G.R. Nos. 167829-30. November 13, 2007.
FILIPINAS (PRE-FAB BLDG.) SYSTEMS, INC., petitioner, vs. MRT DEVELOPMENT CORPORATION, et al., respondents.

FACTS

MRT Development Corporation (MRTDC) awarded a construction project for a podium facility to Filipinas Systems, Inc. (FSI) via a Notice to Proceed (NTP) dated June 17, 1998. The NTP stipulated a 180-day completion period with a liquidated damages clause of US$100,000 per day of delay and an early accomplishment bonus of US$30,000 per day. The original completion date was set for January 14, 1999. During construction, MRTDC issued several change orders. FSI achieved 98.7% completion on April 30, 1999 (106 days late) and full completion on May 17, 1999.
Subsequently, FSI sought a 228-day time extension, claiming entitlement due to owner-caused delays and, primarily, under paragraph 12 of its initial proposal, which provided for an automatic time extension for every day of delayed payment by MRTDC on progress billings. FSI argued that payment delays totaled 1,800 days. An Area Construction Manager, David Sampson, had signed a spreadsheet indicating a 200-day extension. MRTDC refused to pay the bonus and instead sought to collect liquidated damages for the delay.

ISSUE

The primary issue was whether FSI was entitled to a time extension that would negate its delay, thereby making it eligible for an early accomplishment bonus, based on paragraph 12 of its proposal and the approval by the Area Construction Manager.

RULING

The Supreme Court denied FSI’s claim for a massive time extension and upheld its liability for delay. The legal logic centered on the principles of contract stipulation and agency authority. The Court ruled that paragraph 12 of FSI’s June 6, 1998, proposal was superseded by the subsequently executed NTP dated June 17, 1998, which constituted the binding contract. The NTP contained the specific bonus/penalty scheme and made no reference to the automatic time extension for payment delays found in the earlier proposal. Under the Civil Code, the latter contract prevails.
Furthermore, the Court held that David Sampson, the Area Construction Manager for the project management team, lacked the authority to approve a 200-day time extension. Such a substantial modification to the contract’s completion period, which would completely alter the economic balance of the agreement by excusing a significant delay and creating a bonus entitlement, required explicit authority from the owner, MRTDC. Sampson’s apparent approval was therefore not binding on MRTDC. Consequently, FSI was correctly found to have incurred a 106-day delay. However, the Court modified the Court of Appeals decision by reinstating the CIAC’s award of an early accomplishment bonus to FSI for 94 days, as MRTDC had effectively acknowledged an entitlement to a 200-day extension through its conduct, making the adjusted completion date August 2, 1999. Since FSI finished on April 30, 1999, it was entitled to a 94-day bonus. The arbitration costs were ordered to be shared equally by the parties.