B.F. Corporation et al. vs. Form-Eze Systems — G.R. No. 192948

PEREZ, J.:

This petition for review assails the 15 January 2010 Decision¹ and 13 July 2010 Resolution² of the Court of Appeals in CA-G.R. SP No. 102007 which affirmed the Final Award rendered by the Construction Industry Arbitration Commission (CIAC) Arbitral Tribunal on 7 December 2007.

FACTUAL ANTECEDENTS

Petitioner B.F. Corporation (BFC) is a corporation engaged in general engineering and civil works construction. Petitioner Honorio H. Pineda (Pineda) is the President of BFC. Respondent Form-Eze Systems Inc. (Form-Eze) is a corporation engaged in highway and street construction.

On 29 August 2006, SM Prime Holdings, Inc. awarded the contract for general construction of the SM City-Marikina mall (the Project) to BFC whereby the latter undertook to supply materials, labor, tools, equipment and supervision for the complete construction of the Project.³ In turn, BFC engaged Form-Eze for the lease of formwork system and related equipment for and needed by the Project. Accordingly, five (5) contracts and two (2) letter-agreements were executed by the BFC, represented by its President Pineda, and Form-Eze, represented by its President, James W. Franklin. These contracts and their salient provisions are provided in the following table:

CONTRACT NO. 1: Contract for the Lease of the Equipment for the Beam and Slab Hardware for the Formwork on SM Marikina Mall Project dated 20 December 2006⁴
Obligations of Form-Eze	Furnish all hardware required in the formwork system for the poured in place beam and slab concrete decks excluding the scaffoldings and accessories required to support the system; and Provide consumable beam ties and steel accessories needed to maintain the rigidity and alignment of the plywood formed surfaces.
Obligations of BFC	Furnish all scaffoldings as required to support the system at no ,cost to Form-Eze; Furnish all plywood and lumber as required in the formwork operation as no cost to Form-Eze; Purchase materials for the formwork as requested by Form-Eze. The direct cost of materials shall be deducted from the contract and the balance paid to Form-Eze; and Responsible for the freight of the equipment to and fro the Marikina jobsite and the Form-Eze warehouse in Cainta, Rizal.
Work Specifications	The amount of hardware to be furnished is sufficient to provide 7,000 contact square meters of formwork.
Contract Price	Total contract amount for the equipment: 126,000 contact square meters (equipment to be used) x P225.00/contact square meter (cost per use of the hardware for forming the elevated beam and slab)= P28,350,000.00.
Terms of Payment	15% down payment or P4,252,500.00 paid to Form-Eze on or before pick up of equipment; When concrete is placed on the slab forms, the equipment rental per contact square meter is due and payable to Form-Eze and shall be paid on the first day of the following month; All equipment purchased by BFC as requested by Form-Eze shall be prorated and deducted equally in the first 4-month duration of the equipment lease; and Monthly progress payments for the equipment lease shall be made timely.
CONTRACT NO. 2: Contract for Stripping and Moving Form-Eze Systems Inc. Equipment from Location to Location on SM Marikina Mall Project dated 20 December 2006 ⁵
Obligations of Form-Eze	Furnish forklift for the movement of the deck forms and related hardware of the forming system from location to location; Strip all formwork from under the poured concrete slab and beam deck. Move all equipment to the next location where it will be reset by BFC; and Assist BFC in setting the deck forms to the proper grade and locations provided that BFC has laid out the grid lines as needed for placing the scaffoldings under the deck forms and provided the scaffoldings is readily available for placement under the deck forms.
Obligations of BFC	Furnish additional hoisting; and Provide all labor requested by Form-Eze and deducted from the contract at P60.00 per carpenter man-hour.
Contract Price	Total contract amount for moving equipment: 126,000 x P50.00/contact square meter (cost for stripping and movement of the equipment, excluding cost of resetting to grade, cleaning plywood surfaces and applying release agent) P6,300,000.00.
Terms of Payment	15% down payment or P945,000.00 paid to Form-Eze on or before pick up of equipment; and Monthly progress billing will coincide with the contact square meters formed with the Form-Eze equipment.
