Filinvest Alabang v. Century Iron Works
REITERATIONFacts
The Antecedents: Petitioner Filinvest Alabang, Inc. (Filinvest) awarded various contracts to respondent Century Iron Works, Inc. (Century Iron Works), including a contract for metal works amounting to ₱29,000,000.00. After project completion, Century Iron Works sought payment of ₱1,392,088.68, representing a balance of retention fee (₱40,880.00), an additional deduction (₱227,500.00), and the cost of an additional scenic elevator enclosure (₱1,123,708.68). Filinvest withheld these amounts, claiming substandard workmanship for the first two and that the contract was a lump sum for the third, precluding liability for additional work without authorization. Procedural History: The Regional Trial Court (RTC) granted Century Iron Works' claim for ₱227,500.00 but denied the other claims, finding Filinvest estopped from claiming damages due to a Certificate of Completion and Acceptance, but upholding the lump sum nature of the contract regarding the elevator enclosure. The Court of Appeals (CA) affirmed with modification, ordering Filinvest to pay the ₱40,880.00 retention fee and the ₱1,123,708.68 for the elevator enclosure, holding that the contract was not strictly lump sum and that the additional work was agreed upon. The Petition: Filinvest filed a petition for review on certiorari before the Supreme Court, assailing the CA's decision and resolution.
Issue(s)
Whether the CA correctly ordered petitioner to pay the balance of the retention fee amounting to ₱40,880.00 and the additional deduction of ₱227,500.00 due to purported substandard work. Whether the CA correctly ordered petitioner to pay the cost of an additional scenic elevator enclosure amounting to ₱1,123,708.68. Whether the monetary awards due to Century Iron Works should be subject to legal interest.
Ruling
The petition is denied. The Decision dated December 27, 2013, and the Resolution dated June 25, 2014, of the Court of Appeals in CA-G.R. CV No. 97025 are affirmed with modification regarding the imposition of legal interest.
Ratio Decidendi
On the balance of the retention fee (₱40,880.00) and the additional deduction (₱227,500.00): The Court affirmed the findings of both the RTC and the CA that Filinvest issued a Certificate of Completion and Acceptance to Century Iron Works. This issuance signifies acceptance of the work as satisfactory, thereby estopping Filinvest from later claiming damages due to alleged substandard workmanship. The principle of estoppel, as embodied in Section 2(a), Rule 131 of the Rules of Court, prevents a party from asserting a fact contrary to their previous declaration, act, or omission, especially when another party has acted upon that belief. Therefore, Filinvest is obligated to remit the withheld amounts of ₱40,880.00 and ₱227,500.00 to Century Iron Works. On the cost of the additional scenic elevator enclosure (₱1,123,708.68): The Court noted conflicting factual findings between the RTC and the CA regarding the nature of the contract and liability for additional work. The RTC considered the contract a fixed lump sum, limiting liability, while the CA found it allowed for additional works. The Court reviewed Article 1724 of the Civil Code, which governs fixed lump sum contracts. This article states that a contractor cannot demand an increase in price for higher costs of labor or materials, nor withdraw from the contract, unless there is a written change in plans and specifications authorized in writing by the proprietor, with the additional price also determined in writing by both parties. The Court clarified that while Article 1724 limits liability in fixed lump sum contracts, it does not preclude parties from stipulating on additional works. In this case, the contract's General Conditions, specifically Article IX on Variation Orders, allowed for extra works upon issuance of an official Site Instruction from Filinvest. The Court found that Filinvest issued two Site Instructions for the additional scenic elevator enclosure. Furthermore, the valuation of this additional work was based on the Bill of Quantities previously agreed upon, evidenced by written documents like the Cost Breakdown for Claim of Change Orders and Material Quantity Breakdown. Thus, there was both written authority for the change and a written agreement on the valuation, entitling Century Iron Works to payment for the additional work. On Legal Interest: The Court ruled that all monetary awards due to Century Iron Works should be subject to legal interest. Specifically, it mandated a twelve percent (12%) per annum rate from the time of extrajudicial demand until June 30, 2013, and a six percent (6%) per annum rate thereafter until full payment, in accordance with prevailing jurisprudence.
Main Doctrine
In a fixed lump sum contract, additional works require written authority from the project owner and a written agreement on the additional price, as stipulated in Article 1724 of the Civil Code and the contract's General Conditions. Issuance of a Certificate of Completion and Acceptance estops the project owner from claiming damages for alleged substandard workmanship.