Uy vs. Public Estates Authority

A contractor's motion for correction of computation under Section 9, Article XV of the CIAC Rules interrupts the reglementary period for appeal, and a contractor may recover additional equipment standby costs caused by owner-caused delays in turning over work areas; however, additional costs incurred without the written authorization of the owner's general manager, as required by Article 1724 of the Civil Code and the contract, are not recoverable.

The Public Estates Authority (PEA) was designated by the Bases Conversion Development Authority (BCDA) as project manager for the development of a 105-hectare demilitarized lot in Fort Bonifacio, Taguig City into a first-class memorial park known as Heritage Park. PEA engaged Makati Development Corporation (MDC) to undertake horizontal works and Elpidio S. Uy, doing business under the name and style Edison Development and Construction (EDC), to perform the landscaping under a Landscaping and Construction Agreement. The relationship between PEA and EDC was governed by a lump-sum contract priced at ₱355,080,141.15, with provisions requiring written approval from PEA's general manager for any change or extra work, echoing Article 1724 of the Civil Code.

PEA, designated by BCDA as project manager, was tasked to develop a 105-hectare demilitarized lot in Fort Bonifacio, Taguig City into a memorial park called Heritage Park. PEA engaged MDC for horizontal works and EDC — the business name under which petitioner Elpidio S. Uy operated — for landscaping. On November 20, 1996, PEA and EDC signed the Landscaping and Construction Agreement for a contract price of ₱355,080,141.15, with EDC undertaking to complete the landscaping works in 450 days from receipt of the notice to proceed.

EDC received the notice to proceed on December 3, 1996, and commenced mobilization three days later. PEA, however, could not deliver any work area because MDC's horizontal works were still ongoing. EDC began landscaping only on January 7, 1997, when PEA made an initial delivery of a work area. PEA continuously incurred delay in the turnover of work areas, resulting in an extension of the contract period from 450 to 693 days. PEA also failed to turn over the entire 105-hectare area due to the presence of squatters; on March 15, 1999, PEA issued Change Order No. 2-LC excluding the 45-square-meter portion occupied by squatters from the contract.

Because of the delay in delivery of work areas, EDC claimed additional costs from PEA amounting to ₱181,338,056.30, covering equipment on standby, idle manpower, additional topsoil hauling distance, water truck operating costs, and nursery shade construction. The PEA Project Management Office evaluated the claim and arrived at a lesser amount of ₱146,484,910, which was referred to the Heritage Park Executive Committee for approval. On November 12, 1999, the Performance Audit Committee noted that EDC's works were behind schedule by 20%, considered the delay unreasonable, and recommended termination of the contract. BCDA adopted the recommendation, and PEA terminated the agreement on November 29, 1999. PEA had fully paid all progress billings up to August 26, 1999, but did not act on EDC's additional claims.

Uy filed a complaint with the CIAC on January 12, 2000. On May 16, 2000, the CIAC rendered a decision awarding ₱19,604,132.06 for idle equipment cost, ₱2,275,721.00 for idle manpower, ₱6,050,165.05 for nursery shade construction, and 10% of the total award as attorney's fees, with interest at 6% per annum from filing until finality and 12% per annum thereafter. Uy received the CIAC decision on June 7, 2000, and filed a motion for correction of computation on June 16, 2000, followed by an amended motion on July 21, 2000. The CIAC failed to resolve the motion within the 30-day period provided in its rules, and Uy considered it denied, elevating the case to the CA on July 24, 2000. The CIAC subsequently issued an Order on August 1, 2000, denying the motion for correction. The CA dismissed both Uy's and PEA's petitions on September 25, 2000, finding Uy's petition belatedly filed and affirming the CIAC decision on the merits. After the CA denied their motions for reconsideration on April 25, 2001, and also permanently enjoined CIAC from proceeding with CIAC Case No. 03-2001, both parties elevated the matter to the Supreme Court. PEA's petition was denied on December 12, 2001, leaving Uy's petition for resolution.

