POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

COLLEGE OF LAW

OBLIGATIONS AND CONTRACTS

SECOND SEMESTER AY 2023 - 2024

NAME: Irlandez, Ma. Christine

SECTION: JD 1-2

CASE DIGEST

TITLE OF THE CASE: Philippine Realty and Holdings Corp vs Ley Construction and Development
Corporation.
GR # AND DATE: G.R. No. 165548, June 13, 2011
PONENTE: Sereno J.

CASE DOCTRINE Article 1174 of the 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 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 unforeseeable 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.

FACTS The project owner, Philippine Realty & Holdings Corporation (PRHC), hired Ley
Construction and Development Corporation (LCDC) to build a number of
buildings. PRHC's project construction manager was engineering Dennis Abcede,
and its general manager and vice-president for operations was Joselito Santos.

Four signed "construction agreements." show that between April 1988 and
October 1989, the two companies worked together on four major building
projects. These are the four building projects that the parties agreed to work on:
Project 1, Project 2, Project 3, and a Tektite Building. All the projects involve the
Alexandra buildings.

LCDC promised to build the buildings that PRHC needed, and PRHC promised
to pay the price agreed upon in the contract. As the Tektite Building was being
built, it became clear to both sides that LCDC would not be able to finish the
project in the time frame that had been agreed upon. LCDC said that the
unexpected delay in construction was mostly because the prices of cement and
other building materials went up quickly and without warning.

Both sides agreed that they would make another deal. Abcede asked LCDC to
give him the money he needed to finish building. Its president agreed, but only
on the strict condition that the contract price could go up. Abcede said he would
talk about this with the PRHC board of directors. The request for an escalation
agreement was denied by the board of directors.

But on August 9, 1991, Abcede sent a formal letter to LCDC asking for its
agreement. The letter said that if LCDC put P36 million into the project, PRHC
 would give it a contract price increase for the same amount. LCDC then went
ahead with building the Tektite Building, spending the full amount needed to
finish the project. From August to December 1991, it put P 38,248,463.92 into
circulation. These amounts were not put into the account that LCDC and PRHC
shared. Instead, Santos told the money to go straight to the suppliers. From
August 1991 to December 1991, LCDC faithfully sent PRHC monthly reports with
the amounts of infusions it made.

None of these monthly reports were answered by PRHC. LCDC sent a letter to
Santos on January 20, 1992, saying that it had already met its promise as of
December 31, 1991, and asking for the release of P 2,248,463.92. In a letter of
January 18, 1993, LCDC asked for the agreed-upon escalation price of P 36 million
to be paid. In its answer on February 16, 1993, PRHC suddenly denied any
responsibility for the price increase. In the same letter, it said that LCDC had
delayed the building of the Tektite Building by 111 days, and it asked LCDC to
pay P 39,326,817.15 as "liquidated damages."
ISSUE/S: Whether LCDC is liable for the liquidated damages for the delay in construction
of the buildings of the PRHC?
RULING: The court ruled that the parties could legally sign a new agreement to raise the
price, but only for P 36 million. LCDC was able to prove that Abcede and Santos
had signed the letter-agreement on behalf of PRHC that had the clause about the
escalation. PRHC doesn't question the legality of these agreements, which means
it admits that these two people did have the power to sign on its behalf for these
building projects. So, the fact that they didn't have the power to do what they did
shouldn't hurt it, since the two seemed to have the power to make such
agreements.

Also, promissory estoppel says that PRHC can't deny the claims of the other
company because it made a promise. The Court also said that LCDC is not
responsible for liquidated damages because the buildings for PRHC were not
built on time. There is no doubt that LCDC was not able to finish the Tektite
Building and Projects 1, 2, and 3 on time. The lack of supplies and cement could
be seen as a case of "force majeure." In this case, hardware stores did not have
enough cement on hand when the building was built in the 1990s.

FALLO 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 P64,029,710.22,
detailed as follows:

1. P13,251,152.61 as balance yet unpaid by PRHC for Project 2;

2. P1,703,955.07 as balance yet unpaid by PRHC for Project 1;

3. P5,529,495.76 as balance yet unpaid by PRHC for Project 3;

4. P232,367.96 as balance yet unpaid by PRHC for the drivers' quartets for Project
3;

5. P36,000,000.00 as agreed upon in the escalation agreement entered into by

PRHC's representatives and LCDC for the Tektite Building;

6. P7,112,738.82 as balance yet unpaid by PRHC for the concreting works from the
ground floor to the fifth floor of the Tektite Building;

7. P200,000.00 as LCDC's reduced attorney's fees.

II. Further, we find LCDC LIABLE to PRHC in the amount of P6,652,947.75
detailed as follows: IDTSEH

1. P4,646,947.75 for the overpayment made by PRHC for the Tektite Building;

2. P2,006,000.00 for the expenses incurred by PRHC for corrective works to

redo/repair the defective waterproofing construction work done by LCDC in
Project 2.

The respective liabilities of the parties as enumerated above (except the

P200,000.00 attorney's fees) are hereby SET OFF against each other, and PRHC is
hereby DIRECTED to pay LCDC the net amount due, which is P57,176,762.47,
with legal interest from the date of the filing of Complaint in Civil Case No. 96-
160, plus P200,000.00 as attorney's fees.

SO ORDERED.