Change Orders Without Written Consent: Contractual Obligations in Construction Disputes

The Supreme Court's 2010 decision in Spouses Chung v. Ulanday Construction, Inc. (G.R. No. 156038) clarifies a critical rule in Philippine construction law: a contractor cannot recover payment for change orders without the owner's prior written approval. The ruling reinforces that contracts are the law between parties and that strict compliance with written consent requirements is a condition precedent to claiming additional costs.

The Dispute

In 1995, Spouses Victoriano and Debbie Chung contracted Ulanday Construction, Inc. to build the concrete structural shell of their residential house in Makati City for P2,969,804.00. The contract required the contractor to complete the work within 150 days and explicitly provided that no changes or alterations to the plans and specifications could be made without the owners' prior written approval.

During construction, Ulanday submitted 12 progress billings. The Chungs paid the first seven but delayed payment on the remaining ones. More significantly, Ulanday effected 19 change orders totaling P912,885.91 without obtaining the Chungs' prior written approval. The Chungs paid for Change Order No. 1 and partially paid Change Order Nos. 16 and 17, with the wife acknowledging in writing that the balance would be paid upon completion.

When the Chungs refused to pay the outstanding amounts, Ulanday filed a collection case. The trial court ruled that the contractor could not demand payment for unauthorized change orders but remained liable for progress billings. The Court of Appeals reversed in part, applying the principle of estoppel and ordering the Chungs to pay all change order amounts.

The Supreme Court's Ruling

The Supreme Court reversed the Court of Appeals and ruled in favor of the Chungs on the change orders.

Article 1724 applies. The Court held that Article 1724 of the Civil Code governs recovery of additional costs in fixed-price construction contracts. Under this provision, a contractor can only recover increased costs for changes in plans and specifications if two requirements are met: (1) the change was authorized by the owner in writing, and (2) the additional price was determined in writing by both parties. The absence of either requirement bars recovery.

No estoppel. The Court rejected the argument that the Chungs' partial payments and failure to object to the change orders constituted estoppel. The contract expressly stated that "a mere act of tolerance shall not constitute approval." The payments for Change Order Nos. 1, 16, and 17 were, at best, acts of tolerance that could not modify the written contract.

Set-off applied. The Court ordered the parties' obligations set off against each other. The Chungs owed P445,922.13 for unpaid progress billings and P130,000.00 for ratified change orders, totaling P575,922.13. Ulanday owed P717,524.00 for the defective concrete gutter. After set-off, Ulanday owed the Chungs P141,601.87.

Practical Takeaways

• Written approval is non-negotiable. Contractors must secure the owner's prior written approval for any change order, along with a written agreement on the additional price. Verbal instructions or tacit acceptance will not suffice.
• Payment does not equal approval. An owner's partial payment of some change orders does not waive the written consent requirement for all changes. Courts will not infer approval from mere tolerance.
• Contracts bind both parties. Both owners and contractors must comply strictly with their contractual obligations. Delays in payment can excuse the contractor's delay in completion.
• Set-off is available. When both parties have valid claims against each other, the court may order compensation or set-off under Articles 1278-1283 of the Civil Code.
• Document everything. For owners, insist on written change orders before authorizing extra work. For contractors, obtain written approval and agreed pricing before proceeding with any modification.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.