Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 171312 February 4, 2008

SPS. LINO FRANCISCO & GUIA FRANCISCO, petitioners,

vs.
DEAC CONSTRUCTION, INC. and GEOMAR A. DADULA, respondents.

DECISION

TINGA, J.:

The Spouses Lino and Guia Francisco (Spouses Francisco) assail the Decision1 of the Court of
Appeals dated 28 July 2005, rendered in favor of respondents DEAC Construction, Inc. (DEAC)
and Geomar Dadula (Dadula), upholding the latter's monetary claims against the Spouses
Francisco. The appellate court's decision reversed and set aside the Decision2 of the Regional
Trial Court of Manila, Branch 28, dated 2 February 1998 which ordered the partial rescission of
the 13 September 1994 Construction Contract between the parties and awarded moral and
exemplary damages and attorney's fees to the Spouses Francisco.

The findings of fact of the trial court and the Court of Appeals are in conflict on the question of
whether the Spouses Francisco authorized the deviations on the building plan, particularly with
regard to the closing of the open space and the reduction of the setback from the property line.
They are, however, in agreement as to the following antecedents quoted from the appellate
court's decision:

Plaintiffs-appellees Lino Francisco and Guia Francisco obtained the services of

defendant-appellant DEAC Construction, Inc. (DEAC) to construct a 3-storey residential
building with mezzanine and roof deck on their lot located at 118 Pampanga Street,
Gagalangin, Tondo, Manila for a contract price of P3,500,000.00. As agreed upon, a
downpayment of P2,000,000.00 should be paid upon signing of the contract of
construction, and the remaining balance of P1,500,000.00 was to be paid in two equal
installments: the first installment of P750,000.00 should be paid upon completion of the
foundation structure and the ground floor, which amount would be used primarily for the
construction of the second floor to the roof deck while the final amount of P750,000.00
should be paid upon completion of the second floor up to the roof deck structure to defray
the expenses necessary for finishing and completion of the building. To undertake the
said project, DEAC engaged the services of a sub-contractor, Vigor Construction and
Development Corporation, but allegedly without the plaintiffs-appellees' knowledge and
consent.
On September 12, 1994, even prior to the execution of the contract, the plaintiffs-
appellees had paid the downpayment of P2,000,000.00. The amount of P200,000.00 was
again paid to DEAC on February 27, 1995 followed by the payment of P550,000.00 on
April 2, 1995. Plaintiff-appellant Guia Francisco likewise paid the amount of P80,000.00
on June 5, 1995 for the requested "additional works" on the project.

The construction of the residential building commenced in October 1994 although

DEAC, upon which the obligation pertained, had not yet obtained the necessary building
permit for the proposed construction. It was on this basis that the owner Lino Francisco
was charged with violation of Section 301, Chapter 3 (Illegal Construction) of [P.D. No.]
1096 otherwise known as the National Building Code of the Philippines with the
Metropolitan Trial Court of Manila, Branch 12.

On March 7, 1995, the Office of the Building Official of the City of Manila finally issued
the requisite Building Permit. Thus, the complaint against owner Lino Francisco was
accordingly dismissed. As admitted by DEAC, the release of the said permit was
withheld because of the erroneous designation of the location of the lot in one of the
building plans. Thus, DEAC had to make the necessary adjustment. However, before the
Office of the Building Official finally approved the amended building plan, it made
some necessary corrections therein. And to facilitate the said approval and the subsequent
release of the building permit, the signatures of plaintiff-appellee Guia Francisco in the
said amended and corrected building plans were forged by DEAC's representative.

But aside from [the] lack of building permit, the building inspector also observed, after
periodic inspections of the construction site, that the contractor deviated, on some
specifications, from the approved plans. Thus, on April 7, 1995, the Office of the
Building Official of Manila issued another Notice of Violation against owner Lino
Francisco, while at the same time calling the attention of the contractor, on account of the
following deviations and violations, to wit:

1. The 1.00 mt. setback from the property line instead of 1.45 mts. as per
approved plan was not followed in violation [of] Sec. 306, Chapter 3 [PD 1096,
otherwise known as the National Building Code (NBC)];

2. The [excessive] projection of 0.50 mt. from 3rd floor level to [roof] deck in
violation [of] Sec. 306, Chapter 3 of the NBC (PD 1096);

3. The required open patio was covered in pursuant (sic) to Sec. 306[,] Chapter 3
[of PD 1096];

4. Provision of window opening along the right-side firewall in pursuant (sic) to

Sec. 1007 Chapter 10 of [PD 1096];

5. Stockpiling of [construction materials] along the street/sidewalk area in

violation [of] Sec. 5[,] Rule VI of the IRR;
 6. Please provide minimum safety and protection in pursuant (sic) 2.3, 2.4, and
2.5 of Rule XX of the IRR.

The said notice was received on April 11, 1995 by Engr. Mike Marquez of DEAC
Construction, Inc. The plaintiffs-appellees, however, denied having received any notice
from the Office of the Building Official of Manila regarding the on-going construction.

In a letter dated July 1, 1995, the plaintiffs-appellees, through their counsel, suddenly
complained of several infractions emanating from the construction of the project
allegedly committed by DEAC, to wit:

a. Implementation of the project was started immediately after signing of the

contract on 15 September 1994 without any building permit and approved plans.

b. Building permit was released only on (sic) March 1995 together with the
approved plans with necessary corrections made by the Office of the Building
Official. You did not inform the owners about the corrections. The signatures of
Mrs. Guia Francisco appearing on the building plans were forgeries.

c. [The] Approved [C]onstruction [P]lans were not strictly followed during the
actual implementation of the project. Open space/patio which is 20% of lot area
(based on National Building Code) for inside lot was deleted.

d. No written formal approval from the owners for the alteration of plans.

e. Poor workmanship.

i. Marble slabs installed were not approved by the owner.

ii. Beam below the 1st landing at the ground floor is too low.

iii. Ground floor Finish floor line is below the ordinary flood level in the
area. The contractor has been repeatedly instructed to raise the ground
floor finish elevation but insisted on their decision.

f. Poor supervision of the construction works.

