G.R. No.

169975 March 18, 2010

PAN PACIFIC SERVICE CONTRACTORS, INC. an RICAR!O F. !E" ROSARIO, Petitioners,
vs.
E#$ITA%"E PCI %AN& '(or)*r+, T-E P-I"IPPINE COMMERCIA" INTERNATIONA"
%AN&., Respondent.
D E C I S I O N
CARPIO, J.:
Th* Ca/*
Pan Pacifc Service Contractors, Inc. and Ricardo F. Del Rosario (petitioners) fled this Petition for
Revie
!
assailin" the Co#rt of $ppeals% (C$) Decision
&
dated '( )#ne &((* in C$+,.R. C- No. .'/.. as ell
as the Resol#tion
'
dated * Octo0er &((* den1in" the 2otion for Reconsideration. In the assailed decision,
the C$ 3odifed the !& $pril !/// Decision
4
of the Re"ional 5rial Co#rt of 2a6ati Cit1, 7ranch */ (R5C) 01
orderin" E8#ita0le PCI 7an6
*
(respondent) to pa1 petitioners P!,*!.,(!*.(9 ith interest at the le"al rate
of !&: per ann#3 startin" . 2a1 !//4 #ntil the a3o#nt is f#ll1 paid.
Th* Fac0/
Pan Pacifc Service Contractors, Inc. (Pan Pacifc) is en"a"ed in contractin" 3echanical or6s on
airconditionin" s1ste3. On &4 Nove30er !/;/, Pan Pacifc, thro#"h its President, Ricardo F. Del Rosario
(Del Rosario), entered into a contract of 3echanical or6s (Contract) ith respondent for P&(,.;;,;((. Pan
Pacifc and respondent also a"reed on nine chan"e orders for P&,.&&,.!(.'(. 5h#s, the total consideration
for the hole pro<ect asP&','!!,4!(.'(.
.
5he Contract stip#lated, a3on" others, that Pan Pacifc shall 0e
entitled to a price ad<#st3ent in case of increase in la0or costs and prices of 3aterials #nder para"raphs
9(.!
9
and 9(.&
;
of the =,eneral Conditions for the Constr#ction of PCI7 5oer II E>tension= (the escalation
cla#se).
/
P#rs#ant to the contract, Pan Pacifc co33enced the 3echanical or6s in the pro<ect site, the PCI7 5oer II
e>tension 0#ildin" in 2a6ati Cit1. 5he pro<ect as co3pleted in )#ne !//&. Respondent accepted the
pro<ect on / )#l1 !//&.
!(
In !//(, la0or costs and prices of 3aterials escalated. On * $pril !//!, in accordance ith the escalation
cla#se, Pan Pacifc clai3ed a price ad<#st3ent of P*,!.*,/4*.*&. Respondent%s appointed pro<ect en"ineer,
5C,I En"ineers, as6ed for a red#ction in the price ad<#st3ent. 5o sho "oodill, Pan Pacifc red#ced the
price ad<#st3ent to P4,;*;,*4;..9.
!!
On &; $pril !//&, 5C,I En"ineers reco33ended to respondent that the price ad<#st3ent sho#ld 0e
pe""ed atP',9'(,/*9.(9. 5C,I En"ineers 0ased their eval#ation of the price ad<#st3ent on the folloin"
factors?
!. @a0or Indices of the Depart3ent of @a0or and E3plo13ent.
&. Price Inde> of the National Statistics OAce.
PD !*/4 and its I3ple3entin" R#les and Re"#lations as a3ended, !* 2arch !//!.
Shippin" Doc#3ents s#03itted 01 PPSCI.
S#0+cla#se 9(.! of the ,eneral Conditions of the Contract Doc#3ents.
!&
Pan Pacifc contended that ith this reco33endation, respondent as alread1 estopped fro3 disclai3in"
lia0ilit1 of at least P',9'(,/*9.(9 in accordance ith the escalation cla#se.
!'
D#e to the e>traordinar1 increases in the costs of la0or and 3aterials, Pan Pacifc%s operational capital as
0eco3in" inade8#ate for the pro<ect. Boever, respondent ithheld the pa13ent of the price ad<#st3ent
#nder the escalation cla#se despite Pan Pacifc%s repeated de3ands.
!4
Instead, respondent oCered Pan
Pacifc a loan ofP!.; 3illion. $"ainst its ill and on the stren"th of respondent%s pro3ise that the price
ad<#st3ent o#ld 0e released soon, Pan Pacifc, thro#"h Del Rosario, as constrained to e>ec#te a
pro3issor1 note in the a3o#nt ofP!.; 3illion as a re8#ire3ent for the loan. Pan Pacifc also posted a s#ret1
0ond. 5he P!.; 3illion as released directl1 to la0orers and s#ppliers and not a sin"le centavo as "iven
to Pan Pacifc.
