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Philippine Realty and Holdings Corp. v. Ley Construction and Development Corp.

(June 13, 2011) Ponente: Sereno, J. Facts:

LCDC was the project contractor for the construction of several buildings for PRHC, the project owner. Engineer Abcede was the project construction manager while Santos was its general manager and VP for operations. The two corporations entered into 4 major construction projects (1-3 involve the Alexandra building, 4 Tektite building). Each agreement provided for a fixed price to be paid by PRHC for every project. All the agreements contain the ff provisions:

Art. IV Contract Price. The Contract Price shall not be subject to escalation except due to work addition Art. VII Time of Completion. Should the work be delayed by any act or omission of the OWNERthe CONTRACTOR shall be granted time extension. 2 more were entered into : o Construction of drivers quarters in Proj. 3 (signed by santos) o For the concreting works of the Tektite towers (signed by Santos and Abcede) In the course of the construction of the Tektite building, it became evident that LCDC would not be able to finish project within the agreed period. LCDC explained that the anticipated delay was due mainly to the sudden, unexpected hike in the prices of cement and other construction materials. They further discovered that the collected amount would be insufficient to purchase all the materials needed to complete the construction. Both parties believed that their foremost objective should be to ensure that the Tektite Building would be completed. To achieve this, they entered into another agreement. Abcede asked LCDC to advance the amount necessary to complete construction. Its president acceded, on the absolute condition that it be allowed to escalate the contract price. It wanted PRHC to allow the escalation and to disregard the prohibition contained in Art. VII of the agreements.

The board of directors of PRHC turned down the request for an escalation agreement. Neither PRHC nor Abcede gave notice to LCDC of the alleged denial of the proposal. However, Abcede sent a formal letter to LCDC, asking for its conformity, to the effect that should it infuse P36 million into the project, a contract price escalation for the same amount would be granted in its favor by PHRC. This letter was sgned by Abcede as Construction Manager as well as LCDC. However, the blank above the name of PHRC was never signed. Notwithstanding the absence of a signature above PRHCs name, LCDC proceeded with construction. LCDC religiously submitted to PRHC monthly reports that contained the amounts of infusion. PRHC never replied to any of these monthly reports. LCDC wrote a letter to Santos stating that it had already complied with its commitment and was requesting the release of P 2, 248, 463.92. It attached a letter written by DA Abcede and Associates, informing PRHC of the total cash infusion made by LCDC to the project (total of P38, 248, 463.92). PHRC never replied to this letter. When 96.43% of Tektite Building had been completed, LCDC requested the release of the P36 million escalation price. PHRC did not reply, but after the construction of the building was completed, it conveyed its decision in a letter. The decision was to set off, in the form of liquidated damages, its claim to the supposed liability of LCDC. In a letter, LCDC demanded payment of the agreed escalation price. But PRHC suddenly denied liability for it. It claimed that LCDC had incurred 111 days of delay in the construction of the Tektite Building and demanded that the latter pay P39M as liquidated damages. LCDC countered that when Abcede and Santos assured LCDCs president that LCDC would not be penalized with damages for even a single day of delay, because its hard work on the Tektite building was not unknown to PRHC. Seeking to recover from PRHC, LCDC filed a Complaint with Application for the Issuance of a Writ of Preliminary Attachment (over PRHCs properties as security for any judgment) before the RTC of Makati. RTC ruled in favor of LCDC and ordered PHRC to pay LCDC. PHRC filed a Notice of Appeal. CA reversed RTC and found LCDC liable to PRHC. PRHC filed a petition for review on certiorari before the SC. LCDC filed MR with CA but was denied. Hence, LCDC filed its own Petition for Review on Certiorari.


WON a valid escalation agreement was entered into by the parties and, if so, to what amount

Santos testified that as VP and general manager, he was responsible for the implementation of the policies of the board. In addition, LCDC was able to establish that Abcede and Santos had signed, on behalf of PRHC, other documents that were almost identical to the questioned letter-agreement. Santos signed the letter-agreement for the construction of the drivers quarters in Proj. 3. Both he and Abcede signed the letter-agreement for concreting works on the Tektike Building. PRHC does not question the validity of these agreements; it thereby effectively admits that these two individuals had actual authority to sign on its behalf. Furthermore, PRHC does not question the validity of letter wherein it seeks to apply LCDCs claim for the P36 million escalation price to its counterclaim for liquidated damages, which was signed by Santos (Approved: Phil Realty and Holdings Corp.). The SC considered the letter as additional evidence that PRHC had given Abcede and Santos the authority to act on its behalf in making such a decision or entering into such agreements with LCDC. LCDC argues that the actions of Abcede and Santos, assuming they were beyond the authority given to them by PRHC, still bound PRHC under the DOCTRINE OF APPARENT AUTHORITY. Thus, the lack of authority on their part should not be used to prejudice it, considering that the two were clothed with apparent authority to execute such agreements. PRHC is alleged barred by promissory estoppels from denying the claims of other corporation. SC agreed with LCDC. Yao Ka Sin Trading v. CA, et.al.:

