This action might not be possible to undo. Are you sure you want to continue?
COURT OF APPEALS and FAR EAST BANK & TRUST CO., INC. respondents. BUENA, J.: This appeal by certiorari under Rule 45 of the Rules of Court seeks to annul and set aside the decision 1 of the Court of Appeals 2 dated January 21, 1994 in CA-G.R. SP No. 29725, dismissing the petition for certiorari filed by petitioner to annul the two (2) orders issued by the Regional Trial Court of Makati 3 in Civil Case No. 92-145, the first, dated April 30, 1992, denying petitioner's motion to dismiss and the second, dated October 1, 1992 denying petitioner's motion for reconsideration thereof. The pertinent facts may be briefly stated as follows: Victor Tancuan, one of the defendants in Civil Case No. 92-145, issued Home Bankers Savings and Trust Company (HBSTC) check No. 193498 for P25,250,000.00 while Eugene Arriesgado issued Far East Bank and Trust Company (FEBTC) check Nos. 464264, 464272 and 464271 for P8,600,000.00, P8,500,000.00 and P8,100,000.00, respectively, the three checks amounting to P25,200,000.00. Tancuan and Arriesgado exchanged each other's checks and deposited them with their respective banks for collection. When FEBTC presented Tancuan's HBSTC check for clearing, HBSTC dishonored it for being "Drawn Against Insufficient Funds." On October 15, 1991, HBSTC sent Arriesgado's three (3) FEBTC checks through the Philippine Clearing House Corporation (PCHC) to FEBTC but was returned on October 18, 1991 as "Drawn Against Insufficient Funds." HBSTC received the notice of dishonor on October 21, 1991 but refused to accept the checks and on October 22, 1991, returned them to FEBTC through the PCHC for the reason "Beyond Reglementary Period," implying that HBSTC already treated the three (3) FEBTC checks as cleared and allowed the proceeds thereof to be withdrawn. 4 FEBTC demanded reimbursement for the returned checks and inquired from HBSTC whether it had permitted any withdrawal of funds against the unfunded checks and if so, on what date. HBSTC, however, refused to make any reimbursement and to provide FEBTC with the needed information. Thus, on December 12, 1991, FEBTC submitted the dispute for arbitration before the PCHC Arbitration Committee, 5 under the PCHC's Supplementary Rules on Regional Clearing to which FEBTC and HBSTC are bound as participants in the regional clearing operations administered by the PCHC. 6 On January 17, 1992, while the arbitration proceeding was still pending, FEBTC filed an action for sum of money and damages with preliminary attachment 7 against HBSTC, Robert Young, Victor Tancuan and Eugene Arriesgado with the Regional Trial Court of Makati, Branch 133. A motion to dismiss was filed by HBSTC claiming that the complaint stated no cause of action and accordingly ". . . should be dismissed because it seeks to enforce an arbitral award which as yet does not exist." 8 The trial court issued an omnibus order dated April 30, 1992 denying the motion to dismiss and an order dated October 1, 1992 denying the motion for reconsideration. On December 16, 1992, HBSTC filed a petition for certiorari with the respondent Court of Appeals contending that the trial court acted with grave abuse of discretion amounting to lack of jurisdiction in denying the motion to dismiss filed by HBSTC. In a Decision 9 dated January 21, 1994, the respondent court dismissed the petition for lack of merit and held that "FEBTC can reiterate its cause of action before the courts which it had already raised in the arbitration case" 10 after finding that the complaint filed by FEBTC ". . . seeks to collect a sum of money from HBT [HBSTC] and not to enforce or confirm an arbitral award." 11 The respondent court observed that "[i]n the Complaint, FEBTC applied for the issuance of a writ of preliminary attachment over HBT's [HBSTC] property" 12 and citing section 14 of Republic Act No. 876, otherwise known as the Arbitration Law, maintained that "[n]ecessarily, it has to reiterate its main cause of action for sum of money against HBT
