Written Agreements Prevail: Recovery of Additional Construction Costs Requires Prior Authorization

The Supreme Court, in Powton Conglomerate, Inc. v. Agcolicol (G.R. No. 150978, April 3, 2003), clarified a fundamental rule in construction contracts: a contractor who performs additional work without prior written authorization from the owner cannot recover the extra costs. This ruling protects property owners from unexpected bills and reminds contractors to secure written approval before proceeding with changes.

The Case

Johnny Agcolicol, through Japerson Engineering, entered into an Electrical Installation Contract with Powton Conglomerate, Inc. for a fixed price of P5,300,000.00. The contract expressly stated that any addition or reduction in cost must be mutually agreed upon in writing before execution.

After completing the work, Agcolicol sued for the unpaid balance of P268,139.80 plus P722,730.38 for additional electrical works allegedly necessitated by revisions in the building's structural design. The trial court and Court of Appeals both ruled in his favor, awarding the full amount, including the additional costs.

The Issue

The core question was whether Agcolicol could recover the cost of additional works without prior written authorization from Powton and without a written agreement on the additional price.

The Ruling

The Supreme Court partially granted the petition. It affirmed the award of the unpaid balance but reversed the award for additional costs.

The Court applied Article 1724 of the Civil Code, which provides that a contractor who builds for a stipulated price cannot demand an increase on account of higher costs of labor or materials, except 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.

The Court emphasized that these two requisites are a condition precedent to recovery—not mere formalities. Citing Weldon Construction Corporation v. Court of Appeals, it held that the absence of either requirement bars recovery, and neither the authority for changes nor the additional price may be proved by other evidence.

In this case, while revisions to the building's structural design occurred, the consent to those revisions did not extend to the electrical installation contract. Agcolicol completed the work without a written agreement on increased costs. The demand letter notifying Powton of the increase was sent only after completion—too late under both the contract and Article 1724.

The Court also rejected the lower courts' reliance on unjust enrichment, noting that Agcolicol voluntarily took the risk of non-payment by failing to secure prior written consent.

Corporate Officer Liability

The Court likewise absolved Philip C. Chien, Powton's President, from personal liability. A corporation has a personality separate from its officers. Personal liability attaches only in specific exceptions, such as assent to patently unlawful acts, bad faith, gross negligence, or conflict of interest. None were proven here.

Practical Takeaways

• Get it in writing. A contractor must obtain the owner's written authorization for any change in plans or specifications before doing the extra work.
• Agree on the price upfront. The additional price must also be reduced in writing and agreed upon by both parties before execution.
• Consent to one change is not consent to all. An owner's approval of structural revisions does not automatically extend to other contracts, such as electrical works.
• Unjust enrichment is not a fallback. A contractor who gambles on recovering costs without compliance with Article 1724 cannot invoke unjust enrichment.
• Corporate officers are generally not personally liable. Officers who contract on behalf of a corporation are shielded from personal liability absent fraud, bad faith, or gross negligence.

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