Spouses Roberto & Evelyn David and Coordinated Group, Inc. vs. Construction Industry and Arbitration Commission and Sps. Narciso & Aida Quiambao

Factual findings of construction arbitrators under the CIAC are final and conclusive and not reviewable by the Supreme 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; (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 9 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.

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. Respondent-spouses Narciso and Aida Quiambao engaged CGI's services to design and construct a five-storey concrete office/residential building on their land in Tondo, Manila. Executive Order No. 1008, the "Construction Industry Arbitration Law," established an arbitration mechanism for the speedy resolution of construction disputes and vested the Construction Industry Arbitration Commission (CIAC) with original and exclusive jurisdiction over disputes arising from or connected with construction contracts entered into by parties who agreed to submit their case to voluntary arbitration.

On October 7, 1997, respondent-spouses Narciso and Aida Quiambao engaged the services of petitioner Coordinated Group, Inc. (CGI) to design and construct a five-storey concrete office/residential building on their land in Tondo, Manila. The Design/Build Contract provided that: (a) CGI shall prepare the working drawings for the construction project; (b) respondents shall pay CGI the sum of P7,309,821.51 for the construction of the building, including the costs of labor, materials and equipment, and 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. Petitioners, however, 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. It was found that petitioners revised and deviated from the structural plan of the building without notice to or approval by the respondents. 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 for arbitration and nominated Atty. Custodio O. Parlade, who was appointed by the CIAC as sole arbitrator. 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.

After conducting hearings and two ocular inspections of the construction site, the arbitrator found that as the building was taking shape, respondents noticed deviations from the approved plans and specifications. Most noticeable were two concrete columns in the middle of the basement which effectively and permanently obstructed the basement for the parking of vehicles, and three additional concrete columns constructed from the ground floor to the roof deck which affected the overall dimension of the building. Mrs. Quiambao provided a litany of alleged defects, including: the building was not vertically plumbed; provisions for many architectural members were not provided for; misaligned walls, ugly discrepancies and gaps; skewed walls to floors/landings; low head clearances and truncated beams; narrow and disproportionate stairs; absence of water-proofing along the basement wall and at the roof deck which caused leaks; and the use of smaller diagonal steel trusses at the penthouse. Other defects shown during site inspection included L-shaped kitchen counters instead of the required U-shaped counters, failure to provide marble tops, installation of single-tub sinks where the plans called for double-type stainless kitchen sinks, installation of much smaller windows than required, and poor floor finish.

The arbitrator also found that concrete samples taken from the building were subjected to a concrete core test by Geotesting International, Inc., and five samples failed the test. Deformed reinforcing steel bar specimens were subjected to physical tests at the Materials Testing Laboratory of the Department of Civil Engineering, College of Engineering, University of the Philippines, and eight of eighteen samples failed the test. Regarding the additional columns, Engr. Roberto J. David admitted that these represented a design change which was made and implemented by CGI without the conformity 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," which implies that all changes in the approved design shall likewise be submitted to the OWNER for approval. The arbitrator viewed this change as the single most serious breach of the Contract committed by CGI which justified the decision of the claimants to terminate the Contract. In addition, CGI admitted that no relocation survey was made by it prior to the construction of the building, and consequently, a one-meter portion of the building was constructed beyond the property line. The arbitrator also found that the cistern was designed to accumulate up to 10,000 gallons of water but as constructed, its capacity was less than the design capacity, and there was no internal partition separating the cistern from the sump pit.

• Unjustified Rescission: Petitioners argued that there was no basis, in fact and in law, to allow respondents to unilaterally rescind the Design/Build Contract, after petitioners had substantially performed their obligation under the said contract. They claimed that at the time of rescission, they had completed 80% of the construction work and still had 15 days to finish the project, and that they constructed the building in accordance with the contract and any modification on the plan was with the consent of the respondents.

• Separate Juridical Personality: Petitioners argued that the Court of Appeals erred in finding petitioners jointly and severally liable with co-petitioner Coordinated Group, Inc., in clear violation of the doctrine of separate juridical personality. They 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.

N/A — The decision does not separately recount the respondents' arguments beyond the factual findings affirmed by the arbitrator and the Court of Appeals.

• Nature of the First Assigned Error: Whether the issue of whether respondents were justified in unilaterally rescinding the Design/Build Contract after petitioners had substantially performed their obligation is a question of law or a question of fact.

• Nature of the Second Assigned Error: Whether the issue of whether petitioner-spouses David can be held jointly and severally liable with petitioner CGI as corporate officers is a question of law or a question of fact.

