479 Phil. 578


[ G.R. No. 159795, July 30, 2004 ]




This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court, assailing the Decision and Resolution of the Court of Appeals, dated June 30, 2003 and August 27, 2003, respectively, in CA-G.R. SP No. 72736.

Petitioner COORDINATED GROUP, INC. (CGI) is a corporation engaged in the construction business, with petitioner-spouses ROBERTO and EVELYN DAVID as its President and Treasurer, respectively.

The records reveal that on October 7, 1997, respondent-spouses NARCISO and AIDA QUIAMBAO engaged the services of petitioner CGI to design and construct a five-storey concrete office/residential building on their land in Tondo, Manila.  The Design/Build Contract of the parties provided that: (a) petitioner CGI shall prepare the working drawings for the construction project; (b) respondents shall pay petitioner CGI the sum of Seven Million Three Hundred Nine Thousand Eight Hundred Twenty-One and 51/100 Pesos (P7,309,821.51) for the construction of the building, including the costs of labor, materials and equipment, and Two Hundred Thousand Pesos (P200,000.00) for the cost of the design; and (c) the construction of the building shall be completed within nine (9) months after securing the building permit.

The completion of the construction was initially scheduled on or before July 16, 1998 but was extended to November 15, 1998 upon agreement of the parties.  It appears, however, that petitioners failed to follow the specifications and plans as previously agreed upon.  Respondents demanded the correction of the errors but petitioners failed to act on their complaint. Consequently, respondents rescinded the contract on October 31, 1998, after paying 74.84% of the cost of construction.

Respondents then engaged the services of another contractor, RRA and Associates, to inspect the project and assess the actual accomplishment of petitioners in the construction of the building.  It was found that petitioners revised and deviated from the structural plan of the building without notice to or approval by the respondents.[1]

Respondents filed a case for breach of contract against petitioners before the Regional Trial Court (RTC) of Manila.  At the pre-trial conference, the parties agreed to submit the case for arbitration to the CONSTRUCTION INDUSTRY ARBITRATION COMMISSION (CIAC).  Respondents filed a request[2] for arbitration with the CIAC and nominated Atty. Custodio O. Parlade as arbitrator. Atty. Parlade was appointed by the CIAC as sole arbitrator to resolve the dispute. With the agreement of the parties, Atty. Parlade designated Engr. Loreto C. Aquino to assist him in assessing the technical aspect of the case.  The RTC of Manila then dismissed the case and transmitted its records to the CIAC.[3]

After conducting hearings and two (2) ocular inspections of the construction site, the arbitrator rendered judgment against petitioners, thus:

In summary, award is hereby made in favor of the Quiambaos against the Respondents, jointly and severally, as follows:
Lost Rentals  -  P1,680,000.00
Cost to Complete, Rectification, etc.  -  2,281,028.71
Damages due to erroneous staking  -  117,000.00
Professional fees for geodetic surveys, etc.  -  72,500.00
Misc. expenses/ professional fees of engineers  -  118,642.50
Bills for water and electricity, PLDT  -  15,247.68
Attorney’s Fees  -  100,000.00
Moral Damages  -  250,000.00
Exemplary Damages  -  250,000.00
TOTAL    P4,884,418.89
There is likewise an award in favor of the Respondents (petitioners herein) and against the Claimants (respondents herein) for the value of the materials and equipment left at (the) site (in) the amount of P238,372.75.  Respondent CGI is likewise credited with an 80% accomplishment having a total value of P5,847,857.20.

All other claims and counterclaims are hereby dismissed for lack of merit.
To recapitulate:Payments already made to CGI-P5,275,041.00
Amount awarded above to Claimants-4,864,418.89
    Total 10,159,459.89
Payments due CGI for 80% work accomplishment-P5,847,857.20
Cost of materials and equipment-238,372.75
    Total  :P6,086,299.95
Deducting this amount of P6,086,229.95 from P10,159,459.89, the result is a net award in favor the Claimants of (sic) the amount of P4,073,229.94.

WHEREFORE, the Respondents are hereby ordered to pay, jointly and severally, the Claimants the amount of P4,073,229.94 with interest at 6% per annum from the date of the promulgation of this Award, and 12% per annum of the net award, including accrued interest, from the time it becomes final and executory until it is fully paid.

