PHILIPPINE REALTY AND G. R. No.

165548
HOLDINGS CORPORATION,  
Petitioner,  
   
   
- versus -  
   
   
LEY CONSTRUCTION AND  
DEVELOPMENT  
CORPORATION,  
Respondent.  
x-----------------------x  
LEY CONSTRUCTION AND G. R. No. 167879
DEVELOPMENT  
CORPORATION, Present:
Petitioner,  
  CARPIO MORALES, J.,
  Chairperson,
- versus - BRION,
  BERSAMIN,
  VILLARAMA, JR., and
  SERENO, JJ.
PHILIPPINE REALTY AND  
HOLDINGS CORPORATION, Promulgated:
Respondent.  
June 13, 2011

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
 
DECISION
 
 
SERENO, J.:

These are consolidated petitions for review under Rule 45 of the New Rules of Civil
Procedure filed by both parties from a Court of Appeals (CA) Decision in CA-GR No.
71293 dated 30 September 2004. This Decision reversed a Decision of the Regional
Trial Court (RTC), National Capital Judicial Region (NCJR), Branch 135 in Makati
City dated 31 January 2001 in Civil Case No. 96-160.

The foregoing are the facts culled from the record, and from the findings of the CA
and the RTC.

Ley Construction and Development Corporation (LCDC) was the project contractor

for the construction of several buildings for Philippine Realty & Holdings Corporation
(PRHC), the project owner. Engineer Dennis Abcede (Abcede) was the project
construction manager of PRHC, while Joselito Santos (Santos) was its general
manager and vice-president for operations.

Sometime between April 1988 and October 1989, the two corporations entered into
four major construction projects, as evidenced by four duly notarized construction
agreements. LCDC committed itself to the construction of the buildings needed by
PRHC, which in turn committed itself to pay the contract price agreed upon. These
were the four construction projects the parties entered into involving a Project 1,
Project 2, Project 3 (all of which involve the Alexandra buildings) and a Tektite
Building:

1.     Construction Agreement dated 25 April 1988 Alexandra-Cluster

C involving the construction of two units of seven-
storey buildings with basement at a contract price of P 68,000,000
(Project 1);

2.     Construction Agreement dated 25 July 1988 Alexandra-Cluster B

involving the construction of an eleven-storey twin-tower building
with a common basement at a contract price of P140,500,000
(Project 2);

3.     Construction Agreement dated 23 November 1988 Alexandra-

Cluster E involving the construction of an eleven-storey twin-
tower building with common basement at a contract price
of P 140,500,000 (Project 3); and

4.     Construction Agreement dated 10 October 1989 Tektite Towers

Phase I involving the construction of Tektite Tower Building I at
Tektite Road at a contract price of P 729,138,964 (Tektite
Building).

The agreement covering the construction of the Tektite Building was signed by a Mr.
Campos under the words Phil. Realty & Holdings Corp. and by Santos as a
witness. Manuel Ley, the president of LCDC, signed under the words Ley Const. &
Dev. Corp.

The terms embodied in the afore-listed construction agreements were almost identical.
Each agreement provided for a fixed price to be paid by PRHC for every project.

All the aforementioned agreements contain the following provisions:

ARTICLE IV CONTRACT PRICE

. . . . . . . . .

The Contract Price shall not be subject to escalation except due to work addition,
(approved by the OWNER and the ARCHITECT) and to official increase in
minimum wage as covered by the Labor Adjustment Clause below. All costs and
expenses over and above the Contract Price except as provided in Article V
hereof shall be for the account of the CONTRACTOR. It is understood that there
shall be no escalation on the price of materials. However, should there be any
increase in minimum daily wage level, the adjustment on labor cost only shall be
considered based on conditions as stipulated below.

. . . . . . . . .

ARTICLE VII TIME OF COMPLETION

. . . . . . . . .

Should the work be delayed by any act or omission of the OWNER or any other
person employed by or contracted by the OWNER in the project, including days
in the delivery or (sic) materials furnished by the OWNER or others, or by any
appreciable additions or alterations in the work ordered by the OWNER or the
ARCHITECT, under Article V or by force majeure, war, rebellion, strikes,
epidemics, fires, riots, or acts of the civil or military authorities, the
CONTRACTOR shall be granted time extension.

Sometime after the execution of these agreements, two more were entered into by the
parties:

1.     Letter-agreement dated 24 August 1989 Project 3 for the

construction of the drivers quarters in Project 3; and
 2.     Agreement dated 7 January 1993 Tektite Towers for the
concreting works on GL, 5, 9, & A (ground floor to the 5th floor)
of the Tektite Towers.

Santos signed the letter-agreement on the construction of the drivers quarters in

Project 3,[1] while both he and Abcede signed the letter-agreement on the concreting
works on GL, 5, 9, and A, and also of Project 3.[2]

In order to jump-start the construction operations, LCDC was required to submit a

performance bond as provided for in the construction agreements. As stated in these
agreements, as soon as PRHC received the performance bond, it would deliver its
initial payment to LCDC. The remaining balance was to be paid in monthly progress
payments based on actual work completed. In practice, these monthly progress
payments were used by LCDC to purchase the materials needed to continue the
construction of the remaining parts of the building.

In the course of the construction of the Tektite Building, it became evident to both
parties that LCDC would not be able to finish the project within the agreed
period. Thus, through its president, LCDC met with Abcede to discuss the cause of
the delay. LCDC explained that the unanticipated delay in construction was due
mainly to the sudden, unexpected hike in the prices of cement and other construction
materials. It claimed that, without a corresponding increase in the fixed prices found
in the agreements, it would be impossible for it to finish the construction of the
Tektite Building. In their analysis of the project plans for the building and of all the
external factors affecting the completion of the project, the parties discovered that
even if LCDC were able to collect the entire balance from the contract, the collected
amount would still be insufficient to purchase all the materials needed to complete the
construction of the building.

Both parties agreed that their foremost objective should be to ensure that the Tektite
Building project would be completed. To achieve this goal, 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 Article VII of the agreements. Abcede replied that he
would take this matter up with the board of directors of PRHC.

The board of directors turned down the request for an escalation agreement.[3] Neither
PRHC nor Abcede gave notice to LCDC of the alleged denial of the proposal.
However, on 9 August 1991 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 PRHC.[4]
This letter was signed by Abcede above the title Construction Manager, as well as by
LCDC.[5] A plain reading of the letter-agreement will reveal that the blank above the
words PHIL. REALTY & HOLDINGS CORP. was never signed,[6] viz:

Very truly yours,

 
(Signed)
DENNIS A. ABCEDE
Construction Manager
 
 
CONFORME:
 
(Signed) .
LEY CONST. & DEV. CORP.
 
 
APPROVED & ACCEPTED :
 
.
PHIL. REALTY & HOLDINGS CORP.
 

Notwithstanding the absence of a signature above PRHCs name, LCDC proceeded

with the construction of the Tektite Building, expending the entire amount necessary
to complete the project. From August to December 1991, it infused amounts
totaling P 38,248,463.92. These amounts were not deposited into the joint account of
LCDC and PRHC, but paid directly to the suppliers upon the instruction of Santos.[7]

LCDC religiously submitted to PRHC monthly reports[8] that contained the amounts

of infusion it made from the period August 1991 to December 1991. These monthly
reports all had the following heading:

 
. . . . . . . . .
MR. JOSELITO L. SANTOS
VICE PRESIDENT OPERATION
PHIL. REALTY & HOLDINGS CORP.
4TH Floor Quad Alpha Centrum Bldg.
125 Pioneer St., Mandaluyong, M.M.
 
T H R U : D.A. ABCEDE & ASSOCIATES
Construction Managers
 
SUBJECT : P 36.0M INFUSION-TEKTITE TOWERS PROJECT
 From these monthly reports, it can be gleaned that the following were the
cash infusions made by LCDC:

 
Month Amount Date of monthly report
August 1991 PhP 6,724,632.26 15 October 1991[9]
September 1991 PhP 7,326,230.69 7 October 1991[10]
October 1991 PhP 7,756,846.88 7 November 1991[11]
November 1991 PhP 8,553,313.50 7 December 1991[12]
December 1991 PhP 7,887,440.50 9 January 1992[13]
  PhP 38,248,463.92  

PRHC never replied to any of these monthly reports.