HELD: YES, in the amount of P36 million only. RATIO: PHRC: Since its board of directors never acceded to the proposed escalation agreement, the provision in the main agreement prohibiting any increase in the contract price stands. Its internal rules require the signatures of at least 2 of its officers to bind the corporation. LCDC: The fact that any increase in the contract price is prohibited under the Tektite Building agreement does not invalidate the parties subsequent decision to supersede or disregard this prohibition. All documentary and testimonial evidence it presented clearly established the existence of an escalation agreement. LCDC asks that the escalation agreement be declared to have effectively novated the prohibition. SC: We resolve to rule in favor of LCDC. The letter (the one without PHRCs signature) is not a simple letter but a letteragreement a contract which because of the existence of the consent of both parties become valid and binding. The SC found the signature of Abcede sufficient to bind PHRC. As its construction manager, his very act of signing a letter embodying the P36M escalation agreement produced legal effect, even if there was a blank space for a higher officer of PHRC to indicate approval thereof. At the very least, he indicated authority to make such representation on behalf of PHRC. On direct examination, Abcede admitted he represented PHRC in running its affairs WRT the exection of the aforesaid projects. As far as LCDC was concerned, Abcede and Santos were the fully authorized representatives of PRHC. Thus, when they entered into the P36M escalation agreement, PRHC effectively agreed thereto. In fact, correspondences to the construction manager that were addressed to or that had to be noted by PRHC were most of the time coursed through and noted by Santos. Its correspondences to LCDC were signed by him alone.

Although an officer or agent acts without authority, or in excess of, his actual authority if he acts within the scope of an apparent authority with which the corporation has clothed him by holding him out or permitting him to appear as having such authority, the corporation is bound thereby in favor of a person who deals with him in good faith in reliance on such apparent authority, as where an officer is allowed to exercise a particular authority with respect to the business, or a particular branch of it, continuously and publicly, for a considerable time. Also, if a private corporation intentionally or negligently clothes its officers or agents with apparent power to perform acts for it, the corporation will be stopped to deny that such apparent authority is real, as to innocent third persons dealing in good faith with such officers or agents.

Peoples Aircargo and Warehousing Co. Inc. v. CA, et.al.:

Apparent authority is derived not merely from practice. Its existence may be ascertained through (1) the general manner in which the corporation holds out an officer or agent as having the power to act or, in other words, the apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, whether within or beyond the scope of his ordinary powers.

LCDC is not liable for liquidated damages for delay in construction of the buildings for PRCH.

What makes this Court believe that it is incorrect to allow PRHC to escape liability for the escalation is the fact that LCDC was never informed of the board of directors supposed non-approval of the escalation agreement until it was too late. Instead, PRHC, for its own benefit, waited for the former to finish infusing the entire amount into the construction of the building before informing it that the said agreement had never been approved by the board of directors. LCDC diligently informed PRHC each month of the partial amounts the former infused into the project. PRHC must be deemed estopped from denying the existence of the escalation agreement for having allowed LCDC to continue infusing additional money spending for its own project, when it could have promptly notified LCDC of the alleged disapproval of the proposed escalation price by its board of directors. Estoppel is an equitable principle rooted in natural justice; it is meant to prevent persons from going back on their own acts and representations, to the prejudice of others who have relied on them. Article 1431 3 elements of estoppel: 1) 2) 3) 4) Actor who usually must have knowledge communicates something to another in a misleading way Other relies reasonably and justifiably upon that communication The other would be harmed materially if the actor is letter permitted to assert an inconsistent claim Actor knows/expects/foresees that the other would act upon the information given or that a reasonable person in the actors position would expect or foresee such action

The liability of PRHC, however, has a ceiling (P36M). CA was correct in ruling that the P2M infused by LCDC over and above the P36M should be for its account, since PRHC never agreed to pay anything beyond the latter amount. Other issues: