Case Summary (G.R. No. 159795)
Contract Terms and Performance Allegations
Contract provisions required CGI to prepare working drawings, construct the building for P7,309,821.51 (plus P200,000 design fee), and complete work within nine months of securing the permit. Petitioners asserted substantial performance (80% accomplishment) and readiness to complete remaining “punch‑list” items. Respondents alleged significant deviations from approved plans and specifications, unauthorized structural revisions, and multiple construction defects.
Deficiencies, Tests and Rescission
Independent inspections and tests (Geotesting International and UP Materials Testing Laboratory) showed several concrete core and reinforcing steel samples failing specified strength requirements. Specific factual findings included: additional concrete columns (including two in the basement obstructing parking), three additional columns affecting floor plans and dimensions, misalignments and architectural deficiencies, lack of water‑proofing resulting in leaks, under‑designed cistern with inadequate capacity and no partition from sump pit, and a one‑meter encroachment beyond the property line due to absence of a relocation survey. CGI produced internal correspondence acknowledging deficiencies and proposed corrective items; however, the Quiambaos rescinded the contract and engaged another contractor to assess completion and damages.
Arbitration Proceedings and Award
Pursuant to the parties’ agreement, the dispute was submitted to the Construction Industry Arbitration Commission (CIAC). A sole arbitrator was appointed, assisted by an engineering expert who conducted two ocular inspections. The arbitrator awarded the Quiambaos a net sum of P4,073,229.94 (detailed awards included lost rentals, cost to complete/rectify, damages for erroneous staking, professional fees, miscellaneous expenses, utility bills, attorney’s fees, moral and exemplary damages), credited CGI for value of materials left on site (P238,372.75) and for 80% work accomplishment (P5,847,857.20), and ordered interest and shares of expert fees. All other claims and counterclaims were dismissed.
Court of Appeals Review
The Court of Appeals affirmed the arbitral decision but deleted the award for lost rentals. The CA accepted the arbitrator’s factual findings regarding deviations from plans, technical deficiencies revealed by tests, the unauthorized plan revisions to reduce cost, lack of relocation survey resulting in encroachment, and the under‑designed cistern as sufficient basis justifying the owners’ rescission.
Issues Raised to the Supreme Court
Petitioners advanced two principal contentions: (1) respondents had no valid basis to unilaterally rescind the contract because CGI had substantially performed and was capable of completing the work; and (2) spouses Roberto and Evelyn David should not be held personally liable jointly and severally with the corporation, invoking the doctrine of separate juridical personality.
Governing Law and Standard of Review
Applicable constitutional framework: 1987 Philippine Constitution (case decided post‑1990). Statutory and regulatory framework: Executive Order No. 1008 (Construction Industry Arbitration), which vests CIAC with original and exclusive jurisdiction over voluntarily submitted construction disputes and limits appellate review of CIAC awards to questions of law (Section 19); Section 24, Republic Act No. 876 (arbitration review exceptions); and SC administrative circulars addressing CIAC appeals. The Court reiterated the distinction between questions of law (doubts as to what the law is on given facts) and questions of fact (doubts as to the veracity of alleged facts). Review of arbitral findings of fact is severely limited: appellate courts and the Supreme Court generally do not reassess probative value of evidence or reweigh factual determinations of arbitrators absent the narrow statutory grounds (e.g., corruption, partiality, misconduct, disqualification withheld, or excess or imperfect exercise of powers) showing grave abuse or deprivation of a fair opportunity to be heard.
Supreme Court Analysis on Rescission and Factual Findings
The Court found petitioners’ challenges to rescission primarily factual: assertions of 80% completion and that defects were mere punch‑list items were contradicted by the record. The Court accepted the arbitrator’s and CA’s detailed factual findings—unauthorized structural changes (including additional columns), multiple architectural and structural defects, failed material tests, encroachment beyond property line, and an under‑designed cistern—as providing a sufficient factual and legal basis for the owners’ termination of the contract. These findings were technical, supported by expert testimony and inspections, and therefore not subject to de novo review by the Supreme Court under the limited standard of appellate review applicable to CIAC awards.
Sup
...continue readingCase Syllabus (G.R. No. 159795)
Case Citation and Procedural Posture
- Reported at 479 Phil. 578, Second Division, G.R. No. 159795, decided July 30, 2004.
- Petition for review on certiorari under Rule 45, challenging the Decision and Resolution of the Court of Appeals dated June 30, 2003 and August 27, 2003 in CA-G.R. SP No. 72736.
- Petitioners sought reversal of the Court of Appeals’ affirmance (with deletion of lost rentals) of the CIAC sole arbitrator’s Decision dated August 21, 2002 as amended by Resolution dated October 11, 2002.
- Outcome at Supreme Court: Petition dismissed for lack of merit; costs against petitioners; opinion by Justice Puno, with concurred Justices Austria-Martinez, Callejo, Sr., Tinga, and Chico-Nazario.
Parties and Roles
- Petitioners:
- Coordinated Group, Inc. (CGI), a corporation engaged in the construction business.
- Spouses Roberto and Evelyn David, respectively President and Treasurer of CGI.
- Respondents/Claimants:
- Spouses Narciso and Aida Quiambao, owners of the subject land and original contracting parties.