On 20 January 1992, LCDC wrote a letter addressed to Santos stating that it had
already complied with its commitment as of 31 December 1991 and was requesting
the release of P 2,248,463.92. It attached a 16 January 1992 letter written by D.A.
Abcede & Associates, informing PRHC of the total cash infusion made by LCDC to
the project, to wit:

in compliance with the commitment of Ley Construction and Devt Corp.

to infuse P36.00M for the above subject project x x x

x x x we would like to present the total cash infusion by LCDC for the
period covering the month of August, 1991 to December 1991 broken
down as follows:

. . . . . . . . .

T O T A L: P 38,248,463.92
 

PRHC never replied to this letter.

In another letter dated 7 September 1992, there was a reconciliation of accounts

between the two corporations with respect to the balances due for Projects 1, 2, and 3.
The reconciliation of accounts resulted in PRHC owing LCDC the sum
of P 20,862,546.41, broken down as follows:
  
Project 1 P 1,783,046.72
Project 2 P 13,550,003.93
Project 3 P 5,529,495.76
  P 20,862,546.41
 

In a letter dated 8 September 1992,[14] when 96.43% of Tektite Building had been

completed, LCDC requested the release of the P 36 million escalation price. PRHC
did not reply, but after the construction of the building was completed, it conveyed its
decision in a letter on 7 December 1992.[15] That decision was to set off, in the form of
liquidated damages, its claim to the supposed liability of LCDC, to wit:

. . . . . . . . .

In this regard, please be advised that per owners decision; your claim
of P 36,000,00.00 adjustment will be applied to the liquidated damages for
concreting works computed in the amount of Thirty Nine Million Three Hundred
Twenty Six Thousand Eight Hundred Seventeen & 15/100 (P39,326,817.15) as
shown in the attached sheet.

Further, the net difference P 3,326,817.15 will also be considered waived as

additional consideration.

. . . . . . . . .
 

In a letter dated 18 January 1993, LCDC, through counsel, demanded payment of the
agreed escalation price of P 36 million. In its reply on 16 February 1993, PRHC
suddenly denied any liability for the escalation price. In the same letter, it claimed that
LCDC had incurred 111 days of delay in the construction of the Tektite Building and
demanded that the latter pay P 39,326,817.15 as liquidated damages. This claim was
set forth in PRHCs earlier 7 December 1992 letter.

LCDC countered that there were many times when its requests for time extension
although due to reasonable causes sanctioned by the construction agreement such as
power failures, water supply interruption, and scarcity of construction materials were
unreasonably reduced to shorter periods by PRHC. In its letter dated 9 December
1992, LCDC claimed that in a period of over two years, out of the 618 days of
extension it requested, only 256 days or not even half the number of days originally
requested were considered. It further claimed that its president inquired from Abcede
and Santos why its requests for extension of time were not granted in full. The two,
however, assured him that LCDC would not be penalized with damages for even a
single day of delay, because the fact that it was working hard on the Tektite Building
project was known to PRHC.[16]

Thereafter, in a letter dated 18 January 1993, LCDC demanded payment of the agreed
total balance for Projects 1, 2, and 3. Through a reply letter dated 16 February 1993,
PRHC denied any liability. During the course of the proceedings, both parties
conducted another reconciliation of their respective records. The reconciliation
showed the following balances in favor of LCDC:

 
Project 1 P 1,703,955.07
Project 2 P 13,251,152.61
Project 3 P 5,529,495.76
Total: P 20,484,603.44

In addition to the agreed-upon outstanding balance in favor of LCDC, the latter

claimed another outstanding balance of P 232,367.96 in its favor for the construction
of the drivers quarters in Project 3.

It also further claimed the amount of P 7,112,738.82, representing the balance for the
concreting works from the ground floor to the fifth floor of the Tektite Building.

Seeking to recover all the above-mentioned amounts, LCDC filed a

Complaint with Application for the Issuance of a Writ of Preliminary Attachment
on 2 February 1996 before the RTC in Makati City docketed as Civil Case No. 96-
160:

WHEREFORE, it is respectfully prayed that:

1.      Immediately upon the filing of this Complaint, an order of preliminary
attachment be issued over defendant Philrealtys properties as security for any
judgment which plaintiff may recover against said defendant; and

2.      After trial, judgment be rendered as follows:

2.1.            On the first, second and third alternative causes of action,

 (a)                Ordering defendant Philrealty to pay plaintiff actual
damages in the amount of P36,000,00.00 with legal interest
thereon from the filing of this Complaint until fully paid;

(b)               In the alternative, ordering defendants Abcede and Santos

to jointly and severally, in the event that they acted without
necessary authority, to pay plaintiff actual damagesin the
amount of P36,000,00.00 with legal interest thereon from
the filing of this Complaint until fully paid; and

(c)                Ordering defendant Philrealty or defendants Abcede and

Santos to pay plaintiff exemplary damages in the amount to
be determined by the Honorable Court but not less
than P5,000,000.00

2.2.            On the fourth cause of action, ordering defendant Philrealty to pay

plaintiff

(a)                Actual damages in the amount of P7,112,738.82 with legal

interest thereon from the filing of this Complaint until fully
paid; and

(b)               Exemplary damages in the amount to be determined by the

Honorable Court but not less than P1,000,000.00

2.3.            On the fifth cause of action, ordering defendant Philrealty to pay

plaintiff

(a)                Actual damages in the amount of P20,862,546.41 with

legal interest thereon from the filing of this Complaint until
fully paid; and

(b)               Exemplary damages in an amount to be determined by the

Honorable Court but not less than P5,000,000.00.

2.4.            On the sixth cause of action, ordering defendant Philrealty to pay

plaintiff

(a)                Actual damages in the amount of P232,367.96 with legal

interest thereon from the filing of this Complaint until fully
paid; and

(b)               Exemplary damages in the amount to be determined by the

Honorable Court but not less than P100,000.00

2.5.            On the seventh cause of action, ordering defendant Philrealty

and/or defendants Abcede and Santos to pay plaintiff attorneys
 fees in the amount of P750,000.00 and expenses of litigation in the
amount of P50,000.00, plus costs.

Plaintiff prays for such other just and equitable reliefs as may be
warranted by the circumstances.

On 23 July 1999, a joint Stipulation of Facts[17] was filed by the parties. In the said
stipulation, they reconciled their respective claims on the payments made and the
balances due for the construction of the Tektite Building project, Project 1, and
Project 2. The reconciliation shows that the following amounts are due and/or
overpaid:

  Due to LCDC Overpaid to LCDC

Tektite Building   P4,646,947.35
Project 1 P1,703,955.07  
Project 2 P3,251,152.61  
  P14,955,107.68 P4,646,947.35

Both parties agreed that the only remaining issues to be resolved by the court, with
respect to the Tektite Building project and Projects 1 to 3, were as follows:

a)      The validity of Ley Constructions claim that Philrealty had granted the
former a contract price escalation for Tektite Tower I in the amount
of P36,000,000.00

b)      The validity of the claim of Philrealty that the following amounts should
be charged to Ley Construction:

Payments/Advances without LCDCs conformity and recommendation of the

Construction Manager, D.A. Abcede & Associates that subject items are
LCDCs account:

a. Esicor, Inc. waterproofing works Cluster B P1,121,000.00

b. Ideal Marketing, Inc. waterproofing works at Cluster B, Quadrant
2 P885,000.00 P2,006,000.00

c)      The claim of Philrealty for liquidated damages for delay in completion of

the construction as follows:

d)     Tektite Tower I - P39,326,817.15

 Alexandra Cluster B - 12,785,000.00
Alexandra Cluster C - 1,100,000.00

and

e)      The claim of Ley Construction for additional sum of P2,248,463.92 which

it allegedly infused for the Tektite Tower I project over and above the
original P36,000,000.00 it had allegedly bound itself to infuse.[18]

On 31 January 2001, the RTC promulgated its Decision. LCDC filed a Motion for
Partial Reconsideration, which was granted.

