SOLIS & YARISANTOS, PETITIONER, VS. LIBERATO SALVADOR AND CESARIA M. SALVADOR, RESPONDENTS.

Solis and Yarisantos versus Salvador

The Case

This is a lecture on the case of Solis and Yarisantos versus Salvador, decided by the Supreme Court in August 1965. A partnership engaged in general engineering and construction, doing business under the firm name Solis and Yarisantos, sued the spouses Liberato Salvador and Cesaria Salvador to recover a sum of money arising from three distinct causes of action: the cost of extras beyond the plans and specifications, certain permits and fees it claimed to have advanced, and its service fee. The spouses resisted and, in turn, asked for the return of a payment they had made after the suit was filed, plus damages. The case matters because it gathers in one decision several rules a Bar candidate must command: the contractor's inability to demand an increase in a stipulated price absent a written change order, the interpretation of obscure stipulations against the party who drafted them, the presumption that obligations delivered up to the debtor have been paid, and the strict standard for awarding moral damages in a suit that turns out to be unsuccessful.

Procedural History

The suit was filed in the Court of First Instance of Manila, which rendered judgment on October 13, 1956. The trial court absolved the defendants and ordered the plaintiff to return to them the amount of 2,000 pesos, with legal interest from January 14, 1954, and to pay moral damages and attorney's fees in the sum of 5,000 pesos, plus costs. The plaintiff appealed, and the Court of Appeals affirmed the judgment. The case then came to the Supreme Court on a petition for review by certiorari. The Supreme Court noted that the first and second assigned errors raise questions of law that may properly be reviewed; that the third involves only a question of fact on which the finding of the Court of Appeals is conclusive; and that the fourth, insofar as it concerns the return of the 2,000 pesos, is merely a corollary of the third. The award of moral damages, being a legal matter, was passed upon.

Facts

In 1952 the partnership contracted with the spouses to prepare and interpret all the necessary plans and specifications of their proposed residential house, to supervise its construction, and to supply the technical know-how needed for the work. Under Article II of the contract, on service fees, the owners were to pay 1,623 pesos, equivalent to ten percent of 16,230 pesos, the estimated cost of construction of the building and fence. Of this, 250 pesos was payable once the plans and specifications were approved, and the remaining 1,373 pesos was to serve as a guarantee that the total cost of construction would not exceed 16,230 pesos, payable after complete construction. The spouses paid the 250 pesos in September 1952. The specifications provided that the owners would secure and pay for all permits and fees required by law, and that alterations and works not part of the contract or specifications would be considered extras to be paid by the owner.

The partnership completed the construction in December 1952, and the spouses occupied the house in the same month. The house had a floor area of five square meters more than that provided in the plan, a terrace, and some minor extras not in the original plans and specifications. The fence was built higher than what the partnership claimed was agreed upon. The cost of these additions, plus amounts the partnership claimed to have advanced for permits and fees, is what it sought to recover. The evidence showed that the increase in floor area came about because the wall between the living room and the dining room was discontinued and its materials used to lengthen the living room; that the garage was built after the house was finished, by carpenters hired and paid by the spouses, with materials they themselves procured and paid for; and that the spouses caused the construction of the terrace and the installation of four extra lights without any definite agreement as to cost, consenting upon the partnership's assurance that these would entail no additional cost.

On the payments: when the spouses took delivery of the finished building in December 1952 they had paid 16,750 pesos, short of the contract price of 17,853 pesos including the service fee. In February 1953 the partnership gave them the list of alleged extras. In April 1953 they paid another 2,000 pesos to cover the unpaid balance of the stipulated price and the cost of materials used in the terrace, and considered their house fully paid, thereby impliedly rejecting the rest of the claim for extras. The partnership made written demands in October and November 1953, and filed its complaint in December 1953. On January 14, 1954, upon the spouses' request, Yarisantos, with his lawyer, went to their house to consider settlement, and the spouses paid him another 2,000 pesos then and there.

Issues

• Whether or not the Court of Appeals erred in applying Article 1724 of the Civil Code and Section 69, paragraph h, of Rule 123 as a basis for disallowing the extras claimed under the second and third causes of action.
• Whether or not the partnership is entitled to its service fee of ten percent of the 897 pesos representing the cost of the terrace and four lights, which the appellate court found to be extras.
• Whether or not the payment of 2,000 pesos on January 14, 1954 was made in consideration of the withdrawal of the complaint and final settlement of the claim.
• Whether or not the partnership is liable to return the 2,000 pesos paid on January 14, 1954 and to pay 5,000 pesos in moral damages.