!*
Pan Pacifc 3ade several de3ands for pa13ent on the price ad<#st3ent 0#t respondent 3erel1 6ept on
pro3isin" to release the sa3e. 2eanhile, the P!.; 3illion loan 3at#red and respondent de3anded
pa13ent pl#s interest and penalt1. Pan Pacifc ref#sed to pa1 the loan. Pan Pacifc insisted that it o#ld not
have inc#rred the loan if respondent released the price ad<#st3ent on ti3e. Pan Pacifc alle"ed that the
pro3issor1 note did not e>press the tr#e a"ree3ent of the parties. Pan Pacifc 3aintained that the P!.;
3illion as to 0e considered as an advance pa13ent on the price ad<#st3ent. 5herefore, there as reall1
no consideration for the pro3issor1 noteD hence, it is n#ll and void fro3 the 0e"innin".
!.
Respondent stood fr3 that it o#ld not release an1 a3o#nt of the price ad<#st3ent to Pan Pacifc 0#t it
o#ld oCset the price ad<#st3ent ith Pan Pacifc%s o#tstandin" 0alance of P',&&.,!;..(!, representin"
the loan, interests, penalties and collection char"es.
!9
Pan Pacifc ref#sed the oCsettin" 0#t a"reed to receive the red#ced a3o#nt of P',9'(,/*9.(9 as
reco33ended 01 the 5C,I En"ineers for the p#rpose of e>tra<#dicial settle3ent, less P!.; 3illion
and P4!4,/4& as advance pa13ents.
!;
On . 2a1 !//4, petitioners fled a co3plaint for declaration of n#llit1Eann#l3ent of the pro3issor1 note,
s#3 of 3one1, and da3a"es a"ainst the respondent ith the R5C of 2a6ati Cit1, 7ranch */. On !& $pril
!///, the R5C rendered its decision, the dispositive portion of hich reads?
FBEREFORE, pre3ises considered, <#d"3ent is here01 rendered in favor of the plaintiCs and a"ainst the
defendant as follos?
!. Declarin" the pro3issor1 note (E>hi0it =7=) n#ll and voidD
Orderin" the defendant to pa1 the plaintiCs the folloin" a3o#nts?
a. P!,';/,!!!.!( representin" #npaid 0alance of the ad<#st3ent price, ith interest thereon
at the le"al rate of telve (!&:) percent per ann#3 startin" 2a1 ., !//4, the date hen the
co3plaint as fled, #ntil the a3o#nt is f#ll1 paidD
P!((,(((.(( representin" 3oral da3a"esD
P*(,(((.(( representin" e>e3plar1 da3a"esD and
P*(,(((.(( as and for attorne1%s fees.
&. Dis3issin" defendant%s co#nterclai3, for lac6 of 3eritD and
Fith costs a"ainst the defendant.
SO ORDERED.
!/
On &' 2a1 !///, petitioners partiall1 appealed the R5C Decision to the C$. On &. 2a1 !///, respondent
appealed the entire R5C Decision for 0ein" contrar1 to la and evidence. In s#3, the appeals of the parties
ith the C$ are as follos?
!. Fith respect to the petitioners, hether the R5C erred in ded#ctin" the a3o#nt of P!&.,/('./9
fro3 the 0alance of the ad<#sted price and in aardin" onl1 !&: ann#al interest on the a3o#nt
d#e, instead of the 0an6 loan rate of !;: co3po#nded ann#all1 0e"innin" Septe30er !//&.
&. Fith respect to respondent, hether the R5C erred in declarin" the pro3issor1 note void and in
aardin" 3oral and e>e3plar1 da3a"es and attorne1%s fees in favor of petitioners and in
dis3issin" its co#nterclai3.
In its decision dated '( )#ne &((*, the C$ 3odifed the R5C decision, ith respect to the principal a3o#nt
d#e to petitioners. 5he C$ re3oved the ded#ction of P!&.,/('./9 0eca#se it represented the fnal
pa13ent on the 0asic contract price. Bence, the C$ ordered respondent to pa1 P!,*!.,(!*.(9 to
petitioners, ith interest at the le"al rate of !&: per ann#3 startin" . 2a1 !//4.
