Titan-Ikeda vs. Primetown Property Group

A contract for a piece of work is extinguished by mutual agreement when the owner takes over the project, limiting the contractor's compensation to the proportionate cost of actual accomplishment and subjecting any excess payment to return under the principle of solutio indebiti.

In 1992, Primetown Property Group, Inc. awarded Titan-Ikeda Construction and Development Corporation the contract for the structural works of the 32-storey Makati Prime Tower. Upon completion, Primetown awarded Titan-Ikeda the P130,000,000 architectural works contract, formalized in a January 31, 1994 supplemental agreement payable via "full swapping" in condominium units. On June 30, 1994, Primetown executed a deed of absolute sale covering 114 units and 20 parking slots valued at P112,416,716.88. By October 12, 1995, Primetown took over the project, eventually hiring new contractors, while Titan-Ikeda retained a project engineer only to monitor progress on its own units.

• The Construction Contracts: Primetown engaged Titan-Ikeda first for the structural works and subsequently for the architectural works of the Makati Prime Tower. The architectural works contract, governed by a supplemental agreement dated January 31, 1994, stipulated a price of P130,000,000 payable via "full swapping" or full payment in condominium units. The supplemental agreement adopted the provisions of the original construction contract, including the designation of GEMM Construction Corporation as the project's construction manager and a specific procedure for protesting delay.
• Advance Payment via Deed of Sale: On June 30, 1994, Primetown executed a deed of absolute sale in favor of Titan-Ikeda covering 114 condominium units and 20 parking slots valued at P112,416,716.88, pursuant to the swapping arrangement. Titan-Ikeda subsequently sold some of these units to third persons.
• Project Takeover: In September 1995, Primetown unilaterally hired Integratech, Inc. (ITI) to evaluate the project. ITI reported that Titan-Ikeda had accomplished only 31.89% of the project and was 11 months behind schedule. On October 12, 1995, the parties signed a letter-agreement stating that Primetown would take over construction supervision as part of its long-range plan. Despite the letter's reference to a mere takeover of supervision, Primetown assumed full control and hired two new contractors. Titan-Ikeda did not protest and merely monitored the progress of works on its own condominium units.
• Conflicting Demands: Titan-Ikeda demanded payment of its balance amounting to P2,023,876.25, while Primetown sought reimbursement of P69,785,923.47 representing the actual costs incurred to finish the project.
• Prior HLURB Ruling: Titan-Ikeda initially filed a specific performance case in the HLURB, which ruled that the deed of absolute sale was unconditional and ordered Primetown to deliver the keys and management certificate. This decision became final and executory.
• Lower Court Findings: The RTC found that Primetown caused the project's delay by belatedly communicating design modifications and failing to deliver materials on time. The CA reversed, relying on ITI's report to find Titan-Ikeda in delay and ordering the return of the value of the unfinished portion under unjust enrichment.

• ITI Report Inadmissibility: Petitioner argued that the Court of Appeals erred in giving weight to ITI's report because the project evaluation was commissioned unilaterally by respondent, disregarding industry practice where evaluations are jointly agreed upon and conducted by a disinterested third party.
• Extinguishment of Contract: Petitioner contended that the supplemental agreement was extinguished by the October 12, 1995 mutual agreement, thereby relieving it of the obligation to complete the project.
• No Delay: Petitioner maintained that it did not incur delay because respondent failed to send the written demand required under Article XIV of the construction contract.
• Entitlement to Additional Costs: Petitioner claimed it was entitled to the cost of additional works necessitated by respondent's design modifications.

• Unjust Enrichment: Respondent countered that petitioner received excess payment because it failed to finish the project, entitling respondent to reimbursement under the principle of unjust enrichment.
• Delay: Respondent argued that petitioner incurred delay in the performance of its obligation, as established by ITI's report showing only 48.71% accomplishment as of the takeover date.
• Validity of Takeover: Respondent maintained that the takeover was justified due to petitioner's delay and abandonment of the project.

• Extinguishment of Contract: Whether the supplemental agreement was extinguished by the October 12, 1995 letter-agreement and the subsequent takeover of the project.
• Solutio Indebiti: Whether petitioner is obligated to return the excess condominium units received under the principle of solutio indebiti.
• Delay: Whether petitioner incurred delay in the performance of its obligation.
• Additional Costs: Whether petitioner can recover the cost of additional work resulting from changes in plans without complying with the requisites of Article 1724 of the Civil Code.
• Compensatory Damages: Whether petitioner is entitled to compensatory damages for lost rental income.

