Grogun, Inc. vs. National Power Corporation

An arbitral award must be made in writing and signed and acknowledged by a majority of the arbitrators pursuant to Section 20 of the Arbitration Law, and a copy thereof that lacks verification cannot serve as the basis for a trial court's order confirming the award. The submission of a dispute to arbitration during an ordinary civil action does not convert the action into a special proceeding requiring a record on appeal.

Grogun, Incorporated was awarded a contract by the National Power Corporation (NAPOCOR) to rehabilitate the Caliraya Glory Hole Service Spillway at the Caliraya Reservoir in Lumban, Laguna. The Caliraya Reservoir was originally constructed in 1930 to regulate the lake's water level to protect the dam and prevent flooding of surrounding towns. Prior to Grogun's engagement, NAPOCOR had retained ALA Industries Corporation to repair the spillway, but that contractor's design proved unworkable and leaks recurred immediately after project acceptance. Among several contractors, Grogun offered the most viable design at the lowest price.

On August 13, 1992, NAPOCOR awarded to Grogun the project of rehabilitating the Caliraya Glory Hole Service Spillway at the Caliraya Reservoir in Lumban, Laguna. Among several contractors, Grogun offered the most workable and viable design at the lowest price. The Caliraya Reservoir had been built in 1930 to regulate the lake's water level to protect the dam and prevent flooding of surrounding towns, and the spillway was regularly used to flush excess water whenever the lake reached critical level. Prior to Grogun's engagement, NAPOCOR had retained ALA Industries Corporation to repair the spillway, but that contractor's design and method were not workable and leaks recurred in the vertical shaft immediately after the project was accepted.

After Grogun completed the rehabilitation work, NAPOCOR failed to pay for the costs. Grogun first filed a request for adjudication before the Construction Industry Arbitration Commission on March 22, 1994, pursuant to an arbitration clause in their contract, but CIAC dismissed the case upon finding no stipulation providing for arbitration as a mode of settling disputes. On September 10, 1996, Grogun filed an action for collection of sum of money and damages before the Regional Trial Court of Quezon City, Branch 216, docketed as Civil Case No. Q-96-28731. NAPOCOR filed its Answer with Counterclaim asserting that the poor quality of Grogun's workmanship led to numerous defects in the project.

After the pre-trial conference, the parties filed a Joint Manifestation and Motion submitting their dispute to arbitration under Republic Act No. 876, taking into consideration the highly technical nature of their contract. The Arbitration Tribunal, composed of Atty. Alfredo F. Tadiar as Chairman and Engineer Carlito T. Kingkay and Atty. Alejandro A. Padaen as members, rendered a decision on May 14, 1998. The tribunal awarded Grogun P1,440,000.00 as bonus for early completion, P670,369.61 as standby or downtime overhead cost during forced work suspension, and P1,447,670.00 as the value of accomplished works destroyed by waters released from the spillway gates, totaling P3,558,039.61. It awarded NAPOCOR P1,047,850.00 as cost of rectification of defective works. After offsetting, NAPOCOR was ordered to pay Grogun the net amount of P2,510,189.61.

Grogun submitted a copy of the arbitral decision to the trial court and filed a Manifestation and Motion to Modify the Arbitral Decision, alleging that the tribunal did not include a provision on who should bear the costs of arbitration. NAPOCOR argued that the motion was premature because the tribunal had not yet submitted its recommendation to the trial court. On September 15, 1998, the trial court issued an Order modifying the arbitral decision as to arbitrator's fees—directing the parties to share them in proportion to their respective claims—and confirming the rest. NAPOCOR's Motion for Reconsideration was denied on January 8, 1999. NAPOCOR appealed to the Court of Appeals, which reversed the trial court's orders and remanded the case for further proceedings. Grogun's Motion for Reconsideration was denied, prompting the present petition.

• Procedural Defect — Record on Appeal: Petitioner argued that the Court of Appeals should have dismissed NAPOCOR's appeal because NAPOCOR failed to file a record on appeal, which petitioner claimed was required in special proceedings such as arbitration under Republic Act No. 876.
• Procedural Defect — Delay in Filing Brief: Petitioner maintained that NAPOCOR's Appellant's Brief was filed more than one year from the notice of appeal and that a prior dismissal for failure to file the brief had not been reconsidered.
• Failure to Repudiate Award: Petitioner argued that NAPOCOR failed to repudiate the arbitral award within the reglementary period of 30 days under Republic Act No. 876, and that because the arbitral decision resulted from a joint submission by the parties, it was effectively a judgment by consent whose confirmation by the trial court was ministerial and not appealable.
• Issues Not Raised Below: Petitioner contended that NAPOCOR's two assigned errors on appeal were not raised in the trial court and thus could not be raised for the first time on appeal.
• Pure Questions of Law: Petitioner asserted that the appeal raised only questions of law and was therefore improperly filed under Rule 41 of the Rules of Court.
• Premature Resolution on the Merits: Petitioner argued that the Court of Appeals erred in resolving the appeal on the merits without first resolving the pending Motion to Dismiss and without requiring Grogun to file an Appellee's Brief.
• Lack of Verification as Non-Fatal Defect: Petitioner argued that the lack of verification of the copy of the arbitral award was a mere formal defect that was neither jurisdictional nor fatal, could be waived or dispensed with, could not be raised for the first time on appeal, and had been cured by lack of objection at first instance.

