thereof.[22]
It appears, however, that though respondent was aware of such revisions
and of the consequent increase in the cost of the electrical works, he
nevertheless completed the installation of electrical facilities in the
constructed building without first entering into a written agreement
with
the petitioners for the increase in costs. The fact that
petitioner
Chien testified[23]
that his Engineer/Architect, the R.C. Gaite & Associates,
recommended
payment of the increase in costs, does not prove that he was informed
of
such increase before the job was completed.[24]
The records reveal that the demand letter which in effect notified the
petitioners of the increase in the costs of electrical installations
was
sent by the respondent to petitioners after the completion of the
project.[25]
This was clearly not in accord with the express stipulation of the
parties
requiring a prior written agreement authorizing the increased costs, as
well as with the provisions of Article 1724.chanrobles virtuallaw libraryred
It must be stressed
that the "change in the plans and specifications" referred to in
Article
1724 pertains to the very contract entered into by the owner of the
building
and the contractor. While there is a revision of plan and
specification
in the instant case, the same pertains to the structural design of the
building and not to the electrical installation contract of the
parties.
The consent given by the petitioners to the revision of the former will
not necessarily extend to the latter. As emphasized in Weldon
Construction
Corporation, the issue of consent to the higher cost could have been
determined
with facility had the respondent complied with the requirement of a
written
agreement for additional costs as mandated not only by their contract
but
also by Article 1724 of the Civil Code. The written consent of
the
owner to the increased costs sought by the respondent is not a mere
formal
requisite, but a vital precondition to the validity of a subsequent
contract
authorizing a higher or additional contract price. Moreover, the
safeguards enshrined in the provisions of Article 1724 are not only
intended
to obviate future misunderstandings but also to give the parties a
chance
to decide whether to bind one’s self to or withdraw from a
contract.
Had the increase in costs of the electrical installations been
disclosed
before completion of the project, petitioners could have opted to
bargain
with the respondent or hire another contractor for a cheaper
price.
Respondent, on the other hand, could have gladly accepted the bargain
or
simply backed out from the contract instead of gambling on the
consequences
of assuming the increased costs without the prior written authorization
of the petitioners. Indeed, the principle of unjust enrichment
cannot
be validly invoked by the respondent who, through his own act or
omission,
took the risk of being denied payment for additional costs by not
giving
the petitioners prior notice of such costs and/or by not securing their
written consent thereto, as required by law and their contract.chanrobles virtuallaw libraryred
Finally, we note that
the trial court held petitioner Chien solidarily liable with petitioner
Powton. The settled rule is that, a corporation is invested by
law
with a personality separate and distinct from those of the persons
composing
it, such that, save for certain exceptions, corporate officers who
entered
into contracts in behalf of the corporation cannot be held personally
liable
for the liabilities of the latter. Personal liability of a
corporate
director, trustee or officer along (although not necessarily) with the
corporation may so validly attach, as a rule, only when - (1) he
assents to a patently unlawful act of the corporation, or when he is
guilty
of bad faith or gross negligence in directing its affairs, or when
there
is a conflict of interest resulting in damages to the corporation, its
stockholders or other persons; (2) he consents to the issuance of
watered down stocks or who, having knowledge thereof, does not
forthwith
file with the corporate secretary his written objection thereto; (3) he
agrees to hold himself personally and solidarily liable with the
corporation;
or (4) he is made by a specific provision of law personally answerable
for his corporate action.[26]
Considering that none of the foregoing exceptions was established in
the
case at bar, petitioner Chien, who entered into a contract with
respondent
in his capacity as President and Chairman of the Board of Powton,
cannot
be held solidarily liable with the latter.chanrobles virtuallaw libraryred
WHEREFORE, in view of
all the foregoing, the instant petition is PARTIALLY GRANTED. The
Decision of the Court of Appeals in CA-G.R. CV No. 65100 is
MODIFIED.
Petitioner Powton Conglomerate, Inc. is ordered to pay respondent
Johnny
Agcolicol the sum of P268,139.60 representing the unpaid balance in the
"Electrical Installation Contract" between them. Petitioner
Philip
C. Chien, President and Chairman of the Board of Powton Conglomerate,
Inc.
is absolved from personal liability.cralaw:red
SO ORDERED.chanrobles virtuallaw libraryred
Davide, Jr., C.J.,
(Chairman), Vitug, Carpio, and Azcuna, JJ., concur.chan
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____________________________
Endnotes:
[1]
Sometimes spelled as "Conglomerates" in the records.
[2]
Civil Code, Article 1724; San Diego v. Sayson, 112 Phil. 1073 (1961).
[3]
Penned by Associate Justice Oswaldo D. Agcaoili (Chairman), concurred
in
by Associate Justices Elvi John S. Asuncion and Eriberto U. Rosario
(members).
[4]
Rollo, p. 43.chanrobles virtuallaw libraryred
[5]
Exhibit "1", Records, p. 5.chanrobles virtuallaw libraryred
[6]
Complaint, Records, p. 1.chanrobles virtuallaw libraryred
[7]
Complaint, Records, p. 2.chanrobles virtuallaw libraryred
[8]
Answer, Records, p. 26.chanrobles virtuallaw libraryred
[9]
TSN, 19 October 1995, pp. 19-28.
[10]
Pre-trial Order dated April 28, 1995, Records, p. 48.
[11]
Records, p. 241.chanrobles virtuallaw libraryred
[12]
Decision, Rollo, p. 33.chanrobles virtuallaw libraryred
[13]
Resolution, Rollo, p. 43.chanrobles virtuallaw libraryred
[14]
TSN, September 14, 1995, pp. 23-25.
[15]
San Diego v. Sayson, supra, note 2.
[16]
Supra, note 2 at 1076.chanrobles virtuallaw libraryred
[17]
Supra, note 1 at 1076-1077.
[18]
G.R. No. L-35721, 12 October 1987, 154 SCRA 618.
[19]
Id., at 633-634.chanrobles virtuallaw libraryred
[20]
Exhibit "1", Records, p. 5.chanrobles virtuallaw libraryred
[21]
Id., at 7; emphasis ours.chanrobles virtuallaw libraryred
[22]
TSN, 9 June 1995, pp. 19-20; 11 August 1995, pp. 2-4; 19 October 1995,
pp. 19-23.
[23]
TSN, 19 October 1995, pp. 20-23.chanrobles virtuallaw libraryred
[24]
See also TSN, 1 September 1995, pp. 33-34. Petitioners offered as
Exhibit "G", a letter dated 12 January 1994, sent by Mr. R.C. Gaite to
petitioners recommending payment of the increase in costs. This
exhibit
does not, however, appear in the records.chanrobles virtuallaw libraryred
[25]
See Exhibit "D", Demand Letter dated 17 December 1993, Records, p. 14;
(The earliest demand letter after completion of the project appears to
be the one offered as Exhibit "E", dated 19 August 1993. Said exhibit
is
not, however, found in the records [See TSN, 1 September 1995, p. 32]).chanrobles virtuallaw libraryred
[26]
FCY Construction Group, Inc. v. Court of Appeals, 381 Phil. 282,
289-290
(2000); citing Rustan Pulp & Paper Mills, Inc. v. Intermediate
Appellate
Court, G.R. No. 70789, 19 October 1992, 214 SCRA 665; Tramat
Mercantile,
Inc. v. Court of Appeals, G.R. No. 111008, 7 November 1994, 238 SCRA 14.chanrobles virtuallaw libraryred |