CASE DIGEST: Flavio Macasaet v. COA (G.R. No. 83748)

CASE DIGEST: [255 Phil. 341] EN BANC [ G.R. No. 83748, May 12, 1989 ] FLAVIO K. MACASAET & ASSOCIATES, INC., PETITIONER, VS. COMMISSION ON AUDIT AND PHILIPPINE TOURISM AUTHORITY, RESPONDENTS. MELENCIO-HERRERA, J.:

FACTS: Philippine Tourism Authority (PTA) entered into a contract with petitioner for "Project Design and Management Services for the development of the proposed Zamboanga Golf and Country Club, Calarian, Zamboanga City." It was agreed that seven percent (7%) of the "total construction cost" would be paid to petitioner. During project progress, gradual payment based on completion percentage would be paid to petitioner; upon completion, any balance due to petitioner would be paid based on "final actual construction cost." Later, after completion, PTA paid more than 3 million pesos to Supra Construction Company because of escalation in the cost of materials. Petitioner discovered this and demanded payment of more than 200 thousand representing seven percent (7%) of the 3 million pesos. PTA argued that, since there was no extra service or work done by petitioner, the latter is not entitled to said amount. Petitioner went to the Commission on Audit (COA) via a request for completion of payment; COA sided with PTA.

MAJOR ISSUE: Should the seven percent (7%) professional fee of Macasaet apply to the escalation cost payment of PTA to Supra Construction Company, there being included as final actual project cost?

RULING: Flavio Macasaet is entitled to the seven (7%) percent of PTA’s payment to Supra Construction Company amounting to P3,148,198.26 for escalation cost as included under paragraph 5, Article V, the balance of the professional fee was to be computed on the basis of “the final actual project cost.” The “final actual project cost” in the contract between Macasaet and PTA covers the totality of all costs as actually and finally determined, and logically includes the escalation cost of the contract price. 

The terminologies in the contract being clear, leaving no doubt as to the intention of the contracting parties, their literal meaning control (Article 1370, Civil Code). Therefore, the final actual project cost includes the escalation cost and Philippines Tourism Authority is hereby ordered to pay petitioner the additional amount of P219,392.47 to complete the payment of its professional fee under their Contract for Project Design and Management Services.

MINOR ISSUE: Whether or not the “escalation clause” mentioned in the contract between PTA and Supra Construction Company be applied in the contract of PTA and Macasaet even it is not specifically provided.

RULING: Even if the escalation clause is not indicated in the contract between PTA and Macasaet, it may be considered as already “built-in” and understood from the very terms “actual construction cost,” and eventually “final actual project cost.” And still observing the basic principle of relativity of contracts where contracts can only bind the parties who entered into it, and cannot favor or prejudice a third person, even if he is aware of such contract and has acted with knowledge thereof. (Contributed by Danica R. Tuliao)

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