Flavio K. Macasaet & Associates, Inc. v.

Commission on Audit
G.R. No. 83748, MELENCIO-HERRERA, 1989-05-12

A petitioner seeks the overturning of a ruling denying their claim for completion of
payment of professional fees in a case involving a contract for project design and
management services, arguing that the price escalation should be included in the
final actual project cost and entitle them to additional compensation. The court
ultimately agrees with the petitioner, stating that the literal meaning of the
contract's terminologies control and that obligations arising from the contract
should be complied with in good faith.

Facts:
- On September 15, 1977, the Philippine Tourism Authority (PTA) entered into a
contract with Flavio K. Macasaet & Associates, Inc. for the "Project Design and
Management Services for the development of the proposed Zamboanga Golf and
Country Club, Calarian, Zamboanga City."
- The contract stated that PTA would pay the petitioner a professional fee of 7% of
the actual construction cost.
- A schedule of payments was provided in the contract, which included periodic
payments based on a reasonable estimated construction cost and a final payment
based on the final actual project cost.
- PTA made periodic payments to the petitioner based on the stipulated
professional fees.
- After the project was completed, PTA paid the main contractor an additional sum
representing the escalation cost of the contract price due to the increase in the price
of construction materials.
- Petitioner requested payment of additional professional fees based on the price
escalation.
- PTA denied the payment, stating that the price escalation did not entail additional
work on the part of the petitioner.

Issue:
- Is the petitioner entitled to additional professional fees based on the price
escalation?
Ruling:
- The ruling of the Commission on Audit (COA) denying the petitioner's claim for
completion of payment of professional fees is set aside.
- The Philippine Tourism Authority is ordered to pay the petitioner the additional
amount to complete the payment of its professional fee.

Ratio:
- The terminologies in the contract are clear and leave no doubt as to the
intention of the contracting parties.
- The contract states that the petitioner is entitled to 7% of the actual construction
cost and that the balance of the professional fee is to be computed based on the
final actual project cost.
- The use of the terms "actual construction cost" and "final actual project cost"
indicates that the final payment should be based on the total project cost,
which includes the escalation cost of the contract price.
- The price escalation cost must be deemed included in the final actual project cost,
and the petitioner is entitled to the payment of its additional professional fees.
- Obligations arising from a contract have the force of law between the
contracting parties and should be complied with in good faith.

Obligations arising from a contract have the force of law between the contracting
parties.
They should be complied with in good faith, as stated in Article 1159 of the Civil
Code.