G.R. No. 120105 - BF Corp. vs. Court of Appeals

Case Summary (G.R. No. 120105)

Petitioner

BF Corporation was engaged by SPI to construct the main structure of the EDSA Plaza Project and later to perform expanded works. BF billed SPI for construction work (total demand P110,883,101.52) and filed a complaint for collection in the Regional Trial Court (RTC) of Pasig on July 14, 1993. BF denied that a formal trade contract containing an arbitration clause bound the parties and argued that the written agreements between the parties did not provide for arbitration.

Respondents

Shangri‑La Properties, Inc. maintained that the parties’ contract documents included a “Conditions of Contract” section containing an arbitration clause. SPI filed a motion to suspend proceedings in the RTC (Aug 3, 1993) based on that arbitration clause and submitted copies of the contract documents. SPI asserted that BF failed to complete or otherwise abandoned works and counterclaimed and pursued ADR steps (conference July 12, 1993) before BF’s suit; SPI later requested arbitration (Aug 13, 1993).

Key Dates

Fire damaging Phase I: November 30, 1990.
Written Agreement for construction covering work as of May 1, 1991: May 30, 1991.
Contract “Articles of Agreement” notarized: November 15, 1991 (Notary Nilberto R. Briones).
Project taken into possession/operations begun by SPI: November 1991.
Demand letter by BF: February 17, 1993.
Conference between parties: July 12, 1993.
BF filed complaint in RTC: July 14, 1993.
SPI motion to suspend proceedings: August 3, 1993; SPI produced contract copy Aug 4, 1993.
SPI requested arbitration: August 13, 1993.
Court of Appeals granted certiorari and stayed RTC proceedings; Supreme Court review followed.

Applicable Law and Constitutional Basis

Primary statutory law: Republic Act No. 876 (Arbitration Law) — notably Section 4 (form of arbitration agreement), Section 7 (stay of proceedings when arbitration invoked), Section 22 (special proceeding procedure), and Section 23 (confirmation of award). Procedural law: Rule 65 certiorari (extraordinary remedy). Because the decision postdates 1990, the 1987 Constitution is the constitutional framework applicable to the Court’s exercise of jurisdiction and the adjudicative process in this review.

Factual Background of the Contractual Arrangement

BF and SPI executed a sequence of written instruments governing the EDSA Plaza construction: an initial agreement (May 30, 1991 “Letter‑Agreement”), and a larger compilation captioned “Contract Documents for Builder’s Work Trade Contractor” dated May 1, 1991, whose indexed components included an Articles of Agreement and a Conditions of Contract. The Articles of Agreement was signed by representatives of the parties and notarized on November 15, 1991; the Conditions of Contract contained an arbitration clause but bore only initials of BF’s representatives and not SPI’s representatives on its pages. Disputes arose over delays, alleged abandonment, and nonpayment.

Procedural History in Trial and Appellate Courts

In the RTC, defendants (SPI and board members) moved to suspend proceedings on arbitration grounds; the trial court examined the proffered contract documents, concluded there was uncertainty whether the Conditions of Contract was binding (owing to lack of signed copies), and denied the motion to suspend proceedings on the additional ground that defendants had defaulted in invoking arbitration within the contractual time limits. The trial court ordered defendants to file answers. SPI filed a petition for certiorari in the Court of Appeals, which granted the petition, annulled the RTC orders, and stayed proceedings, reasoning the arbitration clause was effective and defendants were not in default. BF sought Supreme Court review by petition for review on certiorari.

Issues Presented to the Supreme Court

Whether the Court of Appeals should have been denied certiorari because an appeal, not an extraordinary remedy, was the proper recourse.
Whether the RTC erred factually and legally in (i) finding the parties entered into no arbitration agreement and (ii) concluding, alternatively, that defendants were in default in invoking arbitration.