CONTRACT NO. 3: Contract for Column Formwork on the SM Marikina Mall Project dated 20 December 2006⁶
Obligations of Form-Eze	Furnish sufficient number of built up column forms as required to complete 6 poured in place full height concrete columns per day provided the installation of the rebar and the placement of the concrete can maintain that schedule of performance; Provide supervision for the column formwork operation; Responsible for bracing the columns to maintain them plumb when poured; Correct any defects in the poured column due to failure in the formwork. (Not responsible for air entrapment or aggregate separation caused by improper placement or improper vibration of the concrete; and Furnish chamfer and form release agent
Obligations of BFC	Furnish all hoisting and moving of the columns; Responsible for installation of the rebar and placement of the concrete; Furnish labor as required by Form-Eze for forming columns and will deduct fro Form-Eze P60.00 per man-hour for each carpenters for the column framework; and Responsible for all column grid lay-out and establishing elevations on the columns
Terms of Payment	Total Contract Amount: 9,100 contact square meters of formwork x P355.00/contact square meter= P3,230,500.00; Downpayment of P484,575.00 (15%) on or before pick up of equipment; BFC agrees to purchase all materials for the formwork as required by Form-Eze and the direct cost of those materials will be deducted from this contract and the balance paid to Form-Eze; and When columns are poured and stripped, P355.00 per contact square meter is due and payable at that time. Progress payments will be made for the work completed in a particular month and paid on the first day of the following month. Any materials or equipment purchased by BFC at the request of Form-Eze shall be deducted from this contract and prorated equally over a 4-month period.
CONTRACT NO. 4: Contract for the Lease of the Heavy Duty Galvanized Scaffold Frames and Related Accessories on SM Marikina Mall Project dated 29 January 2007⁷
Obligations of BFC	Manufacture heavy duty galvanized scaffoldings and certain accessories for Form-Eze. The scaffoldings and accessories will be manufactured exactly as per the drawings and samples given to BFC by Form-Eze, provided the equipment produced is of excellent quality and to the exact specification specified by Form-Eze; The agreement is for 1,500 pieces of heavy duty galvanized 6-ft frames and related accessories (3,000 pcs of 14-inch adjustable u-heads and 3,000 pcs heavy duty base plates); and BFC will deduct P6,352,500.00 from Form-Eze equipment leased contract (all equipment must be in good condition and turned over to Form-Eze at the end of project). Form-Eze will own the equipment.
Obligations of Form-Eze	Form-Eze will credit BFC with P4,235.00 per frame and related accessories; and Form-Eze will accept all frames in good condition up to a maximum of 1,500 frames and related accessories.
Agreement is contingent upon parties entering into an exclusive licensing agreement with BFC for the manufacture of Form-Eze equipment.
CONTRACT NO. 5: Contract for the Purchase and Lease of the Heavy Duty Galvanized X-Bracing on SM Marikina Mall Project dated 29 January 2007⁸
Obligations of BFC	Manufacture heavy duty galvanized x-bracing.
Obligations of Form-Eze	Credit BFC with P400.00 per x-brace. If the x-bracing is not manufactured exactly as specified by Form-Eze, credit is P300.00 per x-brace.
Agreement is contingent upon parties entering into an exclusive licensing agreement for the manufacturing of Form-Eze equipment.
MEMORANDUM OF AGREEMENT dated 5 January 2007⁹
BFC will manufacture Form-Eze equipment and will sell exclusively to Form-Eze.
LETTER-AGREEMENT dated 5 January 2007¹⁰
Changes to Contract No.4
The 18-inch adjustable u-head will be changed to a 14-inch adjustable u-head. The threading of the heavy duty screw will be accomplished in segments and then machined. Form-Eze will send to the jobsite all 18-inch and 24-inch adjustable u-heads available in its current stock in order to start forming the project while BFC is fabricating the 14-innch adjustable u-heads. When the 3.000 pieces 14-inch u-heads are completed and are on the jobsite, Form-Eze will take back the 18-inch and 24-inch adjustable u-heads that were temporarily in use at the jobsite. The creditable amount for the purchase of the 6-foot heavy duty galvanized scaffolding and related accessories is changed to P4,235.00 per 6-foot heavy duty galvanized frames, adjustable u-heads and heavy duty base plate.