• Extinguishment of Contract: The supplemental agreement was extinguished by mutual agreement. The October 12, 1995 letter-agreement, signed by both parties, demonstrated their intent to replace the original arrangement. Because respondent took over the entire project and hired new contractors, and petitioner voluntarily surrendered its participation, the obligations under the original contract were discharged. Petitioner was relieved of the obligation to complete the project, and respondent was freed from the obligation to pay the entire contract price.
• Solutio Indebiti: Petitioner is obliged to return the excess units under solutio indebiti. Because the contract was extinguished, petitioner became entitled only to the proportionate cost of its actual accomplishment. The units corresponding to the excess were unduly delivered by mistake, giving rise to the obligation to return them. If the units were already sold to third parties, petitioner must deliver the proceeds or assign the action to collect.
• Delay: Delay was not incurred. The construction contract expressly required respondent to send a written notice demanding acceleration of work if slippage exceeded 15%. Respondent never sent such written demand. Furthermore, ITI's report could not bind petitioner because the contract designated GEMM, not ITI, as the construction manager, and petitioner never consented to the substitution.
• Additional Costs: Recovery of additional costs was barred. Article 1724 of the Civil Code requires both (1) written authority from the proprietor ordering the changes and (2) a written agreement on the additional price. Petitioner submitted neither, and its own project coordinator testified that respondent never approved any change order. Compliance with Article 1724 is a condition precedent to recovery.
• Compensatory Damages: The award of compensatory damages was deleted. Petitioner failed to prove the actual amount of lost profits with preponderance of evidence; the projected rental income was based on mere speculation and bare assertions without proof that the units would have actually been leased.

• Solutio Indebiti — Arises when something is received when there is no right to demand it and it was unduly delivered through mistake. The requisites are: (1) the absence of a right to collect the excess sums, and (2) the payment was made by mistake. Applied to hold that because the contract was extinguished, the contractor had no right to retain units corresponding to unaccomplished work, and the owner's delivery of those units was made under the mistaken assumption that the project would be completed.
• Good Faith Recipient of Undue Payment (Article 2160) — One who receives payment by mistake in good faith is only liable to return the thing delivered. If the thing has been alienated, the recipient must return the price or assign the action to collect. Applied to require the contractor to return the excess condominium units or, if already sold, to deliver the proceeds or assign the collection action to the owner.
• Article 1724 of the Civil Code (Additional Works in Stipulated Price Contracts) — A contractor undertaking work for a stipulated price cannot demand an increase in price due to changes in plans unless: (1) such change has been authorized by the proprietor in writing, and (2) the additional price has been determined in writing by both parties. Compliance with these two requisites is a condition precedent to recovery. The absence of either bars the claim; neither authority nor price may be proved by other evidence.
• Mora (Delay) — A debtor incurs delay only upon the creditor's judicial or extrajudicial demand. In reciprocal obligations, delay by one party does not begin until the other party fulfills its own obligation. A creditor cannot unilaterally declare delay where the contract expressly requires a written notice of slippage as a condition precedent.

• "Because the parties agreed to extinguish the supplemental agreement, they were no longer required to fully perform their respective obligations. Petitioner was relieved of its obligation to complete the project while respondent was freed of its obligation to pay the entire contract price."
• "Compliance with the two requisites of Article 1724, a specific provision governing additional works, is a condition precedent of the recovery. 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."
• "If delay had truly been the reason why respondent took over the project, it would have sent a written demand as required by the construction contract."

• Powton Conglomerate, Inc. v. Agcolicol, 448 Phil. 643 (2003) — Followed. Reiterated that a claim for the cost of additional work arising from changes in the scope of work requires written authority from the owner and a written agreement on the increase in cost, as mandated by Article 1724. Non-compliance bars recovery.
• Austria v. Gonzales, Jr., 465 Phil. 355 (2004) — Followed. Cited for the exception to the general rule that only questions of law may be raised in a petition for review on certiorari: factual issues may be entertained where the findings of fact of the CA and the trial court are conflicting.

• Article 2154, Civil Code — Governs solutio indebiti. Applied to obligate the return of condominium units corresponding to the payment made in excess of the contractor's actual accomplishment.
• Article 2160, Civil Code — Governs the liability of a good faith recipient of an undue payment. Applied to require the return of the specific units or, if alienated, the proceeds of their sale.
• Article 2163, Civil Code — Creates a presumption of mistake in payment. Applied to presume that the delivery of excess units was made by mistake since they were transferred under the assumption that the contractor would complete the project.
• Article 1724, Civil Code — Governs additional costs in contracts for a stipulated price. Applied to bar the contractor's claim for additional costs because there was no written authority for the changes nor a written agreement on the additional price.
• Article 1169, Civil Code — Defines when delay occurs. Applied in conjunction with the contract's specific slippage provision to rule that the contractor did not incur delay absent a written demand from the owner.

Chief Justice Reynato S. Puno, Associate Justice Angelina Sandoval-Gutierrez, Associate Justice Adolfo S. Azcuna, Associate Justice Teresita J. Leonardo-De Castro