Each party is hereby directed to pay to the Commission P15,000.00 as such party’s share in the expert’s fees paid to Engr. Loreto C. Aquino.

Petitioners appealed to the Court of Appeals which affirmed the arbitrator’s Decision but deleted the award for lost rentals.[5]

Unsatisfied, petitioners filed this petition for review on certiorari, raising the following issues:

We find no merit in the petition.

Executive Order No. 1008 entitled, “Construction Industry Arbitration Law” provided for an arbitration mechanism for the speedy resolution of construction disputes other than by court litigation. It recognized the role of the construction industry in the country’s economic progress as it utilizes a large segment of the labor force and contributes substantially to the gross national product of the country.[6] Thus, E.O. No. 1008 vests on the Construction Industry Arbitration Commission (CIAC) original and exclusive jurisdiction over disputes arising from or connected with construction contracts entered into by parties who have agreed to submit their case to voluntary arbitration.  Section 19 of E.O. No. 1008 provides that its arbitral award shall be appealable to the Supreme Court only on questions of law.[7]

There is a question of law when the doubt or difference in a given case arises as to what the law is on a certain set of facts, and there is a question of fact when the doubt arises as to the truth or falsity of the alleged facts.[8] Thus, for a question to be one of law, it must not involve an examination of the probative value of the evidence presented by the parties and there must be no doubt as to the veracity or falsehood of the facts alleged.[9]

In the case at bar, it is readily apparent that petitioners are raising questions of fact.  In their first assigned error, petitioners claim that at the time of rescission, they had completed 80% of the construction work and still have 15 days to finish the project.  They likewise insist that they constructed the building in accordance with the contract and any modification on the plan was with the consent of the respondents.

These claims of petitioners are refuted by the evidence on record.  In holding that respondents were justified in rescinding the contract, the Court of Appeals upheld the factual findings of the sole arbitrator, thus:
x  x  x

(A)s the Building was taking shape, they noticed deviations from the approved plans and specifications for the Building.  Most noticeable were two (2) concrete columns in the middle of the basement which effectively and permanently obstructed the basement for the parking of vehicles x x x.  In addition, three (3) additional concrete columns were constructed from the ground floor to the roof deck  x x x  which affected the overall dimension of the building such as altering the specified beam depths, passageways and windows.  In addition, Mrs. Quiambao provided a virtual litany of alleged defects, to wit: (a) the Building was not vertically plumbed  xxx; (b) provisions for many architectural members were not provided for, such as, (i) the recesses for window plant boxes are lacking xxx, (ii) provisions for precast molding are lacking  xxx, (iii) canopies are also lacking x x x; (c) misaligned walls, ugly discrepancies and gaps; (d)  skewed walls to floors/landings; (e) low head clearances and truncated beams x x x; (f) narrow and disproportionate stairs  xxx  one (1) instead of two (2) windows at the fire exit x x x, (g) absence of water-proofing along the basement wall x x x  and at the roof deck which caused leaks that damages the mezzanine floor  x x x;  (h)  the use of smaller diagonal steel trusses at the penthouse. x x x  There were others which were shown during the site inspection such as: (1) L-shaped kitchen counters instead of the required U-shaped counters x x x;  (2) failure to provide marble tops for the kitchen counters; (3) installation of single-tub sinks where the plans called for double-type stainless kitchen sinks x x x; (4) installation of much smaller windows than those required; (5) misaligned window easements to wall, (6) floors were damaged by roof leaks, (6) poor floor finish, misaligned tiles, floors with “kapak” and disproportionate drawers and cabinets.  A more comprehensive list of alleged defects, deviations and complaints of the Quiambaos is found in a report marked Exhibit C-144.  Many of these defects were seen during the site inspection and the only defense and comment of CGI was that these were punch-list items which could have been corrected prior to completion and turn-over of the Building had the Contract not been terminated by the Claimants (respondents here).  x x x  Thus, x x x (petitioner) CGI argued that: “In any construction work, before a contractor turns-over the project to the owner, punchlisting of defects is done so as to ensure compliance and satisfaction of both the contractor and the owner.  Punch listing means that the contractor will list all major and minor defects and rectifies them before the turnover of the project to the owner.  After all defects had been arranged, the project is now turned over to the owner.  For this particular project, no turn over was made by the contractor to the owner yet.  Actually, we were already pinpointing these defects for punch listing before we were terminated illegally.  As alleged by the owner, the deficiencies mentioned are stubouts of water closets at toilets, roofing and framing, doors, cabinets, ceiling and stairs and other were not yet completed and rectified by us.  In fact we were counting on our project engineer in charge x x x to do this in as much as this is one of his duties to do for the company.  x x x” Confirmatory of this assertion of CGI that it was willing to undertake the appropriate corrective works (whether or not the items are punch-list items) is Exhibit C-88 which is a letter prepared by CGI’s Windell F. Vizconde, checked by CGI’s Gary M. Garcia and noted by CGI’s Benjie Lipardo, addressed to the Quiambaos which stated that:

“As per our discussion during the last meeting dated Sept. 28, 1998 the following items was (sic) confirmed and clarified.  These are described as follows:

“1.  All ceiling cornices shall be installed as per plan specification which is 1” x 4” in size.

“2.  All baseboards shall be installed as per plan specification which is wood 1” x 4” in size.

“3.  Electrical Meter center and main panel breaker should be retained to its present location.

“4.  Elevation of office, dining and stair lobby of ground floor shall be 4” higher than the elevation of parking area (subject for verification).

“5.  All door jambs at C.R. has (sic) to be replaced with concrete framing jambs.

“6.  All ceilings mailers should be 2 x 2 in size.

“7.  All plywood ceiling that was damaged by rain water shall be replaced.

“8.  Provide a pipe chase for the enclosure of soil stack pipe and water line pipe at the ground floor level between grid line 3-4 along the light well area.

“9.  Front side elevation view shall be follow (sic) as per plan specialy (sic) at 4th flr.

“10.  One column at basement floor along grid line 2# B has to be verified by the structural designer if ever it is safe to removed (sic) the column and what will be their (sic) recommendation to support the load.

“11.  Existing doors D-2 and D-3 shall be replaced a (sic) new one.”

While Mrs. Quiambao appeared not to have given her conformity, this document from CGI is an admission by CGI of the deficiencies in the construction of the Building which needed to be corrected.

It appears that concrete samples taken from the basement, ground floor, mezzanine and 2nd floor of the Building were subjected to a concrete core test by Geotesting International, Inc., geotechnical and materials testing engineers.  A report dated January 20, 1999 x x x showed x x x that (5) samples x x x failed the test.  Sample S2 while it showed a comprehensive strength of 3147 psi, the corrective strength in psi was below the specified comprehensive strength of 3000 psi. CGI failed to produce evidence of similar tests during the construction of the Building although it is normal construction practice for the contractor to provide samples for concrete core tests.

Deformed reinforcing steel bar specimens from the building were subjected to physical tests.  These tests were conducted at the Materials Testing Laboratory of the Department of Civil Engineering, College of Engineering, University of the Philippines.  x x x There were 18 samples and x x x 8 failed the test although all of them passed the cold bend test.  x x x  CGI submitted Quality Test Certificates issued by Steel Asia certifying to the mechanical test results and chemical composition of the steel materials tested x x x.  However, the samples were provided by the manufacturer, not by CGI, to Steel Asia, and there is no showing that the materials supplied by the manufacturer to CGI for the Building formed part of the steel materials, part of which was tested.

x  x  x

Regarding the additional columns at the basement and at the first floor to the roof deck of the Building, which effectively restricted the use of the basement as a parking area, and likewise reduced the area which could be used by the Quiambaos in the different floors of the Building, Engr. Roberto J. David admitted that these represented a design change which was made and implemented by CGI without the conformnity of the Claimants.  The Contract specifically provided in Article II that “the CONTRACTOR shall submit to the OWNER all designs for the OWNER’S approval.” This implies necessarily that all changes in the approved design shall likewise be submitted to the OWNER for approval.  This change, in my view, is the single most serious breach of the Contract committed by CGI which justified the decision of the Claimants to terminate the Contract.  x x x (T)here is no evidence to show that the Quiambaos approved the revision of the structural plans to provide for the construction of the additional columns. x x x

x x x  Engr. Villasenor defended his structural design as adequate.  He admitted that the revision of the plans which resulted in the construction of additional columns was in pursuance of the request of Engr. David to revise the structural plans to provide for a significant reduction of the cost of construction.  When Engr. David was asked for the justification for the revision for the plans, he confirmed that he wanted to reduce the cost of construction.  In any case, whether the cause of revision of the plans was the under-design of the foundation or for reasons of economy, it is CGI which is at fault.  CGI prepared the structural plans and quoted the price for constructing the Building.  The Quiambaos accepted both the plans and the price.  If CGI made a mistake in designing the foundation or in estimating the cost of construction, it was at fault.  It cannot correct that mistake by revising the plans and implementing the revisions without informing the Quiambaos and obtaining their unequivocal approval of such changes.

