National Power Corporation vs. Alonzo-Legasto

An arbitration award agreed by the parties to be final and executory may not be vacated for mere errors of law or fact, but judicial review is warranted upon proof of grounds under Sections 24 and 25 of Republic Act No. 876; promissory estoppel cannot establish liability where the alleged promise was conditional on required governmental approval, but a court-approved Compromise Agreement may ratify prior unauthorized acts of government officials and serve as a Supplemental Agreement for payment of extra work.

NPC is a government-owned and controlled corporation with juridical personality separate from the government, performing proprietary functions through its Board of Directors, including the power to enter into contracts. FUCC is a construction contractor that entered into a contract with NPC for civil works on the BACMAN II Modular Geothermal Power Plant in Bacon, Sorsogon. Government infrastructure contracts are governed by Presidential Decree No. 1594 and its Implementing Rules and Regulations, which prescribe the procedure for issuing change orders and extra work orders, including the requirement that no contractor may commence work under any extra work order exceeding 5% of the original contract price without approval by the Secretary or duly authorized representative. The parties' dispute arose from FUCC's claim for payment of blasting works not contemplated in the original contract, which they ultimately submitted to arbitration pursuant to a court-approved Compromise Agreement.

On April 14, 1992, NPC and FUCC entered into a contract for the construction of civil works for the BACMAN II Modular Geothermal Power Plant in Bacon, Sorsogon, covering two schedules — the Cawayan area at P52,081,421.00 and the Botong area at P56,412,545.30, for a total contract price of P108,493,966.30. The appended contract price schedule, submitted by FUCC during bidding, set the price for grading excavation at P76.00 per cubic meter. Construction activities commenced in August 1992.

In the latter part of September 1992, after excavating 5.0 meters above the plant elevation, FUCC encountered what it claimed to be a massive hard rock formation and requested NPC that it be allowed to blast to the design grade of 495 meters above sea level, as its dozers and rippers could no longer excavate. FUCC further requested payment at P1,346.00 per cubic meter, similar to the rate in NPC's Palinpinon project. NPC's own geologists investigated and confirmed the rock formation, recommending blasting. Site engineers instructed FUCC to proceed with blasting, and project officials verbally advised that the blasting would be treated as an extra work order and paid at the Palinpinon rate. FUCC sent two confirmatory letters to NPC's President on September 30 and October 2, 1992, stating that it was mobilizing equipment and manpower and would start blasting the following week. NPC received the letters but did not reply or countermand the instructions. Blasting commenced on October 6, 1992, while the parties continued discussing the propriety of an extra work order and the applicable price. In mid-October 1992, three NPC Vice-Presidents visited the site, were apprised of the blasting activities, and instructed FUCC to speed up the works due to the power crisis then hounding the country; no NPC official ever ordered the blasting stopped.

Over the ensuing months, various NPC officials evaluated the blasting works and recommended payment at different rates. NPC Vice President for Engineering Construction Hector Campos created a technical task force that recommended P458.07 per cubic meter, a price FUCC accepted by letter dated June 28, 1993. The DPWH, in a letter dated May 19, 1993, recommended a price range of P500.00 to P600.00 per cubic meter. Despite these recommendations, no variation order was ever issued and no payment came. By March 1993, works in the Botong area were in considerable delay; by May 1993, civil works were kept at a minimum; and on November 1, 1993, FUCC abandoned the project. NPC issued several warnings, and on March 14, 1994, its Board of Directors passed Resolution No. 94-63 approving the takeover of the contract to stave off generation losses, steam penalties, liquidated damages, and loss of equipment warranties.

To prevent the takeover, FUCC filed an action for Specific Performance and Damages with Preliminary Injunction before RTC Quezon City, Branch 99, on March 28, 1994. The RTC issued a TRO on April 5, 1994, and a writ of preliminary injunction on April 21, 1994. NPC elevated the matter to the Court of Appeals, which on October 20, 1994 granted NPC's Petition for Certiorari and set aside the injunction pursuant to P.D. 1818. FUCC filed a Petition for Review before the Supreme Court and, separately, a complaint before the Ombudsman. Pending resolution, the parties entered into a Compromise Agreement on April 20, 1995, approved by the Court on May 24, 1995. Under the agreement, NPC would process and pay undisputed billings, FUCC acknowledged NPC's right to proceed with the works, the Compromise Agreement would serve as the Supplemental Agreement for payment of blasting works, and the parties would submit unresolved claims — including the price of blasting, claims for damages, delays, interests, and the exact volume of blasted rocks — to a three-member Arbitration Board whose decision would be final and executory.

