By: Atty. Gregorio B. Austral, CPA
Binding effect of an oral contract
Sometime in April 2001, Kabisig Real Wealth Dev., Inc. (Kabisig), through Ferdinand Tio (Tio), contracted the services of Young Builders Corporation (Young Builders) to supply labor, tools, equipment, and materials for the renovation of its building in Cebu City. Young Builders then finished the work in September 2001 and billed Kabisig for P4,123,320.95. However, despite numerous demands, Kabisig failed to pay. It contended that no written contract was ever entered into between the parties and it was never informed of the estimated cost of the renovation. Thus, Young Builders filed an action for Collection of Sum of Money against Kabisig.
The sole issue resolved by the court is whether or not Kabisig is liable to Young Builders for the damages claimed.
The Court ruled that Kabisig is liable. It is settled that once perfected, a contract is generally binding in whatever form, whether written or oral, it may have been entered into, provided the essential requisites for its validity are present. Article 1356 of the Civil Code provides:
Art. 1356. Contracts shall be obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present.
There is nothing in the law that requires a written contract for the agreement in question to be valid and enforceable. Also, the Court notes that neither Kabisig nor Tio had objected to the renovation work, until it was already time to settle the bill.
Notwithstanding the absence of sufficient proof, Young Builders still deserves to be recompensed for actually completing the work. In the absence of competent proof on the amount of actual damages, the courts allow the party to receive temperate damages. Temperate or moderate damages, which are more than nominal but less than compensatory damages, may be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be proved with certainty.
To determine the compensation due and to avoid unjust enrichment from resulting out of a fulfilled contract, the principle of quantum meruit may be used. Under this principle, a contractor is allowed to recover the reasonable value of the services rendered despite the lack of a written contract. The measure of recovery under the principle should relate to the reasonable value of the services performed. The principle prevents undue enrichment based on the equitable postulate that it is unjust for a person to retain any benefit without paying for it. Being predicated on equity, said principle should only be applied if no express contract was entered into, and no specific statutory provision was applicable.
The principle of quantum meruit justifies the payment of the reasonable value of the services rendered and should apply in the absence of an express agreement on the fees. It is notable that the issue revolves around the parties’ inability to agree on the fees that Young Builders should receive. Considering the absence of an agreement, and in view of the completion of the renovation, the Court has to apply the principle of quantum meruit in determining how much is due to Young Builders. Under the established circumstances, the total amount of ₱2,400,000.00 which the CA awarded is deemed to be a reasonable compensation under the principle of quantum meruit since the renovation of Kabisig’s building had already been completed in 2001. (Kabisig Real Wealth Dev., Inc. and Fernando C. Tio vs. Young Buildings Corporation, G.R. No. 212375, January 25, 2017)