National Steel Corporation v. Regional Trial Court of Lanao del Norte, Branch 2, Iligan City
REITERATIONFacts
The Antecedents: National Steel Corporation (NSC) and E. Willkom Enterprises, Inc. (EWEI), along with Ramiro Construction, entered into a Contract for Site Development for NSC's Integrated Iron and Steel Mills Complex. Ramiro Construction's services were terminated in 1983, and EWEI took over its contractual obligations. Extensions for the project's completion were granted by NSC. Differences arose, leading EWEI to file a case for payment of P458,381.00, price adjustment under PD 1594, exemplary damages, and attorney's fees. NSC filed an answer with counterclaim. Procedural History: On joint motion, the Regional Trial Court (RTC) dismissed the complaint and counterclaim, ordering the parties to implement Section 19 of the contract, which provided for arbitration. An Arbitration Board was constituted. The Board rendered a decision directing NSC to pay EWEI P458,381.00 (last billing) with interest, P1,335,514.20 (price escalation) with interest, P50,000.00 for exemplary damages, P350,000.00 for attorney's fees, and P35,000.00 for costs of arbitration. The RTC, in Civil Case No. II-2198, affirmed and confirmed the Arbitrators' Award en toto and ordered entry of judgment. In Special Proceeding No. II-2206, the RTC dismissed NSC's petition to vacate the award. NSC's motion for reconsideration was denied. The Petition: NSC filed a Petition for Certiorari with Prayer for Preliminary Injunction & Temporary Restraining Order before the Supreme Court, assailing the RTC's decision, arguing that the lower court acted with grave abuse of discretion in not vacating the arbitrator's award. The pivot of inquiry was whether the lower court acted with grave abuse of discretion.
Issue(s)
Whether the Regional Trial Court acted with grave abuse of discretion in not vacating the arbitrator's award, and whether there was evident partiality in the arbitrator's decision in favor of EWEI. Whether there was a mistaken appreciation of facts and application of law by the Arbitrators regarding the payment of EWEI's last billing, and the applicable interest rate. Whether EWEI is entitled to price escalation under PD 1594, and the applicable interest rate. Whether the awards for exemplary damages and attorney's fees are proper. Whether the stipulated interest rate of 1-1/4% per month is justified regarding EWEI's last billing. Whether the stipulated interest rate of 1-1/4% per month is justified regarding price escalation.
Ruling
The Supreme Court modified the decision of the Regional Trial Court. The awards for Billing No. 16-Final and price adjustment were ordered to be paid with legal interest of six percent (6%) per annum from January 1, 1985, until the decision becomes final and executory. The awards for exemplary damages and attorney's fees were deleted. The cost of arbitration of P35,000.00 was affirmed.
Ratio Decidendi
On the issue of grave abuse of discretion and evident partiality: The Court reiterated that voluntary arbitrators act in a quasi-judicial capacity and their findings of fact are accorded respect and even finality if supported by substantial evidence. A petition for certiorari under Rule 65 is not a proper remedy to review the facts found or the law applied by arbitrators unless there is a patent, gross, and prejudicial error amounting to grave abuse of discretion or excess of power. NSC's allegation of evident partiality was anemic of evidentiary support. The records showed that both parties declared no partiality in the conduct of hearings, and NSC was not deprived of the right to present evidence. The trial court correctly found that the Board of Arbitrators did not commit evident partiality, and its conclusions were well-founded and supported by substantial evidence. Every reasonable intendment will be indulged to give effect to the proceedings and the integrity of the arbitrators' acts. On the issue of mistaken appreciation of facts and application of law regarding EWEI's last billing, and the applicable interest rate: The Court found that NSC failed to substantiate its claim that EWEI did not complete the work. NSC was required to submit documentary proofs of payment to another contractor for unfinished work but failed to do so. The Arbitrators' evaluation, based on an NSC report, indicated that the work was completed. Furthermore, NSC failed to comply with the contractual requirement of sending a letter within seven days after inspection to specify objections to the work, thus making it unfair to refuse payment to EWEI. The Court, however, found the 1-1/4% monthly interest rate unjustified and applied the legal rate of 6% per annum. On the issue of price escalation under PD 1594, and the applicable interest rate: The Court held that while the contract price was fixed, it did not prohibit future increases or price escalation. Presidential Decree No. 1594 expressly allows price escalation in contracts involving government projects, including those entered into by government-owned or controlled corporations (GOCCs). The Court noted that NSC itself had allowed price escalation to another contractor, Geo Transport and Construction, Inc. (GTCI), as evidenced by an affidavit submitted during the arbitration, which NSC failed to assail within the reglementary period. Therefore, NSC could not evade the application of PD 1594. Similar to the previous award, the Court disallowed the 1-1/4% monthly interest and applied the legal rate of 6% per annum. On the issue of exemplary damages and attorney's fees: The Court deleted the awards for exemplary damages and attorney's fees. For exemplary damages, the act must be accompanied by bad faith or done in a wanton, fraudulent, oppressive, or malevolent manner. NSC's refusal to pay was based on its belief that the work was not completed, which was not wanton or in evident bad faith. The payment of legal interest would suffice to compensate EWEI for the delay. For attorney's fees, the award without justification is a conclusion without a premise, and the P350,000 "fixed counsel's fee" was disallowed as it lacked proper basis. On the interest rate regarding EWEI's last billing: The Court found the 1-1/4% monthly interest rate imposed by the Arbitrators and affirmed by the RTC to be unjustified. It held that in the absence of a stipulation to the contrary, the legal rate of interest on monetary obligations not arising from loans or forbearance of credit or goods is 6% per annum. This rate was applied to the last billing, from January 1, 1985, until the decision becomes final and executory. On the interest rate regarding price escalation: The Court found the 1-1/4% monthly interest rate imposed by the Arbitrators and affirmed by the RTC to be unjustified. It held that in the absence of a stipulation to the contrary, the legal rate of interest on monetary obligations not arising from loans or forbearance of credit or goods is 6% per annum. This rate was applied to the price escalation, from January 1, 1985, until the decision becomes final and executory.
Main Doctrine
The Supreme Court will not review the facts found nor even the law as interpreted or applied by an arbitrator unless the supposed errors of fact or of law are so patent and gross and prejudicial as to amount to a grave abuse of discretion or an excess of power. The grounds for vacating an arbitrator's award are specifically enumerated in Section 24 of Republic Act No. 876, and the burden of proof rests upon the party seeking to vacate the award.