[HBSTC]," 13 and that "[t]his prayer for conservatory relief [writ of preliminary attachment] satisfies the requirement of a cause of action which FEBTC may pursue in the courts." 14 Furthermore, the respondent court ruled that based on section 7 of the Arbitration Law and the cases of National Union Fire Insurance Company of Pittsburg vs. Stolt-Nielsen Philippines, Inc., 15 and Bengson vs. Chan, 16 ". . . when there is a condition requiring prior submission to arbitration before the institution of a court action, the complaint is not to be dismissed but should be suspended for arbitration." 17 Finding no merit in HBSTC's contention that section 7 of the Arbitration Law ". . . contemplates a situation in which a party to an arbitration agreement has filed a court action without first resorting to arbitration, while in the case at bar, FEBTC has initiated arbitration proceedings before filing a court action," the respondent court held that ". . . if the absence of a prior arbitration may stay court action, so too and with more reason, should an arbitration already pending as obtains in this case stay the court action. A party to a pending arbitral proceeding may go to court to obtain conservatory reliefs in connection with his cause of action although the disposal of that action on the merits cannot as yet be obtained." 18 The respondent court discarded Puromines, Inc. vs. Court of Appeals, 19 stating that ". . . perhaps Puromines may have been decided on a different factual basis." 20 In the instant petition, 21 petitioner contends that first, "no party litigant can file a non-existent complaint," 22 arguing that ". . . one cannot file a complaint in court over a subject that is undergoing arbitration." 23 Second, petitioner submits that "[s]ince arbitration is a special proceeding by a clear provision of law, 24 the civil suit filed below is, without a shadow of doubt, barred by litis pendentia and should be dismissed de plano insofar as HBSTC is concerned." 25 Third, petitioner insists that "[w]hen arbitration is agreed upon and suit is filed without arbitration having been held and terminated, the case that is filed should be dismissed," 26 citing Associated Bank vs. Court of Appeals, 27 Puromines, Inc. vs. Court of Appeals, 28 as and Ledesma vs. Court of Appeals. 29 Petitioner demurs that the Puromines ruling was deliberately not followed by the respondent court which claimed that: xxx xxx xxx It would really be much easier for Us to rule to dismiss the complaint as the petitioner here seeks to do, following Puromines. But with utmost deference to the Honorable Supreme Court, perhaps Puromines may have been decided on a different factual basis. xxx xxx xxx 30 Petitioner takes exception to FEBTC's contention that Puromines cannot modify or reverse the rulings in National Union Fire Insurance Company of Pittsburg vs. Stolt-Nielsen Philippines, Inc., 31 and Bengson vs. Chan, 32 where this Court suspended the action filed pending arbitration, and argues that "[s]ound policy requires that the conclusion of whether a Supreme Court decision has or has not reversed or modified [a] previous doctrine, should be left to the Supreme Court itself; until then, the latest pronouncement should prevail." 33 Fourth, petitioner alleges that the writ of preliminary attachment issued by the trial court is void considering that the case filed before it "is a separate action which cannot exist," 34 and ". . . there is even no need for the attachment as far as HBSTC is concerned because such automatic debit/credit procedure 35 may be regarded as a security for the transactions involved and, as jurisprudence confirms, one requirement in the issuance of an attachment [writ of preliminary attachment] is that the debtor has no sufficient security." 36 Petitioner asserts further that a writ of preliminary attachment is unwarranted because no ground exists for its issuance. According to petitioner, ". . . the only allegations against it [HBSTC] are that it refused to refund the amounts of the checks of FEBTC and that it knew about the fraud perpetrated by the other defendants," 37 which, at best, constitute only "incidental fraud" and not causal fraud which justifies the issuance of the writ of preliminary attachment.
