Petitioner B.F. Corporation (BFC) is a corporation engaged in general
engineering and civil works construction. Petitioner Honorio H. Pineda (Pineda)
is the President of BFC. Respondent Form-Eze Systems Inc. (Form-Eze) is a
corporation engaged in highway and street construction.
On 29 August 2006, SM Prime Holdings, Inc. awarded the contract for
general construction of the SM City-Marikina mall (the Project) to BFC whereby
the latter undertook to supply materials, labor, tools, equipment and
supervision for the complete construction of the Project.3 In turn, BFC engaged
Form-Eze for the lease of formwork system and related equipment for and needed
by the Project. Accordingly, five (5) contracts and two (2) letter-agreements
were executed by the BFC, represented by its President Pineda, and Form-Eze,
represented by its President, James W. Franklin.
Salient provisions of relevant contracts are shown below.
CONTRACT NO. 1: Contract for the Lease of the Equipment for the Beam and
Slab Hardware for the Formwork on SM Marikina Mall Project dated 20 December
2006
Work Specifications
The amount of
hardware to be furnished is sufficient to provide 7,000 contact square meters
of formwork.
Contract Price
Total contract
amount for the equipment: 126,000 contact square meters (equipment to be used)
x P225.00/contact square meter (cost per use of the hardware for forming the
elevated beam and slab)= P28,350,000.00.
Form-Eze was able
to supply deckforms which covered 5,149.85 contact square meters of formworks.
CONTRACT NO. 2: Contract for Stripping and Moving Form-Eze Systems Inc.
Equipment from Location to Location on SM Marikina Mall Project dated 20
December 2006
Contract Price
Total contract
amount for moving equipment: 126,000 x P50.00/contact square meter (cost for
stripping and movement of the equipment, excluding cost of resetting to grade,
cleaning plywood surfaces and applying release agent) P6,300,000.00.
On 7 December 2007, the CIAC Arbitral Tribunal rendered a Final Award in
favor of Form-Eze.
1. Under Contract No.
1. May the CIAC Arbitral Tribunal require BFC to pay the full contract price?
No.
To award the full
contract price to Form-Eze in Contract No. 1 is tantamount to unjust
enrichment. By requiring BFC to pay the full contract price when it only
supplied deckforms which covered only 5,149.85 contact square meters of
formworks, the CIAC Arbitral Tribunal is essentially unjustly giving
unwarranted benefit to Form-Eze by allowing it to earn more than it legally and
contractually deserved.
2. What is unjust
enrichment?
There is unjust
enrichment under Article 22 of the Civil Code when (1) a person is unjustly
benefited, and (2) such benefit is derived at the expense of or with damages to
another. The principle of unjust enrichment essentially contemplates payment
when there is no duty to pay, and the person who receives the payment has no
right to receive it.
3. BFC and Form-Eze
agreed that Contract No. 1 should include a labor guarantee provision, which
was not shown in the Contract. What is the proper remedy?
Contract No. 1
should be reformed to include a labor guarantee provision.
4. What is
Reformation?
An action for
reform a contract is grounded on Article 1359 of the New Civil Code which
provides:
ARTICLE 1359. When,
there having been a meeting of the minds of the parties to a contract, their
true intention is not expressed in the instrument purporting to embody the
agreement, by reason of mistake, fraud, inequitable conduct or accident, one of
the parties may ask for the reformation of the instrument to the end that such
true intention may be expressed.
x x x x
Reformation is a
remedy in equity, whereby a written instrument is made or construed so as to
express or conform to the real intention of the parties, where some error or
mistake has been committed. In granting reformation, the remedy in equity is
not making a new contract for the parties, but establishing and perpetuating the
real contract between the parties which, under the technical rules of law,
could not be enforced but for such reformation.
5. What are the
requisites for an action for reformation of instrument?
In order that an
action for reformation of instrument may prosper, the following requisites must
concur: (1) there must have been a meeting of the minds of the parties to the
contract; (2) the instrument does not express the true intention of the
parties; and (3) the failure of the instrument to express the true intention of
the parties is due to mistake, fraud, inequitable conduct or accident.
6. What is the
obligation of BFC under Contract No.2?