It must be noted that in the Stipulation of Facts, the parties had jointly agreed that
the P7,112,738.82 unpaid account in the concreting of Tektite Building would no
longer be included in the list of claims submitted to the RTC for
decision. Nonetheless, this amount was still included as an award in the trial courts 7
May 2001 amended Decision, the dispositive portion of which provides:

WHEREFORE, premises considered, judgment is hereby rendered:

A.    Dismissing the counter-claim of defendant DENNIS ABCEDE and the
cross-claim of defendant JOSELITO SANTOS; and

B.     Ordering defendant PHILIPPINE REALTY AND HOLDING

CORPORATION to pay plaintiff LEY CONSTRUCTION AND
DEVELOPMENT CORPORATION:

1.      P33,601,316.17, for the Tektite Tower I Project with legal

interest thereon from date of the filing of the complaint until
fully paid;

2.      P13,251,152.61 for Alexandra Cluster B with legal interest

thereon from date of the filing of the complaint until fully paid;

3.      P1,703,955.07 for Alexandra Cluster C with legal interest

thereon from date of the filing of the complaint until fully paid;

4.      P7,112,738.82 in actual damages for the concreting works of

Tektite Tower I, with legal interest thereon from the date of the
filing of the complaint until fully paid;

5.      P5,529,495.76 in actual damages for the construction of

Alexandra Cluster E, with legal interest thereon from the date
of the filing of the complaint until fully paid;

6.      P232,367.96 in actual damages for the construction of the

drivers quarters of Alexandra Cluster E, with legal interest
 thereon from the date of the filing of the complaint until fully
paid;

7.      P750,000.00 for attorneys fees and expenses of litigation; and

8.      Costs.

SO ORDERED.[19]

PRHC filed a Notice of Appeal on 14 June 2001. The Court of Appeals, in CA-G.R.
CV No. 71293,[20] reversed the lower courts amended Decision on 30 September 2004
and ruled thus:

WHEREFORE, premises considered, the assailed January 31, 2001 decision and the May
7, 2001 amended decision are hereby REVERSED and SET ASIDE and a new one is
entered:

I.                   FINDING plaintiff-appellee LCDC LIABLE to defendant-appellant PRHC in

the amount of Sixty million Four Hundred Sixty Four (Thousand) Seven Hundred Sixty
Four 90/100 (P60,464,764.90) PESOS detailed as follows:

[1] P39,326,817.15 liquidated damages pursuant to contract for delay incurred by

plaintiff-appellee LCDC in the construction of Tektite Tower Phase I, the length
of delay having been signed and confirmed by LCDC;

[2] P12,785,000.00 liquidated damages pursuant to contract for delay incurred by

plaintiff-appellee LCDC in the construction of Alexandra Cluster B, the length of
delay having been signed and confirmed by LCDC;

[3] P1,700,000.00 liquidated damages pursuant to contract for delay incurred by

plaintiff appellee LCDC in the construction of Alexandra Cluster C, the length of
delay having been confirmed by LCDC;

[4] P4,646,947.75 overpayment by defendant-appellant PRHC to plaintiff-

appellee LCDC for the Tektite Tower Phase I Project;

[5] P1,121,000.00 expenses incurred by defendant-appellant PRHC for corrective

works to redo/repair allegedly defective Waterproofing construction work or
plaintiff-appellee LCDC in the Alexander Cluster B Project which was paid by
defendant-appellant PRHC to contractor Escritor, Inc.;

[6] P885,000.00 expenses incurred by defendant-appellant PRHC for corrective

works to redo/repair allegedly defective Waterproofing construction work of
plaintiff-appellee LCDC at the Alexandra Cluster B Quadrant in the Alexander
Cluster B Project which was paid by defendant-appellant PRHC to contractor
Ideal Marketing Inc., and
 II.                FINDING defendant-appellant PRHC LIABLE to plaintiff-appellee LCDC in
the amount of Fifty Six million Seven Hundred Sixteen Thousand Nine Hundred Seventy
One 40/100 (P56,716,971.40) detailed as follows:

[1] P36,000,000.00 as acknowledged and agreed to by PHRC as a loan by LCDC,

reimbursable when the Tektite Tower I project was 95% completed, but this was
not classified by this Court as an escalation for increase in price of materials
because an escalation for price increase of cost of materials is expressly
prohibited by 10 October 1989 original contract;

[2] All expenditures for the projects are at the risk of the contractor LCDC who is
to be paid, according to the contract, a fixed contract price so that there is no such
thing as overinfusion of expenses by plaintiff-appellee LCDC guaranteed under
the contract that it would pay all costs of materials irregardless (sic) of any
increase in costs;

[3] P13,251,152.61 balance yet unpaid by defendant-appellant in the Alexandra

Cluster B Project;

[4] P1,703,955.07 balance yet unpaid by defendant-appellant in the Alexander

Cluster C Project;

[5] Defendant-appellant PRHC is hereby held not liable for P750,000.00 attorneys
fees;

[6] Plaintiff-appellee LCDC is not entitled to claim P7,112,738.82 for concreting

works for Tektite Towers Phase I which cause of action had already been
dismissed by the parties in the 23 July 1999 Joint Stipulation of Facts that the
contract price for the October 10, 1989 Construction Agreement had been fully
paid;

[7] P5,529,495.76 balance yet unpaid in the Alexandra Cluster E Project;

[8] P232,367.96 balance yet unpaid for construction of the drivers quarters at the
Alexandra Cluster E.

The respective liabilities of the parties as set forth above are hereby SET OFF against
each other and plaintiff-appellee LCDC is hereby DIRECTED to pay defendant-
appellant PRHC the net amount due of Three million Seven Hundred Forty Seven
Thousand Seven Hundred Ninety Three 50/100 (P3,747,793.50) PESOS with legal
interest from date of filing of complaint.

SO ORDERED.

PRHC came directly to this Court and filed a petition for review on certiorari
docketed as SC-G.R. No. 165548 to assail in part the appellate courts Decision.
LCDC, on the other hand, filed on 25 October 2004 a Motion for Reconsideration
with the Court of Appeals. In its Resolution dated 12 April 2005, the appellate court
denied the motion. LCDC then filed its own Petition for Review on certiorari, which
was docketed as SC-G.R. No. 167879.

In a Resolution dated 6 August 2008, this Court consolidated G.R. Nos. 165548
and 16789.

PRHC, in its Petition for Review[21] in G.R. No. 165548, submits the following issues
for resolution:

1.                  Whether the finding and ruling of the Court of Appeals that the letter dated 07
December 1992 was a counter-offer on the part of LCDC and a confirmation to
treat the P36,000,000.00 as a loan deductible from liquidated damages is contrary
to the allegations in the pleadings and the evidence on record.

2.                  Whether the finding and ruling of the Court of Appeals that LCDC is liable to
PRHC in the amount of P5,529,495.76 representing the balance of the contract
price for the construction of Alexandra Cluster E Project is contrary to the
Stipulation of Facts jointly submitted by the parties to the Trial Court.

3.                   Whether
the finding and ruling of the Court of Appeals that LCDC is liable to
PRHC in the amount of P232,367.96 representing the cost of the construction of
the drivers quarters at Alexandra Cluster E Project is contrary to the Stipulation of
Facts jointly submitted by the parties to the trial court. [22]

For its part, LCDC submits the following grounds in support of its Petition for
Review[23] docketed as G.R. No. 167879:

I.                   The Court of Appeals seriously erred in ruling that there is no P36 million
escalation agreement between LCDC and PRHC.

. . . . . . . . .

II.                The Court of Appeals seriously erred in ruling that PHRC is not obliged
to pay LCDC the sum of P2,248,463.92 representing the cash infused by
LCDC over and above the P36 million escalation price.

III.             The Court of Appeals seriously erred in ruling that PRHC is not obliged
to pay LCDC the P7,112,738.82 balance for the concreting works of the
ground floor to the fifth floor of the PSE.
 IV.            The Court of Appeals seriously erred in awarding liquidated damages to
PHRC under the TTI Project Agreement and the Alexandra-Clusters B
and C agreements.

V.               The Court of Appeals seriously erred in ruling that LCDC is liable for
the corrective works in Alexandra-Cluster B.

VI.            The Court of Appeals seriously erred in deleting the lower courts award
of P750,000.00 attorneys fees and expenses of litigation to LCDC and holding the
latter liable to pay costs.[24]

At the outset, it must be noted that PRHC does not question the following amounts
granted by the Court of Appeals:

(a)        P13,251,152.61 awarded to LCDC as balance yet unpaid by PRHC

for Project 2;
(b)       P1,703,955.07 awarded to LCDC as balance yet unpaid by PRHC for
Project 1; and
(c)        P4,646,947.75 awarded to PRHC for its overpayment to LCDC for
the Tektite Building.