Private respondent FEBTC, on the other hand, contends that ". . . the cause of action for collection [of a sum of money] can coexist in the civil suit and the arbitration [proceeding]" 38 citing section 7 of the Arbitration Law which provides for the stay of the civil action until an arbitration has been had in accordance with the terms of the agreement providing for arbitration. Private respondent further asserts that following section 4(3), article VIII 39 of the 1987 Constitution, the subsequent case of Puromines does not overturn the ruling in the earlier cases of National Union Fire Insurance Company of Pittsburg vs. Stolt-Nielsen Philippines, Inc., 40 and Bengson vs. Chan, 41 hence, private respondent concludes that the prevailing doctrine is that the civil action must be stayed rather than dismissed pending arbitration. In this petition, the lone issue presented for the consideration of this Court is: WHETHER OR NOT PRIVATE RESPONDENT WHICH COMMENCED AN ARBITRATION PROCEEDING UNDER THE AUSPICES OF THE PHILIPPINE CLEARING HOUSE CORPORATION (PCHC) MAY SUBSEQUENTLY FILE A SEPARATE CASE IN COURT OVER THE SAME SUBJECT MATTER OF ARBITRATION DESPITE THE PENDENCY OF THAT ARBITRATION, SIMPLY TO OBTAIN THE PROVISIONAL REMEDY OF ATTACHMENT AGAINST THE BANK THE ADVERSE PARTY IN THE ARBITRATION PROCEEDING. 42 We find no merit in the petition. Section 14 of Republic Act 876, otherwise known as the Arbitration Law, allows any party to the arbitration proceeding to petition the court to take measures to safeguard and/or conserve any matter which is the subject of the dispute in arbitration, thus: Sec. 14. Subpoena and subpoena duces tecum. — Arbitrators shall have the power to require any person to attend a hearing as a witness. They shall have the power to subpoena witnesses and documents when the relevancy of the testimony and the materiality thereof has been demonstrated to the arbitrators. Arbitrators may also require the retirement of any witness during the testimony of any other witness. All of the arbitrators appointed in any controversy must attend all the hearings in that matter and hear all the allegations and proofs of the parties; but an award by the majority of them is valid unless the concurrence of all of them is expressly required in the submission or contract to arbitrate. The arbitrator or arbitrators shall have the power at any time, before rendering the award, without prejudice to the rights of any party to petition the court to take measures to safeguard and/or conserve any matter which is the subject of the dispute in arbitration. (emphasis supplied) Petitioner's exposition of the foregoing provision deserves scant consideration. Section 14 simply grants an arbitrator the power to issue subpoena and subpoena duces tecum at any time before rendering the award. The exercise of such power is without prejudice to the right of a party to file a petition in court to safeguard any matter which is the subject of the dispute in arbitration. In the case at bar, private respondent filed an action for a sum of money with prayer for a writ of preliminary attachment. Undoubtedly, such action involved the same subject matter as that in arbitration, i.e., the sum of P25,200,000.00 which was allegedly deprived from private respondent in what is known in banking as a "kiting scheme." However, the civil action was not a simple case of a money claim since private respondent has included a prayer for a writ of preliminary attachment, which is sanctioned by section 14 of the Arbitration Law. Petitioner cites the cases of Associated Bank vs. Court of Appeals, 43 Puromines, Inc. vs. Court of Appeals, 44 and Ledesma vs. Court of Appeals 45 in contending that "[w]hen arbitration is agreed upon and suit is filed without arbitration having been held and terminated, the case that is filed should be dismissed." 46 However, the said cases are not in point. In Associated Bank, we affirmed the dismissal of the third-party complaint filed by Associated Bank against Philippine
