Solis and Yarisantos vs. Liberator Salvador and Cesaria M. Salvador

A contractor who undertakes to build a structure 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 such change has been authorized by the proprietor in writing and the additional price has been determined in writing by both parties. The Court also held that moral damages cannot be awarded merely because a party is haled into court as defendant in a litigation, absent a clear showing of malice in filing the action.

Petitioner Solis & Yarisantos is a partnership engaged in general engineering and construction. It contracted with respondents in 1952 to prepare and interpret all necessary plans and specifications for respondents' proposed residential house, to supervise the construction, and to supply the technical know-how needed for the work. The contract provided for a service fee of P1,623.00, equivalent to 10% of the estimated construction cost of P16,230.00, with P250.00 payable upon approval of the plans and the remaining P1,373.00 payable after complete construction of all items.

Petitioner Solis & Yarisantos, a partnership engaged in general engineering and construction, contracted with respondents in 1952 to prepare and interpret all necessary plans and specifications for respondents' proposed residential house, to supervise the construction, and to supply the technical know-how needed for the work. The contract stipulated a service fee of P1,623.00, equivalent to 10% of the estimated construction cost of P16,230.00, with P250.00 payable upon approval of the plans and the remaining P1,373.00 payable after complete construction. The specifications provided that respondents would secure and pay for all permits and fees, and that all alterations and amendments should be the subject of agreement between the parties, with works not part of the contract considered extras to be paid for by the owner.

Respondents paid P250.00 on September 19, 1952. Petitioner completed the construction in December 1952, and respondents occupied the house in the same month. The house had a floor area five square meters more than provided in the plan, a terrace, and some minor extras not included in the original plans and specifications. The fence was built breast-high, higher than what petitioner claimed was agreed upon. The cost of these additions, plus amounts petitioner claimed to have advanced for permits and fees, formed the basis of petitioner's recovery claim.

The Court of Appeals found that the increase in floor area resulted from discontinuing the wall between the living room and dining room, with the materials utilized in lengthening the living room by one-half meter. The garage was built after the house was finished by carpenters hired and paid by respondents with materials bought and paid for by them. Regarding the fence, the agreement only provided that the specifications included the fence on two sides fronting the streets and one side of the property line, without fixing the height. The appellate court found petitioner's claim that the agreement was to build a fence only 60 centimeters high unbelievable, noting that no sensible man would fence his lot with a wall two feet high. Since the specifications were worded by petitioner and were incomplete, vague, and obscure, they were construed against petitioner.

Respondents admitted causing the construction of the terrace and installation of four extra lights without any definite agreement as to costs, but claimed they consented to these changes upon petitioner's assurance that they would not entail additional cost. The appellate court found that the cost of materials for the terrace could not be exactly determined since materials were bought at different times and used in simultaneous construction of the fence and terrace, and awarded recovery on quantum meruit. Excluding the P2,000.00 given by respondents on January 14, 1954, after the action was instituted, respondents had paid petitioner P18,750.00 on account of the contract price of P17,853.00, making an overpayment of P897.00, which the court deemed reasonable compensation for the terrace and four additional lights.

Regarding the list of extras, petitioner surrendered to respondents the vouchers or receipts for the corresponding items, but no counter-receipt was presented. The appellate court found this a strong indication that the costs of said items had been reimbursed already, applying the presumption that obligations delivered up to the debtor have been paid. The court also noted that even if the amounts were not reimbursed, petitioner could not recover for failure to comply with Article 1724 of the New Civil Code, which requires written authorization for changes and written determination of additional price.

As to the P2,000.00 payment on January 14, 1954, the appellate court found that in December 1952, respondents had paid only P16,750.00, still P1,103.00 short of the contract price. On February 19, 1953, petitioner gave respondents the list of alleged extras. On April 7, 1953, respondents paid P2,000.00 to cover the unpaid balance and the cost of terrace materials, thus considering their house fully paid and impliedly rejecting the rest of petitioner's claim for extras. After written demands on October 17 and November 5, 1953, and respondents' refusal to pay more, petitioner filed its complaint on December 14, 1953. On January 14, 1954, upon respondents' request, Yarisantos went to their house with his lawyer, and respondents paid another P2,000.00 in consideration of petitioner's withdrawal of the complaint and final settlement of its claim.

