A.C. No. 11219 - Spouses Tan vs. Vallejo

Petitioner B.F. Corporation (BFC) is a corporation engaged in general engineering and civil works construction, with its President Honorio H. Pineda acting on its behalf.
Respondent Form-Eze Systems, Inc. (Form-Eze) is engaged in highway and street construction.
BFC was awarded the contract for the general construction of SM City-Marikina mall and, in turn, engaged Form-Eze to lease a formwork system and related equipment required for the project.

Five contracts were executed between BFC and Form-Eze along with additional supplemental agreements:

Contract No. 1 (dated 20 December 2006) – For the lease of equipment to form beams and slab decks. It set the obligations for Form-Eze (furnishing all hardware required for the deckform system and providing consumables) and for BFC (providing scaffoldings, plywood, lumber, and managing material purchases), with the equipment rental computed on a contact square meter basis.
Contract No. 2 (dated 20 December 2006) – For stripping and moving Form-Eze’s equipment across locations on the project site, with specified obligations and a rental rate per contact square meter.
Contract No. 3 (dated 20 December 2006) – For column formwork on the project that involved furnishing built-up column forms and supervision of their assembly, with payment based on contact square meters and provisions for material deductions.
Contract No. 4 (dated 29 January 2007) – For the lease of heavy duty galvanized scaffold frames and related accessories, which also involved BFC manufacturing such scaffoldings according to Form-Eze’s specification.
Contract No. 5 (dated 29 January 2007) – For the purchase and lease of heavy duty galvanized x-bracing, with agreed manufacturing and corresponding purchase credits.

A Memorandum of Agreement (dated 5 January 2007) establishing an exclusive licensing arrangement for BFC to manufacture Form-Eze’s equipment.
A Letter-Agreement (dated 5 January 2007) modifying certain elements of Contract No. 4, such as the adjustment of u-head dimensions and crediting provisions.

Form-Eze initiated arbitration on 30 March 2007 before the Construction Industry Arbitration Commission (CIAC), alleging BFC’s failure to pay amounts due under the contracts and breaches of contractual and supplemental agreements.
BFC, in its Amended Answer with Counterclaim, sought reformation of Contract No. 1 to include a labor-deduction clause and demanded a refund for expenses related to the manufacture of additional hardware, arguing that Form-Eze had only delivered a lesser quantity of assembled deckforms than contractually required.
The CIAC Arbitral Tribunal, composed of three members, reviewed the admissions of both parties, the executed contracts, and the evidentiary records (including delivery receipts and correspondence) to compute the disputed amounts on each contract.
Detailed computations were made based on the contractual requirements for a minimum of 7,000 contact square meters versus the actual assembled deckform area, with controversies arising over whether loose truss chords (unassembled hardware) and the contact area contributed by girders should be included.

On 7 December 2007, CIAC issued its Final Award in favor of Form-Eze, awarding specific amounts on:

Contract No. 1 – A net sum after deducting previous payments from the total rental price computed per contact square meter.
Contract No. 2 – An award after deducting payments and labor costs.
Contract No. 3 – An award reduced by the alleged cost of labor.
The Letter-Agreement – A fixed monthly rental amount.

The Tribunal also awarded attorney’s fees and directed that Form-Eze’s cost of arbitration be indemnified by BFC and, where appropriate, by Pineda.
BFC filed a Motion for Correction of the Final Award noting miscalculations relating to the actual quantity of accessories delivered, which directly affected the computation of the contact area and, therefore, the minimum rental amounts under Contracts Nos. 1 and 2.
While the CIAC denied the motion for correction, BFC subsequently petitioned for review before the Court of Appeals, raising eight issues concerning the computation of contact area, inclusion of unassembled equipment, reformation of labor provisions, and the propriety of joining its President as a respondent.

The Court of Appeals had affirmed the CIAC award and dismissed BFC’s petitions for reconsideration.
On review by the Supreme Court, the decision of the Court of Appeals was modified.
The Supreme Court found that the CIAC’s award, while generally in favor of Form-Eze, contained calculative and interpretative errors regarding the actual assembled deckforms and the proper inclusion of labor-deduction provisions.
The Court emphasized that the object of Contract No. 1 was the complete deckform system—not merely the delivery of unassembled hardware—and observed that subsequent acts (such as the inclusion of a labor guarantee provision in similar contracts) supported BFC’s position for reformation.
In its final judgment dated 15 January 2010 (modified by subsequent resolutions), the Supreme Court reformed the award amounts and remanded issues on the computation of the contact area and related labor costs while upholding the inclusion of Mr. Pineda as co-respondent.

Whether the Court of Appeals erred in affirming the CIAC ruling that BFC must pay full equipment rental under Contract Nos. 1, 2, and 3 even when Form-Eze’s supplied formwork system was not fully utilized.

Whether the evaluation should include unassembled loose truss chords in computing the quantity of furnished deckforms.
Whether the inclusion of girders’ contact area in the computation was proper.

Whether the reformation of Contract No. 1 to include a labor guarantee provision (thereby allowing deductions for labor costs in assembling the deckform system) is warranted by the true intentions of the parties.

Whether the Court erred in not deducting the costs incurred by BFC (including labor, helmets, and expenses for x-bracing) from the minimum rental amounts under Contracts Nos. 1, 2, and 3.

Whether it was proper to include BFC President Honorio Pineda as a respondent when he signed contracts in his official capacity and did not voluntarily submit himself to arbitration.

How the conflicting computations (Form-Eze’s theoretical versus BFC’s actual assembled deckforms) should be resolved in determining the proper rental amounts, particularly to avoid unjust enrichment.

Whether the allocation of attorney’s fees and arbitration costs should be borne solely by BFC (and its President) or shared between the parties, given the mutual nature of the contractual obligations and disputes.