• Timeliness of Appeal: Petitioner maintained that his petition for review with the CA was not belatedly filed, because the filing of his motion for correction of computation under Section 9, Article XV of the CIAC Rules interrupted the running of the reglementary period for appeal.
• Admission of Liability: Petitioner argued that PEA had admitted its liability in the amount of ₱146,484,910.10 through its PMO evaluation memorandum dated January 6, 2000, and that the CA erred in awarding a lesser amount.
• Standby Equipment Cost: Petitioner asserted entitlement to ₱95,740,834.30 as standby equipment cost, faulting the CIAC's "equitable method" for reducing the award to ₱19,604,132.06.
• Additional Topsoil Hauling: Petitioner claimed ₱37,780,200.00 for increased topsoil hauling costs, asserting that the exhaustion of the original source was solely attributable to PEA's delay in turning over work areas.
• Water Truck Mobilization: Petitioner claimed ₱19,625,000.00 for water truck mobilization costs, alleging that PEA failed to provide generator sets and that the water from the deep well was grossly insufficient.
• Attorney's Fees: Petitioner insisted on entitlement to 20% attorney's fees based on paragraph 24.4 of the Landscaping and Construction Agreement, rather than the 10% awarded by CIAC and the CA.
• Injunction Against CIAC Case No. 03-2001: Petitioner asserted that the CA acted without or in excess of jurisdiction in enjoining CIAC Case No. 03-2001, arguing that the case was totally different from the case at bar.

• Timeliness of Appeal: Respondent PEA argued that Uy's petition for review with the CA was belatedly filed, warranting its dismissal on procedural grounds.
• Verification Defect: Respondent PEA's own petition was dismissed by the CA due to a defective verification, which PEA challenged.
• Injunction: Respondent PEA sought to enjoin CIAC from proceeding with CIAC Case No. 03-2001, alleging that the claims therein arose from the same Landscaping and Construction Agreement subject of the pending cases before the CA.

• Timeliness of Appeal: Whether the CA departed from the accepted and usual course of judicial proceedings in dismissing Uy's petition on the ground of non-compliance with the reglementary period for filing an appeal.
• Substantive Claims: Whether the CA, in affirming the CIAC arbitral tribunal's denial of certain claims of Uy, decided a question of substance not in accordance with law and applicable jurisprudence.
• Injunction: Whether the CA acted without or in excess of jurisdiction or with grave abuse of discretion in enjoining the proceedings in CIAC Case No. 03-2001.

• Timeliness of Appeal: Yes. The petition was not belatedly filed; the motion for correction of computation interrupted the running of the period to appeal pursuant to Section 9, Article XV of the CIAC Rules.
• Substantive Claims: Partially granted. The award for standby equipment cost was increased to account for owner-caused delay in turning over work areas, but claims for additional topsoil hauling and water truck mobilization were denied for lack of written authorization under Article 1724 of the Civil Code and the contract.
• Injunction: No. The CA did not commit grave abuse of discretion in enjoining CIAC Case No. 03-2001, as the doctrine of litis pendentia was properly applied.

• Timeliness of Appeal: Under Section 9, Article XV of the Rules of Procedure Governing Construction Arbitration, a motion for correction may be filed within 15 days from receipt of the award on grounds of evident miscalculation or evident mistake. The provision expressly states that the filing of the motion for correction shall interrupt the running of the period for appeal. Uy received the CIAC decision on June 7, 2000, and filed his motion for correction on June 16, 2000 — within the 15-day period. The CIAC was supposed to resolve the motion within 30 days from submission of the comment or opposition, but no resolution was issued despite the lapse of that period. Uy considered the motion denied and filed his petition for review with the CA on July 24, 2000. The CIAC later issued an Order denying the motion on August 1, 2000. Because the period to appeal was interrupted by the pendency of the motion for correction, the petition was not belatedly filed. The CA erred in dismissing it on that ground.

• Substantive Claims: The Court addressed each of Uy's claims in turn. First, the PEA-PMO evaluation memorandum dated January 6, 2000 did not constitute an admission of liability. The memorandum merely verified the accuracy of EDC's claims and was still subject to review by the project manager and approval by the Heritage Park ExCom. Moreover, the signatories — Messrs. Ignacio and Urcia — had no legal authority to make admissions on behalf of PEA. The fact that Uy filed his CIAC complaint because PEA did not act on the claims further confirmed that PEA never admitted liability.