Commercial International Bank, Far East Bank & Trust Company, Security Bank and Trust Company, and Citytrust Banking Corporation for lack of jurisdiction, it being shown that the said parties were bound by the Clearing House Rules and Regulations on Arbitration of the Philippine Clearing House Corporation. In Associated Bank, we declared that: . . . . . .. Under the rules and regulations of the Philippine Clearing House Corporation (PCHC), the mere act of participation of the parties concerned in its operations in effect amounts to a manifestation of agreement by the parties to abide by its rules and regulations. As a consequence of such participation, a party cannot invoke the jurisdiction of the courts over disputes and controversies which fall under the PCHC Rules and Regulations without first going through the arbitration processes laid out by the body. 47 (emphasis supplied) And thus we concluded: Clearly therefore, petitioner Associated Bank, by its voluntary participation and its consent to the arbitration rules cannot go directly to the Regional Trial Court when it finds it convenient to do so. The jurisdiction of the PCHC under the rules and regulations is clear, undeniable and is particularly applicable to all the parties in the third party complaint under their obligation to first seek redress of their disputes and grievances with the PCHC before going to the trial court. 48 (emphasis supplied) Simply put, participants in the regional clearing operations of the Philippine Clearing House Corporation cannot bypass the arbitration process laid out by the body and seek relief directly from the courts. In the case at bar, undeniably, private respondent has initiated arbitration proceedings as required by the PCHC rules and regulations, and pending arbitration has sought relief from the trial court for measures to safeguard and/or conserve the subject of the dispute under arbitration, as sanctioned by section 14 of the Arbitration Law, and otherwise not shown to be contrary to the PCHC rules and regulations. Likewise, in the case of Puromines, Inc. vs. Court of Appeals, 49 we have ruled that: In any case, whether the liability of respondent should be based on the sales contract or that of the bill of lading, the parties are nevertheless obligated to respect the arbitration provisions on the sales contract and/or bill of lading. Petitioner being a signatory and party to the sales contract cannot escape from his obligation under the arbitration clause as stated therein. In Puromines, we found the arbitration clause stated in the sales contract to be valid and applicable, thus, we ruled that the parties, being signatories to the sales contract, are obligated to respect the arbitration provisions on the contract and cannot escape from such obligation by filing an action for breach of contract in court without resorting first to arbitration, as agreed upon by the parties. At this point, we emphasize that arbitration, as an alternative method of dispute resolution, is encouraged by this Court. Aside from unclogging judicial dockets, it also hastens solutions especially of commercial disputes. 50 The Court looks with favor upon such amicable arrangement and will only interfere with great reluctance to anticipate or nullify the action of the arbitrator. 51 WHEREFORE, premises considered, the petition is hereby DISMISSED and the decision of the court a quo is AFFIRMED.SO ORDERED.
SECOND DIVISION G.R. No. 179537 October 23, 2009 PHILIPPINE ECONOMIC ZONE AUTHORITY, Petitioner, vs. EDISON (BATAAN) COGENERATION CORPORATION, Respondent. DECISION CARPIO MORALES, J.: Petitioner Philippine Economic Zone Authority (PEZA) and Edison (Bataan) Cogeneration Corporation (respondent) entered into a Power Supply and Purchase Agreement (PSPA or agreement) for a 10-year period effective October 25, 1997 whereby respondent undertook to construct, operate, and maintain a power plant which would sell, supply and deliver electricity to PEZA for resale to business locators in the Bataan Economic Processing Zone. In the course of the discharge of its obligation, respondent requested from PEZA a tariff increase with a mechanism for adjustment of the cost of fuel and lubricating oil, which request it reiterated on March 5, 2004. PEZA did not respond to both requests, however, drawing respondent to write PEZA on May 3, 2004. Citing a tariff increase which PEZA granted to the East Asia Utilities Corporation (EAUC), another supplier of electricity in the Mactan Economic Zone, respondent informed PEZA of a violation of its obligation under Clause 4.9 of the PSPA not to give preferential treatment to other power suppliers. After the lapse of 90 days, respondent terminated the PSPA, invoking its right thereunder, and demanded P708,691,543.00 as pre-termination fee. PEZA disputed respondent‘s right to terminate the agreement and refused to pay the pre-termination fee, prompting respondent to request PEZA to submit the dispute to arbitration pursuant to the arbitration clause of the PSPA. Petitioner refused to submit to arbitration, however, prompting respondent to file a Complaint against PEZA for specific performance before the Regional Trial Court (RTC) of Pasay, alleging