No appeal having been filed from the immediately preceding rulings, they attained
finality.

We reduce the issues to the following:

I
Whether or not a valid escalation agreement was entered into by the
parties and, if so, to what amount;
II
Whether or not LCDC was delayed in the performance of its
obligation to construct the buildings for PRHC and, corollary thereto,
whether or not the latter is entitled to liquidated damages for this
supposed delay in the construction of the Tektite Building and
Projects 1 and 2;
III
 Whether or not the CA can make an award or should have made an
award for the following causes of action not alleged in the pleadings
or omitted in the stipulation of facts:
a.              The supposed remaining balance of P5,529,495.76
for Project 3, which was awarded by the appellate
court;
b.              The supposed remaining balance of P232,367.96,
which the appellate court also awarded,
representing the cost of the construction of the
drivers quarters in Project 3; and

c.                  The supposed remaining balance

of P7,112,738.82, the cost of the concreting works
from the ground floor to the fifth floor of the
Tektite Building, which was not awarded by the
CA but was awarded by the lower court;

IV
Whether or not LCDC should be held liable for the amount
of P2,006,000 for the corrective works to redo or repair the defective
waterproofing in Project 2; and
V
Whether or not LCDC is entitled to the appellate courts award
of P750,000 for attorneys fees and expenses of litigation and costs.

We shall review the findings of fact of the Court of Appeals in view of some
inconsistencies with those of the trial court and the evidence on record, and as a result
of our analysis of the threshold legal issues.

 
A subsequent escalation agreement
was validly entered into by the
parties, but only to the extent
of P 36 million.

The construction agreements, including the Tektite Building agreement, expressly

prohibit any increase in the contracted price. It can be inferred from this prohibition
that the parties agreed to place all expenses over and above the contracted price for
the account of the contractor.[25] PRHC claims that 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.

LCDC, on the other hand, claims that 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. It argues that all the
documentary and testimonial evidence it presented clearly established the existence of
a P 36 million escalation agreement.[26]

LCDC now comes to this Court, asking that the escalation agreement with PRHC, as
represented by Abcede and Santos, be declared to have effectively novated the
prohibition in the Tektite Building agreement.

After examining the extensive evidence presented by both parties, we resolve to rule
in favor of LCDC.

LCDC relies in part on PRHCs 19 August 1991 letter-agreement,[27] which provides as

follows:

August 09, 1991

 
LEY CONSTRUCTION DEV. CORP.
10th Flr., Pacific Star Bldg.
Makati Avenue, Makati
Metro Manila
 
Attention: Mr. Manuel Ley
Subject: TEKTITE TOWERS
 
Gentlemen:
 
Relative to your contract for subject project this will confirm agreement between
your goodselves and Philippine Realty & Holdings Corporation as follows:
 
1.0  Ley Construction & Development Corporation shall put in funds for Tektite
project with a total amount of THIRTY SIX MILLION PESOS (P36,000,000.00)
ONLY in accordance with the following schedule:
. . . . . . . . .
 
2.0  If Ley Construction & Dev. Corp. faithfully complies with above commitment
then Philippine Realty & Holdings Corporation shall grant a contract price
escalation to Ley Const. & Dev. Corp. in the amount of THIRTY SIX MILLION
PESOS (P36,000,000.00) ONLY in view of the increase in cost of materials
 during the construction period which amount shall be payable to Ley Const. &
Dev. Corp. when the LCDC contract work is at least 95% complete.
 
(over)
 
Very truly yours,
 
(Signed)
DENNIS A. ABCEDE
Construction Manager
 
 
CONFORME:
 
(Signed) .
LEY CONST. & DEV. CORP.
 
 
APPROVED & ACCEPTED :
 
.
PHIL. REALTY & HOLDINGS CORP.
 

It is apparent from its face that the letter was not signed by PRHC. 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.

LCDC, for its part, submits that the fact that the letter is unsigned by PRHC is
insignificant, considering that other pieces of documentary and testimonial evidence
were presented to prove the existence of the escalation agreement.[28]

The appellate court found for PRHC and ruled that an unsigned letter does not bind
the party left out,[29] viz:

But it is patent on the face of that letter that PRHC did not sign the document. It
is patent on its face that between the words: APPROVED: and the name
Philippine Realty & Holdings Corporation, there is no signature. Apparent
therefore on its face, there was no meeting of the minds between the parties
LCDC and PRHC in the P36,000,000.00 escalation for materials.[30]
 
The Court of Appeals further held that a simple letter cannot novate a notarized
agreement.[31]

The appellate court is incorrect. The 9 August 1991 letter is not a simple letter, but
rather a letter-agreementa contractwhich because of the existence of the consent of
both parties become valid and binding. It is true that no representative of PRHC
signed under its typewritten name, where a signature should traditionally appear, to
show the companys acceptance and approval of the contents of the letter-agreement.
This Court, however, finds that the signature of Abcede is sufficient to bind PRHC.
As its construction manager, his very act of signing a letter embodying the P 36
million 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 PRHC.

On direct examination, Abcede admitted that, as the construction manager, he

represented PRHC in running its affairs with regard to the execution of the aforesaid
projects. He testified as follows:[32]

Q. What is your profession by the way?

A. Im a Civil Engineer by profession and presently, I am engaged in the

construction management.

Q. And what is your company engaged in the construction management?

A. We actually, as construction managers, we represent the owners, of the

construction.[33]

All throughout the existence and execution of the construction agreements, it was the
established practice of LCDC, each time it had concerns about the projects or
something to discuss with PRHC, to approach Abcede and Santos as representatives
of the latter corporation. As far as LCDC was concerned, these two individuals were
the fully authorized representatives of PRHC. Thus, when they entered into the P 36
million escalation agreement with LCDC, 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.
Likewise, its correspondences to LCDC were signed by him alone.[34]

Santos testified that, as the vice president and general manager of PRHC, he was
responsible for the implementation of the policies of the board,[35] to wit:

Q: Why do you know the defendant Philippine Realty and Holding Corporation?
 A: I used to serve that company as Vice President and Director, sir.

Q: During what year did you serve as Vice President and Director of Philippine
Realty.

A: I started serving that company as General Manager in 1987 and I resigned in

1993, sir.

Q: Will you state your duties and functions as General Manager and Director of
the company?

A: I was responsible for the implementation of the policies approved by the board
and the day to day general management of the company from operation to
administration to finance and marketing, sir.[36]

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.[37] Santos was actually the one who signed for PRHC in the letter-
agreement for the construction of the drivers quarters in Project 3.[38] He signed under
the words Approved: Phil. Realty & Holdings Corp.[39] While both he and Abcede
signed the letter-agreement for concreting works on GL, 5, 9, and A,[40] Santos again
signed under the word Approved.[41] 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 with respect to these construction projects.

We cannot fault LCDC for relying on the representation of PRHC that the authority to
contract with the former, in matters relating to the construction agreements, resided in
Abcede and Santos.

Furthermore, PRHC does not question the validity of its 7 December 1992 letter to
LCDC wherein it seeks to apply LCDCs claim for the P 36 million escalation price to
its counterclaim for liquidated damages, which was signed by Santos under the words
Approved: Phil. Realty & Holdings Corp.:

07 December 1992
LEY CONST. & DEV. CORP.
23rd Floor Pacific Star Bldg.
Sen. Gil Puyat Ave. corner
Makati Avenue, Makati, Metro Manila.

Attention : MR. MANUEL T. LEY

Subject : TEKTITE TOWERS

 
 Gentlemen :

This is in connection with your previous request for materials cost adjustment in
the amount of Thirty Six Million & 0/100 (P36,000,000.00).

In this regard, please be advised that per owners decision; your claim
of P36,000,00.00 adjustment will be applied to the liquidated damages for
concreting works computed in the amount of Thirty Nine Million Three Hundred
Twenty Six Thousand Eight Hundred Seventeen & 15/100 (P39,326,817.15) as
shown in the attached sheet.

Further, the net difference P3,326,817.15 will also be considered waived as

additional consideration.

We trust you will find the above fair and equitable.

 
Very truly yours,
 
(Signed)
DENNIS A. ABCEDE
Construction Manager
 
Approved:
 
(Signed by Santos)
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 9 August 1991 letter. PRHC claims that neither one of them had
the authority to sign on behalf of the corporation; yet, it is not questioning the validity
of the above-quoted letter.