  As to standby equipment cost, CIAC awarded only ₱19,604,132.06 based on the reduction in scope of work (42.85%), applying what it termed an "equitable method." CIAC ignored the delays in the turnover of work areas, reasoning that EDC could have shifted equipment from delayed areas to areas with advanced delivery. The Court found this reasoning erroneous: records established that EDC promptly commenced work on every area turned over and had already shifted equipment to minimize expenses. The Court found that PEA incurred delays totaling 546 days or 18.2 months in turning over work areas. Using the ACEL rate of ₱1,982,271.60 per month, Uy was entitled to an additional ₱36,076,360.32 for equipment idle time caused by delay, for an aggregate of ₱55,680,492.38.

  As to additional topsoil hauling, Article 1724 of the Civil Code requires written authorization from the owner before a contractor can recover increased costs. The landscaping contract echoed this requirement in Articles IX and X, providing that PEA would not be liable for change or extra work without the written approval of the PEA General Manager. EDC did not secure such written approval before obtaining topsoil from a farther source. Following Powton Conglomerate, Inc. vs. Agcolicol, the written consent of the owner is a vital precondition, not a mere formal requisite. Unjust enrichment could not be invoked because Uy, through his own omission, took the risk of being denied payment by not securing prior written consent.

  As to water truck mobilization, Uy admitted that MDC had already installed a deep well and that EDC used it. Under the contract, EDC was to shoulder all operational costs of the deep well and its appurtenant accessories, including generator sets. Moreover, as with the topsoil claim, the additional expenses for water trucks were incurred without prior written approval of PEA's general manager. An experienced contractor of the highest triple-A category should have negotiated a change order or extra work order before incurring substantial costs, as Uy had done for the much smaller nursery shade claim.

  As to attorney's fees, paragraph 24.4 of the agreement applied only to complaints filed by PEA against the contractor, not to complaints filed by the contractor against PEA. Even assuming it applied, the amount of attorney's fees may be reduced if found iniquitous or unconscionable under Articles 1229 and 2227 of the Civil Code. The Court found 20% exorbitant and upheld the 10% award as reasonable.

• Injunction: The CA granted PEA's prayer for injunctive relief based on the doctrine of litis pendentia, the requisites of which are: (a) identity of parties or interests; (b) identity of rights asserted and relief prayed for, founded on the same facts; and (c) identity such that any judgment in one case would amount to res judicata in the other. The CA found that Uy's amended complaint in CIAC Case No. 03-2001 was based on the same Landscaping and Construction Agreement, the claims having already been arbitrated in CIAC Case No. 02-2000. The Court found no patent or gross error amounting to grave abuse of discretion. There was only one cause of action running through Uy's litigious undertakings — his alleged right under the Landscaping and Construction Agreement. Under Villanueva vs. Court of Appeals, a party cannot escape the effects of res judicata by varying the form of action or bringing forward additional parties or arguments when the facts remain the same.

• Motion for Correction Interrupts Appeal Period — Under Section 9, Article XV of the CIAC Rules, the filing of a motion for correction of computation on grounds of evident miscalculation or evident mistake interrupts the running of the reglementary period for appeal. If the CIAC fails to resolve the motion within the prescribed 30-day period, the movant may treat it as denied and file the appeal, and such filing is deemed timely.

• Written Authorization as Condition Precedent for Additional Costs (Article 1724, Civil Code) — A contractor cannot recover additional costs for changes or extra work without the written authorization of the owner (or the owner's general manager, as stipulated in the contract). This written consent is not a mere formal requisite but a vital precondition to the validity of any subsequent contract authorizing a higher or additional price. The safeguards are intended to obviate future misunderstandings and to give the parties a chance to decide whether to bind themselves or withdraw.

• Unjust Enrichment Barred by Party's Own Omission — The principle of unjust enrichment (solutio indebiti) cannot be invoked by a party who, through his own act or omission, took the risk of being denied payment for additional costs by not giving the other party prior notice and/or securing written consent as required by law and contract.

• Reduction of Attorney's Fees When Iniquitous or Unconscionable — Under Articles 1229 and 2227 of the Civil Code, courts may reduce stipulated attorney's fees or penalties if found iniquitous or unconscionable, the determination of which is addressed to the sound discretion of the court considering factors such as the type, extent, and purpose of the penalty, the nature of the obligation, the mode of breach, and its consequences.

• Litis Pendentia and Forum Shopping in Construction Arbitration — The doctrine of litis pendentia applies when there is identity of parties, identity of rights asserted and relief prayed for founded on the same facts, and identity such that any judgment in one case would amount to res judicata in the other. A party cannot escape the effects of res judicata by varying the form of action or bringing forward additional parties or arguments when the facts remain the same and such matters could have been impleaded in the prior action.