The plaintiffs-appellees demanded that DEAC must comply with the approved plan,
construction contract, National Building Code, and the Revised Penal Code, otherwise,
they would be compelled to invoke legal remedies. In the meantime that the necessary
works and construction were demanded to be undertaken, the last and final installment
was withheld. DEAC responded, also through a letter prepared by its counsel, that it had
faithfully complied with its obligation under the contract, thus, to demand for further
compliance would be improper. It said that if somebody had breached the contract, it
was the plaintiffs-appellees, because the last installment of P750,000.00 which was
supposed to have been paid after the second floor and the roof deck structure was
completed, which allegedly had long been accomplished, was not yet paid. To settle their
differences, DEAC had given the plaintiffs-appellees the option to either pay the full
amount of P750,000.00, so that the finishing stage of the project would be completed, or
just pay the worth of the work already done, which was assessed at P250,000.00.

On July 21, 1995, a Work Stoppage Order was issued against the plaintiff-appellee Lino
Francisco pursuant to the previous April 7, 1995 Notice of Violations. Having learned of
such order, the plaintiffs-appellees allegedly immediately proceeded to the Office of the
Building Official of Manila to explain that DEAC was the one responsible for such
violations, and that the deviations of the approved plan being imputed against Lino
Francisco were unilateral acts of DEAC. They also filed a complaint for "Non-
Compliance of the Building Plan, Illegal Construction, abandonment and other violations
of the Building Code" against DEAC with the said Office. The said complaint was
endorsed to the City Prosecutor of Manila which culminated in the filing of a criminal
case against Geomar A. Dadula and DEAC project engineer Leoncio C. Alambra for
deviation and violation of specification plan.

The plaintiffs-appellees also filed this civil case for Rescission of Contract and Damages
on September 21, 1995 with the Regional Trial Court of Manila, Branch 28, against
DEAC and its President Geomar A. Dadula.

After due proceedings, the defendants-appellants were found to have breached their
contractual obligation with the plaintiffs-appellees. Among their violations were: (1) the
construction of the building without the necessary building permit, which violated
Section 3, Article IV of the Construction Contract; and (2) the deviation or revision of
the approved building plan in the actual construction. On the other hand, the trial court
said that the refusal of the plaintiffs-appellees to pay the final installment of P750,000.00
was only justified because of the defendants-appellants' violations of the contract. Thus,
on account of such violations, rescission of the contract was warranted. However, since
the subject building was already 70% to 75% completed, only partial rescission was
ordered. Pursuant thereto, DEAC was ordered to refund the sum of P205,000.00 to the
plaintiffs-appellees after considering the following computations:

Contract price - P3.5 Million

% of work completed - 75%
Contract Price x % of work completed - P3.5 Million x 75%
= P2,625,000.[00]
Actual Payment - 2,830,000.00
Less cost of work completed - 2,625,000.00
Difference - 205,000.00

In addition, damages was awarded based on par. 2, Article 1191 of the New Civil Code
which provides for the award of damages in case of rescission of contract. Geomar
Dadula, being the President of DEAC, was likewise held solidarily liable with the latter.3
Ruling that the Spouses Francisco were the ones who initiated and requested the deviations, the
appellate court held that respondents fully complied with their obligation under the contract and
ordered the Spouses Francisco to pay the balance of the contract price. It also ordered them to
pay moral damages, attorney's fees and costs of suit.

Before this Court, the Spouses Francisco question the appellate court's finding that they were the
ones who requested the deviations in the building plan, particularly with regard to the closing of
the open space and the reduction of the setback from the property line. They maintain that they
did not waive their right to demand rescission as a result of the disputed deviations and because
of the fact that DEAC commenced construction without first securing a building permit as was
incumbent upon it under their contract. In fact, apart from the present case, the Spouses
Francisco filed a criminal suit against respondent Dadula taking him to task for these violations,
of which the latter was found guilty.

Respondents, in their Comment4 dated 8 June 2006, assert that the deviations in the building
plan were done upon the request of the Spouses Francisco. Respondent Dadula had even warned
them that building the structure close to the property line could violate the required setback.
They also claim that the belated issuance of the building permit was due to neglect in the
supervision of a subordinate and does not indicate any bad faith on their part.5 At any rate, the
fact that this issue was raised only after several months had passed from the time construction
started allegedly suggests waiver on the part of the Spouses Francisco.

A Reply,6 dated 30 September 2006 was filed by the Spouses Francisco reiterating their
argument that respondent Dadula's conviction in the criminal case should be taken into account
in the present case.