• Prematurity of Motion to Modify: Respondent argued that Grogun's Manifestation and Motion to Modify the Arbitral Decision was premature because the Arbitration Tribunal had not yet submitted its recommendation to the trial court and the same had not been approved or adopted.
• Unverified Arbitral Award: Respondent contended that the copy of the arbitral award submitted by Grogun to the trial court was not verified, and that the trial court erred in affirming the arbitral decision on the basis of a copy that was not verified.
• Findings Not Substantiated: Respondent argued that the findings of the Arbitral Tribunal were not substantiated by law and evidence.

• Nature of the Action: Whether the submission of the dispute to arbitration during an ordinary civil action converted the case into a special proceeding requiring a record on appeal.
• Character of the Issues on Appeal: Whether the issues raised by NAPOCOR in its appeal to the Court of Appeals were purely questions of law, warranting dismissal under Rule 41 and Rule 50, Section 2 of the Rules of Court.
• Timeliness of Appellant's Brief: Whether NAPOCOR's Appellant's Brief was filed out of time.
• Prior Dismissal of Appeal: Whether the Court of Appeals had previously dismissed the appeal for failure to file the Appellant's Brief.
• Validity of Unverified Arbitral Award: Whether the lack of verification of the copy of the arbitral award submitted to the trial court rendered it invalid and incapable of serving as the basis for the trial court's confirming orders.
• Raising Verification Issue on Appeal: Whether NAPOCOR could raise the lack of verification for the first time on appeal.
• Resolution of Motion to Dismiss: Whether the Court of Appeals erred in resolving the appeal on the merits without expressly ruling on the Motion to Dismiss and without requiring Grogun to file an Appellee's Brief.

• Nature of the Action: No. The action remained an ordinary civil action for collection of sum of money; the parties' submission to arbitration did not convert it into a special proceeding requiring a record on appeal under Rule 41, Section 2 of the 1997 Rules of Civil Procedure.
• Character of the Issues on Appeal: No. The issues raised by NAPOCOR were not purely questions of law; they included factual questions such as the causal link between leakages and defective work and the amounts of damages awarded.
• Timeliness of Appellant's Brief: No. NAPOCOR's Appellant's Brief was filed on time, having been granted an extension until January 25, 2000, and the brief was filed on January 24, 2000.
• Prior Dismissal of Appeal: No. The Court of Appeals corrected its prior dismissal resolution, clarifying that it had been intended for a different case (CV No. 62357) and recalling and setting it aside.
• Validity of Unverified Arbitral Award: No. The unverified copy of the arbitral award did not meet the requirements of Section 20 of the Arbitration Law, which requires the award to be made in writing and signed and acknowledged by a majority of the arbitrators, and therefore could not serve as the basis for the trial court's orders.
• Raising Verification Issue on Appeal: Yes. NAPOCOR could not have raised the lack of verification earlier because it was precisely assailing the authenticity and due execution of the copy submitted; the issue became available only after the trial court upheld the copy as a valid arbitral award.
• Resolution of Motion to Dismiss: No. The Court of Appeals' resolution of the appeal on the merits necessarily meant it found the Motion to Dismiss without merit, and Rule 44, Section 8 of the 1997 Rules of Civil Procedure provides that the appellee shall file its brief within 45 days from receipt of the appellant's brief, requiring no separate order from the court.

• Nature of the Action: The petition originated from an action for collection of sum of money filed with the Regional Trial Court, which is an ordinary civil action. The decision of the parties to submit their dispute to arbitration during the proceedings did not change the nature of the original action to one of special proceeding. Section 22 of the Arbitration Law, which provides that arbitration is in the nature of a special proceeding, was held not applicable. Under Rule 41, Section 2 of the 1997 Rules of Civil Procedure, the appeal to the Court of Appeals in cases decided by the RTC in the exercise of its original jurisdiction is taken by filing a notice of appeal, and no record on appeal is required except in special proceedings and other cases of multiple or separate appeals. Because the case was an ordinary civil action, a notice of appeal was sufficient.