The Arbitration Board rendered its ruling on December 9, 1999, declaring FUCC entitled to P118,681,328.28 as just compensation plus 10% for attorney's fees and litigation expenses, and ordering NPC to pay the remaining balance of P82,131,328.28 after crediting P36,550,000.00 previously paid. FUCC filed a Motion for Execution on December 10, 1999, while NPC filed a Motion to Vacate Award on December 20, 1999. The RTC, per Presiding Judge Rose Marie Alonzo Legasto, approved the Arbitration Award and granted the Motion for Execution on May 22, 2000. NPC appealed to the Court of Appeals, which affirmed with modification, reducing the award to P74,035,503.50 based on 97,032.16 cubic meters of blasted rock computed by the parties' jointly engaged technical consultant, Dr. Benjamin Buensuceso, Jr., multiplied by P763.00 per cubic meter (representing direct costs of P693.65 plus 10% overhead of P69.36), and deleting the award of attorney's fees. The appellate court's dispositive portion omitted any pronouncement on interest despite stating in the body of its decision that interest should be imposed.

• Evident Partiality: Petitioner asserted that Arbitration Board Chairman Carmelo V. Sison exhibited extreme bias and prejudgment by exhorting NPC to pay FUCC for blasting works after concluding that FUCC was allowed to blast, and that the fact that NPC was disadvantaged by the decision proved evident partiality.
• Excess of Powers: Petitioner contended that Mr. Sison exceeded his powers by acting as mediator during the arbitration proceedings, in violation of Section 20, paragraph 2 of R.A. 876, which prohibits an arbitrator from acting as mediator.
• Procedural Irregularity: Petitioner questioned the abrupt manner by which the Arbitration Board convened and released its decision.
• No Perfected Extra Work Order: Petitioner maintained that FUCC's claim for blasting works was not approved by authorized officials in accordance with P.D. 1594 and its implementing rules, which require approval of extra work by authorized officials before an extra work order may be issued; thus, NPC should not be held liable, and at most only the erring officials should bear liability.
• Lack of Evidentiary Basis for Award: Petitioner argued that FUCC did not present evidence of actual expenses incurred for blasting works, and that the Arbitration Board improperly relied on the memorandum of NPC Project Manager Lauro R. Umali, which was neither identified nor authenticated during arbitration proceedings and contained mere estimates that were recommendatory at most.
• Sub-Contract Price as Controlling: Petitioner claimed that the award of P763.00 per cubic meter had no factual and legal basis because FUCC's sub-contract with Dynamic Blasting Specialists of the Philippines was only P430.00 per cubic meter.
• Succeeding Contractor's Method: Petitioner asserted that its succeeding contractor, Phesco, Inc., was able to excavate the same rock formation without blasting, using ordinary excavation at approximately P75.59 per cubic meter.
• Improper Interest Rate: Petitioner argued that the Arbitration Board erred in computing interest at 12% from the time of FUCC's extrajudicial claim, since the case is an action for specific performance and not for payment of a loan or forbearance of money, and the Board itself found no perfected contract and no bad faith on NPC's part.

• Finality of Arbitration Award: Respondent countered that petitioner's arguments were exactly the same as those raised before the Arbitration Board, the trial court, and the Court of Appeals, and that under the Compromise Agreement, petitioner committed to abide by the decision of the Arbitration Board, which the parties agreed would be final and executory.
• No Evident Partiality: Respondent noted that Atty. Jose G. Samonte, one of the members of the Arbitration Board, was nominated by petitioner itself; if there had been any irregularity such as bias or prejudgment, Atty. Samonte would have complained, and he in fact concurred in the decision, dissenting only as to the award of attorney's fees.
• Forbearance of Money: Respondent claimed that the case involves forbearance of money and not merely a claim for damages for breach of obligation, in which case interest on the amount of damages awarded may be imposed at 6% per annum.
• Sub-Contract Not Newly Discovered: Respondent asserted that the sub-contract agreement with Dynamic was not newly-discovered evidence, as petitioner's lawyers allegedly had a copy in their possession, and that the P430.00 per cubic meter unit price represented only a fraction of the costs incurred by FUCC for blasting works.