• Application of Article 1724: Petitioner argued that the Court of Appeals erred in applying Article 1724 of the Civil Code and Section 69(h), Rule 123, Rules of Court, as a basis for disallowing the extras done under its second and third causes of action.
• Service Fee on Extras: Petitioner argued that it was entitled to its service fee of 10% of P897.00, the cost of the terrace and four lights which the appellate court found to be extras, in spite of respondents' admission in their answer that petitioner is entitled to such service fee.
• Nature of the P2,000.00 Payment: Petitioner argued that the Court of Appeals erred in finding that the payment of P2,000.00 made by respondents on January 14, 1954 was in the concept of having the case dropped, rather than as partial settlement of any supposed pending account for additional labor and materials.
• Moral Damages: Petitioner argued that the Court of Appeals erred in finding petitioner liable to return the P2,000.00 and to pay P5,000.00 for moral damages.

N/A — The decision does not separately recount respondents' arguments beyond the factual findings and conclusions adopted by the Court of Appeals.

• Applicability of Article 1724: Whether the Court of Appeals erred in applying Article 1724 of the Civil Code and Section 69(h), Rule 123, Rules of Court as a basis for disallowing the extras claimed by petitioner.
• Service Fee on Extras: Whether petitioner is entitled to its service fee of 10% of P897.00, the cost of the terrace and four lights found to be extras.
• Nature of the P2,000.00 Payment: Whether the Court of Appeals erred in finding that the P2,000.00 payment made on January 14, 1954 was in the concept of having the case dropped.
• Moral Damages: Whether the Court of Appeals erred in finding petitioner liable to return the P2,000.00 and to pay P5,000.00 for moral damages.

• Applicability of Article 1724: Not reached. The applicability of Article 1724 need not be taken up in view of the appellate court's conclusion that the cost of extras claimed in the complaint had been reimbursed to petitioner by respondents; whether applicable or not, the provision would not make any difference.
• Service Fee on Extras: Yes. Since the appellate court found that petitioner incurred extra expenses for construction of the terrace and installation of additional lights and held that the sum of P897.00 paid by respondents in excess of the contract price just about covered the cost of such extra expenses, petitioner is entitled to 10% thereof by way of service fee under Article 11 of the contract, or P89.70.
• Nature of the P2,000.00 Payment: No. The third assigned error involves only a question of fact on which the finding of the Court of Appeals is conclusive; the Court found no sufficient justification to disturb the conclusion that said payment was made in consideration of petitioner's withdrawal of the complaint and final settlement of its claim.
• Moral Damages: No. There is no clear showing of malice on the part of the petitioner in filing the action; if respondents suffered worry and mental anxiety, they could not have been more than what are usually caused to a party who is haled into court as defendant in a litigation.

• Applicability of Article 1724: The Court noted that while the applicability of Article 1724 is indeed a question of law, it need not be taken up because the appellate court concluded that the cost of extras claimed in the complaint had been reimbursed to petitioner by respondents. Whether the provision applied or not, it would not make any difference to the outcome, since the claim for extras had already been satisfied through reimbursement.
• Service Fee on Extras: The Court found the second assignment of error well taken. Since the appellate court found that petitioner incurred extra expenses for construction of the terrace and installation of additional lights, and held that the sum of P897.00 paid by respondents in excess of the contract price just about covered the cost of such extra expenses, petitioner is entitled to 10% thereof by way of service fee under Article 11 of the contract, or P89.70. The contract expressly provided for a service fee equivalent to 10% of the estimated cost of construction, and this entitlement extends to the cost of extras.
• Nature of the P2,000.00 Payment: The Court held that this issue involves only a question of fact on which the finding of the Court of Appeals is conclusive. The appellate court found that considering all the circumstances surrounding the payment of the P2,000.00 on January 14, 1954, there was no sufficient justification to disturb the conclusion of the lower court that said payment was made in consideration of petitioner's withdrawal of the complaint and final settlement of its claim, and not as partial settlement only of any supposed pending account for additional labor and materials. Consequently, said amount ought to be returned inasmuch as petitioner did not cause the dismissal of its complaint and respondents had already fully satisfied their obligation.
• Moral Damages: The Court disagreed with both the trial and appellate courts on the award of moral damages. There was nothing in the decision under review which justified the award. There was no clear showing of malice on the part of the petitioner in filing the action. While both lower courts found the facts to weigh more heavily in favor of respondents, and this finding was no longer subject to review, the Court could not say that petitioner's evidence was utterly unworthy of credence. If respondents suffered worry and mental anxiety, they could not have been more than what are usually caused to a party who is haled into court as defendant in a litigation.

