Sarmiento v. Court of Appeals
REITERATIONFacts
The Antecedents: On December 15, 1981, the Metropolitan Waterworks and Sewerage System (MWSS) advertised for bidding Contract No. RS-4 for the modification and improvement of pumping stations. Petitioner Amalio L. Sarmiento won the bid with P60,000,000.00, which included P13,500,000.00 for prime cost items. The contract was awarded on October 14, 1982, and executed on December 21, 1982. Petitioner commenced construction after receiving the Notice to Proceed on March 15, 1983. MWSS released P9,000,000.00 as advance payment. Petitioner also furnished eight vehicles for the project, for which MWSS agreed to compensate him. Due to financial difficulties, petitioner requested a joint termination of the contract on August 14, 1984, which MWSS approved on July 16, 1984, citing force majeure. MWSS announced its takeover of certain pumping stations effective October 1, 1984. Procedural History: On February 14, 1989, petitioner filed a complaint against MWSS for sum of money, claiming P13,735,095.18 for various items including exceeded quantities, vehicle use and loss, foreign currency adjustment, balance on prime cost items, and price escalation, plus attorney's fees. MWSS filed counterclaims for unpaid mobilization funds, interests, customs charges, mark-up, and damages. The Regional Trial Court (RTC) ruled in favor of petitioner, ordering MWSS to pay P13,555,095.18 plus attorney's fees, and dismissed MWSS' counterclaims. The Court of Appeals (CA) reversed the RTC decision, offsetting petitioner's awards with MWSS' granted counterclaims, resulting in a net amount due to MWSS of P6,385,713.1 (excluding attorney's fees), and P7,024,284.41 with attorney's fees. The CA sustained the dismissal of MWSS' counterclaim for the 3% mark-up and the denial of petitioner's claim for the carnapped vehicle. The Petition: Petitioner seeks annulment of the CA decision and resolution, arguing that the CA gravely erred in reversing the RTC decision, awarding MWSS' counterclaims without sufficient evidence, and awarding attorney's fees to MWSS.
Issue(s)
Whether the Court of Appeals gravely erred in reversing the factual findings of the Regional Trial Court. Whether MWSS sufficiently proved its counterclaims. Whether petitioner is entitled to compensation for exceeded quantities or overruns in civil works. Whether petitioner is entitled to foreign currency adjustment under Supplemental General Condition No. 10 (SGC-10). Whether petitioner is entitled to the cost of excess materials and equipment imported. Whether petitioner is entitled to the balance of the bid price for prime cost items. Whether petitioner is entitled to compensation for loss on trade discount for prime cost pump units. Whether petitioner is entitled to price escalation. Whether MWSS is entitled to the unpaid balance of the mobilization fund and customs charges. Whether attorney's fees should be awarded.
Ruling
The Supreme Court modified the decision of the Court of Appeals. It affirmed the entitlement of petitioner to compensation for overruns in civil works, compensation for the use of his vehicles, price escalation, and trade discount. It denied the claims for foreign currency adjustment and cost of excess imported materials. It also denied the claim for the balance of the bid price for prime cost items. The Court granted MWSS' counterclaims for the unpaid balance of the mobilization fund and customs charges. The net amount due to MWSS was determined to be P3,602,895.46. Attorney's fees were deleted for both parties.
Ratio Decidendi
On the Court of Appeals' reversal of factual findings: The Supreme Court held that it could review factual issues when the findings of the trial court and the appellate court are at variance, as in this case. The Court found that the CA's conclusion regarding the payment of overruns was not sufficiently proven by MWSS, citing discrepancies in the testimony of MWSS' financial control officer and the lack of specific indications of payment in the vouchers. The Court disagreed with the CA's assessment of the evidence presented by MWSS concerning the payment of overruns. On MWSS' counterclaims: The Supreme Court granted MWSS' counterclaims for the unpaid balance of the mobilization fund (P4,089,809.37) and customs charges (P317,861.36). The Court deleted the award of interest on these claims, citing Article 18.05 of the RS-4 contract which required both parties to settle their accountabilities upon termination, implying a mutual delay in settlement. On the entitlement to compensation for overruns in civil works: The Supreme Court found that MWSS had not sufficiently proven payment for the overruns claimed by petitioner. The vouchers and receipts presented by MWSS did not specifically indicate payment for these overruns, and the testimony of MWSS' financial control officer contained discrepancies regarding the amounts paid and claimed. Therefore, the Court ruled in favor of petitioner for this claim. On foreign currency adjustment: The Supreme Court denied petitioner's claim for foreign currency adjustment under SGC-10. The Court reasoned that petitioner was only entitled to such adjustment if he procured and used his own dollars for foreign purchases. In this case, MWSS paid the foreign suppliers directly through its loan with the Asian Development Bank (ADB). The agreement between petitioner and MWSS was considered a modification of the original contract, where MWSS acted as the importer, and petitioner was a conduit. Petitioner had already been compensated for arrangement fees, and any foreign currency exchange risks were borne by MWSS as it used its own loan. On the cost of excess imported materials and equipment: Similar to the foreign currency adjustment, the Supreme Court denied this claim. The Court reiterated that MWSS paid for all imported materials and equipment through its ADB loan. Granting this claim would result in MWSS paying twice for the same items, leading to unjust enrichment of the petitioner. On the balance of the bid price for prime cost items: The Supreme Court affirmed the CA's ruling that petitioner was not entitled to the difference between the bid price and the actual cost of prime cost items. The Court explained that the P13,500,000.00 was a provisional amount for budgetary purposes. General Condition No. 54 (GC-54) stipulated that the bid price would be adjusted by deducting the prime cost stated and adding the actual net cost. The Court found that petitioner was not entitled to the unexpended portion of the provisional amount, as this would also constitute unjust enrichment. On the claim for trade discount for prime cost pump units: The Supreme Court granted petitioner's claim for trade discount, disagreeing with the CA's interpretation that SGC-21 superseded GC-54 entirely regarding the definition of 'actual net cost'. The Court held that SGC-21 supplemented GC-54, and the provisions should be read together. While SGC-21 specified the CIF Manila value and installation supervision cost for adjustment, it did not explicitly exclude profit and trade discount. The Court reasoned that excluding trade discount would disadvantage the petitioner, thus allowing the claim. On price escalation: The Supreme Court granted petitioner's claim for price escalation based on MWSS' own admission during the proceedings that an approximate amount of P192,000.00 was unpaid and that the contractor was entitled to it. On MWSS' counterclaims (continued): The Court also deleted the award of attorney's fees for both parties, as neither party fully prevailed and both had legitimate claims and had been remiss in their obligations. On attorney's fees: The Court also deleted the award of attorney's fees for both parties, as neither party fully prevailed and both had legitimate claims and had been remiss in their obligations.
Main Doctrine
The Supreme Court modified the decision of the Court of Appeals, clarifying the entitlement to foreign currency adjustment, the treatment of prime cost items, and the application of trade discounts in construction contracts, while also adjusting the amounts due between the parties.