Since Form-Eze
failed to meet the minimum conditions under Contract No. 1 where the minimum
126,000 contact square meters were not reached, then the forklifts under
Contract No. 2 were also not used for a minimum of 126,000 contact square
meters.
BFC is liable only
to pay the amount proportionate to 92,696.40 contact square meters at P50.00
per contact square meter, the rental rate for the forklifts.
7. Pineda signed the
challenged contracts in his capacity as President of BFC. Should he be
impleaded as party to the case?
No.
Section 4 of
Executive Order No. 1008 vests jurisdiction on CIAC over disputes disputes
arising from, or connected with, contracts entered into by parties involved in
construction in the Philippines, whether the dispute arises before or after the
completion of the contract, or after the abandonment or breach thereof.
Moreover, the party involved must agree to submit to voluntary arbitration. In
other words, anyone who is not a party to the contract in his personal capacity
is not subject to the jurisdiction of the CIAC. In this case, Pineda signed the
challenged contracts in his capacity as President of BFC. There is no
indication that he voluntarily submitted himself as a party to the arbitration
case.
8. In this case, may
the President be considered as a joint tortfeasor?
No.
The actions of the
President cannot be considered as an indicia of bad faith to classify him as a
joint tortfeasor in this case.
9. May the final award
of CIAC still be subject to judicial review?
Yes.
To begin, Executive
Order No. (EO) 1008, which vests upon the CIAC original and exclusive
jurisdiction over disputes arising from, or connected with, contracts entered
into by parties involved in construction in the Philippines, plainly states
that the arbitral award "shall be final and inappealable except on
questions of law which shall be appealable to the Court." Later, however,
the Court, in Revised Administrative Circular (RAC) No. 1-95, modified this
rule, directing that the appeals from the arbitral award of the CIAC be first
brought to the CA on "questions of fact, law or mixed questions of fact
and law." This amendment was eventually transposed into the present CIAC
Revised Rules which direct that "a petition for review from a final award
may be taken by any of the parties within fifteen (15) days from receipt
thereof in accordance with the provisions of Rule 43 of the Rules of
Court." Notably, the current provision is in harmony with the Court's
pronouncement that ''despite statutory provisions making the decisions of
certain administrative agencies 'final,' the Court still takes cognizance of
petitions showing want of jurisdiction, grave abuse of discretion, violation of
due process, denial of substantial justice or erroneous interpretation of the
law" and that, in particular, "voluntary arbitrators, by the nature
of their functions, act in a quasi-judicial capacity, such that their decisions
are within the scope of judicial review."
10. When may factual
findings of construction arbitrators be reviewed by the Court?
Factual findings of
construction arbitrators may be reviewed by the Court in cases where: 1) the
award was procured by corruption, fraud or other undue means; (2) there was
evident partiality or corruption of the arbitrators or any of them; (3) the
arbitrators were guilty of misconduct in refusing to hear evidence pertinent
and material to the controversy; (4) one or more of the arbitrators were
disqualified to act as such under Section nine of Republic Act (R.A.) No. 876
and willfully refrained from disclosing such disqualifications or of any other
misbehavior by which the rights of any party have been materially prejudiced;
(5) the arbitrators exceeded their powers, or so imperfectly executed them,
that a mutual, final and definite award upon the subject matter submitted to
them was not made; (6) when there is a very clear showing of grave abuse of
discretion resulting in lack or loss of jurisdiction as when a party was
deprived of a fair opportunity to present its position before the Arbitral
Tribunal or when an award is obtained through fraud or the corruption of
arbitrators; (7) when the findings of the Court of Appeals are contrary to
those of the CIAC, and (8) when a party is deprived of administrative due
process.
11. Is the Final Award
of CIAC subject to review by the Court of Appeals?
Yes. The Final
Award of CIAC is subject to review by the Court of Appeals.
The Court of
Appeals nonetheless is not precluded from reviewing findings of facts, it being
a reviewer of facts. By conveniently adopting the CIAC's decision as its own
and refusing to delve into its factual findings, the Court of Appeals had
effectively turned a blind eye to the evidentiary facts which should have been
the basis for an equitable and just award.
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