On 30 March 2007, Form-Eze filed a Request for Arbitration¹¹ before the CIAC. In its Complaint, Form-Eze alleged that BFC has an unpaid obligation amounting to P9,189,024.58; that BFC wanted to re-negotiate the equipment leases; and that it was not complying with the contractual and supplemental agreements in effect. Form-Eze prayed for the following relief:

[For BFC] to pay the current monthly equipment rentals;
Provisions made to guarantee the earned monthly equipment leased amounts are paid timely;
To legislate provisions to ensure the lease contracts are not breached during the construction of the SM Marikina Mall;
Provisions made to guarantee the performance of [BFC] for the manufacturing of the shoring equipment purchased by Form-Eze from BFC;
Provisions made to guarantee the return of all Form-Eze equipment when the concrete structure is completed and all lost and damaged equipment has been paid for by [BFC]; and
All cost related to Arbitration.¹²

In its Amended Answer with Counterclaim, BFC sought for reformation of Contract #1 to incorporate a provision that BFC shall deduct from said billing the cost of labor supplied by it for the fabrication and assembly of the forming system and for the stripping, cleaning, resetting thereof at the rate of P60.00 per man-hour. BFC also demanded the refund of P5,773,440.00 as expenses for the manufacture of additional hardware to complete the 7,000 square meters of formwork required in Contract #1. BFC explained that Form-Eze had only furnished 4,682.4 square meters of formwork.¹³

The CIAC appointed a 3-member Arbitral Tribunal (CIAC Arbitral Tribunal), composed of Atty. Custodio O. Parlade, Atty. Alfredo F. Tadiar and Engineer Romeo C. David, to adjudicate Form-Eze's claims.

Under the Terms of Reference, the parties made the following admissions:

The existence of five contracts, a memorandum of agreement and a supplemental contract.
BFC renegotiated Contract #1 but it did not result in a separate written contract.
Under Contract #1, BFC is willing and ready to pay Form-Eze the amount of P3,515,003.59, which amount shall be deducted from the amount of the latter's claim.
Under Contract BFC is willing and ready to pay Form-Eze the amount of P675,788.97, which amount shall be deducted from the amount of the latter's claim.
BFC admits that it has the obligation to return to Form-Eze equipment furnished them under Contracts #1, 2, and 3, and all heavy duty galvanized scaffold frames and related accessories, heavy duty galvanized x-bracing and adjustable U-heads and base plates fabricated and manufactured by BFC under Contracts #4, 5 and letters dated 5 January 2007.¹⁴

The claims¹⁵ of the parties are summarized, as follow:

FORM-EZE'S CLAIMS As of 7/19/2007 From 7/20/2007 to end of contract based on agreed minimum contact sq.m. of 126,000

Arrears on Contract No.1

P26,310,476.29
- 3,515,003.59

22,795,472.70

P11,489,523.71

Arrears on Contract No. 2

4,771,723.63
-675,788.97

4,095,934.66

1,528,276. 37

Arrears on Contract No.3 2,099,825.00 1,130,675.00

Arrears on Letter dated 1/5/07 740,600.00 483,000.00

P29,731,832.36 P14,631,475.08

Attorney's Fees 300,000.00____

TOTAL SUM IN DISPUTE P44,663,307.44

BFC's COUNTERCLAIM

Cost of labor, helmet & expenses for x-bracing for the assembly of the form
system under Contract #1 P 812,791.09

Cost of stripping, petroleum, oil, & helmet under Contract #2 1,391,086.02

Attorney's Fees 300,000.00

Total Counterclaims P2,503,877.11

TOTAL SUM IN DISPUTE P46,867,184.55

The total arbitration fees amounted to P616,393.73.

CIAC Arbitral Tribunal was tasked to resolve the following issues, to wit:

Is Claimant entitled to its total claim of P34,284,996.41 representing the alleged arrear on equipment rental under Contract #1?

Is Claimant entitled to its claim of P5,624,211.03 representing the alleged arrears under Contract #2?

Is Claimant entitled to its claim of P3,230,500.00 representing the alleged arrears under Contract #3?

Is Claimant entitled to its claim of P1,374,408.00 representing the rental fees under Letter dated 5 January 2007?

Is Claimant entitled to its claim for the reformation of the subject Contracts to include the following:

Contract #1 - Provisions to guarantee the earned monthly equipment leased amounts are paid timely;
Contract #1 - Provision to ensure that the lease contracts are not breached during the construction of the SM Marikina Mall;
Contracts #4 and 5 - Provision to guarantee the performance of [BFC] for the manufacturing of the shoring equipment purchased by Form-Eze from BF Corp.;
Contracts#1, 2, 3, 4 and 5 -Provision for [BFC] to pay for the lost and damaged equipment furnished them by the [Form-Eze]; and
Contract #1 - Provision in the Contract to include the P75 per contact sq.m. for labor guarantee.