• "By no stretch of the imagination can we consider this memorandum an admission of liability on the part of PEA. First, nowhere in the memorandum does it say that PEA is admitting its liability. The evaluation contained in the above memorandum is merely a verification of the accuracy of EDC's claims." — The Court rejected Uy's contention that PEA's PMO evaluation constituted an admission of liability, establishing that an evaluation of claims is not equivalent to an admission and that the evaluating officials lacked authority to bind PEA.

• "By this article, a written authorization from the owner is required before the contractor can validly recover his claim. The evident purpose of the provision is to avoid litigation for added 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." — This passage articulates the Court's interpretation of Article 1724 of the Civil Code as a substantive condition precedent, not merely a procedural formality, for recovery of additional construction costs.

• "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." — Quoting Powton Conglomerate, Inc. vs. Agcolicol, this passage defines the limitation on invoking unjust enrichment when the claiming party failed to comply with contractual and statutory prerequisites.

• "A party, by varying the form or action or by bringing forward in a second case additional parties or arguments, cannot escape the effects of the principle of res judicata when the facts remain the same at least where such new parties or matter could have been impleaded or pleaded in the prior action." — Quoting Villanueva vs. Court of Appeals, this passage supports the Court's holding that Uy's claims in CIAC Case No. 03-2001 were barred by litis pendentia because they arose from the same Landscaping and Construction Agreement.

• Powton Conglomerate, Inc. vs. Agcolicol, 448 Phil. 643 (2003) — Controlling precedent on the requirement of written authorization under Article 1724 of the Civil Code. The Court relied on this case to deny Uy's claims for additional topsoil hauling and water truck costs, and to reject the invocation of unjust enrichment where the claiming party failed to secure prior written consent.

• Titan Construction Corporation vs. Uni-Field Enterprises, Inc., G.R. No. 153874, March 1, 2007, 517 SCRA 180 — Cited for the principle that courts may reduce stipulated penalties or attorney's fees if found iniquitous or unconscionable under Articles 1229 and 2227 of the Civil Code.

• Villanueva vs. Court of Appeals, G.R. No. 110921, January 28, 1998, 285 SCRA 180 — Cited for the principle that a party cannot escape the effects of res judicata by varying the form of action or introducing additional parties or arguments when the facts remain the same.

• Eastern Assurance & Surety Co. vs. LTFRB, 459 Phil. 395 (2003) — Cited for the definition of grave abuse of discretion as capricious and whimsical exercise of judgment equivalent to lack of jurisdiction, used to evaluate the CA's issuance of the injunction.

• Eastern Shipping Lines, Inc. vs. Court of Appeals, 243 SCRA 78 (1994) — Cited in the CIAC decision for the applicable interest rates: 6% per annum from filing until finality, and 12% per annum thereafter until full payment.

• Article 1724, Civil Code — Requires written authorization from the owner before a contractor can validly recover increased costs for changes in plans or specifications. Applied to deny Uy's claims for additional topsoil hauling and water truck mobilization costs, as EDC failed to secure the written approval of PEA's general manager.

• Articles 1229 and 2227, Civil Code — Empower courts to reduce penalties or stipulated amounts if found iniquitous or unconscionable. Applied to uphold the reduction of attorney's fees from 20% to 10% of the total award.

• Section 9, Article XV, Rules of Procedure Governing Construction Arbitration — Provides that a motion for correction may be filed within 15 days from receipt of the award on grounds of evident miscalculation or evident mistake, and that the filing thereof interrupts the running of the period for appeal. Applied to hold that Uy's petition for review with the CA was timely filed.

• Rule 43, Revised Rules of Civil Procedure (Section 4) — Governs the period of appeal from judgments of the CIAC to the CA, requiring the petition for review to be filed within 15 days from receipt of the award or from denial of a motion for new trial or reconsideration.

• Articles IX and X, Landscaping and Construction Agreement — Contractual provisions requiring the written approval of the PEA General Manager for any change of work or extra work, echoing Article 1724 of the Civil Code. Applied to deny recovery of costs incurred without such written approval.

Consuelo Ynares-Santiago (Chairperson), Renato C. Corona, Presbitero J. Velasco, Jr., and Diosdado M. Peralta concurred. No separate concurring opinions were noted.