We consider this 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 additionally argues that a subsequent escalation agreement was validly entered
into, even on the following assumptions: (a) that Abcede and Santos had no authority
to agree to the escalation of the contract price without the approval of the board of
directors; and (b) that the 7 December 1992 letter cannot be construed as an
acknowledgment by PRHC that it owed LCDC P36 million. It posits that the actions
of Abcede and Santos, assuming they were beyond the authority given to them by
PRHC which they were representing, still bound PRHC under the doctrine of apparent
authority. [42] 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. In addition, PRHC is allegedly barred by promissory estoppel from
denying the claims of the other corporation.

We agree with LCDC.

In Yao Ka Sin Trading v. Court of Appeals, et al,.[43] this Court discussed the

applicable rules on the doctrine of apparent authority, to wit:

The rule is of course settled that [a]lthough an officer or agent acts without, 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
estopped to deny that such apparent authority is real, as to innocent third persons
dealing in good faith with such officers or agents. [44]

In Peoples Aircargo and Warehousing Co. Inc. v. Court of Appeals, et al.,[45] we held
that 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.

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 LCDC and Abcede is a valid
agreement that PRHC is obligated to comply with. This escalation agreement whether
written or verbal has lifted, through novation, the prohibition contained in the Tektite
Building Agreement.
In order for novation to take place, the concurrence of the following requisites is
indispensable:

1. There must be a previous valid obligation.

2. The parties concerned must agree to a new contract.
3. The old contract must be extinguished.
4. There must be a valid new contract.[46]

All the aforementioned requisites are present in this case. The obligation of both
parties not to increase the contract price in the Tektite Building Agreement was
extinguished, and a new obligation increasing the old contract price by P 36 million
was created by the parties to take its place.

What makes this Court believe that it is incorrect to allow PRHC to escape liability
for the escalation price 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.[47] Article 1431 of the Civil Code provides:

Through estoppel an admission or representation is rendered conclusive

upon the person making it, and cannot be denied or disproved as against the person
relying thereon.

Article 1431 is reflected in Rule 131, Section 2 (a) of the Rules of

Court, viz.:
Sec. 2. Conclusive presumptions. The following are instances of conclusive
presumptions:

(a) Whenever a party has by his own declaration, act or omission, intentionally

and deliberately led another to believe a particular thing true, and to act upon such
belief, he cannot, in any litigation arising out of such declaration, act or omission
be permitted to falsify it.
 This Court has identified the elements of estoppel as:
[F]irst, the actor who usually must have knowledge, notice or suspicion of the true
facts, communicates something to another in a misleading way, either by words,
conduct or silence; second, the other in fact relies, and relies reasonably or
justifiably, upon that communication; third, the other would be harmed materially
if the actor is later permitted to assert any claim inconsistent with his earlier
conduct; and fourth, the actor knows, expects or foresees that the other would act
upon the information given or that a reasonable person in the actor's position
would expect or foresee such action.[48]

This liability of PRHC, however, has a ceiling. The escalation agreement

entered into was for P 36 millionthe maximum amount that LCDC contracted itself
to infuse and that PRHC agreed to reimburse. Thus, the Court of Appeals was
correct in ruling that the P 2,248,463.92 infused by LCDC over and above the P 36
million should be for its account, since PRHC never agreed to pay anything
beyond the latter amount. While PRHC benefited from this excess infusion, this
did not result in its unjust enrichment, as defined by law.

Unjust enrichment exists when a person unjustly retains a benefit to the loss of
another, or when a person retains money or property of another against the
fundamental principles of justice, equity and good conscience.[49] Under Art. 22 of the
Civil Code, there is unjust enrichment when (1) a person is unjustly benefited, and (2)
such benefit is derived at the expense of or with damages to another.[50] The term is
further defined thus:

Unjust enrichment is a term used to depict result or effect of failure to make

remuneration of or for property or benefits received under circumstances that give
rise to legal or equitable obligation to account for them; to be entitled to
remuneration, one must confer benefit by mistake, fraud, coercion, or request.[51]

In order for an unjust enrichment claim to prosper, one must not only prove that the
other party benefited from ones efforts or the obligations of others; it must also be
shown that the other party was unjustly enriched in the sense that the term unjustly
could mean illegally or unlawfully.[52] LCDC was aware that the escalation agreement
was limited to P36 million. It is not entitled to remuneration of the excess, since it did
not confer this benefit by mistake, fraud, coercion, or request. Rather, it voluntarily
infused the excess amount with full knowledge that PRHC had no obligation to
reimburse it.

Parenthetically, we note that the CA had ruled that the 7 December 1992 letter
demonstrates that PRHC treated the P 36 million as a loan deductible from the
liquidated damages for which LCDC is supposedly liable.[53] It ruled that when PRHC
informed LCDC that it would apply the P 36 million to the liquidated damages,
PRHC, in effect, acknowledged that it was in debt to LCDC in the amount of P36
million, and that forms the basis for PRHCs liability to LCDC for the said amount.

We disagree with this analysis.

In a contract of loan, ownership of the money is transferred from the lender to the
borrower.[54] In this case, ownership of the P 36 million was never transferred to
PRHC. As previously mentioned, such amount was paid directly to the suppliers.
[55]
 We find that arrangement between PRHC and LCDC cannot be construed as a loan
agreement but rather, it was an agreement to advance the costs of construction.
In Liwanag v. Court of Appeals et al., we state:
Neither can the transaction be considered a loan, since in a contract of loan once
the money is received by the debtor, ownership over the same is transferred.
Being the owner, the borrower can dispose of it for whatever purpose he may
deem proper. In the instant petition, however, it is evident that Liwanag could not
dispose of the money as she pleased because it was only delivered to her for a
single purpose, namely, for the purchase of cigarettes, and if this was not possible
then to return the money to Rosales.

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

There is no question that LCDC was not able to fully construct the Tektite
Building and Projects 1, 2, and 3 on time. It reasons that it should not be made
liable for liquidated damages, because its rightful and reasonable requests for time
extension were denied by PRHC.[56]

It is important to note that PRHC does not question the veracity of the factual
representations of LCDC to justify the latters requests for extension of time. It insists,
however, that in any event LCDC agreed to the limits of the time extensions it
granted.[57]

The practice of the parties is that each time LCDC requests for more time, an
extension agreement is executed and signed by both parties to indicate their joint
approval of the number of days of extension agreed upon.

The applicable provision in the parties agreements is as follows:

 ARTICLE VII TIME OF COMPLETION
 
. . . . . . . . .
 

Should the work be delayed by any act or omission of the OWNER or any other
person employed by or contracted by the OWNER in the project, including days
in the delivery or (sic) materials furnished by the OWNER or others, or by any
appreciable additions or alterations in the work ordered by the OWNER or the
ARCHITECT, under Article V or by force majeure, war, rebellion, strikes,
epidemics, fires, riots, or acts of the civil or military authorities, the
CONTRACTOR shall be granted time extension.

In case the CONTRACTOR encounters any justifiable cause or reason for delay,
the CONTRACTOR shall within ten (10) days, after encountering such cause of
delay submit to the OWNER in writing a written request for time extension
indicating therein the requested contract time extension. Failure by the
CONTRACTOR to comply with this requirements (sic) will be adequate reason
for the OWNER not to grant the time extension.

 
The following table shows the dates of LCDCs letter-requests, the supposed
causes justifying them, the number of days requested, and the number of days
granted by PRHC and supposedly conformed to by LCDC:

 
  Cause # of days # of days
requested granted
1 Mar Due to additional works and shortage of 30 11
1990 supplies and cement
14 Apr Shortage of cement supply 18 6
1990
10 May Frequent power failures 10 2
1990
9 Jul 1990 Bad weather which endangered the lives 10 2
of the construction workers (heavy
winds)
4 Sep Inclement weather that endangered the 10 3
1990 lives of the construction workers
28 Feb Architectural and structural revisions of 20 8
1991 R.C. beams at the 8th floor level
28 Aug For change order work and revisions in 271 136
1991 the plans initiated by the architect and
 Abcedes delay in giving the revised
plans to contractor
2 Sep Inclement weather and scarcity of 25 17
1991 cement
13 Oct Water supply interruption and power 15 6
1991 failures preventing the mixing of cement
5 Dec Typhoon Uring and water supply 15 2
1991 interruption (typhoon Uring alone
caused a delay for more than 10 days
due to strong and continuous rains)
2 Apr Inadequate supply of Portland cement 15 12
1992 and frequent power failures
5 May Inadequate supply of cement and 17 12
1992 frequent power failures
    456 217
  additions and alterations in the work 108 20
ordered by the owner and architect
    564 237
 

As previously mentioned, LCDC sent a 9 December 1992 letter to PRHC claiming

that, in a period of over two years, only 256 out of the 618 days of extension
requested were considered. We disregard these numbers presented by LCDC because
of its failure to present evidence to prove its allegation. The tally that we will acceptas
reflected by the evidence submitted to the lower courtis as follows: out of the 564
days requested, only 237 were considered.