Standard of Review and Proper Use of Certiorari

The Court reiterated the general rule that certiorari is not a substitute for appeal and is limited to correcting lack or excess of jurisdiction or grave abuse of discretion. However, where a question of jurisdiction (a legal question) arises from underlying facts, and where rigid adherence to ordinary‑appeal routes would produce a miscarriage of justice, certiorari may be appropriate. The existence and enforceability of an arbitration agreement may present mixed questions of fact and law; the Court found that the central question — whether an arbitration clause exists and is binding — had sufficient legal character (in light of documentary evidence and statutory requisites) to warrant extraordinary review because it directly affects the trial court’s jurisdiction to proceed.

Formal Requirements for a Valid Arbitration Agreement (RA 876, Section 4)

The Arbitration Law requires that a contract to arbitrate be in writing and be subscribed (signed) by the party sought to be charged or by his lawful agent. The Court interpreted “subscribed” as signing the instrument; however, where a signed primary instrument expressly incorporates other documents, the signature to the primary instrument may effectively subscribe the incorporated documents as well.

Incorporation by Reference and Multi‑Document Contracts

The Articles of Agreement expressly declared the listed Contract Documents “shall be deemed an integral part of this Agreement.” The Court held that contracts may be embodied in multiple writings and that unsigned documents may be binding when they are clearly identified or expressly incorporated in a signed instrument. Thus, the absence of the SPI representative’s initial on the pages of the Conditions of Contract did not defeat the arbitration clause where the Articles of Agreement — signed and notarized by the parties — incorporated those Conditions by reference.

Evidence Authenticity and the “Hodge‑Podge” Argument

BF’s contention that the compilation of documents was a mere “hodge‑podge” and/or that the copies were unauthenticated was rejected. The Articles of Agreement, as a signed and notarized instrument, admitted by BF, was sufficient to demonstrate that the Conditions of Contract containing the arbitration clause formed part of the parties’ agreement. The Court declined to treat secondary allegations of forgery or insertion of clauses as issues appropriate to resolve by denying stay when the signed instrument plainly incorporated the Conditions.

Timeliness of Invoking Arbitration; “Reasonable Time” Analysis

The arbitration clause required that the demand for arbitration be made within a reasonable time after the dispute had arisen and attempts to settle amicably had failed, and in no case later than final payment. The RTC had found defendants in default because they had not given notice within the period before final payment and had possessed the finished works for an extended period. The Court of Appeals and the Supreme Court found that SPI’s actions — participating in the July 12, 1993 conference, being met the next day by BF’s suit (July 14, 1993), and requesting arbitration on August 13, 1993 — were within a reasonable time under the circumstances. “Reasonable time” is relative and depends on attendant circumstances; a one‑month interval following the failed conference was reasonable, especially given BF’s precipitate resort to the c

Case Syllabus (G.R. No. 120105)

Citation and Procedural Caption

Reported at 351 Phil. 507; 95 OG No. 13, 1986 (March 29, 1999), Third Division; G.R. No. 120105, March 27, 1998.
Parties: BF Corporation (petitioner) v. Court of Appeals, Shangri-La Properties, Inc., Colayco, Alfredo C. Ramos, and other named directors (respondents).
Decision authored by Justice Romero; Narvasa, C.J. (Chairman), Kapunan, and Purisima, JJ., concur.
Writ sought: Petition for review on certiorari to the Supreme Court from a Court of Appeals decision which granted certiorari, annulled and set aside lower court orders, and stayed proceedings in the Regional Trial Court (Pasig).

Facts

Petitioner BF Corporation (BF) and respondent Shangri-La Properties, Inc. (SPI) contracted for construction of the main structure of the EDSA Plaza Project, a shopping mall complex in Mandaluyong City.
During construction, SPI decided to expand the project and engaged BF again for the expanded works; parties entered into an agreement for the main contract works and construction proceeded.
Petitioner alleges construction progressed in faithful compliance with the First Agreement until a fire on November 30, 1990 damaged Phase I of the Project.
SPI alleges petitioner incurred serious and substantial delays and ultimately failed to complete the works and abandoned the project.
On May 30, 1991, BF and SPI executed a written Agreement for the Execution of Builder’s Work for the EDSA Plaza Project covering works as of May 1, 1991 until completion.
Under the May 30, 1991 agreement, project completion was to be by October 31, 1991; contractor would pay P80,000 per day for delay from November 1, 1991 with aliquoted damages up to a maximum of 5% of the total contract price.
Petitioner billed SPI P110,883,101.52 in a demand letter dated February 17, 1993 for unpaid works. SPI set up its own counterclaim of P220,000,000.00 and scheduled a conference on that claim for July 12, 1993.

