Cruz v. Commission on Audit
REITERATIONFacts
1. The Antecedents: Petitioner Pablo S. Cruz, an architect, contracted with the Government Service Insurance System (GSIS) in 1960 to design and supervise the construction of the GSIS Hospital. The initial contract stipulated fees based on a P10,000,000.00 construction cost. Subsequently, the project cost was increased to P15,000,000.00, comprising P13,000,000.00 for the building and P2,000,000.00 for equipment. Petitioner claimed additional architect's fees based on this increased cost, specifically requesting P232,091.96 for built-in equipment items 'F', 'G', and 'H' of Phase 'C'. However, the GSIS auditor disallowed P91,354.47 of this claim, asserting that these equipment costs were not part of the construction cost for fee computation. 2. Procedural History: The initial disallowance by the GSIS auditor led to a ruling by the Commission on Audit (COA) that equipment costs, particularly for items 'F', 'G', and 'H', should be deducted from the total cost when computing architect's fees, based on the principle that equipment is distinct from construction materials. Petitioner sought reconsideration, which was denied by COA in Decision No. 358 dated May 20, 1985. This denial formed the basis of the present petition for review on certiorari before the Supreme Court. 3. The Petition: Petitioner seeks to annul COA Decision No. 358, arguing that the disputed equipment items ('F' - laundry, 'G' - x-ray, 'H' - stills, sterilizers, special lighting) are integral parts of the hospital building and thus should be included in the construction cost for the calculation of his architect's fees. He contends that these items, unlike those sold as package units where the architect's input is minimal, were subjected to public bidding based on specifications he determined, requiring his professional expertise. Petitioner further argues that the COA's reliance on the Alabama Great Southern Railroad Company case is misplaced, as it pertains to a different context, and that Republic Act No. 545 defines the practice of architecture to include elements that contribute to a 'complete building.' He also points to affidavits from GSIS officials and the Chairman of the Board of Architecture supporting the inclusion of built-in equipment in construction costs for fee computation.
Issue(s)
Whether the cost of built-in equipment (Items "F", "G", and "H") should be included in the computation of the "total construction cost" for the purpose of determining the petitioner's architect's fees. Whether the ruling in Alabama Great Southern Railroad Company v. Davenport and Co. is applicable to the present case.
Ruling
The Supreme Court ruled in favor of the petitioner, setting aside the COA Decision No. 358 and giving due course to the petitioner's claim for P91,354.47 representing the balance of his architect's fees for Items "F", "G", and "H", Phase "C", in the construction of the GSIS hospital.
Ratio Decidendi
On the issue of including built-in equipment in construction cost for architect's fees: The Court held that the COA's argument that equipment costs should not be considered in computing additional architect's fees, even if assumed to be part of construction cost, is unsustainable. The COA itself admitted that the computation of architect's fees is dependent on the nature of some equipment, particularly those of a fixed nature and necessary to put the building into operation. The Court found that Items "F", "G", and "H" fall under this category, as they demanded the architect's technical skills for their integration into the hospital's plans and specifications. For instance, the architect had to estimate linen loads to determine laundry equipment needs, and the hospital could not function without x-ray equipment, stills, sterilizers, and special lighting fixtures. These items were subjected to public bidding and were considered "Built-in equipment" in the contract, making it unfair to claim they are not integral parts of the hospital building. The Court emphasized that a hospital building, due to its nature and purpose, requires specialized equipment and facilities for its occupancy and use, distinguishing it from residential or office buildings, and citing the U.S. Hospital Survey and Construction Act which recognizes initial equipment as part of construction cost. On the applicability of the Alabama Great Southern Railroad Company v. Davenport and Co. case: The Court found the cited Alabama case to be not relevant to the present controversy. The dictum in that case, stating that "equipment is different from construction," may have referred specifically to railroad construction. In contrast, the present case involves a hospital, a structure with unique requirements. Furthermore, the petitioner argued that the Alabama case involved a different factual scenario concerning damages from locomotive sparks, not the definition of construction costs for professional fees. The Court also noted that the "Contract of Services" did not precisely define "total construction cost," necessitating recourse to the parties' intention. Affidavits from former GSIS Hospital Committee members indicated that the agreed architect's fees were based on the total cost of construction which includes cost of affixed or built-in equipment. This parol evidence was admissible to clarify the ambiguity in the contract. Even without such evidence, the general usage in the architectural profession, supported by the Chairman of the Board of Architecture, considers the cost of built-in equipment as part of construction for determining architect's fees. The Court also referred to Republic Act No. 545, which defines the practice of architecture to include services for a "complete building," implying the inclusion of necessary equipment for its intended function.
Main Doctrine
The cost of built-in equipment, such as laundry, x-ray, stills, sterilizers, and special lighting equipment, which are necessary for the operation of a specialized building like a hospital and were subjected to public bidding based on architect-determined specifications, should be included in the computation of the 'total construction cost' for the purpose of determining the architect's fees.