• Quantum meruit — Recovery based on quantum meruit allows a contractor to recover the reasonable value of services rendered or materials provided where there is no definite agreement as to their costs. The Court of Appeals applied this principle in awarding petitioner recovery for the terrace and four additional lights, where the cost of materials could not be exactly determined since materials were bought at different times and used in simultaneous construction of the fence and terrace.
• Presumption of payment upon surrender of receipts — Under Rule 123, Section 69(h) of the Rules of Court, it is presumed that obligations delivered up to the debtor have been paid. The Court of Appeals applied this presumption where petitioner surrendered vouchers or receipts to respondents without obtaining a counter-receipt, indicating that the costs of said items had been reimbursed already.
• Construction of ambiguous contracts against the drafter — Under Article 1377 of the New Civil Code, where a contract is incomplete, vague, and obscure, it should be construed against the party who worded it. The Court of Appeals applied this principle to the fence specifications, which were worded by petitioner, holding that the fence should be presumed to be of such height as to afford privacy and protection.
• Moral damages require malice — Moral damages cannot be awarded merely because a party is haled into court as defendant in a litigation. There must be a clear showing of malice on the part of the party filing the action. The Court applied this in eliminating the award of moral damages, finding no clear showing of malice on petitioner's part in filing the action.

• "The contractor who undertakes to build a structure of 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: (1) Such change has been authorized by the proprietor in writing; and (2) The additional price to be paid to the contractor has been determined in writing by both parties." — This is the text of Article 1724 of the New Civil Code, which the Court of Appeals applied as a bar to petitioner's recovery of additional costs for extras, though the Supreme Court found it unnecessary to rule on its applicability given the finding of reimbursement.
• "There is no clear showing of malice on the part of the petitioner in filing the action: indeed, while both the trial and appellant courts found the facts to weigh more heavily in favor of respondents, and this finding is no longer subject to review at this stage, we cannot say that petitioner's evidence is utterly unworthy of credence. If respondents have suffered worrier, and mental anxiety, they could not have been more than what are usually caused to a party who is haled into court as defendant in a litigation." — This passage states the Court's rationale for eliminating the award of moral damages, establishing that mere filing of a lawsuit, without malice, does not justify moral damages.
• "Since the appellate court found that petitioner incurred extra expenses for construction of the terrace and installation of additional lights and held that the sum of P897.00 paid by respondents in excess of the contract price just about covered the cost of such extra expenses, petitioner is entitled to 10%, thereof by way of service fee under Article 11 of the contract, or P89.70." — This passage establishes the Court's ruling on the service fee, holding that the contractual 10% service fee applies to the cost of extras found by the appellate court.

N/A — The decision does not cite any prior case law.

• Article 1724, New Civil Code — Provides that a contractor who undertakes to build a structure 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 such change has been authorized by the proprietor in writing and the additional price has been determined in writing by both parties. The Court of Appeals applied this provision as a bar to petitioner's recovery of additional costs, though the Supreme Court found it unnecessary to rule on its applicability.
• Article 1377, New Civil Code — Provides that where a contract is incomplete, vague, and obscure, it should be construed against the party who worded it. The Court of Appeals applied this to the fence specifications, which were worded by petitioner, holding that the fence should be presumed to be of such height as to afford privacy and protection.
• Rule 123, Section 65, Rules of Court — Cited by the Court of Appeals in connection with the interpretation of the fence specifications against petitioner as the drafter.
• Rule 123, Section 69(h), Rules of Court — Provides the presumption that obligations delivered up to the debtor have been paid. The Court of Appeals applied this presumption where petitioner surrendered vouchers or receipts to respondents without obtaining a counter-receipt.
• Rule 123, Section 69(d) and (q), Rules of Court — Provides presumptions that a person takes ordinary care of his concerns and follows the ordinary course of his business. The Court of Appeals applied these presumptions in connection with petitioner's delivery of receipts to respondents.

Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Dizon, Regala, Bengzon, J.P., and Zaldivar, JJ., concurred. Paredes, J., took no part.

N/A — There were no dissenting opinions in this case.