As earlier adverted to, the trial court held that respondents deviated from the specifications and
terms of the contract, particularly with regard to the open space closing and the setback
reduction, without securing the approval of the Spouses Francisco. On the other hand, the
appellate court held that the Spouses Francisco were the ones who initiated and requested the
deviations. The conflict in these findings warrants a departure from the general rule that this
Court shall not entertain petitions for review which substantially raisequestions of fact.7 The
conflict accounts for the divergence of the decisions of the courts below.8

The records reveal that respondents admitted having failed to secure a building permit before
construction of the residential building subject of this case commenced. This blunder exposed
petitioner Lino Francisco to criminal prosecution as, in fact, an Information9 dated 5 December
1995 was filed against him with the Metropolitan Trial Court of Manila, Branch 12, for violation
of Section 301, Chapter 3 (Illegal Construction) of the National Building Code of the
Philippines.10 It appears that this Information was preceded by several Notices of Illegal
Construction sent by the Office of the Building Official of Manila supposedly addressed to
petitioner Lino Francisco, but which the latter would not have gotten wind of had he not inquired
with the said office about certain documents relative to the construction.

Respondents DEAC and Dadula, to whom the obligation of securing the building permit
pertained, should obviously have ensured compliance with the requirements set forth by law. At
the very least, good faith and fair dealing ordain that they inform the Spouses Francisco that the
building permit had not yet been issued especially that they had already received a substantial
amount of money from the latter and had already started the construction of the building.11

Parenthetically, the Spouses Francisco disclose that the Metropolitan Trial Court of Manila,
Branch 23, found respondent Dadula guilty of violating the National Building Code for his
failure to follow the required setback from the property line; the excessive projection of the roof
deck of the structure; the deviation in the covering of the required patio; the illegal stockpiling of
construction materials; the lack of safety standards in the construction; and his failure to secure a
building permit for the construction.12 This conviction was consistently affirmed by the
Regional Trial Court,13 the Court of Appeals14 and ultimately this Court.15 The RTC even noted
that "defendants admitted that there were deviations from the plans and that they forged the
signature of Mrs. Guia Francisco to ensure early approval of the permit."16

The foregoing matters are essential to the propriety of the trial court's ruling that partial
rescission is warranted in view of the failure of respondents to comply with what was incumbent
upon them under the construction contract and the consequent prejudice and damage caused to
petitioners by respondents' actions. Of equal importance, of course, is the correctness of its
finding that the deviations from the building plan were not authorized by the Spouses Francisco.

Our own review of the records reveals that the open space was closed by respondents without the
approval of the Spouses Francisco and in violation of the National Building Code. During the 27
May 1995 meeting between the parties in which they were called to thresh out their differences,
respondents stated that the open space indicated on the plan was omitted in the actual
construction "in order to give extra space for the building,"17 and not because the Spouses
Francisco requested such closure, if such was really the case. Respondents also mentioned that
the contractor forged petitioner Guia Francisco's signature "in the City Hall in order to process
the early approval of plans. Also, alterations were done in the City Hall."18

Curiously, the Court of Appeals relied on the same exhibit in arriving at its conclusion that the
Spouses Francisco authorized, even requested, the changes in the building plan. Apparently, the
appellate court interpreted the agreement between the parties regarding the extension of the
second floor balcony as the Spouses Francisco's approval of the closure of the open space and
reduction in the required setback from the property line. As pointed out by petitioners, however,
the extension of the second floor balcony was entirely distinct from the closure of the open space
and reduction of the setback from the property line.

Respondents' mistake in identifying the exact location of the property which led to the delay in
the issuance of a building permit and forgery of petitioner Guia Francisco's signature on the
building plan exhibits a proclivity for error and taking the easy way out. This aspect does not sit
well with the Court. The Spouses Francisco should be allowed to rescind the contract to the
extent that this is possible under the circumstances.

Article 1191 of the Civil Code provides that the power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.
The rescission referred to in this article, more appropriately referred to as resolution, is not
predicated on injury to economic interests on the part of the party plaintiff, but of breach of faith
by the defendant which is violative of the reciprocity between the parties.19 The right to rescind
may be waived, expressly or impliedly.

The Spouses Francisco, in their 1 July 1995 letter to respondents, complained, among others,
about the belated release of the building permit, the unauthorized corrections in the building
plan, the forgery of petitioner Guia Francisco's signature on the building plan, and the deletion
of the open space/patio in the actual construction of the project. The filing of a criminal case
against respondent Dadula and the subsequent filing of this civil case for rescission and damages
within a reasonable time after the Spouses Francisco had learned that construction of their
building commenced without the necessary building permit and discovered that there were
deviations from the building plan demonstrate the vigilance with which they guarded their
rights. The appellate court's conclusion that the Spouses Francisco should be deemed to have
waived their right to seek rescission is clearly unfounded.

Finally, given the fact that the construction in this case is already 75% complete, the trial court
was correct in ordering partial rescission only of the undelivered or unfinished portion of the
construction.20 Equitable considerations justify rescission of the portion of the obligation which
had not been delivered.

WHEREFORE, the Petition is GRANTED. The Decision of the Court of Appeals, dated 28
July 2005 and its Resolution, dated 31 January 2006 are REVERSED and SET ASIDE. The
Decision of the Regional Trial Court of Manila, Branch 28 in Civil Case No. 95-75430 is hereby
REINSTATED.

SO ORDERED.

Quisumbing,Chairperson Carpio, Carpio-Morales, Velasco, Jr., JJ., concur.

Footnotes
1
Rollo, pp. 45-60. Penned by Associate Justice Amelita G. Tolentino and concurred in by
Associate Justices Roberto A. Barrios and Vicente S.E. Veloso.
2
Records, pp. 289-311.
3
Rollo, pp. 46-53.
4
Id. at 132-142.
5
According to respondents, instead of designating the subject property as an interior lot,
its sub-contractor designated the property as a corner lot, resulting in the delay in the
issuance of the building permit. See RTC Decision, id. at 81.
6
Id. at 158-160.
7
Gaw v. Court of Appeals, G.R. No. 147748, 19 April 2006, 487 SCRA 423, 428.
8
The RTC disposed of the case as follows:

In view of all the foregoing, judgment is hereby rendered for the plaintiffs,
ordering partial rescission of the contract and for the defendants to jointly and
severally pay the former the following: For the return or refund of the sum of
P205,000.00 representing the excess payment to cover the unfinished work as per
contract.