&(
On &. )#l1 &((*, petitioners fled a 2otion for Partial Reconsideration see6in" a reconsideration of the C$%s
Decision i3posin" the le"al rate of !&:. Petitioners clai3ed that the interest rate applica0le sho#ld 0e the
!;: 0an6 lendin" rate. Respondent li6eise fled a 2otion for Reconsideration of the C$%s decision. In a
Resol#tion dated * Octo0er &((*, the C$ denied 0oth 3otions.
$""rieved 01 the C$%s Decision, petitioners elevated the case 0efore this Co#rt.
Th* I//1*
Petitioners s#03it this sole iss#e for o#r consideration? Fhether the C$, in aardin" the #npaid 0alance of
the price ad<#st3ent, erred in f>in" the interest rate at !&: instead of the !;: 0an6 lendin" rate.
R1+2n3 o( 0h* Co1r0
Fe "rant the petition.
5his Co#rt notes that respondent did not appeal the decision of the C$. Bence, there is no lon"er an1 iss#e
as to the principal a3o#nt of the #npaid 0alance on the price ad<#st3ent, hich the C$ correctl1
co3p#ted atP!,*!.,(!*.(9. 5he onl1 re3ainin" iss#e is the interest rate applica0le for respondent%s dela1
in the pa13ent of the 0alance of the price ad<#st3ent.
5he C$ denied petitioners% clai3 for the application of the 0an6 lendin" rate of !;: co3po#nded ann#all1
reasonin", to it?
$nent the !;: interest rate co3po#nded ann#all1, hile it is tr#e that the contract provides for an interest
at the c#rrent 0an6 lendin" rate in case of dela1 in pa13ent 01 the Oner, and the pro3issor1 note
char"ed an interest of !;:, the said proviso does not a#thoriGe plaintiCs to #nilaterall1 raise the interest
rate itho#t the other part1%s consent. Hnli6e their re8#est for price ad<#st3ent on the 0asic contract
price, plaintiCs never infor3ed nor so#"ht the approval of defendant for the i3position of !;: interest on
the ad<#sted price. 5o #nilaterall1 increase the interest rate of the ad<#sted price o#ld 0e violative of the
principle of 3#t#alit1 of contracts. 5h#s, the Co#rt 3aintains the le"al rate of telve percent per ann#3
startin" fro3 the date of <#dicial de3and. $ltho#"h the contract provides for the period hen the
reco33endation of the 5C,I En"ineers as to the price ad<#st3ent o#ld 0e 0indin" on the parties, it as
esta0lished, hoever, that part of the ad<#sted price de3anded 01 plaintiCs as alread1 dis0#rsed as
earl1 as &; Fe0r#ar1 !//& 01 defendant 0an6 to their s#ppliers and la0orers for their acco#nt.
&!
In this appeal, petitioners alle"e that the contract 0eteen the parties consists of to parts, the
$"ree3ent
&&
and the ,eneral Conditions,
&'
0oth of hich provide for interest at the 0an6 lendin" rate on
an1 #npaid a3o#nt d#e #nder the contract. Petitioners f#rther clai3 that there is nothin" in the contract
hich re8#ires the consent of the respondent to 0e "iven in order that petitioners can char"e the 0an6
lendin" rate.
&4
Specifcall1, petitioners invo6e Section &.* of the $"ree3ent and Section .(.!( of the
,eneral Conditions as follos?
$"ree3ent
&.* If an1 pa13ent is dela1ed, the CON5R$C5OR 3a1 char"e interest thereon at the c#rrent 0an6 lendin"
rates, itho#t pre<#dice to OFNER%S reco#rse to an1 other re3ed1 availa0le #nder e>istin" la.
&*
,eneral Conditions
.(.!( 5i3e for pa13ent
5he a3o#nt d#e to the Contractor #nder an1 interi3 certifcate iss#ed 01 the En"ineer p#rs#ant to this
Cla#se, or to an1 ter3 of the Contract, shall, s#0<ect to cla#se 49, 0e paid 01 the Oner to the Contractor
ithin &; da1s after s#ch interi3 certifcate has 0een delivered to the Oner, or, in the case of the Final
Certifcate referred to in S#0+Cla#se .(.;, ithin *. da1s, after s#ch Final Certifcate has 0een delivered to
the Oner. In the event of the fail#re of the Oner to 3a6e pa13ent ithin the ti3es stated, the Oner
shall pa1 to the Contractor interest at the rate 0ased on 0an6in" loan rates prevailin" at the ti3e of the
si"nin" of the contract #pon all s#3s #npaid fro3 the date 01 hich the sa3e sho#ld have 0een paid. 5he
provisions of this S#0+Cla#se are itho#t pre<#dice to the Contractor%s entitle3ent #nder Cla#se
./.
&.