Preliminary Conference and Breakdown of Amicable Efforts

SPI initiated and conducted a conference between party representatives on July 12, 1993 to attempt settlement; the conference failed to produce agreement.
On July 14, 1993, petitioner filed a complaint for collection of the balance due under the construction agreement in the Regional Trial Court (RTC) of Pasig, naming SPI and its board members as defendants.
On August 3, 1993, defendants (SPI and co-defendants) filed a Motion to Suspend Proceedings based on an alleged arbitration clause in the formal trade contract that required prior resort to arbitration.
On August 4, 1993, SPI submitted a copy of the Conditions of Contract containing the arbitration clause which it had not appended to its motion.
Petitioner opposed the motion contending there was no formal trade contract containing an arbitration clause and that the agreement between the parties did not provide for arbitration.
Petitioner also argued that defendants failed to file an answer within the reglementary period and should be declared in default if arbitration were claimed belatedly.
In reply and sur-rejoinder, the parties contested the authenticity, execution and incorporation of the Conditions of Contract and whether those Conditions (and the arbitration clause therein) were binding; petitioner admitted execution of the Articles of Agreement but contested the binding effect of unsigned Conditions of Contract.

Lower Court (Regional Trial Court, Pasig) Findings and Ruling

Presided over by Judge Domingo R. Garcia.
The RTC found that the Letter-Agreement dated May 30, 1991 (Annex C) and the Articles of Agreement were part of an integrated set of Contract Documents, and that defendants submitted a copy of a trade contract entitled "Contract Documents For Builder’s Work Trade Contractor" dated May 1, 1991 which listed the Articles of Agreement and Conditions of Contract as integral parts.
The RTC observed that the Articles of Agreement bore signatures of Rufo B. Colayco (SPI president) and Bayani F. Fernando (BF president) and were acknowledged before Notary Public Nilberto R. Briones on November 15, 1991.
However, the RTC noted that the Conditions of Contract (which contained the arbitration clause) were not duly signed by the parties on any page; they bore only the initials of BF representatives (Bayani F. Fernando and Reynaldo M. de la Cruz) and lacked initials of SPI representatives.
Given petitioner’s insistence that the Conditions were not duly executed and defendants’ failure to submit any signed copy, the RTC entertained serious doubt that the arbitration clause was binding upon the parties.
Even assuming the arbitration clause was valid and binding, the RTC ruled it was invoked too late. The arbitration clause required that a notice of demand for arbitration be filed within a reasonable time after the dispute arose and not later than the time of final payment. The RTC found:
- SPI had taken possession and commenced operations in November 1991.
- Petitioner’s billings remained pending from November 1991 until the filing of the complaint on July 14, 1993 (one year and eight months).
- Defendants failed to file any written notice of demand for arbitration in that long period.
Conclusion of RTC: It could not stay proceedings under Sec. 7 of R.A. No. 876 because defendants were in default in proceeding with arbitration.
The RTC denied the motion to suspend proceedings and denied reconsideration; it directed defendants to file their answers within fifteen (15) days from notice.

Court of Appeals Proceedings and Ruling

SPI filed a petition for certiorari under Rule 65 of the Rules of Court before the Court of Appeals instead of filing an answer in the RTC.
The Court of Appeals granted the petition, annulled and set aside the lower court orders, and stayed the RTC proceedings.
The Court of Appeals’ principal bases:
1. The notarized Articles of Agreement submitted (Annex A to petitioner’s reply) bore signatures of Rufo B. Colayco and Bayani Fernando and expressly provided that the Conditions of Contract were deemed an integral part of the agreement. Pages D/42 to D/44 of the Conditions of Contract contained the arbitration provisions (Annexes G-3 to G-5).
2. The fact that the Conditions of Contract bore only the initials of BF representatives without the signature/initial of SPI’s representative did not render