Moral Damages - P250,000.00

Exemplary Damages - P250,000.00
Attorney's fees - P100,000.00 and costs

Manila, Philippines, February 2, 1998. (Records, pp. 310-311)

while the Court of appeals decided the appeal with the following fallo:

WHEREFORE, premises considered, the decision appealed from is REVERSED

and SET ASIDE, and a new one is entered ordering the plaintiffs-appellants the
following:

(1) P670,000.00, the remaining balance of the contract price;

(2) P100,000.00 as moral damages;

(3) P50,000.00 as attorney's fees; and

(4) The costs of the suit. (Rollo, pp. 59-60)

9
Exhibit "K", Records.
10
Presidential Decree No. 1096.
11
Rollo, p. 47. Respondents commenced construction in October 1994. By the time the
building permit was issued on March 7, 1995, petitioners had already paid a total of
P2,200,000.00.
12
Id. at 98-102; MeTC Decision dated 14 October 1999.
13
Id. at 104-106; RTC Decision dated 16 July 2001.
14
Id. at 110-123; CA Decision dated 13 December 2002.
 15
Id. at 128; Resolution dated 5 May 2004.
16
Id. at 106.
17
Records, p. 45; Minutes of the Meeting.
18
Id.
19
Pryce Corporation v. Philippine Amusement and Gaming Corporation, G.R. No.
157480, 6 May 2005, 458 SCRA 164, 177, citing the Concurring Opinion of Mr. Justice
J.B.L. Reyes in Universal Food Corporation v. Court of Appeals, 144 Phil. 1 (1970).
20
In Tan Guat v. Pamintuan, C.A. 37 O.G. 2494, the Court of Appeals, through then
Associate Justice Sabino Padilla (who later became an Associate Justice of this Court),
ordered partial rescission insofar as the undelivered portion of the contract was
concerned, and specific performance of the portion of the obligation which had been
delivered.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. L-35721 October 12, 1987

WELDON CONSTRUCTION CORPORATION, petitioner,

vs.
COURT OF APPEALS (Second Division) and MANUEL CANCIO, respondents.

CORTES, J.:

The present controversy arose from the construction of the Gay Theater building on
the corner of Herran and Singalong Streets in Manila. Petitioner WELDON
CONSTRUCTION CORPORATION sued the private respondent Manuel Cancio in the
then Court of First Instance of Manila to recover P62,378.82 Pesos, which is ten per
(10%) of the total cost of construction of the building, as commission, and P23,788.32
Pesos as cost of additional works thereon.
The basis for the claim for commission is an alleged contract of supervision of
construction between the theater owner Manuel Cancio, herein private respondent,
and the petitioner's predecessors-in-interest, Weldon Construction, which the
petitioner seeks to enforce. The private respondent refused to pay the amounts
demanded on the ground that the Gay Theater building was constructed by Weldon
Construction for the stipulated price of P600,000.00 Pesos which has already been
fully paid. The irreconcilable positions taken by the parties brought the controversy
before the courts.

Two documents, Exhibit "A" and Exhibit "5," were produced by the plaintiff and the
defendant, respectively, before the trial court. Plaintiff, herein petitioner sought the
enforcement of the alleged contract of supervision contained in Exhibit "A," which is
quoted below:

Mr. & Mrs. Manuel Cancio

c/o Goodwill Trading Co.

Rizal Avenue, Manila

Dear Mr. & Mrs. Cancio:

We have the pleasure to offer your goodselves our services for the construction of your
theater and office budding at Singalong corner Herran St., Manila per plans and
specifications of Engr. Filomeno Nunez.

We shall handle the administration of the construction of your building under the
following conditions:

1. The Owner shall transfer or advance an amount of TEN THOUSAND PESOS

(P10,000.00) to serve as a revolving fund and to be replenished from time to time to take
care of the cost and expenditures incurred for the proper prosecution of the work. Such
cost to include the following items and to be at rates not higher than the standard paid in
the locality of the work except with prior consent of the Owner:

a. All materials necessary for the work;

 b. All payrolls including social security and other taxes related thereto;

c. Salaries of employees stationed at the field office in whatever capacity

employed. Employees engaged in expediting works or transportation of
materials shall be considered as stationed in the field office;

d. Traveling expenses of adrniniqtrator or employees incurred in

discharging duties connected with this work;

e. Permit fees, royalties, damages for infringement of patents, and cost

of defending suits therefore and for deposits lost;

f. Losses and expenses not compensated by insurance provided they

have resulted from causes other than our fault or neglect. No such
losses and expenses shall be included in the cost of the work for the
purpose of determining the commission. In the event of loss from fire,
flood, or other fortuitous events, we shall be put in charge of
reconstruction and be paid for a fee proportionate to the work done;

g. Minor expense, such as telegrams, telephone services and similar

petty cash items;

h. The amount of all subscontracts;

i. Premiums on all bonds and insurance policies caned for the execution
of the work;

j. Rentals of all construction plant or parts thereof neressary in the

execution of the work in accordance with rental agreements approved by
the owner.

Transportation of said construction plants, costs of loading and

unloading, cost of installation and removing thereof, and minor repairs
and replacements of parts during its use on the work, in accordance with
the terms of the said rental agreement.