In addition, CGI admitted that no relocation survey was made by it prior to the construction of the Building.  Consequently, a one-meter portion of the Building was constructed beyond the property line. In justification, Engr. Barba V. Santos declared that CGI made the layout of the proposed structure based on the existing fence.  x x x  (I)t is understood that a contractor, in constructing a building, must first conduct a relocation survey before construction precisely to avoid the situation which developed here, that the Building was not properly constructed within the owner’s property line.  x x x  This resulted in the under-utilization of the property, small as it is, and the exposure of the Quiambaos to substantial damages to the owner of the adjoining property encroached upon.

A third major contested issue concerned the construction of the cistern.  x x x A cistern is an underground tank used to collect water for drinking purposes.  The contentious points regarding the construction of the cistern are: first, that the cistern was designed to accumulate up to 10,000 gallons of water; as constructed, its capacity was less than the design capacity.  Second, there is no internal partition separating the cistern from the sump pit.  x x x

Considering that the cistern is a receptacle for the collection of drinking water, it is incomprehensible why the Respondents (herein petitioners), in the design and construction of the cistern, has (sic) not taken the necessary measures to make certain that the water in the cistern will be free from contamination. x  x  x

Thus, granting the arguments of the Respondents (herein petitioners) that the observed defects in the Building could be corrected before turn-over and acceptance of the Building if CGI had been allowed to complete its construction, the construction of additional columns, the construction of the Building such that part of it is outside the property line established a sufficient legal and factual basis for the decision of the Quiambaos to terminate the Contract.  The fact that five (5) of nine (9) the (sic) concrete samples subjected to a core test, and eight (8) of eighteen (18) deformed reinforcing steel bar specifics subjected to physical tests failed the tests and the under-design of the cistern was established after the Contract was terminated also served to confirm the justified suspicion of the Quiambaos that the Building was defective or was not constructed according to approved plans and specifications.[10] (emphases supplied)
These are technical findings of fact made by expert witnesses and affirmed by the arbitrator.  They were also affirmed by the Court of Appeals.  We find no reason to revise them.

The second assigned error likewise involves a question of fact.  It is contended that petitioner-spouses David cannot be held jointly and severally liable with petitioner CGI in the payment of the arbitral award as they are merely its corporate officers.

At first glance, the issue may appear to be a question of law as it would call for application of the law on the separate liability of a corporation.  However, the law can be applied only after establishing a factual basis, i.e., whether petitioner-spouses as corporate officers were grossly negligent in ordering the revisions on the construction plan without the knowledge and consent of the respondent-spouses.  On this issue, the Court of Appeals again affirmed the factual findings of the arbitrator, thus:
As a general rule, the officers of a corporation are not personally liable for their official acts unless it is shown that they have exceeded their authority. However, the personal liability of a corporate director, trustee or officer, along with corporation, may so validly attach when he assents to a patently unlawful act of the corporation or for bad faith or gross negligence in directing its affairs.

The following findings of public respondent (CIAC) would support its ruling in holding petitioners severally and jointly liable with the Corporation:
“ x x x  When asked whether the Building was underdesigned considering the poor quality of the soil, Engr. Villasenor defended his structural design as adequate.  He admitted that the revision of the plans which resulted in the construction of additional columns was in pursuance of the request of Engr. David to revise the structural plans to provide for a significant reduction of the cost of construction.  When Engr. David was asked for the justification for the revision of the plans, he confirmed that he wanted to reduce the cost of construction.  x x x” (emphases supplied)[11]
Clearly, the case at bar does not raise any genuine issue of law.  We reiterate the rule that factual findings of construction arbitrators are final and conclusive and not reviewable by this Court on appeal, except when the petitioner proves affirmatively that: (1) the award was procured by corruption, fraud or other undue means; (2) there was evident partiality or corruption of the arbitrators or of any of them; (3) the arbitrators were guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown, or 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 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; or (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.[12] Petitioners failed to show that any of these exceptions applies to the case at bar.

