SC rules against Philrealty Corp. in contract dispute with Ley Construction
MANILA, Philippines—The Supreme Court has ruled against property developer Philippine Realty and Holdings Corp. on a 15-year-old dispute with the contractor for the East Tower of the Philippine Stock Exchange Center and some phases of The Alexandra in the Ortigas central business district.
In a disclosure to the Philippine Stock Exchange on Monday, Philrealty said it had received a copy of the high court decision that ruled in favor of Ley Construction and Development Corp. (LCDC), which filed in 1996 before a regional trial court a claim for a sum of money and damages arising from various construction projects against Philrealty as the project owner.
“Our lawyers are preparing to file a motion for reconsideration with the Supreme Court,” the disclosure said.
The Supreme Court ruling on the case, dated June 13, found Philrealty liable to pay LCDC about P64 million for the unpaid balance for the projects.
LCDC, on the other hand, was also ordered to pay Philrealty a total of P6.65 million for the overpayment made by Philrealty for the Tektite Building and the expenses incurred by Philrealty for corrective works to repair the allegedly defective waterproofing done by LCDC in another project.
Offsetting the liabilities, Philrealty was thus ordered to pay LCDC the net amount of P57.38 million, with legal interest from the date of the filing of complaint.
In 2001, Philrealty received a copy of an RTC decision ordering it to pay LCDC a sum of money, which was appealed by Philrealty. In 2004, the Court of Appeals 9th division reversed and set aside the decision made in 2001 and ordered LCDC to pay Philrealty the net amount of P3.75 million with legal interest from date of filing of complaint. Philrealty appealed the RTC before the Supreme Court in 2004.
The Supreme Court ruling showed that in order to jump-start the construction operations of several projects with Philrealty, LCDC was required to submit a performance bond as provided for in the construction agreements. As stated in the agreements, as soon as Philrealty 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. 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 was able to collect the entire balance from the contract, the collected amount would still be insufficient to buy all the materials needed to complete the construction of the building.
Both parties agreed that their foremost objective should be to ensure the completion of the Tektite Building project. To achieve this goal, they entered into another agreement. LCDC was asked 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 Philrealty to allow the escalation and to disregard a prohibition in earlier agreements.
The board of directors of Philrealty turned down the request for an escalation agreement but LCDC claimed that the property developer did not give any notice of the alleged denial of the proposal. However, in 1991 the contractor claimed that it had received a letter 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.
Notwithstanding the absence of a signature above Philrealty’s name, LCDC thus 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 P38.25 million. LCDC also claimed it had religiously submitted monthly reports that contained the amounts of infusion it made during the period.