• Character of the Issues on Appeal: Under Supreme Court Circular No. 2-90 and Rule 50, Section 2 of the 1997 Rules of Civil Procedure, an appeal under Rule 41 raising only questions of law shall be dismissed. A question of law exists when the issue does not call for examination of the probative value of evidence, the truth or falsehood of facts being admitted. NAPOCOR's arguments assailing the award to Grogun of P1,447,670.00 for destroyed works and P670,369.61 for idle time compensation raised factual issues. Furthermore, the determination of the amount of damages NAPOCOR was entitled to under its counterclaim depended on whether the leakages were causally linked to any defective work performed by Grogun—a factual question. The appeal was therefore not dismissible as raising only questions of law.

• Timeliness of Appellant's Brief: Rule 44, Section 7 of the 1997 Rules of Civil Procedure provides that the appellant shall file his brief within 45 days from receipt of notice from the Court of Appeals. NAPOCOR received notice on October 26, 1999, and on December 10, 1999, filed a Motion for Extension of 45 days, or until January 25, 2000, which was granted. The Appellant's Brief filed on January 24, 2000 was thus on time.

• Prior Dismissal of Appeal: Grogun relied on a Court of Appeals Resolution dated April 18, 2000, which stated that the case was dismissed for failure to file the appellant's brief. However, in a subsequent Resolution, the Court of Appeals corrected itself, clarifying that the April 18, 2000 resolution was intended for CV No. 62357, not CV No. 62017, and recalled and set aside the dismissal. Grogun's reliance was therefore misplaced.

• Validity of Unverified Arbitral Award: Section 20 of the Arbitration Law requires that the award be made in writing and signed and acknowledged by a majority of the arbitrators. The copy of the arbitral award submitted by Grogun to the trial court was not verified—that is, it was not confirmed by oath or affidavit as to the truth of the matters set forth therein. Because the copy did not meet the requirements of Section 20, it could not serve as the basis for the trial court's orders confirming the award.

• Raising Verification Issue on Appeal: Ordinarily, points of law, theories, issues, and arguments not brought to the attention of the lower court cannot be raised for the first time on appeal. However, NAPOCOR could not have raised the lack of verification earlier because it was precisely assailing the authenticity and due execution of the copy of the arbitral award itself. It was only after the trial court upheld the copy as a valid arbitral award that NAPOCOR was able to raise the issue, which it did in its Appellant's Brief before the Court of Appeals.

• Resolution of Motion to Dismiss: The grant or denial of the Motion to Dismiss was within the sound discretion of the Court of Appeals. Its resolution of the appeal on the merits necessarily meant it found the Motion to Dismiss to be without merit. As for the Appellee's Brief, Rule 44, Section 8 of the 1997 Rules of Civil Procedure provides that the appellee shall file its brief within 45 days from receipt of the appellant's brief; hence, there was no need for the Court of Appeals to separately require Grogun to file its brief.

• Nature of Arbitration in Ordinary Civil Actions — When parties to an ordinary civil action agree to submit their dispute to arbitration during the proceedings, the action does not convert into a special proceeding. The appeal remains governed by Rule 41 of the Rules of Court, requiring only a notice of appeal, not a record on appeal. Section 22 of the Arbitration Law, which deems arbitration a special proceeding, was held inapplicable where the arbitration arose from a joint submission during an ongoing ordinary civil action rather than from an independent arbitration agreement.

• Questions of Law vs. Questions of Fact in Appeals from Arbitral Awards — An appeal raising only questions of law from the RTC to the Court of Appeals shall be dismissed under Rule 50, Section 2 of the 1997 Rules of Civil Procedure. A question of law exists when the issue does not call for examination of the probative value of evidence and the doubt concerns only the correct application of law and jurisprudence. Where the appeal challenges the amount of damages awarded or the causal link between defects and workmanship, factual issues are involved and the appeal is not dismissible as raising purely questions of law.

• Verification of Arbitral Awards under Section 20 of the Arbitration Law — An arbitral award must be made in writing and signed and acknowledged by a majority of the arbitrators. A copy of the award submitted to the trial court for confirmation must be verified—confirmed by oath or affidavit as to the truth of the matters set forth. An unverified copy does not meet the requirements of Section 20 and cannot serve as the basis for a trial court's order confirming the award.

• Exception to the Rule Against Raising Issues for the First Time on Appeal — While points of law not brought to the attention of the lower court cannot ordinarily be raised for the first time on appeal, a party may raise such an issue on appeal where it could not have raised it earlier because the issue arose only from the lower court's ruling itself—such as where the party was assailing the authenticity and due execution of a document and the defect (lack of verification) became apparent only after the court upheld the document as valid.