• Evident Partiality: Whether the Arbitration Board's award should be vacated on the ground of evident partiality or bias on the part of Chairman Sison.
• Excess of Powers: Whether the Arbitration Board or its Chairman exceeded its powers in conducting the arbitration proceedings.
• Promissory Estoppel: Whether FUCC is entitled to just compensation for blasting works based on promissory estoppel.
• Just Compensation Amount: Whether the amount of P763.00 per cubic meter fixed by the Arbitration Board is proper as just compensation.
• Legal Interest: Whether interest should be awarded on the just compensation due to FUCC, and at what rate.

• Evident Partiality: No. Petitioner failed to present proof of evident partiality; mere averments of bias and the fact of being disadvantaged by the decision are insufficient to establish the ground for vacating an award under Section 24(b) of R.A. 876.
• Excess of Powers: No. The Arbitration Board acted pursuant to its powers under the Compromise Agreement, and its award has factual and legal bases; the parties agreed that the Board's decision would be final and executory.
• Promissory Estoppel: No, not per se. The promise to pay was conditional on Board approval required under P.D. 1594, and reliance on a conditional oral promise is not reasonable; however, FUCC is entitled to payment based on the Compromise Agreement, which ratified NPC officials' prior unauthorized acts and served as a Supplemental Agreement, and on the principle against unjust enrichment.
• Just Compensation Amount: Yes, P763.00 per cubic meter stands. The findings of the Arbitration Board, affirmed by the trial court and the Court of Appeals and supported by substantial evidence, are accorded finality; Umali's memorandum was part of the record as Exhibit "DDD," and the sub-contract price of P430.00 is not controlling as FUCC incurred other costs.
• Legal Interest: Yes, but at 6% per annum from 1992, not 12%. The case does not involve a loan or forbearance of money; upon finality of the judgment, 12% per annum shall apply, the interim period being deemed equivalent to a forbearance of credit.

• Evident Partiality: Under Section 24 of R.A. 876, an arbitration award may be vacated upon proof of evident partiality or corruption in the arbitrators. The Court of Appeals found that petitioner presented no proof to back its claim of evident partiality on the part of Mr. Sison. Averments that Mr. Sison was biased and had prejudged the case do not suffice, nor does the fact that a party was disadvantaged by the decision. Petitioner was never deprived of the right to present evidence, and there was no showing of bias in favor of FUCC. The Board's conclusion was found to be well-founded and fully supported by substantial evidence. The Court found no reason to depart from this conclusion.

• Excess of Powers: The parties mutually agreed to submit to arbitration the settlement of the price of blasting, claims for damages, delays, interests, and all other unresolved claims, and further agreed that the decision of the Arbitration Board would be final and immediately executory. As a rule, an arbitrator's award cannot be set aside for mere errors of judgment as to law or facts; courts will not review findings of law and fact contained in an award or substitute their judgment for that of the arbitrators. A contrary rule would make an arbitration award the commencement, not the end, of litigation. Judicial review is limited to the grounds enumerated in Sections 24 and 25 of R.A. 876 and Articles 2038, 2039, and 2040 of the Civil Code. Petitioner did not specify which ground it relied upon, and from its presentation, the alleged evident partiality was singled out, which was found unsubstantiated.