2. That the Owner shall not reimburse from us the following expenditures:

a. Salary of any person employed in our main office or in any regular

established branch office, during the execution of the work;

b. Overhead or general expenses of any kind, except as those which

maybe expressly included in this Contract;

c. Interest on capital employed either in plant or in expenditures on the

work except as maybe expressly included in this contract.

3. That we shall be under the direct supervision of the Owner, and shad provide facilities
for the Owner's representative to have access or inspection of the work whether it is in
preparation or progress.
4. That we shall continuously maintain adequate protection of all works from damage and
shall protect the Owner's property from injury or loss. We shall protect adjacent properties
as provided by law.

5. That we shall receive a commission of Ten Percent (10%) of the total cost, to be paid
upon submission of statement of cost.

If the above conditions are satisfactory to you, you may sign your approval at the left
corner provided for in this page.

We shall submit an estimate of the whole project based on the plans as soon as possible.
In as much (sic) as time is of the essence, may we proceed right away under the
administrative (sic) basis.

R
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s
p
e
c
t
f
u
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l
y

y
o
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s
,

WELD
ON
CONST
RUCTI
ON

(Sgd.)
ANTON
IO C.
WONG

O
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i
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M
 a
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e
r

Private respondent Cancio resisted the petitioner's claims for commission and for the
cost of "extra works" by producing Exhibit "5", a building contract providing for the
construction of the building in question for the stipulated price of P600,000.00 pesos
which said private respondent had already paid to the petitioner's predecessor-in-
interest. Exhibit "5" is reproduced as follows:

BUILDING CONTRACT

KNOW ALL MEN BY THESE PRESENTS:

This contract, made and executed in the City of Manila, Philippines, this 30th day of
March 1961 by and between:

MR. MANUEL CANCIO, of legal age, married and residing at 711 Rizal
Avenue, Manila, Philippines, hereinafter referred to as the Owner,

- and -

WELDON CONSTRUCTION, a construction firm, with main office at

No. 1262 Rizal Avenue Extension, Caloocan, Rizal, Philippines,
represented herein by its General Manager and proprietor Lucio Lee,
hereinafter referred to as the Contractor, witnesseth:

That, the Owner and the Contractor have agreed to the following terms and conditions:

1. The Contractor shall erect and build in a workmanlike manner and to the best of its
ability a Cinema and Commercial Building located at Herran corner Singalong, Manila, in
accordance with the plans and specifications agreed upon by the Owner and the
Contractor, the latter being made an integral part hereof as Annex "A"; except the
following:

(a) Electrical Fixtures

(b) Water pumps & Sump pumps

(c) Drinking Fountains

(d) Fire Fighting Equipments

(e) Neon Lights

(f) Air Conditioning

 (g) Chair

(h) Curtain & Curtain Motors

(i) Screen

(j) Mezzanine along Singalong (Except that marked on plans noted.)

(k) Contractors's Sales Tax

(l) Doors for Store Space (to be provided by tenant)

(m) Third Storey (store space up to 2nd floor only)

2. The contractor shall supply the corresponding labor and materials on said
construction which shall include plumbing, tinsmith, masonry, concreting, electrical,
carpentry and painting, in accordance with the aformentioned plans and specifications
(except as noted in Art. 1 above.)

3. The building permit shall be paid for by the Owner.

4. The Owner shall pay the Contractor the full amount of SIX HUNDRED THOUSAND
(P600,000.00) PESOS, Philippine Currency, which payment the Owner shall pay in the
basis of work accomplished based on the breakdown attached herewith marked Annex
"B" and "C." Such payment shall be paid on the tenth day of every month. Ten percent
retention of every payment shall be retained by the owner, to be paid upon completion of
the project.

5. The Contractor recognizes that time is an essential element of this contract and, on
this basis, agrees to finish the construction of the said Commercial-Cinema Building by
November 30, 1961. Should the contractor fail to finish the said building by that date, he
(the Contractor) shall indemnify the Owner the sum of SIX HUNDRED PESOS (P600.00)
for each day of delay, as liquidated damages. Any extensions of the date of completion
due to delays caused by force majeure or due to decision of Owner to hold in abeyance
certain portions of work must be approved in writing by the Owner.

6. The Contractor shall secure from the proper authorities the certificate of final approval
of the work completed in accordance with the plans and specifications, the same shall be
given to the Owner upon the turnover of the work so completed.

IN WITNESS WHEREOF, the parties have signed this Building Contract this 30th day
of March, 1961, at Manila, Philippines.

(Sgd.) MANUEL CANCIO (Sgd.) LUCIO A. LEE

Owner Contractor

With Marital Consent:

(Sgd.) JUANA CANCIO

SIGNED IN THE PRESENCE OF:

__________________ ______________________

The then Court of First, instance of Manila ruled that the agreement between the parties
is a contract of supervision of construction found in Exhibit "A" and ordered the
theater-owner Cancio to pay the ten per cent (10%) supervision fee or commission
provided for in said contract (Record on Appeal, p. 91). On appeal by the defendant
Cancio, the Court of Appeals reversed the lower court's Decision and dismissed the
Complaint. The appellate court held that the transaction between the parties is a
construction contract for a stipulated price contained in Exhibit "5" (Rollo, pp. 53-62
[Court of Appeals Decision]) The dispositive portion of the Court of Appeals Decision
promulgated on December 23, 1971 reads:

WHEREFORE, the judgment appealed from is reversed and set aside. Let another issue
dismissing plaintiff's complaint and ordering ph&tiff to pay defendant-appellant P5,000.00
as moral damages, P4,000.00 as exemplary damages, and P4,000.00 as attorney's fees.
Costs against plaintiff-appellee in both instances.