• "The decision of the parties to submit their dispute to arbitration during the proceedings did not change the nature of the original action to one of special proceeding, under which an appeal shall be by record on appeal. Section 22 of the Arbitration Law, which provides that arbitration is in the nature of a special proceeding, is not applicable." — This passage establishes the ratio decidendi on the procedural nature of arbitration conducted within an ordinary civil action, holding that it does not convert the action into a special proceeding.

• "In the case at bar, the copy of the arbitral award did not meet the requirements of Section 20 of the Arbitration Law, and consequently, therefore can not be the basis of the assailed Orders of the trial court." — This passage articulates the controlling holding on the invalidity of an unverified arbitral award copy, forming the principal ground for affirming the Court of Appeals' reversal.

• "NAPOCOR could not have raised the lack of verification of the copy of the arbitral award submitted by GROGUN since it was assailing the authenticity and due execution of the copy itself. It was only after the trial court upheld the said copy as a valid arbitral award that NAPOCOR was able to raise the issue." — This passage defines the exception to the rule against raising issues for the first time on appeal, explaining why NAPOCOR's challenge was properly raised before the Court of Appeals.

• Roman Catholic Archbishop of Manila vs. Court of Appeals, G.R. No. 111324, July 5, 1996 — Cited for the definition of a question of law: an issue that does not call for examination of the probative value of evidence, where the truth or falsehood of facts is admitted and the doubt concerns the correct application of law and jurisprudence. Applied to determine that NAPOCOR's appeal raised mixed questions of fact and law.

• Mendoza vs. Court of Appeals, 274 SCRA 527 (1997) — Cited for the rule that points of law, theories, issues, and arguments not brought to the attention of the lower court cannot be raised for the first time on appeal. Distinguished in application, as the Court found an exception where the issue could not have been raised earlier.

• Pahilan vs. Talaba, G.R. No. 110170, February 21, 1994, 230 SCRA 205 — Cited to support the characterization of the action as an ordinary civil action rather than a special proceeding.

• Macawiwili Gold Mining & Development Company, Inc. and Omico Mining & Industrial Corporation vs. Court of Appeals, 358 Phil. 245 (1998) — Cited in connection with Supreme Court Circular No. 2-90, which provides that an appeal under Rule 41 raising only questions of law shall be dismissed.

• Section 20, Arbitration Law (Republic Act No. 876) — Requires that the arbitral award be made in writing and signed and acknowledged by a majority of the arbitrators, and that each party be furnished with a copy. Applied to hold that the unverified copy of the arbitral award submitted by Grogun did not meet statutory requirements and could not serve as the basis for the trial court's confirming orders.

• Section 22, Arbitration Law (Republic Act No. 876) — Provides that arbitration under a contract or submission shall be deemed a special proceeding. Held inapplicable because the arbitration arose from a joint submission during an ongoing ordinary civil action, which retained its character as such.

• Section 23, Arbitration Law (Republic Act No. 876) — Provides that any party may apply to the court for an order confirming the award within one month after the award is made, and the court must grant such order unless the award is vacated, modified, or corrected. Referenced in Grogun's argument that NAPOCOR failed to repudiate the award within the reglementary period.

• Rule 41, Section 2, 1997 Rules of Civil Procedure — Provides that the appeal to the Court of Appeals in cases decided by the RTC in the exercise of its original jurisdiction shall be taken by filing a notice of appeal, and that no record on appeal shall be required except in special proceedings and other cases of multiple or separate appeals. Applied to hold that a notice of appeal was sufficient because the case was an ordinary civil action.

• Rule 44, Section 7, 1997 Rules of Civil Procedure — Provides that the appellant shall file his brief within 45 days from receipt of notice from the Court of Appeals. Applied to hold that NAPOCOR's brief was timely filed after a granted extension.

• Rule 44, Section 8, 1997 Rules of Civil Procedure — Provides that the appellee shall file his brief within 45 days from receipt of the appellant's brief. Applied to hold that the Court of Appeals need not separately require Grogun to file its Appellee's Brief.

• Rule 50, Section 2, 1997 Rules of Civil Procedure — Provides that an appeal under Rule 41 taken from the RTC to the Court of Appeals raising only questions of law shall be dismissed. Applied in conjunction with the finding that NAPOCOR's appeal raised mixed questions of fact and law, rendering dismissal improper.

• Supreme Court Circular No. 2-90 — Provides that if an appeal under Rule 41 is taken from the RTC to the Court of Appeals and the appellant raises only questions of law, the appeal shall be dismissed. Cited as the basis for the rule later reproduced in Rule 50, Section 2.

Davide, Jr., C.J. (Chairman), Vitug, Carpio, and Azcuna, JJ., concurred.