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UNIWIDE SALES REALTY v. TITAN-IKEDA CONSTRUCTION

FACTS:

The case involved a dispute between Titan-Ikeda Construction and Development Corporation (Titan) and Uniwide Sales Realty and Resources Corporation (Uniwide) over non-payment of claims made by Titan after completing three construction projects for Uniwide. The first project was for the construction of a warehouse and administration building, the second project was for the renovation of a warehouse, and the third project was for the construction of a department store building.

Uniwide claimed that it had paid Titan for additional works done on the first project, but argued that the payment was not valid as the additional works were done without written authorization. Uniwide cited Article 1724 of the New Civil Code which states that a contractor cannot demand an increase in the contract price for additional works unless authorized in writing by the landowner. However, the Court of Appeals ruled that since Uniwide had already made the payment for the additional works, recovery was no longer possible under Article 1423 of the Civil Code.

Uniwide also raised other issues, including its liability for value-added tax (VAT), entitlement to liquidated damages, and liability for deficiencies in other projects. These issues were raised in Uniwide's petition for review before the Court of Appeals after its motion for reconsideration was denied by the Arbitral Tribunal.

Uniwide then appealed to the Supreme Court, arguing that the principle of solutio indebiti (recovery of payment made by mistake) should apply to its claim for reimbursement, regardless of whether the payments were voluntary or mistaken.

ISSUES:

  1. Whether Uniwide is entitled to a refund of payments made to Titan for unauthorized additional works on Project 1.

  2. Who is liable for the payment of the Value-Added Tax (VAT) in the absence of a written stipulation.

  3. Whether Uniwide is entitled to liquidated damages.

  4. Whether the CIAC is bound by Section 5, Rule 10 of the Rules of Court in arbitration proceedings.

  5. Whether Uniwide's claim for liquidated damages was properly raised as an issue in the arbitration proceedings.

  6. Whether the delay in Project 1 was attributable to the contractor and justifiable.

  7. Whether the submission of "as-built" plans is a prerequisite for payment in Project 2.

  8. Whether there was overpricing in Project 2.

  9. Whether the payment of P15,000,000.00 constituted full payment in Project 2.

  10. Whether Titan can be held liable for defective construction in Project 2.

RULING:

  1. Uniwide is not entitled to a refund of payments made to Titan for unauthorized additional works on Project 1. The Court notes that there is no evidence to establish that the payments were made through mistake. Both the CIAC and the Court of Appeals failed to determine that the payments were made by reason of mistake. Additionally, Uniwide failed to direct the attention of the Court to any pertinent part of the record that would establish that the payments were made through mistake.

  2. Uniwide is liable for the payment of the VAT for Project 1. The CIAC and the Court of Appeals found that the amount paid by Uniwide as VAT was for Project 1 based on an Order of Payment that explicitly indicated the project involved. The reduced base for the computation of the tax also indicated that the parties agreed to pass the VAT for Project 1 to Uniwide but based on a lower contract price.

  3. The issue of liquidated damages was not resolved by the CIAC and the Court of Appeals. The CIAC rejected Uniwide's claim for liquidated damages due to various reasons, while the Court of Appeals held that the issue should be determined in future proceedings where it has been made clear.

  4. The CIAC is not bound by Section 5, Rule 10 of the Rules of Court in arbitration proceedings. The Court held that the CIAC is an arbitration body and is not necessarily bound by the Rules of Court. The CIAC operates under its own rules and procedures, and the Rules of Court cannot be used to contravene the spirit of the CIAC rules.

  5. Uniwide's claim for liquidated damages was not properly raised as an issue in the arbitration proceedings. The Court held that the issues to be resolved by the CIAC are those brought before it by the parties through the Terms of Reference (TOR). If Uniwide's claim for liquidated damages was not raised as an issue in the TOR or in any modified or amended version of it, the CIAC cannot make a ruling on it. Uniwide only introduced and quantified its claim for liquidated damages in its Memorandum submitted to the CIAC at the end of the arbitration proceeding, which deprived Titan of the opportunity to present evidence to counter the claim.

  6. The delay in Project 1 was not shown to be attributable to the contractor and was justifiable. Uniwide's belated claim for liquidated damages constitutes an admission that the delay was justified and implies a waiver of its right to such damages.

  7. The submission of "as-built" plans is not a pre-requisite for payment in Project 2. Such plans are necessary only to comply with the National Building Code's requirements on the control and maintenance of buildings, and not for contractual payment purposes.

  8. Uniwide's claim of overpricing in Project 2 was dismissed. The CIAC and the Court of Appeals found the testimony of Uniwide's consultant suspect and ruled that the total contract price for Project 2 is P21,301,075.77 based on valid documentary evidence.

  9. The payment of P15,000,000.00 did not constitute full payment in Project 2. Deducting the amount already paid from the total contract price, the unpaid balance due for Project 2 is P6,301,075.77.

  10. Titan cannot be held liable for defective construction in Project 2. The ocular inspection conducted by the CIAC did not establish any structural defects that would hold Titan responsible. The contractor is not liable for damages under Nakpil and Sons v. Court of Appeals if the defects occur within fifteen years from completion and are due to violations of the contract terms.

PRINCIPLES:

  • The provisions on solutio indebiti under Arts. 2154 and 2156 of the Civil Code require evidence establishing the frame of mind of the payor at the time the payment was made in order for a refund to be granted.

  • In the absence of a written stipulation, the party responsible for the payment of the VAT may be determined based on the circumstances and the agreement of the parties.

  • Claims for liquidated damages must be properly raised and included in the pleadings, and must be formulated as an issue to be resolved by the appropriate tribunal.

  • The CIAC is an arbitration body and is not necessarily bound by the Rules of Court.

  • The CIAC operates under its own rules and procedures.

  • The issues to be resolved by the CIAC are those brought before it by the parties through the Terms of Reference.

  • Evidence submitted for one purpose may not be considered for any other purpose.

  • Delay in completion of a project is not sufficient for the imposition of liquidated damages. It must be shown that the delay was attributable to the contractor, if not otherwise justifiable.

  • Submission of "as-built" plans is necessary to comply with the National Building Code's requirements on building control and maintenance, but it is not a prerequisite for contractual payment.

  • Documentary evidence can be considered binding and prevail over mere testimony or opinions when it comes to determining contract terms and prices.

  • Payment by the employer for a construction project must be based on the contract terms and the actual work completed, not on the contractor's opinion of prices or cost estimates.

  • A contractor is not automatically liable for damages due to defects in construction within fifteen years from completion. Liability depends on violations of contract terms or the use of inferior materials.