SO ORDERED. (Rollo, p. 64)

Both parties moved for the reconsideration of the aforesaid Decision. Plaintiff-appellee
WELDON CONSTRUCTION CORPORATION assailed the Decision as a whole and
reiterated its claims. Defendant-appellant sought an increase in the amount of damages
and attomey's fees awarded. In a Resolution dated February 7, 1972, the same division
of the Court of Appeals denied the two Motions for Reconsideration. Upon a Second
Motion for Reconsideration filed by the plaintiff-appellee, the Court of Appeals modified
its Decision of December 23, 1971 as follows:

IN VIEW OF THE FOREGOING CONSIDERATIONS, We hereby maintain the decision

of December 23, 1971, dismissing the plaintiff's complaint, with the modification that
defendant's counterclaim are also dismissed, without pronouncement as to attorney's
fees and costs.

SO ORDERED. (Resolution, October 18, 1972; [Rollo, p. 124])

Not satisfied with the Resolution of its Second Motion for Reconsideration, plaintiff-
appellee WELDON CONSTRUCTION CORPORATION elevated its case to this
Tribunal by certiorari under Rule 45 of the Rules of Court.

1. The Court is called upon to ascertain whether or not a commission of ten per cent
(10%) of the total cost of construction of the Gay Theater building should be paid by
the private respondent pursuant to the alleged contract of supervision of construction
which the petitioner seeks to enforce. Stated otherwise, the principal issue presented is
whether the agreement between the parties is a contract of supervision of
construction on commission basis, in which the case commission will be legally
demandable, or a construction contract for a stipulated price which has already been
consummated. The ancillary issue is whether or not the petitioner can recover the cost
of additional works on the building. The task at hand entails the interpretation of the
true agreement between the parties, which is in effect an inquiry into the "law" imposed
by the parties upon their contractual relations. Since a contract is in the nature of "law"
as between the parties and their successors-in-interest its interpretation necessarily
involves a question of law (Melliza v. City of Iloilo, L-24732, April 30, 1968, 23 SCRA
477, 481) properly raised in this certiorari proceeding under Rule 45.

2. The facts are not disputed. It appears from the records that in 1961 Lucio Lee, whose
name was later changed to Lucio Lee Rodriguez, was doing business under the trade
name Weldon Construction, the predecessor-in-interest of the herein petitioner,
WELDON CONSTRUCTION CORPORATION. The latter corporation was incorporated
in July, 1963 as a closed corporation composed of Lucio Tee (owner of Weldon
Construction), his wife, his sister and the latter's husband, and a cousin. The assets of
Weldon Construction were transferred to, and its liabilities assumed by the new
corporation. Hence, the instant case was brought by WELDON CONSTRUCTION
CORPORATION as successor-in-interest of Weldon Construction and Lucio Lee.

Prior to March 7, 1961, Lucio Lee drafted plans for a theater-apartment building which
private respondent Cancio intended to put up. Thereafter, on March 7, 1961, he
submitted to the latter a proposal (Exhibit "A") for the supervision of the construction of
said building on commission basis. The proposal was signed not by Lee but by his
office manager, Antonio Wong. The private respondent never affixed his signature on
the document.

Among the provisions Contained in the proposal was the setting up of a revolving fund
of P10,000.00 Pesos for the costs and expenditures to be incurred in the construction
of the building, such as materials and labor among others (Exhibit "A", par. 1). The
fund was to be replenished by the owner of the building from time to time (Id). The
proposal also provided for the payment to Weldon Construction of a commission of ten
per cent (10%) of the total cost of the building (Id., par. 5)

Without having signed the proposal Exhibit "A" or any written agreement on the
construction of the building, private respondent Cancio gave an advance payment of
P10,000.00 Pesos. Then, on March 28, 1961, Lee submitted another proposal (Exhibit
"4") this time for the construction of the same building at the stipulated price of
P600,000.00 Pesos. Two days after, Lee sent the private respondent a prepared
"Building Contract" (Exhibit "5") signed by him for the signature of the latter and those
of the witnesses. Private respondent did not return the document to Lee, but the
petitioner started the construction of the building. When the document (Exhibit "5")
was later presented in court, it contained the signatures of Lee, as well as the
signatures of Manuel Cancio, that of his wife, giving her marital consent, and those of
two witnesses.

As the construction of the theater building shifted to high gear, subsequent payments
were made by respondent Cancio to Weldon Construction as per accomplishment in
the varying amounts of P70,000.00 Pesos (Court of Appeals Decision, Rollo, p. 56;
Exhibits "8-18"). The materials were bought and paid for by the contractor, although the
invoices were in the name of the owner, evidently to avoid payment by the former of the
three per cent (3%) contractor's tax. (Court of Appeals Decision, Rollo, p. 59). The
invoices, receipts of payment, vouchers and payrolls were not surrendered to the owner
but were kept by the contractor. (Id. p. 57).

Shortly after the completion of the theater building and its delivery to the owner, the
latter completed the payment of the P600,000.00 contract price (CA Decision, Rollo, p.
59). However, Weldon Construction demanded the payment of P62,378.83 Pesos, as
a commission of ten per cent (10%) of the total cost of construction and of P23,788.32
Pesos as the cost of the "extra works" on the building. The owner Cancio denied the
existence of any agreement on the payment of commission and refused to pay the
amounts demanded. Hence, this suit initiated by the WELDON CONSTRUCTION
CORPORATION, the successor-in-interest of Lucio Lee and Weldon Construction.

