BANGKO SENTRAL NG PILIPINAS, PETITIONER, VS. SKI CONSTRUCTION GROUP, INC., RESPONDENT.

Bangko Sentral ng Pilipinas versus Ski Construction Group

The Case

This is a petition for review filed by the Bangko Sentral ng Pilipinas against Ski Construction Group, Incorporated, arising from a construction arbitration before the Construction Industry Arbitration Commission. The central bank questions the arbitral award that held it liable for overhead and prolongation costs, released retention money, and denied most of its counterclaims, while the contractor defends the award as supported by substantial evidence. The case matters because it teaches when an arbitral tribunal's findings of fact will be disturbed, how the principle of estoppel is confined to extraordinary circumstances, and why a written contract governs the parties even when the result seems harsh.

Procedural History

Ski Construction filed a complaint before the Construction Industry Arbitration Commission after settlement talks failed. The arbitral tribunal rendered its award in January 2009, granting several of the contractor's monetary claims and partly granting the central bank's counterclaims. The central bank then went up to the Supreme Court by petition for review under Rule 43, arguing that the tribunal erred and acted in excess of jurisdiction. The Supreme Court resolved the petition, modifying some aspects of the award.

Facts

Ski Construction was the highest bidder for the rehabilitation and upgrading of the central bank's facilities at its Security Plant Complex. The parties signed two contracts, one for Module 2 at a price of 193,366,357 pesos and one for Module 3 at a price of 47,213,047 pesos. Both contracts stipulated that time was of the essence and that any delay, except those occasioned by fortuitous events, would result in damage and injury to the central bank.

The original completion dates were May 5, 2005 for Module 2 and April 24, 2005 for Module 3. By those dates, the contractor had accomplished only 42.15 percent of Module 2 and 22.97 percent of Module 3. Upon the contractor's request, the completion date for both projects was moved to December 3, 2005. When that date came, only testing and commissioning and close-out documents remained for Module 3, while 92.88 percent of Module 2 was complete and the central bank had occupied portions of it and paid 98 percent of the contract price.

The parties then exchanged communications over unpaid variations, labor and material adjustments, value added tax differentials, prolongation costs, and retention money of 23,800,000 pesos. The central bank refused most claims, and the contractor filed its complaint before the arbitral tribunal, invoking the general conditions of contract and the Civil Code provisions on reasonable compensation for additional work.

Issues

• Whether or not the arbitral tribunal's findings of fact are binding on the Supreme Court.
• Whether or not the principle of estoppel may be used to hold the central bank liable for the defective roof deck slab and the resulting overhead costs.
• Whether or not the contractor is entitled to time extensions and prolongation costs for Module 2 from December 3, 2005 to August 24, 2007.
• Whether or not the central bank is entitled to liquidated damages for the delay in Module 2.
• Whether or not the retention money should be released to the contractor.

Applicable Provisions

Article 1311 of the Civil Code, on the binding force of contracts, provides:

Contracts are valid and binding between the parties, and their validity or compliance cannot be left to the will of one of them.

This provision anchors the Court's ruling that the general conditions of contract are the law between the parties and must be enforced.

Article 1311 also embodies the relativity of contracts, which provides:

Contracts take effect only between the parties, their assigns and heirs.

This provision bars extending the third-party consultant's findings to the central bank, which was not a party to that stipulation.

Ruling

On the first issue, the Court held that findings of fact of an adjudicative body like the arbitral tribunal are generally binding and conclusive on appellate courts, but only when supported by substantial evidence. Here, the tribunal based some conclusions on estoppel despite material evidence and applicable contract provisions, so the doctrine did not shield the award.

On the second issue, the Court ruled that estoppel applies only from necessity and in extraordinary circumstances, and never where the facts negate it. The tribunal relied on the agreement engaging the third-party consultant, but there was no showing that the design consultant consented to be bound, and the stipulation expressly bound only the consultant and the contractor. The relativity of contracts precludes that agreement from favoring or prejudicing the central bank, a third person.

On the third issue, the Court held that the contractor was not entitled to the disputed extension and prolongation costs for Module 2, because the tribunal's reliance on estoppel was unwarranted and the contract provisions governed instead.

On the fourth issue, the Court found that the central bank was entitled to liquidated damages for the delay in Module 2, contrary to the tribunal's denial.

On the fifth issue, the Court held that the retention money could not be released as ordered, since the contractor remained liable for liquidated and other damages.

Doctrine

First, findings of fact of an administrative or arbitral body are binding on appellate courts only when supported by substantial evidence. Second, estoppel is applied only from necessity and in extraordinary circumstances, and never where the established facts negate it. Third, a contract is the law between the parties and courts must enforce it, even if unwise or unfavorable, as Article 1311 provides. Fourth, under the relativity of contracts, a stipulation cannot favor or prejudice third persons who did not consent to it.

Disposition

The petition was partially granted, and the Supreme Court modified the arbitral award in favor of the central bank on the roof deck slab, overhead costs, liquidated damages, and retention money.

Remember This

Memorize this line: estoppel applies only from necessity and in extraordinary circumstances, never where the facts negate it. Examiners use this case to test the limits of an arbitral tribunal's factual findings and the relativity of contracts under Article 1311.