(E3phasis s#pplied)
Petitioners th#s s#03it that it is a#to3aticall1 entitled to the 0an6 lendin" rate of interest fro3 the ti3e an
a3o#nt is deter3ined to 0e d#e thereto, hich respondent sho#ld have paid. 5herefore, as petitioners
have alread1 proven their entitle3ent to the price ad<#st3ent, it necessaril1 follos that the 0an6 lendin"
interest rate of !;: shall 0e applied.
&9
On the other hand, respondent insists that #nder the provisions of 9(.! and 9(.& of the ,eneral Conditions,
it is stip#lated that an1 additional cost shall 0e deter3ined 01 the En"ineer and shall 0e added to the
contract price after d#e cons#ltation ith the Oner, herein respondent. Bence, there 0ein" no prior
cons#ltation ith the respondent re"ardin" the additional cost to the 0asic contract price, it nat#rall1
follos that respondent as never cons#lted or infor3ed of the i3position of !;: interest rate
co3po#nded ann#all1 on the ad<#sted price.
&;
$ per#sal of the assailed decision shos that the C$ 3ade a distinction 0eteen the consent "iven 01 the
oner of the pro<ect for the lia0ilit1 for the price ad<#st3ents, and the consent for the i3position of the
0an6 lendin" rate. 5h#s, hile the C$ held that petitioners cons#lted respondent for price ad<#st3ent on
the 0asic contract price, petitioners, nonetheless, are not entitled to the i3position of !;: interest on the
ad<#sted price, as petitioners never infor3ed or so#"ht the approval of respondent for s#ch i3position.
&/
Fe disa"ree.
It is settled that the a"ree3ent or the contract 0eteen the parties is the for3al e>pression of the parties%
ri"hts, d#ties, and o0li"ations. It is the 0est evidence of the intention of the parties. 5h#s, hen the ter3s
of an a"ree3ent have 0een red#ced to ritin", it is considered as containin" all the ter3s a"reed #pon
and there can 0e, 0eteen the parties and their s#ccessors in interest, no evidence of s#ch ter3s other
than the contents of the ritten a"ree3ent.
'(
5he escalation cla#se of the contract provides?
CB$N,ES IN COS5 $ND @E,IS@$5ION
9(.! Increase or Decrease of Cost
5here shall 0e added to or ded#cted fro3 the Contract Price s#ch s#3s in respect of rise or fall in the cost
of la0or andEor 3aterials or an1 other 3atters aCectin" the cost of the e>ec#tion of the For6s as 3a1 0e
deter3ined.
9(.& S#0se8#ent @e"islation
If, after the date &; da1s prior to the latest date of s#03ission of tenders for the Contract there occ#r in
the co#ntr1 in hich the For6s are 0ein" or are to 0e e>ec#ted chan"es to an1 National or State Stat#te,
Ordinance, Decree or other @a or an1 re"#lation or 01e+la (sic) of an1 local or other d#l1 constit#ted
a#thorit1, or the introd#ction of an1 s#ch State Stat#te, Ordinance, Decree, @a, re"#lation or 01e+la (sic)
hich ca#ses additional or red#ced cost to the contractor, other than #nder S#0+Cla#se 9(.!, in the
e>ec#tion of the Contract, s#ch additional or red#ced cost shall, after d#e cons#ltation ith the Oner and
Contractor, 0e deter3ined 01 the En"ineer and shall 0e added to or ded#cted fro3 the Contract Price and
the En"ineer shall notif1 the Contractor accordin"l1, ith a cop1 to the Oner.
'!
In this case, the C$ alread1 settled that petitioners cons#lted respondent on the i3position of the price
ad<#st3ent, and held respondent lia0le for the 0alance of P!,*!.,(!*.(9. Respondent did not appeal fro3
the decision of the C$D hence, respondent is estopped fro3 contestin" s#ch fact.
Boever, the C$ ent 0e1ond the intent of the parties 01 re8#irin" respondent to "ive its consent to the
i3position of interest 0efore petitioners can hold respondent lia0le for interest at the c#rrent 0an6 lendin"
rate. 5his is erroneo#s. $ revie of Section &.. of the $"ree3ent and Section .(.!( of the ,eneral
Conditions shos that the consent of the respondent is not needed for the i3position of interest at the
c#rrent 0an6 lendin" rate, hich occ#rs #pon an1 dela1 in pa13ent.
