PHILIPPINE REALTY HOLDINGS CORP v LEY CONSTRUCTION

13 June 2011 || Sereno, J.

FACTS

Ley Construction (LC) was the contractor for the construction of several buildings for P. Engineer Dennis Abcede was the project construction manager of P, while Joselito Santos was its general manager and VP for operations. Between April 1988 and October 1989, the two corporations entered into four major construction projects, in four duly notarized construction agreements.

Project 1: Construction Agreement, 25 April 1988 Alexandra-Cluster C construction of two units of seven-storey buildings with basement at a contract price 68M

Project 2: Construction Agreement, 25 July 1988 Alexandra-Cluster B eleven-storey twin-tower with a common basement at a contract price of 140M

Project 3: Construction Agreement, 23 November 1988 Alexandra-Cluster E eleven-storey twin-tower building with common basement at a contract price of 140.5M

Tektite Building: Construction Agreement dated 10 October 1989 Tektite Towers Phase I 729M

Tektite Agreement signed by President of LC (Manuel Ley), by Mr. Campos for P, and witnessed by Santos. Similar provisions in all agreements: no increase in price unless more work is added or unless there is an official rise of minimum wage; LC shall be granted time extension of delay is due to P's fault or due to force majeure.

Additional agreements subsequent to the above construction agreements:

Additional garage for Project 3 signed by Santos

Concreting of Tektite building signed by Santos and Abcede

Contract was paid on a monthly progress basis. It became evident that LC would not finish the project on time. LC explained that the delay was due to the sudden, unexpected hike in the prices of cement and other construction materials. Without a corresponding increase in the fixed prices found in the agreements, it would be impossible to finish the construction of the Tektite Building. Even if LC collected the entire balance from the contract, it would still be insufficient to purchase all the materials needed. Both parties agreed that their foremost objective should be to ensure that the Tektite Building project be completed. To achieve this, they entered into another agreement: Abcede asked LC to advance the amount necessary to complete construction. LC acceded on the condition that it be allowed to escalate the contract price. It wanted P to disregard on price incresae. P's board of directors turned down the request but no one gave notice to LC. However, on 9 August 1991 Abcede sent a formal letter to LC, asking for its conformity, to the effect that should it forward 36M for the project, a contract price escalation for the same amount would be granted in its favor by P. Signed by both Abcede, and LC, but not by P.

LC paid 38M (not 36M) directly to suppliers for the project. LC made monthly updates to P's VP Santos, thru Abcede regarding amounts they were forwarding between April and December 1991. P never replied.

1993 after Tektite building was done, LC demanded payment of the agreed escalation price of 36M. P sent a letter recommending that the 36M be novated with the damages of 39M they were about to ask from LC because of delay in construction. Later, P changed its mind and altogether denied any liability for the escalation price and claimed that LC had incurred 111 days of delay and demanded that it pay 39M as damages. ISSUES

WON there was a valid agreement for the increase of price to 36M YES RULINGP claims: since board of directors never acceded to the proposed escalation agreement, the provision in the main agreement prohibiting any increase in the contract price stands.

LC claims: 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 the documentary and testimonial evidence established the existence of a 36M escalation agreement.

It is apparent from its face that the letter-agreement for 36M escalation was not signed by P. This fact allegedly proves, according to PRHC, that it never expressed its consent to the letter and, hence, cannot and should not be bound by the contents thereof. It further claims that its internal rules require the signatures of at least two of its officers to bind the corporation. But the signature of Abcede is sufficient to bind P. As its construction manager, his very act of signing produced legal effect, even if there was a blank space for a higher officer of P to indicate approval. At the very least, he indicated authority to make such representation on behalf of PRHC. On direct examination, Abcede admitted that, the function of a construction manager, is to represent P in running its affairs with regard to the execution of the aforesaid projects.

Throughout the existence and execution of the construction agreements, it was the established practice of LC, each time it had concerns to approach Abcede and Santos as representatives. As far as LC was concerned, these two were the fully authorized representatives of P. Thus, when they entered into the 36M agreement, PRHC effectively agreed thereto. In fact, correspondences to the construction manager that were addressed to or that had to be noted by P were most of the time coursed through and noted by Santos. Likewise, its correspondences to LC were signed by him alone. Santos testified that, as VP and general manager of P, he was responsible for the implementation of the policies of the board. Also, Abcede and Santos signed the additional agreements for garage and concretizing, and these were not questioned by P.

Also, P does not question the validity of its letter to LC seeking novation, which was signed by Santos under the words Approved: Phil. Realty & Holdings Corp. This letter was signed by Abcede, again as the construction manager, while Santos signed above PHIL. REALTY & HOLDINGS CORP., which was notably the unsigned part in the 1991 letter-agreement on the 36M escalation. This is additional evidence that P had given Abcede and Santos the authority to act on its behalf in making such a decision or entering into such agreements with LC.

We rule that Santos and Abcede held themselves out as possessing the authority to act, negotiate and sign documents on behalf of PRHC; and that PRHC sanctioned these acts. It would be the height of incongruity to now allow PRHC to deny the extent of the authority with which it had clothed both individuals. We find that Abcedes role as construction manager, with regard to the construction projects, was akin to that of a general manager with regard to the general operations of the corporation he or she is representing.

Consequently, the escalation agreement entered into by LC and Abcede is a valid agreement that P is obligated to comply with. This escalation agreement whether written or verbal has lifted, through novation, the prohibition contained in the Tektite Building Agreement. However, the maximum amount of P's liability to LC is 36M the amount agreed upon in the letter.