3. A careful scrutiny of each and every term and stipulation in the two documents
Exhibit "A" and Exhibit ""5" revealed two differences between them which are crucial to
this case. One basic difference between the two agreements lies in the proposed
consideration for the administration or supervision services. Proposed under Exhibit "A"
was Ten Per cent (10%) of the total cost of construction (Exh. "A", par. 5) without a
maximum amount set as a limit on that cost. In contrast, Exhibit "5" sets the stipulated
price of the construction of the building at P600,000.00 Pesos, which is the
consideration of the contract (Exhibit "5" par. 4). The other point of divergence is the
manner in which the expenses for labor and materials are provided for. Exhibit "A", sets
up a revolving fund of P10,000.00 Pesos to be paid by the Owner and to be replenished
by him from time to time, which fund shall answer for the various costs of construction
including labor and materials (Exh. "A" par. 1). No such fund is provided for in Exhibit
"5" since the Contractor Weldon Construction binds itself to supply the labor and
materials (Exh. "5", par. 2).

The first proposal submitted by Weldon Construction for rendering service under a
contract of supervision (Exhibit "A") is simply that, a proposal. It never attained
perfection as the contract between the parties. Only an absolute or unqualified
acceptance of a definite offer manifests the consent necessary to perfect a contract
(Article 1319, New Civil Code). The advance payment of P10,000.00 Pesos was not an
unqualified acceptance of the offer contained in the first proposal (Exhibit "A") as in fact
an entirely new proposal (Exhibit "4") was submitted by Weldon Construction
subsequently. If, as claimed by the petitioner, the parties had already agreed upon a
contract of supervision under Exhibit "A," why then was a second proposal made? Res
ipsa loquitur. The existence of the second proposal belies the perfection of any
contract arising from the first proposal .

With regard to the second proposal (Exhibit "4") for the construction of the building at
a stipulated price, the same was closely followed by the "Building Contract" (Exhibit
"5") signed by Lee, setting forth m detail the proposed terms and stipulations. Although
the petitioner claims that the contract was never returned to its predecessors-in-
interest, it appears upon the face of the document (Exhibit "5") that the same was
signed by the contracting parties and their witnesses. Petitioner does not question the
authenticity of the signature of its predecessors-in-interest, Lucio Lee, appearing on the
document (Exhibit "5"). Lee himself has admitted said signature as his. Petitioner,
however, impugns the binding effect of the Building Contract (Exhibit "5") by assailing
its due execution. It cans the attention of the Court to the conclusion of the trial court
that the signature of the defendant (herein private respondent) and that of the witness
Martinez were affixed on said contract after its purported date of execution on March
30, 1961 (Record on Appeal, pp. 89-90).

Petitioner's position is untenable. Once a contract is shown to have been

consummated or fully performed by the parties thereto, its existence and binding effect
can no longer be disputed. It is irrelevant and immaterial to dispute the due execution of
a contract. i.e.. the date of signing by one of the parties, if bath of them have in fact
performed their obligations thereunder and their respective signatures and those of their
witnesses appear upon the face of the document.

Thus, even as that the Building Contract in Exhibit "5", was signed by the private
respondent only after the Gay Theater building had been completed and the stipulated
price of P600,000.00 Pews fully paid, such fact can no longer negate the binding effect
of that agreement if its existence and especially, its consummation can be established
by other evidence, e.g. by the contemporaneous acts of the parties and their having
performed their respective obligations pursuant to the agreement. As held in Kriedt v.
E.C. McCullough & Co., 37 Phil. 474,480 (1918)

. . . Acts done by the parties to a contract in the course of its performance am admissible
in evidence upon the question of its meaning as being their own contemporaneous
interpretation of its terms. (Cited in Manila Electric Company v. Court of Appeals, L-
33794, May 31, 1982, 114 SCRA 173, 181)

A similar pronouncement was made by the Court in Shell Company of the Philippines,
Ltd. v. Firemen's Insurance CO. of Newark, 100 Phil. 757 (1957), to wit:

To determine the nature of a contract courts do not have or are not bound to rely upon
the name or title given it by the contracting parties, should there be a controversy as to
what they really had intended to enter into, but the way the contracting parties do or
perform their respective obligations, stipulated or agreed upon may be shown and
inquired into, and should such performance conflict with the name given the contract by
the parties, the former must prevail over the latter (cited in Borromeo v. Court of Appeals,
L-22962, September 28, 1972, 47 SCRA 65, 74).

Thus, the manner in which the parties conducted their transactions relating to the
construction of the Gay Theater building indicates whether the parties had intended
to be bound by a construction contract for a stipulated price or by any other
agreement. The demandability of the amounts sought to be recovered by the petitioner
will depend on the nature of that agreement.