Essentially the same aforementioned reasons or causes are presented by LCDC as

defense against liability for both Projects 1 and 2.[58] In this regard, the CA ruled:

Plaintiff-appellees allegation that determination by PHRC of extensions of time

were unreasonable or arbitrary is untenable in the light of express provisions of
the Construction Agreements which prescribed precise procedures for extensions
of time. In fact the procedure is fool-proof because both OWNER and
CONTRACTOR sign to indicate approval of the number of days of extension.
Computation of the penalty becomes mechanical after that. Each extension as
signed by the parties is a contract by itself and has the force of law between them.
In fact, the parties followed that prescribed procedure strictly the CONTRACTOR
first requested the OWNER to approve the number of days applied for as
extension of time to finish the particular project and the OWNER will counter-
offer by approving only a lower number of days extension of time for
CONTRACTOR to finish the contract as recommended by the CONSTRUCTION
 MANAGER ABCEDE, and in the end, both CONTRACTOR and OWNER sign
jointly the approved number of days agreed upon. That signed extension of time is
taken to be the contract between the parties.[59]

The appellate court further ruled that each signed extension is a separate contract
that becomes the law between the parties:[60]
there is nothing arbitrary or unreasonable about the number of days extension of
time because each extension is a meeting of the minds between the parties, each
under joint signature OWNERand CONTRACTOR witnessed by the
CONSTRUCTION MANAGER.[61]

Inasmuch as LCDCs claimed exemption from liability are beyond the approved
time extensions, LCDC, according to the majority of the CA, is liable therefor.

Justice Juan Q. Enriquez, in his Dissenting Opinion, held that the reasons

submitted by LCDC fell under the definition of force majeure.[62] This specific
point was not refuted by the majority.

We agree with Justice Enriquez on this point and thereby disagree with the majority
ruling of the CA.

Article 1174 of the Civil Code provides: Except in cases expressly specified by the
law, or when it is otherwise declared by stipulation or when the nature of the
obligation requires the assumption of risk, no person shall be responsible for those
events which could not be foreseen, or which though foreseen, were inevitable. A
perusal of the construction agreements shows that the parties never agreed to make
LCDC liable even in cases of force majeure. Neither was the assumption of risk
required. Thus, in the occurrence of events that could not be foreseen, or though
foreseen were inevitable, neither party should be held responsible.

Under Article 1174 of the Civil Code, to exempt the obligor from liability for a
breach of an obligation due to an act of God or force majeure, the following must
concur:

(a) the cause of the breach of the obligation must be independent of the will of the
debtor; (b) the event must be either unforseeable or unavoidable; (c) the event
must be such as to render it impossible for the debtor to fulfill his obligation in a
normal manner; and (d) the debtor must be free from any participation in, or
aggravation of the injury to the creditor.[63]
The shortage in supplies and cement may be characterized as force majeure.[64] In
the present case, hardware stores did not have enough cement available in their
supplies or stocks at the time of the construction in the 1990s. Likewise, typhoons,
power failures and interruptions of water supply all clearly fall under force
majeure. Since LCDC could not possibly continue constructing the building under
the circumstances prevailing, it cannot be held liable for any delay that resulted
from the causes aforementioned.

Further, PRHC is barred by the doctrine of promissory estoppel from denying that it
agreed, and even promised, to hold LCDC free and clear of any liquidated damages.
Abcede and Santos also promised that the latter corporation would not be held liable
for liquidated damages even for a single day of delay despite the non-approval of the
requests for extension.[65] Mr. Ley testified to this fact as follows:

Q: So, Mr. Witness in all those requests for extension and whenever the D.A.
Abcede & Associates did not grant you the actual number of days stated in your
requests for extension, what did Ley construction and Development do, if any?
A: We talked to Dennis Abcede and Mr. Santos, Maam.
Q: And what did you tell them?
A: I will tell them why did you not grant the extension for us, Maam.
Q: What was the response of Mr. Abcede and Mr. Santos?
A: Mr. Abcede and Mr. Santos told me, Mr. Ley dont worry, you will not be
liquidated of any single day for this because we can see that you worked so hard
for this project, Maam.
Q: And what did you do after you were given that response of Mr. Abcede and
Mr. Santos?
A: They told me you just relax and finish the project, and we will pay you up to
the last centavos, Maam.
Q: What did you do after taking that statement or assurance?
A: As gentlemans agreement I just continued working without complaining
anymore, Maam.[66]

The above testimony is uncontradicted. Even assuming that all the reasons LCDC
presented do not qualify as fortuitous events, as contemplated by law, this Court finds
that PRHC is estopped from denying that it had granted a waiver of the liquidated
damages the latter corporation may collect from the former due to a delay in the
construction of any of the buildings.

Courts may rule on causes of action

not included in the Complaint, as
long as these have been proven
during trial without the objection of
the opposing party.

PRHC argues that since the parties had already limited the issues to those reflected
in their joint stipulation of facts, neither the trial court nor the appellate court has
the authority to rule upon issues not included therein. Thus it was wrong for the
trial court and the CA to have awarded the amounts of P 5,529,495.76 representing
the remaining balance for Project 3 as well as for the P 232,367.96 representing the
balance for the construction of the drivers quarters in Project 3. PRHC claims that
in the Stipulation of Facts, all the issues regarding Project 3 were already made
part of the computation of the balances for the other projects. It thus argues that the
computation for the Tektite Building showed that the overpayment for Project 3 in
the amount of P 9,531,181.80 was credited as payment for the Tektite Tower
Project.[67] It reasons that, considering that it actually made an overpayment for
Project 3, it should not be made liable for the remaining balances for Project 3 and
the drivers quarters in Project 3.[68] It is LCDCs position, however, that the
Stipulation of Facts covers the balances due only for the Tektite Tower Project,
Project 1, and Project 2.[69] Since Project 3 was not included in the reconciliation
contained in the said stipulation, it maintains that the balance for Project 3 remains
at P 5,529,495.76,[70] and that the balance for the construction of the drivers
quarters in Project 3 remains at P232,367.96.

On its part, LCDC disputes the deletion by the CA of the lower courts grant of the
alleged P 7,112,738.82 unpaid balance for the concreting works in the Tektite
Building. The CA had ruled that this cause of action was withdrawn by the parties
when they did not include it in their Joint Stipulation of Facts. LCDC argues that to
the contrary, the silence of the Stipulation of Facts on this matter proves that the claim
still stands.[71]

Considering that the unpaid balances for Project 3, its drivers quarters, and the
concreting works in the Tektite Building were not covered by the Stipulation of Facts
entered into by the parties, we rule that no judicial admission could have been made
by LCDC regarding any issue involving the unpaid balances for those pieces of work.
We affirm in this case the doctrine that courts may rule or decide on matters that,
although not submitted as issues, were proven during trial. The admission of evidence,
presented to support an allegation not submitted as an issue, should be objected to at
the time of its presentation by the party to be affected thereby; otherwise, the court
may admit the evidence, and the fact that such evidence seeks to prove a matter not
included or presented as an issue in the pleadings submitted becomes irrelevant,
because of the failure of the appropriate party to object to the presentation.

No objection was raised when LCDC presented evidence to prove the outstanding
balances for Project 3, its drivers quarters, and the concreting works in the Tektite
Building.