Fhen the ter3s of a contract are clear and leave no do#0t as to the intention of the contractin" parties,
the literal 3eanin" of its stip#lations "overns. In these cases, co#rts have no a#thorit1 to alter a contract
01 constr#ction or to 3a6e a ne contract for the parties. 5he Co#rt%s d#t1 is confned to the interpretation
of the contract hich the parties have 3ade for the3selves itho#t re"ard to its isdo3 or foll1 as the
co#rt cannot s#ppl1 3aterial stip#lations or read into the contract ords hich it does not contain. It is
onl1 hen the contract is va"#e and a30i"#o#s that co#rts are per3itted to resort to constr#ction of its
ter3s and deter3ine the intention of the parties.
'&
5he escalation cla#se 3#st 0e read in con<#nction ith Section &.* of the $"ree3ent and Section .(.!( of
the ,eneral Conditions hich pertain to the ti3e of pa13ent. Once the parties a"ree on the price
ad<#st3ent after d#e cons#ltation in co3pliance ith the provisions of the escalation cla#se, the
a"ree3ent is in eCect an a3end3ent to the ori"inal contract, and "ives rise to the lia0ilit1 of respondent
to pa1 the ad<#sted costs. Hnder Section .(.!( of the ,eneral Conditions, the respondent shall pa1 s#ch
lia0ilit1 to the petitioner ithin &; da1s fro3 iss#ance of the interi3 certifcate. Hpon respondent%s fail#re
to pa1 ithin the ti3e provided (&; da1s), then it shall 0e lia0le to pa1 the stip#lated interest.1avvphi1
5his is the lo"ical interpretation of the a"ree3ent of the parties on the i3position of interest. 5o provide a
contrar1 interpretation, as one re8#irin" a separate consent for the i3position of the stip#lated interest,
o#ld render the intentions of the parties n#"ator1.
$rticle !/*. of the Civil Code, hich refers to 3onetar1 interest, specifcall1 3andates that no interest
shall 0e d#e #nless it has 0een e>pressl1 stip#lated in ritin". 5herefore, pa13ent of 3onetar1 interest is
alloed onl1 if?
(!) there as an e>press stip#lation for the pa13ent of interestD and
(&) the a"ree3ent for the pa13ent of interest as red#ced in ritin". 5he conc#rrence of the to
conditions is re8#ired for the pa13ent of 3onetar1 interest.
''
Fe a"ree ith petitioners% interpretation that in case of defa#lt, the consent of the respondent is not
needed in order to i3pose interest at the c#rrent 0an6 lendin" rate.
Applicable Interest Rate
Hnder $rticle &&(/ of the Civil Code, the appropriate 3eas#re for da3a"es in case of dela1 in dischar"in"
an o0li"ation consistin" of the pa13ent of a s#3 of 3one1 is the pa13ent of penalt1 interest at the rate
a"reed #pon in the contract of the parties. In the a0sence of a stip#lation of a partic#lar rate of penalt1
interest, pa13ent of additional interest at a rate e8#al to the re"#lar 3onetar1 interest 0eco3es d#e and
pa1a0le. Finall1, if no re"#lar interest had 0een a"reed #pon 01 the contractin" parties, then the da3a"es
pa1a0le ill consist of pa13ent of le"al interest hich is .:, or in the case of loans or for0earances of
3one1, !&: per ann#3.
'4
It is onl1 hen the parties to a contract have failed to f> the rate of interest or
hen s#ch a3o#nt is #narranted that the Co#rt ill appl1 the !&: interest per ann#3 on a loan or
for0earance of 3one1.
'*
5he ritten a"ree3ent entered into 0eteen petitioners and respondent provides for an interest at the
c#rrent 0an6 lendin" rate in case of dela1 in pa13ent and the pro3issor1 note char"ed an interest of !;:.
5o prove petitioners% entitle3ent to the !;: 0an6 lendin" rate of interest, petitioners presented the
pro3issor1 note
'.
prepared 01 respondent 0an6 itself. 5his pro3issor1 note, altho#"h declared void 01 the
loer co#rts 0eca#se it did not e>press the real intention of the parties, is s#0stantial proof that the 0an6
lendin" rate at the ti3e of defa#lt as !;: per ann#3. $0sent an1 evidence of fra#d, #nd#e inI#ence or
an1 vice of consent e>ercised 01 petitioners a"ainst the respondent, the interest rate a"reed #pon is
0indin" on the3.
'9
FBEREFORE, e ,R$N5 the petition. Fe SE5 $SIDE the Decision and Resol#tion of the Co#rt of $ppeals in
C$+,.R. C- No. .'/... Fe ORDER respondent to pa1 petitioners P!,*!.,(!*.(9 ith interest at the 0an6
lendin" rate of !;: per ann#3 startin" . 2a1 !//4 #ntil the a3o#nt is f#ll1 paid.
SO ORDERED.