• Promissory Estoppel: Promissory estoppel may arise from the making of a promise, even without consideration, if it was intended to be relied upon and in fact was relied upon, and if refusal to enforce it would sanction fraud or result in other injustice. The promise must be plain, unambiguous, and sufficiently specific. In this case, the events clearly evince that the promise that blasting works would be paid was predicated on the approval of the extra work order by NPC's Board. Even FUCC acknowledged that the blasting should be an extra work order and requested confirmation and approval by appropriate officials. Under P.D. 1594 and its implementing rules, for an extra work order exceeding 5% of the original contract price, no work may be commenced without approval by the Secretary or duly authorized representative. The claim for blasting works in Botong alone was approximately P170,000,000.00, far exceeding the original contract price of P80,000,000.00 for two project sites. The alleged promise was therefore conditional, and reliance upon it was not reasonable; promissory estoppel does not operate to create liability where it does not otherwise exist. Petitioner's officials exceeded the scope of their authority in authorizing blasting without a properly approved extra work order, and their acts could not bind NPC absent ratification or estoppel. However, the Compromise Agreement — entered into by NPC through its President acting pursuant to Board Resolution No. 95-54 — was a confirmatory act signifying NPC's ratification of all prior acts of its officers. The parties agreed that the Compromise Agreement would serve as the Supplemental Agreement for payment of FUCC's blasting works at the Botong site, in accordance with the implementing rules. Furthermore, since the blasting works were already rendered and accepted by NPC, and in the absence of proof that the blasting was done gratuitously, equity demands compensation pursuant to the principle that no one should be permitted to enrich himself at the expense of another.

• Just Compensation Amount: The parties proposed in their terms of reference that the price for blasting should be determined based on payment for blasting works in similar projects and the amount FUCC paid to its blasting subcontractor, and agreed that the price should range from P76.00 to a maximum of P1,144.00 per cubic meter. Petitioner's contention that the Board unduly relied on Umali's memorandum was unfounded, as the memorandum formed part of the record as Exhibit "DDD." Both the Arbitration Board and the Court of Appeals found Umali's proposal to be the best evidence on record, supported by detailed cost estimates. While FUCC did not present evidence of the amount paid to its subcontractor, it presented testimony that it incurred other costs and expenses beyond the actual blasting cost, so the P430.00 sub-contract price was not controlling. FUCC also presented evidence that in two other NPC projects, contractors were paid P1,346.00 and P1,144.51 per cubic meter for similar blasting and rock excavation works. The findings of the Arbitration Board, affirmed by the trial court and the Court of Appeals and supported by substantial evidence, are accorded not only respect but finality. The amount of P763.00 per cubic meter therefore stands.

• Legal Interest: While the Court of Appeals declared in the body of its decision that interest should be imposed on the money spent by FUCC for blasting works, the dispositive portion contained no pronouncement on interest, even as it specifically deleted the award of attorney's fees. FUCC did not file a motion for reconsideration or appeal, allowing the decision to become final as to it. Under the doctrine in Edwards vs. Arce, the true judgment is that entered by the clerk pursuant to the dispositive portion; matters in the body serve only as guides to the ratio decidendi. However, a final judgment may be clarified when there is ambiguity caused by an omission or mistake in the dispositive portion. The omission of the interest award was obviously inadvertent, and correction was in order. The Arbitration Board's 12% rate was improper because the case does not involve a loan or forbearance of money, goods, or credit. Pursuant to Eastern Shipping Lines, Inc. vs. Court of Appeals and Articles 2209 and 1169 of the Civil Code, the interest due shall be computed at 6% per annum from the time the claim was made in 1992, with the actual base being the amount finally adjudged. Upon finality of the judgment awarding a sum of money, the rate of legal interest shall be 12% per annum from such finality until satisfaction, this interim period being deemed equivalent to a forbearance of credit.

• Finality of Arbitration Awards — An arbitrator's award cannot be set aside for mere errors of judgment either as to law or facts. Courts are generally without power to amend or overrule merely because of disagreement with matters of law or facts determined by the arbitrators. A contrary rule would make an arbitration award the commencement, not the end, of litigation. Judicial review of an arbitration award is more limited than judicial review of a trial. The Court applied this doctrine by holding that the parties' Compromise Agreement stipulated the arbitration decision would be final and executory, and that petitioner's disagreement with the Board's factual and legal determinations was insufficient to vacate the award.

• Grounds for Judicial Review of Arbitration Awards — Under Sections 24 and 25 of R.A. 876, an arbitration award may be vacated upon proof of: (a) procurement by corruption, fraud, or undue means; (b) evident partiality or corruption in the arbitrators; (c) arbitrator misconduct or disqualification; or (d) excess or imperfect execution of powers. An award may be modified or corrected for: (a) evident miscalculation or mistake in description; (b) award upon a matter not submitted; or (c) imperfection in form. The Court found that petitioner failed to substantiate any of these grounds, particularly evident partiality, which was the ground effectively invoked.