• Nature of the First Assigned Error: Question of fact. The claim that petitioners had completed 80% of the construction work and that any modification on the plan was with the consent of respondents involves an examination of the probative value of the evidence presented, which is a factual inquiry.

• Nature of the Second Assigned Error: Question of fact. Although the issue may appear to be a question of law as it calls for application of the law on the separate liability of a corporation, the law can be applied only after establishing a factual basis—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.

• Nature of the First Assigned Error: 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. 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. In the case at bar, petitioners' first assigned error—that they had completed 80% of the construction work and still had 15 days to finish the project, and that they constructed the building in accordance with the contract—is refuted by the evidence on record. The Court of Appeals upheld the factual findings of the sole arbitrator, which found that respondents were justified in rescinding the contract due to the construction of additional columns without approval, the construction of the building such that part of it is outside the property line, the failure of concrete and steel bar samples to pass tests, and the under-design of the cistern. These are technical findings of fact made by expert witnesses and affirmed by the arbitrator and the Court of Appeals, and the Court found no reason to revise them.

• Nature of the Second Assigned Error: The second assigned error likewise involves a question of fact. While the issue of whether corporate officers can be held personally liable may appear to be a question of law, the law can be applied only after establishing a factual basis—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. The Court of Appeals affirmed the factual findings of the arbitrator 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. The personal liability of a corporate director, trustee or officer, along with the corporation, may 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 Court reiterated 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 any of the five exceptions under Section 24 of Republic Act No. 876. Petitioners failed to show that any of these exceptions applies to the case at bar.

• Finality of CIAC Arbitral Factual Findings — Under Section 19 of E.O. No. 1008, arbitral awards of the CIAC are appealable to the Supreme Court only on questions of law. Factual findings of construction arbitrators are final and conclusive and not reviewable by the Supreme 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; (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 9 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.

• Question of Law vs. Question of Fact — 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. 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.

• Personal Liability of Corporate Officers — 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 the corporation, may validly attach when he assents to a patently unlawful act of the corporation or for bad faith or gross negligence in directing its affairs.

• "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." — This passage from Hi-Precision Steel Center, Inc. vs. Lim Kim Steel Builders, Inc. articulates the animating purpose of voluntary arbitration and the rationale for limiting appeal to legal questions in construction cases resolved through arbitration.

• "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." — This passage states the strict standard for reviewing arbitral factual findings and emphasizes that the Court will not review factual findings of an arbitral tribunal upon the artful allegation that such body had "misapprehended facts."

• "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." — This passage from the arbitrator's findings, quoted by the Court, identifies the construction of additional columns without the Quiambaos' approval as the most serious breach justifying contract termination.

• Hi-Precision Steel Center, Inc. vs. Lim Kim Steel Builders, Inc., 228 SCRA 397 (1993) — Controlling precedent cited for the rationale limiting appeal to legal questions in construction cases resolved through arbitration, emphasizing the animating purpose of voluntary arbitration and the finality of arbitral factual findings.

• Serna vs. Court of Appeals, 308 SCRA 527 (1999) — Cited for the definition of a question of law versus a question of fact.

• Palon vs. Nino, 353 SCRA 204 (2001) — Cited for the proposition that 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.

• Section 19, Executive Order No. 1008 (Construction Industry Arbitration Law) — Provides that arbitral awards of the CIAC shall be appealable to the Supreme Court only on questions of law. The Court applied this provision to dismiss the petition because petitioners raised questions of fact.

• Section 24, Republic Act No. 876 (Arbitration Law) — Lists the exceptions under which factual findings of construction arbitrators may be reviewed: (1) award procured by corruption, fraud or other undue means; (2) evident partiality or corruption of the arbitrators; (3) misconduct in refusing to postpone the hearing or to hear evidence; (4) disqualification of arbitrators under Section 9; or (5) arbitrators exceeded their powers. The Court held that petitioners failed to show any of these exceptions applied.

• Section 9, Republic Act No. 876 — Referenced in the fourth exception under Section 24 regarding disqualification of arbitrators.

• Article II, Design/Build Contract — Provided that "the CONTRACTOR shall submit to the OWNER all designs for the OWNER'S approval," which the arbitrator interpreted to imply that all changes in the approved design shall likewise be submitted to the OWNER for approval. This contractual provision was the basis for finding that CGI's design changes without approval constituted a serious breach.

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

N/A — No dissenting opinions were noted in the decision.