Is [BFC] #1 entitled to the reformation of Contract #1 to include a provision that [BFC] #1 shall deduct from [Form-Eze's] billing the cost of labor, helmet and expenses for x-bracing supplied by it for the assembly of the form system amounting to P812,791.09 , to deduct from the billing under Contract #2 the cost of labor for the stripping thereof, the costs of petroleum, oil and lubricant and helmet of the said laborers up to the end of the contract in the sum of P1,391,086.02 and from the billing under Contract #3, the cost of labor for the installation and forming of the built up column forms from June 19, 2007 up to the end of the project in the sum of P273,240.00?^[16]

Is it proper to include Mr. Honorio Pineda as Respondent No. 2?

Does the Arbitral Tribunal have the jurisdiction to award claims that accrued after the filing of the Request for Arbitration or does the Claimant have a cause of action for claims that accrued during the same period?

Who between the parties is entitled to attorney's fees?

Who between the parties should bear the arbitration costs?¹⁷

FINAL AWARD BY CIAC

On 7 December 2007, the CIAC Arbitral Tribunal rendered a Final Award in favor of Form-Eze. The dispositive portion reads:

WHEREFORE, award is hereby made in favor of Claimant and against [BFC], ordering the latter to pay the former the following amounts:

a) On Contracts No. 1

Less: Payments already made

TOTAL

b) On Contract No. 2

Less: Payments already made

Less: Cost of labor

TOTAL

c) On Contract No.3

Less: cost of labor

On Letter Agreement of January 5, 2008 to December 8, 2007

IN SUM THE FOLLOWING AWARDS ARE MADE:

Contract No. 1

Contract No. 2

Contract No. 3

Letter Agreement of January 5, 2007

GRAND TOTAL

The Tribunal further awards in favor of [Form-Eze] and against [BFC] and [Pineda] who are ordered, jointly and severally to pay [Form Eze] P300,00.00 as attorney's fees, and to indemnify [Form-Eze's] cost of arbitration paid to CIAC.

The Tribunal likewise disposes of the remaining issues as follows:

a)

The claims under Issues No. 5 and 6 for reformation of Contracts No 1, 2, 3, 4 and 5 are denied for lack of merit.

¹ Rollo, Vol. I, pp. 131-151; Penned by Associate Justice Marlene Gonzales-Sison with Associate Justices Fernanda Lampas Peralta and Florito S. Macalino concurring.
² Id. at 153-157.
³ Id. at 1596-1600.
⁴ Id. at 161.
⁵ Id. at 162.
⁶ Id. at 163.
⁷ Id. at 164.
⁸ Id. at 165.
⁹ Id. at 166.
¹⁰ Id. at 167.
¹¹ Id. at 158.
¹² Id. at 160.
¹³ Id. at 195-196.
¹⁴ Id. at 250-251.
¹⁵ Id. at 253-254.
¹⁶ The CIAC Arbitral Tribunal corrected Issue No. 6 in the TOR upon BFC's motion.
¹⁷ Rollo, Vol. I, pp. 252-253.
¹⁸ Id. at 2157-2159.
¹⁹ Rollo, Vol. II, pp. 2179-2181.
²⁰ Id. at 3368-3370.
²¹ Rollo, Vol. I, pp. 123-124.
²² 716 Phil. 788 (2013).
²³ Id. at 802-803.
²⁴ Ibex International, Inc. v. Government Service and Insurance System, 618 Phil. 304, 312-313 (2009) citing Uniwide Sales Realty and Resources Corp. v. Titan-Ikeda Construction and Dev't. Corp., 540 Phil. 350, 360-361 (2006).
²⁵ Rollo,Vol. I, pp. 2137-2139.
²⁶ See BFC's Memorandum, rollo, Vol. II, p. 3382.
²⁷ Rollo, Vol. I, p. 204.
²⁸ Filinvest Land, Inc. v. Backy, 697 Phil. 403, 412-413 (2012).
²⁹ Multi-ventures Capital and Management Corp. v. Stalwart Management Services, Corp., 553 Phil. 385 391 (2007).
³⁰ Id.
³¹ Id.
³² Rollo, Vol. I, pp. 198-200.
³³ Rollo, pp. 861-862; TSN, 13 August 2007.
³⁴ See Judicial Affidavit of Mr. James W. Franklin; rollo, pp. 287-288.
³⁵ Rollo, Vol. I, p. 482.
³⁶ Id. at 204.
³⁷ Id. at 324-325, 330 and 334.
³⁸ Id. at 387. Judicial Affidavit of Mr. Clemente.
³⁹ Filipinas (Pre-Fab Bldg.) System, Inc. v. MRT Dev 't. Corp., 563 Phil. 184, 218 (2007).