FLAVIO K. MACASAET & ASSOCIATES, INC., PETITIONER, VS. COMMISSION ON AUDIT AND PHILIPPINE TOURISM AUTHORITY, RESPONDENTS.

In this Petition for Certiorari, pursuant to Section 7,
Article IX of the 1987 Constitution,^[1]
petitioner, Flavio K. Macasaet
& Associates, Inc., prays that the ruling of public respondent Commission
on Audit (COA) denying its claim for completion of payment of professional fees
be overturned.

The facts follow:

On 15 September 1977 respondent Philippine Tourism Authority
(PTA) entered into a Contract for “Project Design and Management Services
for the development of the proposed Zamboanga Golf
and Country Club, Calarian, Zamboanga
City” with petitioner company, but originally with Flavio
K. Macasaet alone (hereinafter referred to simply as
the “Contract”).

Under the Contract, PTA obligated itself to pay petitioner a
professional fee of seven (7%) of the actual construction cost, as follows:

“ARTICLE IV – PROFESSIONAL
FEE

“In consideration for the professional services to be
performed by Designer under Article I of this Agreement, the Authority shall
pay seven percent (7%) of the actual construction cost.“

In addition, a Schedule of Payments was provided for while the
construction was in progress and up to its final completion, thus:

“ARTICLE V – SCHEDULE OF
PAYMENTS

1.  Upon the execution of the
Agreement but not more than fifteen (15) days, a minimum payment equivalent to
10 percent of the professional fee as provided in Art. IV computed upon a reasonable
estimated construction cost of the project.

“2. 
Upon the completion of the schematic design services, but not
more than 15 days after the submission of the schematic design to the Authority,
a sum equivalent to 15% of the professional fee as stated in Art. IV computed
upon the reasonable estimated construction cost of the project.

“3. 
Upon completion of the design development services, but not more
than 15 days after submission of the design development to the authority, a sum
equivalent to 20% of the professional fee as stated in Art. IV, computed upon
the reasonable estimated construction cost.

“4. 
Upon completion of the contract document services but not more
than 15 days after submission of the contract document to the Authority, a sum
equivalent to 25% of the professional fee as stated in Art. IV,
shall be paid computed on the same basis as above.

“5. 
Upon completion of the work and acceptance thereof by the
Authority, the balance of the professional fee, computed on the final actual
project cost shall be paid.” (Underscoring supplied)

Pursuant to the foregoing Schedule, the PTA made periodic
payments of the stipulated professional fees to petitioner.  And, upon completion of the project, PTA paid
petitioners what it perceived to be the balance of the latter’s professional
fees.

It turned out, however, that after the project was completed, PTA
paid Supra Construction Company, the main contractor, the additional sum of P3,148,198.26 representing the escalation cost of the contract
price due to the increase in the price of construction materials.

Upon learning of the price escalation, petitioner requested
payment of P219,302.47 additional professional fee
representing seven (7%) percent of P3,148,198.26.

On 3 July 1985
PTA denied payment on the ground that “the subject price escalation
referred to increased cost of construction materials and did not entail
additional work on the part of petitioner as to entitle it to additional
compensation under Article VI of the Contract.”^[2]

Reconsiderations sought by the petitioner, up to respondent COA,
were to no avail.  The latter expressed
the opinion that “to allow subject claim in the absence of a showing that
extra or additional services had been rendered by claimant would certainly
result in overpayment to him to the prejudice of the Government” (1st Indorsement, July
10, 1987, p. 3, Rollo, p.42).

Hence this Petition, to which we gave due course.

The basic issue for resolution is petitioner’s entitlement to
additional professional fees, which, in turn, hinges on whether or not the
price escalation should be included in the “final actual project
cost.”

Public respondents, through the Solicitor General, maintain that
petitioner had been paid its professional fee upon completion of the project
and that its claim for additional payment is without any legal and factual
basis for, after all, no additional architectural services were rendered other
than the ones under the terms of the Contract.

On the other hand, petitioner anchors its claim to additional
professional fees, not on any change in services rendered, but on Article IV,
and paragraph 5 of Article V, of the Contract, supra.

The very terminologies used in the Contract call for affirmative relief
in petitioner’s favor.

Under Article IV of said Contract, petitioner was to be entitled
to seven (7%) of the “actual construction cost.” Under
paragraphs 1, 2, 3, and 4, Article V, periodic payments were to be based on a
“reasonable estimated construction cost.” Ultimately, 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 use of the terms “actual construction cost”,
gradating into “final actual project cost” is not without
significance.  The real intendment of the
parties, as shown by paragraph 5, Article V, of their Contract was to base the
ultimate balance of petitioner’s professional fees not on “actual
construction cost” alone but on the final actual project cost; not
on “construction cost” alone but on “project
cost.” By so providing, the Contract allowed for flexibility based on
actuality and as a matter of equity for the contracting parties.  For evidently, the final actual project cost
would not necessarily tally with the actual construction cost initially
computed.  The “final actual project
cost” covers the totality of all costs as actually and finally determined,
and logically includes the escalation cost of the contract price.

It matters not that the price escalation awarded to the
construction company did not entail additional work for petitioner.  As a matter of fact, neither did it for the
main contractor.  The increased cost of
materials was not the doing of either contracting party.

That an escalation clause was not specifically provided for in
the Contract is of no moment either for it may be considered as already
“built-in” and understood from the very terms “actual
construction cost,” and eventually “final actual project cost.”

Article VI of the Contract, supra has no bearing on the
present controversy either.  It speaks of
any major change in the planning and engineering aspects necessitating the
award and payment of additional compensation. 
Admittedly, there was no additional work by petitioner, which required
additional compensation.  Rather,
petitioner’s claim is for payment of the balance of its professional fees based
on the “final actual project cost” and not for additional
compensation based on Article VI.

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).  The price
escalation cost must be deemed included in the final actual project cost and
petitioner held entitled to the payment of its additional professional
fees.  Obligations arising from contract
have the force of law between the contracting parties and should be complied
with in good faith (Article 1159, Civil Code).

WHEREFORE, the ruling of respondent Commission on Audit is
hereby SET ASIDE and respondent Philippine Tourism Authority is hereby ordered
to pay petitioner the additional amount of P219,302.47
to complete the payment of its professional fee under their Contract for
Project Design and Management Services.

SO ORDERED.

Fernan, C.J., Narvasa,
Gutierrez, Jr., Cruz, Paras, Feliciano, Gancayco, Padilla, Bidin, Sarmiento, Cortes, Grino-Aquino, Medialdea, and Regalado, JJ., concur.

^[1] Section 7.  x x x Unless otherwise provided by
this Constitution or by law, any decision, order, or ruling of each Commission
may be brought to the Supreme Court on certiorari
by the aggrieved party within thirty days from receipt of a copy thereof.

^[2]
Article VI – CHANGE OF ORDERS

Should the Authority order any
major change on the planning and engineering aspects after definite designs
have been previously agreed upon and the computation, designing, and drafting
works completed resulting in additional work, additional compensation shall be
equitably paid for such additional work as mutually agreed upon by both parties.