PHILIPPINE REALTY AND HOLDINGS CORPORATION (PRHC) vs.

LEY CONSTRUCTION AND DEVELOPMENT (LCDC)

G. R. No. 165548 & G. R. No. 167879 (13 June 2011)

FACTS

1 But PRHC never replied to any of these monthly reports. When Ley inquired from Abcede and Santos why its
requests for extension of time were not granted in full, the two assured him that LCDC would not be penalized with
damages because the fact that it was working hard on the Tektite Building project was known to PRHC. However,
when 96.43% of Tektite Building had been completed and LCDC requested the release of the P36M escalation price,
PRHC did not reply. After the construction of the building was completed, it conveyed its decision to set off, in the
form of liquidated damages, its claim to the supposed LCDC’s liability. LCDC’s alleged liability included the corrective
works to redo or repair the defective waterproofing in one of the projects. LCDC denied the same by alleging that
PRHC, as the principal, forced LCDC, as the agent, into hiring Vulchem Corp., as sub-agent or substitute, for the
waterproofing works. It argued that under Art. 1892 of the Civil Code 1, “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”. LCDC filed a Complaint
before the RTC in Makati City which ruled in its favor. PRHC filed a Notice of Appeal. The Court of Appeals (CA)
reversed RTC’s amended Decision. 1 “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.”

1. Whether or not the signed letter of Abcede, without the signature above PRHC’s name, could bind PRHC to the
escalation agreement with LCDC.

2. Whether or not LCDC correctly applied Article 1892 on the principles of agency to the case at bar.

HELD

1. SC ruled that the signature of Abcede, as PRHC construction manager, on the letter-agreement (contract) is
sufficient to bind PRHC because it indicated authority to make such representation on behalf of PRHC. SC
further agreed with LCDC 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 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.