Unsigned Contracts and Oral Plan Changes: When Additional Construction Costs Are Recoverable

LICOMCEN, Inc. v. Abainza (G.R. No. 199781, February 18, 2013) clarifies when a contractor may recover additional costs for changes to a construction project, even without a signed contract or written approval of the revisions. The case also underscores the importance of raising all defenses during pre-trial, as courts will not entertain new theories raised late in the proceedings.

The Dispute

Engr. Salvador Abainza was hired by LICOMCEN, Inc. to supply, fabricate, and install air-conditioning ductworks for the LCC Central Mall in Naga City. During the project, LICOMCEN ordered substantial revisions to the original plan — changing rectangular ducts to round ducts, relocating the air handling unit, installing additional ducting, and increasing the refrigeration capacity. These changes added costs for labor, materials, and equipment.

Abainza completed the work and demanded payment of the remaining balance of P1,777,202.80. LICOMCEN refused, claiming it had already fully paid the agreed contract price of P6,700,000. Abainza sued for sum of money and damages.

The Issue

The central question was whether LICOMCEN was liable for the additional costs incurred due to the revisions to the original project plan.

The Ruling

The Supreme Court ruled in favor of Abainza, holding LICOMCEN liable for the additional costs. The Court made two key findings.

First, LICOMCEN could not raise Article 1724 of the Civil Code as a defense because it was not pleaded during pre-trial. Under the Rules of Court, defenses not raised in the answer or pre-trial brief are deemed waived. LICOMCEN only invoked Article 1724 in its memorandum filed before the trial court, after the period for presenting evidence had closed. The Court held that allowing this belated defense would prejudice Abainza, who would have no opportunity to rebut it. Parties are bound by the issues defined during pre-trial.

Second, Article 1724 was not even applicable to the case. That provision allows a contractor to demand an increase in price only when there has been a change in plans and specifications, provided that (1) the change was authorized by the proprietor in writing, and (2) the additional price was determined in writing by both parties. Here, the original contract agreement — which stated a total price of P5,300,000 — was never signed by the parties because of the substantial changes imposed during the work. LICOMCEN also failed to produce any written contract supporting its claim that the agreed price was P6,700,000.

The Court observed that LICOMCEN paid P1,400,000 more than the amount stated in the unsigned contract, clearly indicating that additional costs arose during the project. The evidence showed that LICOMCEN ordered the plan changes, its engineering consultant monitored and approved the work, and its representatives approved the paperwork. Under these circumstances, LICOMCEN could not invoke Article 1724 to avoid paying for the additional costs it had ordered and approved.

Practical Takeaways

• Pre-trial is the time to raise all defenses. A party cannot change its theory of the case after trial has begun. Defenses not raised in the answer or pre-trial brief are waived.

• Unsigned contracts can still give rise to obligations. The absence of a signed written contract does not automatically defeat a claim for payment, especially where the parties have performed and the proprietor has paid amounts exceeding the stated contract price.

• Oral plan changes may still bind the proprietor. While Article 1724 requires written authorization for price increases, courts may still award additional costs where the proprietor ordered the changes, supervised the work, and approved the revised plans.

• Documentation matters. Contractors should insist on written change orders and written approval of additional costs. Proprietors should likewise document the agreed scope and price to avoid disputes over extras.

• Payments above the contract price are evidence. When a proprietor pays more than the stated contract price, that fact can indicate that additional work was ordered and accepted.

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