• Promissory Estoppel — Promissory estoppel may arise from the making of a promise, even without consideration, if it was intended that the promise should be relied upon and in fact it was relied upon, and if refusal to enforce it would sanction fraud or result in other injustice. The promise must be plain and unambiguous and sufficiently specific. A cause of action for promissory estoppel does not lie where the alleged promise was conditional, so that reliance upon it was not reasonable; it does not operate to create liability where it does not otherwise exist. The Court found that the promise to pay for blasting works was conditional on Board approval, and thus promissory estoppel could not per se establish NPC's liability.

• Ratification by Compromise Agreement — A government corporation's officials who exceed the scope of their authority cannot bind the corporation unless it has ratified their acts or is estopped from disclaiming them. A court-approved Compromise Agreement entered into by the corporation through its President, acting pursuant to a Board resolution, constitutes a confirmatory act signifying ratification of all prior acts of its officers. The Court held that the Compromise Agreement ratified NPC officials' prior unauthorized acts and served as the Supplemental Agreement for payment of blasting works under the implementing rules of P.D. 1594.

• Unjust Enrichment — Where blasting works were already rendered by a contractor and accepted by the government agency, and in the absence of proof that the work was done gratuitously, it is equitable that the agency should make compensation pursuant to the principle that no one should be permitted to enrich himself at the expense of another. The Court invoked this principle as an alternative basis for awarding just compensation to FUCC.

• Legal Interest Rates — Where the obligation does not constitute a loan or forbearance of money, goods, or credit, the legal interest rate is 6% per annum computed from the time the claim was made, in accordance with Articles 2209 and 1169 of the Civil Code and the doctrine in Eastern Shipping Lines, Inc. vs. Court of Appeals. When the judgment awarding a sum of money becomes final and executory, the rate of legal interest shall be 12% per annum from such finality until satisfaction, this interim period being deemed equivalent to a forbearance of credit. The Court applied this framework by imposing 6% from 1992 and 12% upon finality of the decision.

• Dispositive Portion as the True Judgment — The true judgment of legal effect is that entered by the clerk pursuant to the dispositive portion of the decision; only that portion may be the subject of execution. Matters in the body serve only as reasons or conclusions and guides to the ratio decidendi. However, a final judgment may be clarified when there is ambiguity caused by an inadvertent omission in the dispositive portion. The Court applied this doctrine to correct the appellate court's inadvertent omission of the interest award.

• "A stipulation submitting an ongoing dispute to arbitration is valid. As a rule, the arbitrator's award cannot be set aside for mere errors of judgment either as to the law or as to the facts. Courts are generally without power to amend or overrule merely because of disagreement with matters of law or facts determined by the arbitrators." — This passage articulates the foundational principle limiting judicial review of arbitration awards, establishing that errors of law or fact are insufficient to invalidate an award fairly and honestly made.

• "A cause of action for promissory estoppel does not lie where an alleged oral promise was conditional, so that reliance upon it was not reasonable. It does not operate to create liability where it does not otherwise exist." — This formulation, drawn from Mendoza vs. Court of Appeals, defines the boundary of promissory estoppel and was applied to hold that the conditional nature of NPC officials' promise — dependent on Board approval — precluded estoppel as an independent basis for liability.

• "In this case, petitioner's officials exceeded the scope of their authority when they authorized FUCC to commence blasting works without an extra work order properly approved in accordance with P.D. 1594. Their acts cannot bind petitioner unless it has ratified such acts or is estopped from disclaiming them." — This passage establishes the principle that unauthorized acts of government corporation officials do not bind the corporation absent ratification, setting up the Court's finding that the Compromise Agreement constituted such ratification.

• "Since the case does not involve a loan or forbearance of money, goods or credit and court judgments thereon, the interest due shall be computed at 6% per annum computed from the time the claim was made in 1992 as determined by the Arbitration Board and in accordance with Articles 2209 and 1169 of the Civil Code." — This passage applies the Eastern Shipping Lines framework for determining the proper legal interest rate, distinguishing between obligations involving forbearance of money (12%) and those that do not (6%), and is frequently cited in subsequent jurisprudence on interest computation.