Finally, it bears to remind petitioners of this Court’s ruling in the 1993 case of Hi-Precision Steel Center, Inc. vs. Lim Kim Steel Builders, Inc.[13] which emphasized the rationale for limiting appeal to legal questions in construction cases resolved through arbitration, thus:
x x x  Consideration of the animating purpose of voluntary arbitration in general, and arbitration under the aegis of the CIAC in particular, requires us to apply rigorously the above principle embodied in Section 19 that the Arbitral Tribunal’s findings of fact shall be final and inappealable (sic).

Voluntary arbitration involves the reference of a dispute to an impartial body, the members of which are chosen by the parties themselves, which parties freely consent in advance to abide by the arbitral award issued after proceedings where both parties had the opportunity to be heard.  The basic objective is to provide a speedy and inexpensive method of settling disputes by allowing the parties to avoid the formalities, delay, expense and aggravation which commonly accompany ordinary litigation, especially litigation which goes through the entire hierarchy of courts.  Executive Order No. 1008 created an arbitration facility to which the construction industry in the Philippines can have recourse.  The Executive Order was enacted to encourage the early and expeditious settlement of disputes in the construction industry, a public policy the implementation of which is necessary and important for the realization of the national development goals.

Aware of the objective of voluntary arbitration in the labor field, in the construction industry, and in other area for that matter, the Court will not assist one or the other or even both parties in any effort to subvert or defeat that objective for their private purposes.  The Court will not review the factual findings of an arbitral tribunal upon the artful allegation that such body had “misapprehended facts” and will not pass upon issues which are, at bottom, issues of fact, no matter how cleverly disguised they might be as “legal questions.” The parties here had recourse to arbitration and chose the arbitrators themselves; they must have had confidence in such arbitrators.  The Court will not, therefore, permit the parties to relitigate before it the issues of facts previously presented and argued before the Arbitral Tribunal, save only where a clear showing is made that, in reaching its factual conclusions, the Arbitral Tribunal committed an error so egregious and hurtful to one party as to constitute a grave abuse of discretion resulting in lack or loss of jurisdiction.  Prototypical examples would be factual conclusions of the Tribunal which resulted in deprivation of one or the other party of a fair opportunity to present its position before the Arbitral Tribunal, and an award obtained through fraud or the corruption of arbitrators.  Any other more relaxed rule would result in setting at naught the basic objective of a voluntary arbitration and would reduce arbitration to a largely inutile institution. (emphases supplied)
IN VIEW WHEREOF, the petition is DISMISSED for lack of merit.  Costs against petitioners.


Austria-Martinez, Callejo, Sr., Tinga, and Chico-Nazario, JJ., concur.

[1] Respondents’ Complaint before the CIAC; Rollo at 56-65.

[2] Id. at 55.

[3] Order, dated February 14, 2002, Rollo at 53.

[4] Decision of Sole Arbitrator Atty. Custodio O. Parlade, dated August 21, 2002, Rollo 73-98, as amended by Resolution, dated October 11, 2002, to correct a typographical error in the monetary award, see Rollo at 99-101.

[5] Penned by Associate Justice Mariano C. Del Castillo and concurred in by Associate Justices Cancio C. Garcia and Eliezer R. De Los Santos; Rollo at 29-50.

[6] See Whereas Clauses & Section 2 (Declaration of Policy) of E.O. 1008.

[7] SC Circular No. 1-91 and Revised Administrative Circular No. 1-95 provides that appeal from the arbitral award of the CIAC must first be brought to the Court of Appeals on questions of fact, law or mixed questions of fact and law.

[8] Serna vs. Court of Appeals, 308 SCRA 527 (1999).

[9] Palon vs. Nino, 353 SCRA 204 (2001).

[10] Rollo at 78-83.

[11] Court of Appeals Decision, Rollo at 49-50.

[12] Section 24, Republic Act No. 876.

[13] 228 SCRA 397 (1993), penned by former Associate Justice Florentino P. Feliciano.

Source: Supreme Court E-Library
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