In this case, the Court finds that the parties adhered to the terms and stipulations of the
Building Contract (Exhibit "5"). After said contract hewing the signature of the
contractor Lee was submitted for the signature of the respondent Cancio, subsequent
payments were made by the latter in amounts ranging from P25,000.00 Pesos to
P70,000.00 Pesos. Even granting that the P10,000.00 Pesos advance payment by the
owner was set up as a revolving fund, these relatively large amounts could hardly be
considered as mere replenishments of said initial amount. As correctly reasoned out in
the Decision of the Court of Appeal (Rollo, p. 56), replenishments of the P10,000.00 -
peso revolving fund could not exceed that amount. The remittances made by the
building owner were actually partial payments of the contract price of P600,000.00
Pesos, the amount having been based on the actual accomplishment of the
construction during the period covered by the payment. Thus, the receipts issued by
Weldon Construction contained the words, "as per accomplishment" (Exhibits "8"-
"18"). The aforecited acts of the parties with respect to said remittances are in
consonance with paragraph 4 of the Building Contract (Exhibit "5"), to wit:

xxx xxx xxx

4. The Owner shall pay the Contractor the full amount of SIX HUNDRED THOUSAND
(PM,000.00) PESOS Philippine Currency, which payment the Owner shall pay in (sic) the
basis of work accomplished based on breakdowns attached herewith marked Annex "B"
and "C". Such payments shall be paid on the tenth of every month. Ten per cent retention
of every payment shall be retained by the Owner, to be paid upon the completion of the
project;

xxx xxx xxx

The inescapable conclusion is that Weldon Construction assumed the obligation to

construct the building at the price fixed by the parties and to furnish both the labor and
materials required for the project. It acted as an independent contractor within the
meaning of Article 1713 of the New Civil Code, which states:

ART. 1713. By the contract for a piece of work the contractor binds himself to execute a
piece of work for the employer, in consideration of a certain price or compensation. The
contractor may either employ only his labor or skill or also furnish the materials.

In view of all the foregoing considerations this Court finds that the agreement between
the parties is the contract of construction for a stipulated price contained in Exhibit "5"
which is akin to a contract for a piece of work defined in the aforequoted article. Both
parties having fully performed their reciprocal obligations in accordance with said
contract, petitioner is estopped from invoking an entirely different agreement so as to
demand additional consideration. Once a contract has been consummated, there is
nothing left to be done or to be demanded by the parties thereto. All obligations arising
from the contract are extinguished.

As set by the parties, the consideration for the construction of the Gay Theater
building is P600,000.00 Pesos which amount has been fully paid by the private
respondent. There is no basis for the petitioner's demand for the payment of P62,378.83
Pesos as commission of ten per cent (10%) of the total cost of construction. The
denial of petitioner's claim for said amount is affirmed.
 4. Since the contract between the parties has been established as a contract for a piece
of work for a stipulated price the right of the contractor to recover the cost of additional
works must be governed by Article 1724 quoted as follows:

ART. 1724. 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 or 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 had been determined in writing by
both parties.

This Court has found occasion to expound upon the nature of the requisites prescribed
by Article 1724 in the case of San Diego v. Sayson, L-16258, August 31, 1961, 2 SCRA
1175, 1178-1179, which is in point:

xxx xxx xxx

It will be noted that whereas under the old article recovery for additional costs in a
construction contract can be had if authorization to make such additions tan be proved,
the amendment evidently requires that instead of merely' proving authorization, such
authorization must be made in writing. The evident purpose of the amendment is to
prevent litigation for additional costs incurred by reason of additions or changes in the
original plans. Is this additional requirement of a written authorization, to be considered
as a mere extension of the Statute of Frauds, or is it a substantive provision? That the
requirement for a written authorization is not merely to prohibit admission or oral
testimony against the objection of the adverse party, can be inferred from the fact that the
provision is not included among those specified in the Statute of Frauds, Article 1403 of
the Civil Code. As it does not appear to have been intended as an extension of the
Statute of Frauds, it must have been adopted as a substantive provision or a condition
precedent to recovery.

xxx xxx xxx

In addition to the owner's authorization for any change in the plans and specifications,
Article 1724 requires that the additional price to be paid for the contractor be likewise
reduced in writing. Compliance with the two requisites in Article 1724, a specific
provision governing additional works, is a condition precedent to recovery (San Diego v.
Sayson, supra). The absence of one or the other bars the recovery of additional costs.
Neither the authority for the changes made nor the additional price to be paid therefor
may be proved by any other evidence for purposes of recovery.

In the case before this Court, the records do not yield any written authority for the
changes made on the plans and specifications of the Gay Theater building. Neither can
there be found any written agreement on the additional price to be paid for said "extra
works." While the trial court may have found in the instant case that the private
respondent admitted his having requested the "extra works" done by the contractor
(Record an Appeal, p. 66 [C.F.I. Decision]), this does not save the day for the petitioner.
The private respondent claims that the contractor agreed to make the additions without
additional cost. Expectedly, the petitioner vigorously denies said claim of the private
respondent. This is precisely a misunderstanding between parties to a construction
agreement which the lawmakers sought to avoid in prescribing the two requisites under
Article 1724 (Report of the Code Commission, p. 148). And this case is a perfect
example of a tedious litigation which had ensued between the parties as a result of such
misunderstanding. Again, this is what the law endeavors to prevent (San Diego v.
Sayson, supra).

In the absence of a written authority by the owner for the changes in the plans and
specifications of the building and of a written agreement between the parties on the
additional price to be paid to the contractor, as required by Article 1724, the claim for
the cost of additional works on the Gay Theater building must be denied.

WHEREFORE, the judgment of the Court of Appeals in its Decision of December 23,
1971 which was upheld in its Resolution of October 18, 1972 dismissing the complaint
filed by Weldon Construction Corporation is AFFIRMED. The modification by the Court
of Appeals of said Decision in its Resolution of October 18, 1972 which dismissed the
defendant's counterclaims is likewise AFFIRMED. Petition DISMISSED for lack of merit.

SO ORDERED.

Fernan, Gutierrez, Jr., Feliciano and Bidin, JJ., concur.

Granting for the sake of argument that there is no contract between the parties, then defendants-
appellants should not have asked for its rescission since there is no contract to rescind in the first place.

All these elements are present in the instant case

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