Applicable Provisions

Article 1724 of the Civil Code provides:

The contractor who undertakes to build a structure or any other work for a stipulated price, in conformity with plans and specifications agreed upon with the landowner, can neither withdraw from the contract nor demand an increase in the price on account of the higher cost of labor or materials, save when there has been a change in the plans and specifications, provided: (1) Such change has been authorized by the proprietor in writing; and (2) The additional price to be paid to the contractor has been determined in writing by both parties.

This is the provision the Court of Appeals invoked to disallow the extras, and it fixes the rule that a contractor under a stipulated price may not demand more without a written authorized change and a written agreement on the additional price.

Article 1377 of the Civil Code, cited by the appellate court on the fence, provides:

The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity.

This bears on the fence, whose height the specifications left unfixed, and which the partnership itself had worded.

Section 69, paragraph h, of Rule 123, as cited in the decision, provides:

That an obligation delivered up to the debtor has been paid.

This presumption bears on the receipts the partnership surrendered to the spouses without any counter-receipt.

Ruling

On the first issue, the Court held that the applicability of Article 1724, while indeed a question of law, need not be taken up, in view of the appellate court's conclusion that the cost of the extras claimed in the complaint had already been reimbursed to the partnership by the spouses. Whether applicable or not, the provision would not make any difference. The Court thus left the disallowance standing on the ground of reimbursement rather than on the statute.

On the second issue, the Court ruled that the assignment of error is well taken. Since the appellate court found that the partnership incurred extra expense for the construction of the terrace and the installation of additional lights, and held that the 897 pesos paid by the spouses in excess of the contract price just about covered the cost of such extra expense, the partnership is entitled to ten percent thereof by way of service fee under Article II of the contract, or 89 pesos and 70 centavos.

On the third issue, the Court held that it involves only a question of fact on which the finding of the Court of Appeals is conclusive. The appellate court, considering all the circumstances surrounding the payment, found no sufficient justification to disturb the conclusion of the trial court that the 2,000 pesos was paid in consideration of the partnership's withdrawal of the complaint and final settlement of its claim, and not as partial settlement of any supposed pending account. Consequently, the amount ought to be returned, since the partnership did not cause the dismissal of its complaint and the spouses had already fully satisfied their obligation.

On the fourth issue, the Court disagreed with both the trial and appellate courts on one major point: there is nothing in the decision under review that justifies the award of moral damages. There was no clear showing of malice on the part of the partnership in filing the action; while the facts weighed more heavily in favor of the spouses, the Court could not say that the partnership's evidence was utterly unworthy of credence. If the spouses suffered worries and mental anxiety, these could not have been more than what are usually caused to a party haled into court as a defendant in a litigation.

Doctrine

First, under Article 1724 of the Civil Code, a contractor who undertakes to build for a stipulated price cannot demand an increase in that price on account of higher costs, save when there has been a change in the plans and specifications authorized in writing by the proprietor and the additional price has been determined in writing by both parties. Second, where the cost of extras has in fact been reimbursed, the question of the statute's applicability becomes immaterial, for the claim fails on the facts. Third, a contractor is entitled to his stipulated percentage service fee on the cost of extras actually incurred and found by the courts. Fourth, obscure stipulations in a contract are interpreted against the party who caused the obscurity, as Article 1377 commands, and where a fence's height is left unfixed, it is presumed to be of such height as to afford privacy and protection, which are what a fence is for. Fifth, the delivery of receipts and vouchers to the debtor raises the presumption that the obligation has been paid. Sixth, the factual finding of the Court of Appeals on the nature of a payment is conclusive on review. Seventh, moral damages may not be awarded to a defendant merely because he was haled into court; malice in the filing of the action must be clearly shown.

Disposition

The judgment appealed from was modified by eliminating the award of moral damages and by crediting to the partnership the sum of 89 pesos and 70 centavos, to be deducted from the 2,000 pesos it is to pay under the judgment, with no pronouncement as to costs.

Remember This

Memorize this line: a contractor under a stipulated price cannot demand more without a written authorized change and a written agreement on the additional price, and no moral damages lie against a plaintiff whose evidence, though unpersuasive, is not utterly unworthy of credence. Examiners use this case for Article 1724 on written change orders, for Article 1377 on contracts construed against the drafter, and for the rule that an unsuccessful complaint is not by itself a ground for moral damages.