In Phil. Export and Foreign Loan Guarantee Corp. v. Phil. Infrastructures, et al.,
[72]
 this Court held:

It is settled that even if the complaint be defective, but the parties go to trial
thereon, and the plaintiff, without objection, introduces sufficient evidence to
constitute the particular cause of action which it intended to allege in the original
complaint, and the defendant voluntarily produces witnesses to meet the cause of
action thus established, an issue is joined as fully and as effectively as if it had
been previously joined by the most perfect pleadings. Likewise, when issues not
raised by the pleadings are tried by express or implied consent of the parties, they
shall be treated in all respects as if they had been raised in the pleadings.

Considering the absence of timely and appropriate objections, the trial court did
not err in admitting evidence of the unpaid balances for Project 3, its drivers
quarters, and the concreting works in the Tektite Building. Furthermore, both the
lower and the appellate courts found that the supporting evidence presented by
LCDC were sufficient to prove that the claimed amounts were due, but that they
remained unpaid.
LCDC should be held liable for the
corrective works to redo or repair
the defective waterproofing in
Project 2.

The waterproofing of Project 2 was not undertaken by LCDC. Instead, Vulchem

Corporation (Vulchem), which was recommended by Santos and Abcede, was
hired for that task. Vulchems waterproofing turned out to be defective. In order to
correct or repair the defective waterproofing, PRHC had to contract the services of
another corporation, which charged it P2,006,000.
Denying liability by alleging that PRHC forced it into hiring Vulchem Corporation for
the waterproofing works in Project 2, LCDC argues that under Article 1892, an agent
is responsible for the acts of the substitute if he was given the power to appoint a
substitute. Conversely, if it is the principal and not the agent who appointed the
substitute, the agent bears no responsibility for the acts of the sub-agent.[73]The
provision reads:

Art. 1892. The agent may appoint a substitute if the principal has not prohibited
him from doing so; but he shall be responsible for the acts of the substitute:
(1) When he was not given the power to appoint one;
(2) When he was given such power, but without designating the person, and the
person appointed was notoriously incompetent or insolvent.

LCDC argues that because PRHC, as the principal, had designated Vulchem as
sub-agent, LCDC, as the agent, should not be made responsible for the acts of the
substitute, even in the instance where the latter were notoriously incompetent.[74]

LCDCs reliance on Art. 1892 is misplaced. The principles of agency are not to be
applied to this case, since the legal relationship between PRHC and LCDC was not
one of agency, but was rather that between the owner of the project and an
independent contractor under a contract of service. Thus, it is the agreement between
the parties and not the Civil Code provisions on agency that should be applied to
resolve this issue.

Art. XIV of the Project 2 Agreement clearly states that if the contractor sublets any
part of the agreement to a third party, who in effect becomes a sub-contractor, the
losses or expenses that result from the acts/inactions of the sub-contractor should be
for the contractors account, to wit:

ARTICLE XIV ASSIGNMENT

This Agreement, and/or any of the payments to be due hereunder shall not be
assigned in whole or in part by the CONTRACTOR nor shall any part of the
works be sublet by CONTRACTOR without the prior written consent of
OWNER, and such consent shall not relieve the CONTRACTOR from full
responsibility and liability for the works hereunder shall not be granted in any
event until CONTRACTOR has furnished OWNER with satisfactory evidence
that the Sub-Contractor is carrying ample insurance to the same extent and in the
same manner as herein provided to be furnished by CONTRACTOR. If the
agreement is assigned or any part thereof is sublet, CONTRACTOR shall
exonerate, indemnify and save harmless the OWNER from and against any and
all losses or expenses caused thereby.[75]
  

LCDC had every right to reject Vulchem as sub-contractor for the waterproofing work
of Project 2 but it did not do so and proceeded to hire the latter. It is not unusual for
project owners to recommend sub-contractors, and such recommendations do not
diminish the liability of contractors in the presence of an Article XIV-type clause in
the construction agreement. The failure of LCDC to ensure that the work of its sub-
contractor is satisfactory makes it liable for the expenses PRHC incurred in order to
correct the defective works of the sub-contractor. The CA did not err in ruling that the
contract itself gave PRHC the authority to recover the expenses for the re-do works
arising from the defective work of Vulchem.[76]

 
LCDC is entitled to attorneys fees and
the expenses of litigation and costs.

According to the CA, LCDC was not entitled to attorneys fees, because it was not
the aggrieved party, but was the one that violated the terms of the construction
agreements and should thus be made to pay costs. [77] LCDC claims, on the other
hand, that the CA seriously erred in deleting the lower courts award of P750,000
attorneys fees and the expenses of litigation in its favor, since this award is
justified under the law.[78] To support its claim, LCDC cites Article 2208(5), which
provides:

ART. 2208. In the absence of stipulation, attorneys fees and expenses of

litigation, other than judicial costs, cannot be recovered, except:
. . . . . . . . .
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy
the plaintiffs plainly valid, just and demandable claim;
. . . . . . . . .

Attorney's fees may be awarded when the act or omission of the defendant compelled
the plaintiff to incur expenses to protect the latters interest.[79] In ABS-CBN
Broadcasting Corp. v. CA,[80] we held thus:

The general rule is that attorney's fees cannot be recovered as part of damages
because of the policy that no premium should be placed on the right to litigate.
They are not to be awarded every time a party wins a suit. The power of the court
to award attorney's fees under Article 2208 demands factual, legal, and equitable
justification. Even when a claimant is compelled to litigate with third persons or
to incur expenses to protect his rights, still attorney's fees may not be awarded
 where no sufficient showing of bad faith could be reflected in a party's persistence
in a case other than an erroneous conviction of the righteousness of his cause.

LCDC has failed to establish bad faith on the part of PRHC so as to sustain its
position that it is entitled to attorneys fees. Nevertheless, the CA erred in reversing
the lower courts Decision granting LCDCs claim for attorneys fees considering
that the construction agreements contain a penal clause that deals with the award of
attorneys fees, as follows:

In the event the OWNER/CONTRACTOR institutes a judicial proceeding in

order to enforce any terms or conditions of this Agreement, the
CONTRACTOR/OWNER should it be adjudged liable in whole or in part, shall
pay the OWNER/CONTRACTOR reasonable attorneys fees in the amount
equivalent to Twenty Percent (20%) of the total amount claimed in addition to all
expenses of litigation and costs of the suit.
Equivalent to at least Twenty Percent (20%) of the total amount claimed in
addition to all expenses of litigation and costs of the suit.

As long as a stipulation does not contravene the law, morals, and public order, it is
binding upon the obligor.[81] Thus, LCDC is entitled to recover attorneys fees.
Nevertheless, this Court deems it proper to equitably reduce the stipulated amount.
Courts have the power to reduce the amount of attorneys fees when found to be
excessive,[82] viz:

We affirm the equitable reduction in attorneys fees.  These are not an integral part
of the cost of borrowing, but arise only when collecting upon the Notes becomes
necessary.  The purpose of these fees is not to give respondent a larger
compensation for the loan than the law already allows, but to protect it against
any future loss or damage by being compelled to retain counsel in-house or notto
institute judicial proceedings for the collection of its credit.  Courts have has the
power to determine their reasonableness based on quantum meruit and to
reduce the amount thereof if excessive.[83]

We reverse the appellate courts Decision and reinstate the lower courts award of
attorneys fees, but reduce the amount from P750,000 to P200,000.

WHEREFORE, we SET ASIDE the Decision of the Court of Appeals and RULE as

follows:
 I.       We find Philippine Realty and Holdings Corporation (PRHC) LIABLE to
Ley Construction Development Corporation (LCDC) in the amount
of P 64,029,710.22, detailed as follows:
1.     P 13,251,152.61 as balance yet unpaid by PRHC for Project 2;
2.     P 1,703,955.07 as balance yet unpaid by PRHC for Project 1;
3.     P 5,529,495.76 as balance yet unpaid by PRHC for Project 3;
4.     P 232,367.96 as balance yet unpaid by PRHC for the drivers quarters for
Project 3;
5.     P 36,000,000.00 as agreed upon in the escalation agreement entered into
by PRHCs representatives and LCDC for the Tektite Building;
6.     P 7,112,738.82 as balance yet unpaid by PRHC for the concreting works
from the ground floor to the fifth floor of the Tektite Building;
7.     P 200,000.00 as LCDCs reduced attorneys fees.

II.    Further, we find LCDC LIABLE to PRHC in the amount of P 6,652,947.75

detailed as follows:
1.     P 4,646,947.75 for the overpayment made by PRHC for the Tektite
Building;
2.     P 2,006,000.00 for the expenses incurred by PRHC for corrective works
to redo/repair the allegedly defective waterproofing construction work
done by LCDC in Project 2.

