Complete Title: Systems Energizer Corporation and Bellville Development,

Incorporated G.R. No. 205737, September 21, 2022

Facts:
Systems Energizer Corporation (petitioner) and Bellville Development,
Incorporated (respondent) entered into an Owner-Contractor Agreement (First
Agreement) on May 21, 2009 whereby the former was to undertake the construction of
the electrical works for the latter's proposed Molito 3- Puregold Building located in
Muntinlupa City. The contract price agreed upon was a fixed lump sum of Pl
5,250,000.00.

Petitioner began to work on the project but the same was suspended after only a
few months. However, respondent issued a new Notice of Award/Notice to Proceed
dated March 25, 2010 to petitioner stating the proposal for the supply of materials,
manpower, tools, equipment and supervision, petitioner’s submission of their
construction schedule, the Changes/Revisions of Electrical Building Plans, and the
revised cost breakdown totaling to the contract amount.

Eventually, the Parties entered into a Second Agreement in order to reflect the
new specifications indicated in the Notice of Award/Notice to Proceed. The scope of
work covered the entirety of petitioner's undertaking in much more detail and additional
major, and crucially, Article 2.4 called for an abandonment of the previous First
Agreement, viz:
2.4. The Contract Documents contain the entire agreement and understanding between
the OWNER and CONTRACTOR as to the subject matter hereof, and the same supersedes all
prior agreements, commitments, representations, writing, and discussions between them. All
other documents relating to the subject matter executed by the parties prior to this Construction
Contract but not forming part of the Contract Documents above enumerated are deemed
waived an/or abandoned. 13 (Emphasis and underscoring supplied).

Said Second Agreement had a contract price of P51,550,000.00, with payment to

be made on monthly billings based on percentage of actual accomplishment. Over the
course of the project's completion, additional Work Authorization Orders (WAOs) were
entered into between the Parties for further electrical installations. It appears from the
records that respondent did pay petitioner for the full contract price of the First and
Second Agreements, minus however the retention fees of 10% under both contracts.
But no relevant receipts or billings are present in the record. Respondent simply
requested that petitioner provide all necessary documentation to support the allegedly
"tremendous increase of the project cost from the original contract price”.

A demand letter was sent by the petitioner to respondent. However, there were
no settlement as to their issues, and with no action on the part of respondent to pay the
total remaining balance. Thus, petitioner filed its Complaint before the CIAC on
September 13, 2011. Respondent filed its Answer with Counterclaim to recover the
alleged excess of what it paid to petitioner under the terms of the First Agreement
(alleging novation by the Second Agreement), and petitioner duly filed its Reply with
Answer to Counterclaim. Subsequently, the CIAC promulgated its Final Reward in favor
of the petitioner.

Aggrieved, respondent filed a Petition for Review and sought the CA's reversal of
CIAC’s Final Reward. CA modified the promulgated decision and said that petitioner
failed to discharge the burden of proving that the First Agreement was not superseded.
Without filing a motion for reconsideration, Petitioner instituted the present action for the
Court's review of both the CIAC's and CA's rulings.
Petitioner posits the following errors on the part of the CA:
1. The CA erred in not finding that petitioner fully accomplished the works under the
terms of both the First and Second Agreements, and in ordering the refund of the
excess paid by respondent;
2. The CA erred in its determination that the First Agreement had been superseded,
despite petitioner's position that the Second Agreement was merely constitutive
of additional costs for revision/changes to the original plan for the project's
electrical works;

In its Opposition, respondent reiterates its position that the Second Agreement had
specifically superseded all prior agreements between the Parties, and that the
incompatibility between the original and revised plan for the project's electrical works
were proof enough of the incompatibility of implementing both First and Second
Agreements.

Issue/s:
1. Whether or not there is doubt in the interpretation of the terms of the Second
Agreement in the context of the effectivity of the previous First Agreement.
2. Whether or not there is enough evidence to conclude that the First Agreement
between the Parties was novated by the Second Agreement; [allegedly express
novation, i.e., Article 2.4 of the Second Agreement.]
NOTE: [Both issues shall be discussed on the succeeding paragraphs]

Ruling:
No, there is no doubt in the interpretation of the terms of the Second Agreement
in the context of the effectivity of the previous First Agreement.

In the alleged doubt in the interpretation of the terms of Article 2.4 of the Second
Agreement, the Court said that it was expressly provided on the Second Agreement of
the parties that all prior agreements are superseded, and that all documents executed
before the Second Agreement that are not forming part of the contract documents are
deemed waived/abandoned.

The second paragraph of Article 1370 of the Civil Code thus applies: "[i]f the
words appear to be contrary to the evident intention of the parties, the latter shall prevail
over the former." In order for the Court to determine the true intent of the present
parties, Article 1371 of the Civil Code provides a judicial guide: "[i]n order to judge the
intention of the contracting parties, their contemporaneous and subsequent acts shall
be principally considered."

The Court also discussed on the basics of novation in civil law is in order. The
legal basis for the concept can be found in Article 1291 of the Civil Code, which states
that obligations can be modified by: "(1) [c] hanging their object or principal obligations;
(2) [s] ubstituting the person of the debtor; (3) [s] ubrogating a third person in the rights
of the creditor." Obviously, what is purportedly involved in the present controversy is an
objective novation, i.e., "the change of the obligation by substituting the object with
another or changing the principal conditions."
According to Balane, to identify whether or not a contract was subjected to
objective novation would necessitate a determination of "whether the conditions to be
changed are principal (in which case there would be a novation) or incidental (in which
case there would be no novation)."

Further, Article 1292 of the Civil Code provides that "[i]n order that an
obligation may be extinguished by another which substitutes the same, it is imperative
that it be so declared in unequivocal terms, or that the old and the new obligations be on
every point incompatible with each other."

True enough, the fact that the parties entered into the Second Agreement that
points to a new or revised plan for the necessary electrical works for the Molito 3-
Puregold Building is already telling. The contract price is significantly greater, and this
alone should be sufficient to declare a new object of the contract. But the fact that the
new Notice of Award/Notice to Proceed specified "Changes/Revisions of Building Plans
dated 17 October 2009" means that there was indeed a new plan for the project's
electrical works altogether. The adjustments of the variance between the costing of the
original and revised plans were thus not mere "additional" or "additive" costs upon the
First Agreement. Since there was a new and revised plan based on new needs of the
planned structure, and for works not found in the specifications under the First
Agreement, such as the CCTV and FDAS systems and the power substation vault, the
revised plan indeed constituted a new subject matter of the mutual understanding
between the Parties. This is not merely an accidental change in the object of
petitioner's obligations to respondent, but an essential one. The conclusion that the
revised plan constituted an essential change in the principal object of the contract
between the Parties cannot be avoided.

In an Affidavit of respondent's project engineer, he said that in his comparison

and analysis between the two designs [from the two agreements], it showed that they
could not have been implemented simultaneously. That is to say, either of them could
have been implemented, but not both. With enough evidence to conclude that the
revised plan differed substantially from the original plan for the project's electrical works,
the Court also concludes in turn that the revised plans constituted a different subject
matter for the Second Agreement between the Parties. Put simply, there was an
express novation in the terms of the Second Agreement concerning an essential
change in the subject matter of the First Agreement.

Thus, there was no doubt at all to be found in the interpretation of Article 2.4 of
the Second Agreement, since the actions and admissions of the parties conformed to
their intentions at the time.

WHEREFORE, the present Petition for Review on Certiorari is hereby DENIED

for lack of merit, and the Decision of the Court of Appeals is hereby AFFIRMED.