• Asset Privatization Trust vs. Court of Appeals, 360 Phil. 768 (1998) — Cited for the proposition that an arbitrator's award cannot be set aside for mere errors of judgment as to law or facts, and that judicial review of arbitration awards is more limited than judicial review of a trial. Followed as controlling doctrine.
• Mendoza vs. Court of Appeals, 412 Phil. 14 (2001) — Cited for the definition of promissory estoppel and the rule that a cause of action for promissory estoppel does not lie where the alleged promise was conditional. Followed and applied to the facts.
• Edwards vs. Arce, 98 Phil. 688 (1956) — Cited for the doctrine that the true judgment of legal effect is that entered by the clerk pursuant to the dispositive portion of the decision, and that only the dispositive portion may be the subject of execution. Followed.
• Reinsurance Company of the Orient, Inc. vs. Court of Appeals, G.R. No. 61250, June 3, 1991, 198 SCRA 19 — Cited for the rule that a final judgment may be clarified when there is ambiguity caused by an inadvertent omission in the dispositive portion. Followed to justify correction of the appellate court's omission of the interest award.
• Eastern Shipping Lines, Inc. vs. Court of Appeals, G.R. No. 97412, July 12, 1994, 234 SCRA 78 — Cited for the framework on legal interest rates: 6% per annum when the obligation does not involve a loan or forbearance of money, and 12% per annum upon finality of the judgment until satisfaction. Followed and applied.
• San Juan Structural and Steel Fabricators, Inc. vs. Court of Appeals, 357 Phil. 631 (1998) — Cited for the principle that the acts of officials who exceed the scope of their authority cannot bind the corporation unless ratified or the corporation is estopped from disclaiming them. Followed.
• Dominguez vs. Court of Appeals, L-52715, February 28, 1985, 135 SCRA 98 — Cited for the principle of unjust enrichment — that no one should be permitted to enrich himself at the expense of another. Applied as an alternative basis for awarding just compensation.
• National Steel Corporation vs. Regional Trial Court of Lanao del Norte, Br. 2, Iligan City, 364 Phil. 240 (1999) — Cited for the rule that findings of an Arbitration Board, affirmed by the trial court and the Court of Appeals and supported by substantial evidence, should be accorded not only respect but finality. Followed.

• Section 9, Presidential Decree No. 1594 — Provides that a change order or extra work order may be issued only for works necessary for completion of the project and within the general scope of the contract, and that all change orders and extra work orders shall be subject to approval of the appropriate Minister. Applied to determine that NPC officials lacked authority to authorize blasting works without Board approval.
• Implementing Rules and Regulations of P.D. 1594, Contract Implementation (CI) 1 and CI 3 — Prescribe the procedure for preparation, submission, and approval of variation orders, and provide that under no circumstances shall a contractor proceed to commence work under any change order or extra work order unless approved by the Secretary or duly authorized representative, with limited exceptions for emergencies. Applied to hold that for an extra work order exceeding 5% of the original contract price, no blasting work may be commenced without such approval, and that the procedure for preparation and approval should have been complied with.
• Sections 24 and 25, Republic Act No. 876 (Arbitration Law) — Enumerate the grounds for vacating an arbitration award (corruption, fraud, evident partiality, arbitrator misconduct, excess of powers) and for modifying or correcting an award (evident miscalculation, award upon matter not submitted, imperfection in form). Applied as the framework for judicial review of the Arbitration Board's award.
• Section 20, Republic Act No. 876 — Prohibits an arbitrator from acting as mediator in any proceeding in which he is acting as arbitrator. Cited by petitioner as allegedly violated by Chairman Sison, but the Court did not find a violation sufficient to vacate the award.
• Articles 2038, 2039, and 2040, Civil Code — Provide grounds for annulment or rescission of compromises and arbitration awards (mistake, fraud, violence, intimidation, undue influence, falsity of documents, concealment of documents, ignorance of final judgment). Cited as additional exceptions to the general rule of finality of arbitration awards.
• Articles 2209 and 1169, Civil Code — Provide the basis for awarding legal interest when the obligation consists in the payment of a sum of money and the debtor incurs delay. Applied in conjunction with the Eastern Shipping Lines doctrine to fix the interest rate at 6% per annum from 1992.

Puno (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concurred.