- Administrative/Adjudicatory bodies and persons:
- Construction Industry Arbitration Commission (CIAC) — asserted original and exclusive jurisdiction under E.O. No. 1008 for agreed voluntary arbitration in construction disputes.
- Atty. Custodio O. Parlade — appointed sole arbitrator by CIAC.
- Engr. Loreto C. Aquino — designated by the sole arbitrator to assist on technical aspects.
- Regional Trial Court (RTC) of Manila — case dismissed and records transmitted to CIAC following parties’ agreement for arbitration.
Contractual Agreement (Design/Build Contract)
- Date of engagement: October 7, 1997 — CGI engaged to design and construct a five-storey concrete office/residential building in Tondo, Manila.
- Key contractual provisions:
- CGI to prepare working drawings for the construction project.
- Total construction price: P 7,309,821.51 (inclusive of labor, materials, equipment).
- Design fee: P 200,000.00.
- Completion period: nine (9) months after securing the building permit.
- Initial completion scheduled on or before July 16, 1998; extended by agreement to November 15, 1998.
Performance, Alleged Breaches, and Rescission
- Petitioners’ asserted performance:
- CGI claimed 80% completion at time of rescission; contended they had roughly fifteen days remaining to finish.
- CGI characterized many complaints as punch-list items correctable prior to turnover and insisted on willingness to rectify defects.
- CGI submitted a letter (Exhibit C-88) setting out remedial or conforming items to be addressed (listing multiple specific corrections and installations).
- Respondents’ observations and actions:
- Noted deviations from approved plans and specifications during construction.
- Specific structural deviations included:
- Two concrete columns in the middle of the basement obstructing parking.
- Three additional concrete columns constructed from ground floor to roof deck altering overall dimensions, beam depths, passageways and windows.
- Other alleged defects and deviations catalogued, including but not limited to:
- Building not vertically plumbed; missing architectural provisions (recesses for window plant boxes, precast molding, canopies); misaligned walls; skewed walls to floors/landings; low head clearances and truncated beams; narrow/disproportionate stairs; inadequate water-proofing causing leaks; smaller diagonal steel trusses at penthouse; improper kitchen counters and missing marble tops; single-tub sinks used instead of double sinks; much smaller windows; misaligned window easements; floor damage from roof leaks; poor floor finish and misaligned tiles; disproportionate drawers and cabinets.
- Respondents rescinded the contract on October 31, 1998 after having paid 74.84% of the cost of construction.
- Respondents engaged RRA and Associates to inspect and assess petitioners’ actual accomplishment; RRA found unapproved revisions and deviations from structural plans.
Technical Inspections, Tests, and Expert Findings
- Site inspections:
- Arbitrator conducted hearings and two (2) ocular inspections of the site.
- Concrete core tests:
- Concrete samples taken from basement, ground floor, mezzanine and 2nd floor were tested by Geotesting International, Inc.
- A report dated January 20, 1999 indicated that five (5) samples failed the test.
- Noted: Sample S2 showed a comprehensive strength of 3147 psi, but the corrective strength in psi was below the specified comprehensive strength of 3000 psi (as reported in the record).
- CGI failed to produce evidence of similar confirming tests during construction, despite it being normal practice for contractors to provide such samples.
- Steel reinforcement tests:
- Deformed reinforcing steel bar specimens tested at the UP Materials Testing Laboratory: of 18 samples, 8 failed the physical tests though all passed the cold bend test.
- CGI submitted Quality Test Certificates from Steel Asia, but samples were provided by the manufacturer, not by CGI, and there was no showing that the tested materials were those actually supplied to CGI for the project.
- Structural design revisions and relocation survey failures:
- CGI admitted that additional columns represented a design change made and implemented without respondents’ approval.
- Engr. Villasenor admitted the revisions were made at the request of Engr. Roberto J. David to reduce construction cost.
- CGI admitted no relocation survey was made prior to construction; consequently a one-meter portion of the building was constructed beyond the property line.
- The lack of a relocation survey and construction beyond the property line resulted in under-utilization of the property and exposure to potential damages to adjoining property owners.
- Cistern design and construction defects:
- Cistern designed for 10,000 gallons but constructed with less capacity.
- No internal partition separating cistern from sump pit; concern raised regarding contamination risk given cistern’s use for drinking water.
- Overall technical assessment:
- The construction of additional columns, building encroachment beyond property line, failed concrete and steel tests, and under-design of the cistern collectively supported respondents’ justified suspicion that the building was defective or not constructed according to approved plans and specifications.
Arbitration Proceedings and Arbitrator’s Findings
- Arbitration initiation:
- Parties agreed at pre-trial before RTC to submit dispute to CIAC arbitration; respondents filed request for arbitration and nominated Atty. Custodio O. Parlade, who was appointed sole arbitrator.
- RTC dismissed the case and transmitted records to CIAC.
- Arbitrator conducted hearings, used Engr. Loreto C. Aquino for technical assistance, and conducted ocular inspections.
- Arbitrator’s factual findings:
- Affirmed multiple deviations and defects as observed during inspections and corroborated by expert reports and tests.
- Found CGI implemented design revisions without owner approval, failed to conduct relocat