FACTS
Systems Energizer Corporation (SECOR) and Bellville Development, Inc. (BDI) entered into an Owner-Contractor Agreement on May 21, 2009, whereby SECOR undertook the electrical works for the construction of BDI's Molito 3 Puregold Building in Muntinlupa City for a lump-sum contract price of ₱15,250,000.00. Before the project was completed, the construction was suspended due to problems involving BDI's structural contractor and the death of two company officers. Thereafter, BDI issued a new Notice to Proceed and the parties executed a Second Agreement covering revised electrical plans and additional works worth ₱51,550,000.00. The Second Agreement expressly provided that it contained the entire agreement of the parties and that all prior agreements not incorporated therein were deemed superseded.
Upon completion of the project, BDI paid most of the contract price but withheld the 10% retention fees under both agreements and the payment for Work Accomplishment Order (WAO) No. 20, amounting to ₱8,030,000.00. SECOR demanded payment, but BDI refused, questioning the substantial increase in project costs from the original contract amount. SECOR then filed a complaint before the Construction Industry Arbitration Commission (CIAC) to recover the unpaid amounts, while BDI counterclaimed that it had overpaid SECOR because the Second Agreement had already superseded the First Agreement.
The CIAC ruled in favor of SECOR and ordered BDI to pay the retention fees and the unpaid balance under WAO No. 20. On appeal, however, the Court of Appeals reversed the CIAC, holding that the Second Agreement novated and superseded the First Agreement, leaving SECOR entitled only to payment for the limited work actually performed before the revised plans took effect. SECOR elevated the case to the Supreme Court through a petition for review under Rule 45 of the Rules of Court, insisting that the Second Agreement merely covered additional works and did not extinguish the First Agreement.
ISSUE
Whether the Second Agreement merely supplemented the First Agreement or constituted a novation that extinguished and superseded the parties' original contract.
Whether the Court of Appeals correctly interpreted the parties' contracts under the Civil Code and properly determined the compensation due SECOR for the work accomplished.
Whether SECOR remained entitled to recover the retention fees and other unpaid claims awarded by the CIAC despite the execution of the Second Agreement.
HELD
The Supreme Court denied the petition and affirmed the Court of Appeals. It ruled that the Second Agreement novated the First Agreement. Under Article 1291 of the Civil Code, obligations may be modified or extinguished by novation, while Articles 1370 and 1371 of the Civil Code govern the interpretation of contracts. Although the literal language of a contract generally controls when its terms are clear, courts may examine the parties' contemporaneous and subsequent acts to determine their true intent. Applying these provisions, the Court found that the parties intended the Second Agreement to replace the First Agreement because it expressly declared itself to be the complete agreement between them and stated that all previous agreements not incorporated therein were superseded.
The Court further held that the evidence showed only one set of "as-built" plans corresponding to the revised electrical design under the Second Agreement, confirming that the original plans were abandoned. Consequently, SECOR could no longer claim full compensation under the First Agreement. The Court sustained the CA's reliance on the quantity surveyor's report in determining that SECOR completed only 6.774% of the work under the original contract before it was replaced. Since no fraud or bad faith was established, the Court found no reason to disturb this factual finding.
The Court also discussed the equitable principles of quantum meruit, solutio indebiti, and unjust enrichment under the Civil Code. It ruled that SECOR should be compensated only for the value of the work actually performed under the First Agreement, while BDI could not be compelled to pay twice for the same work after the original contract had already been superseded. To avoid unjust enrichment and considering that any discrepancy involved only a minimal amount, the Court applied the maxim de minimis non curat lex ("the law does not concern itself with trifles"). Accordingly, the Supreme Court affirmed the Court of Appeals' ruling that the First Agreement had been extinguished by novation and denied SECOR's claims for the retention fees and additional amounts awarded by the CIAC
No comments:
Post a Comment