The respective liabilities of the parties as enumerated above are hereby SET

OFF against each other, and PRHC is hereby DIRECTED to pay LCDC the net
amount due, which is P 57,376,762.47, with legal interest from the date of the filing of
Complaint.

SO ORDERED.

 
 
MARIA LOURDES P. A. SERENO
Associate Justice
 
WE CONCUR:
 
CONCHITA CARPIO MORALES
Associate Justice
Chairperson
 
 
 
ARTURO D. BRION LUCAS P. BERSAMIN
Associate Justice Associate Justice
 
 
 
MARTIN S. VILLARAMA, JR.
Associate Justice
 
 
 
ATTESTATION

I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the Opinion of the Courts
Division.
CONCHITA CARPIO MORALES
Associate Justice
Chairperson, Third Division
 
 
CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons Attestation, I certify that the conclusions in the above Decision had
been reached in consultation before the case was assigned to the writer of the
opinion of the Courts Division.
 
 

RENATO C. CORONA
Chief Justice
 

[1]
 Rollo (G.R. No. 167879) at 1090.
[2]
 Id at 1091.
[3]
 Id at 1084.
[4]
 Exhibit A of Annex L of LCDCs Petition for Review.
[5]
 Rollo (G.R. No. 167879) at 390.
[6]
 Id.
[7]
 Id at 1076-1077.
[8]
 Exhibits I to M of Annex L of LCDcs Petition for Review (G.R. No. 167879).
[9]
 Exhitbit I, supra note 8; TSN 21 August 1998, at 16-17.
[10]
 Exhitbit J, supra note 8; TSN 21 August 1998, at 17.
[11]
 Exhitbit K, supra note 8; TSN 21 August 1998, at 18-19.
[12]
 Exhitbit L, supra note 8; 21 August 1998, at 19.
[13]
 Exhitbit M, supra note 8; 21 August 1998, at 20.
[14]
 Exhibits O, supra note 8.
[15]
 Exhibit B, supra note 8.
[16]
 TSN, 14 March 2000, at 25-26.
[17]
 Rollo (G.R. No. 167879) at 957.
[18]
 Id at 961.
[19]
 Id at 114-115.
[20]
 Id at 113-177. Penned by Associate Justice Vicente Q. Roxas, concurred in by Associate Justice Salvador J.
Valdez, Jr., with a Dissenting Opinion from Associate Justice Juan Q. Enriquez, Jr.
[21]
 Rollo (G.R. No. 165548) at 64-95.
[22]
 Id at 80.
[23]
 Rollo (G.R. No. 167879) at 11-110.
[24]
 Id at 42-44.
[25]
 Rollo (G.R. No. 167879) at 850.
[26]
 Id at 1074.
[27]
 Id at 389-390.
[28]
 Id at 1082.
[29]
 Id at 148.
[30]
 Id at 149.
[31]
 Id.
[32]
 Rollo (G.R. No. 167879) at 1086.
[33]
 TSN, 23 March 1999, at 4.
[34]
 Rollo (G.R. No. 167879) at 1091.
[35]
 Id at 1087.
[36]
 TSN, 27 July 1999, at 3- 4.
[37]
 Rollo (G.R. No. 167879) at 1090.
[38]
 Id at 1090-1091.
[39]
 Id at 380.
[40]
 Id at 1091.
[41]
 Id at 391.
[42]
 Rollo (G.R. No. 167879) at 63.
[43]
 G.R. No. 53820, 15 June 1992, 209 SCRA 763.
[44]
 Id. citing FLETCHER, CYCLOPEDIA OF THE LAW OF PRIVATE CORPORATIONS, Vol. 2 (Perm. Ed.),
1969 Revised Volume, 614; and 19 C.J.S. 458.
[45]
 G.R. No. 1871447, 7 October 1998, 297 SCRA 170.
[46]
 CIVIL CODE, Art. 1292; Agro Conglomerates, Inc. v. Court of Appeals, G.R. No. 117660, 18 December 2000,
348 SCRA 450, 459; Security Bank and Trust Company, Inc. v. Cuenca, G.R. No. 138544, 3 October 2000, 341
SCRA 781, 796; Reyes v. Court of Appeals, G.R. No. 120817, 4 November 1996, 264 SCRA 35, 43.
[47]
 Philippine National Bank v. Palma, G.R. No. 157279, 9 August 2005, 466 SCRA 307, 324.
[48]
 Philippine Bank of Communications v. Court of Appeals and Fernandez-Puen, G.R. No. 109803, 20 April 1998,
289 SCRA 178 citing DOBBS, LAW OF REMEDIES, 2nd ed., (1983), at 65; British American Tobacco v.
Camacho, G.R. No. 163583, 20 August 2008, 562 SCRA 511.
[49]
 LBP v. Alfredo Ong, G.R. No. 190755, 24 November 2010, citing Car Cool Philippines v. Ushio Realty and
Development Corporation, 479 SCRA 404, 412 (2006).
[50]
 H.L. Carlos Corporation, Inc. v. Marina Properties Corporation, G.R. No. 147614, 29 January 2004, 421 SCRA
428, 437, citing MC Engineering, Inc. v. Court of Appeals, 380 SCRA 116, 138 (2002).
[51]
 University of the Philippines v. PHILAB Industries, Inc., G.R. No. 152411, 29 September 2004, citing Callaway
Golf Company v. Dunlop Slazenger Group Americas, Inc., 318 F.Supp.2d 216 (2004); Dinosaur Dev., Inc. v.
White, 216 Cal.App.3d 1310, 265 Cal.Rptr. 525 (1989).
[52]
 University of the Philippines v. PHILAB Industries, Inc., G.R. No. 152411, 29 September 2004, 439 SCRA 467,
citing Mon-Ray, Inc. v. Granite Re, Inc., 677 N.W.2d 434 (2004) and First National Bank of St. Paul v. Ramier,
311 N.W. 2d 502, 504 (1981).
[53]
 Rollo (G.R. No. 167879) at 150.
[54]
 REYNALDO B. ARALAR, AGENCY, SALES, BAILMENTS, AND/OR CREDIT TRANSACTIONS LAW
AND JURISPRUDENCE, 241 (2006).
[55]
 Rollo (G.R. No. 167879) at 1076-1077.
[56]
 Rollo (G.R. No. 167879) at 859.
[57]
 Rollo (G.R. No. 167879) at 860.
[58]
 Rollo (G.R. No. 167879) at 97-99.
[59]
 Id at 156.
[60]
 Id.
[61]
 Id at 157.
[62]
 Id at 175.
[63]
 Juan F. Nakpil & Sons v. Court of Appeals, 144 SCRA 596 (1986) citing Vasquez v. Court of Appeals, 138
SCRA 553 (1985); Estrada v. Consolacion, 71 SCRA 423 (1976); Austria v. Court of Appeals, 39 SCRA 527
(1971); Republic of the Phil. v. Luzon Stevedoring Corp., 128 Phil. 313 (1967); Lasam v. Smith, 45 Phil. 657
(1924).
[64]
 Rollo (G.R. No. 167879) at 87.
[65]
 Id at 95.
[66]
 TSN, 14 March 2000, at 25-26.
[67]
 Rollo (G.R. No. 165548) at 90.
[68]
 Id at 91.
[69]
 Id at 1072.
[70]
 Id at 26
[71]
 Id at 77.
[72]
 G.R. No. 120384, 13 January 2004, 419 SCRA 55
[73]
 Rollo (G.R. No. 167879) at 102.
[74]
 Id at 100.
[75]
 Id at 441-442.
[76]
 Id at 164.
[77]
 Id at 866.
[78]
 Id at 102.
[79]
 Portes, Sr. v. Arcala, G.R. No. 145264, 30 August 2005, 468 SCRA 343.
[80]
 361 Phil. 499 (1999).
[81]
 Baas v. Asia Pacific Finance Corporation, G.R. No. 128703, 18 October 2000, 343 SCRA 527.
[82]
 Manila Trading & Supply Co. v. Tamaraw Plantation Co., 47 Phil. 513, 524, (1925).
[83]
 New Sampaguita Builders Construction. v. Philippine National Bank, G.R. No. 148753, 30 July 2004, 435 SCRA
565.