that, inter alia: xxxx 4. Under Clauses 14.1 and 14.2 of the Agreement, the dispute shall be resolved through arbitration before an Arbitration Committee composed of one representative of each party and a third member who shall be mutually acceptable to the parties: x x x xxx 5. Conformably with the Agreement, plaintiff notified defendant in a letter dated September 6, 2004 requesting that the parties submit their dispute to arbitration. In a letter dated September 8, 2004, which defendant received on the same date, defendant unjustifiably refused to comply with the request for arbitration, in violation of its undertaking under the Agreement. Defendant likewise refused to nominate its representative to the Arbitration Committee as required by the Agreement. 6. Under Section 8 of Republic Act No. 876 (1953), otherwise known as the Arbitration Law, (a) if either party to the contract fails or refuses to name his arbitrator within 15 days after receipt of the demand for arbitration; or (b) if the arbitrators appointed by each party to the contract, or appointed by one party to the contract and by the proper court, shall fail to agree upon or to select the third arbitrator, then this Honorable Court shall appoint the arbitrator or arbitrators.2 (Emphasis and underscoring supplied) Respondent accordingly prayed for judgment
x x x (a) designating (i) an arbitrator to represent defendant; and (ii) the third arbitrator who shall act as Chairman of the Arbitration Committee; and (b) referring the attached Request for Arbitration to the Arbitration Committee to commence the arbitration. 3 and for other just and equitable reliefs. In its Answer,4 PEZA (hereafter petitioner): 1. ADMIT[TED] the allegations in paragraphs 1, 2, 3, 4, and 6 of the complaint, with the qualification that the alleged dispute subject of the plaintiff‘s Request for Arbitration dated October 20, 2004 is not an arbitrable issue, considering that the provision on pre-termination fee in the Power Sales and Purchase Agreement (PSPA), is gravely onerous, unconscionable, greatly disadvantageous to the government, against public policy and therefore invalid and unenforceable. 2. ADMIT[TED] the allegation in paragraph 5 of the complaint with the qualification that the refusal of the defendant to arbitrate is justified considering that the provision on the pre-termination fee subject of the plaintiff‘s Request for Arbitration is invalid and unenforceable. Moreover, the pre-termination of the PSPA is whimsical, has no valid basis and in violation of the provisions thereof, constituting breach of contract on the part of the plaintiff.5 (Emphasis and underscoring supplied) Xxxx Respondent thereafter filed a Reply and Motion to Render Judgment on the Pleadings,6 contending that since petitioner x x x does not challenge the fact that (a) there is a dispute between the parties; (b) the dispute must be resolved through arbitration before a three-member arbitration committee; and (c) defendant refused to submit the dispute to arbitration by naming its representative in the arbitration committee, judgment may be rendered directing the appointment of the two other members to complete the composition of the arbitration committee that will resolve the dispute of the parties.71avvphi1 By Order of April 5, 2005, Branch 118 of the Pasay City RTC granted respondent‘s Motion to Render Judgment on the Pleadings, disposing as follows: WHEREFORE, all the foregoing considered, this Court hereby renders judgment in favor of the plaintiff and against the defendant. Pursuant to Section 8 of RA 876, also known as the Arbitration Law, and Power Sales and Purchase Agreement, this Court hereby appoints, subject to their agreement as arbitrators, retired Supreme Court Chief Justice Andres Narvasa, as chairman of the committee, and retired Supreme Court Justices Hugo Gutierrez, and Justice Jose Y. Feria, as defendant‘s and plaintiff‘s representative, respectively, to the arbitration committee. Accordingly, let the Request for Arbitration be immediately referred to the Arbitration Committee so that it can commence with the arbitration. SO ORDERED.8 (Underscoring supplied) On appeal,9 the Court of Appeals, by Decision of April 10, 2007, affirmed the RTC Order.10 Its Motion for Reconsideration11 having been denied,12 petitioner filed the present Petition for Review on Certiorari,13 faulting the appellate court
to Provide for the Appointment of Arbitrators and the Procedure for Arbitration in Civil Controversies. DESPITE THE FACT THAT PETITIONER‘S ANSWER TENDERED AN ISSUE. including arbitrator‘s fees. the proceeding shall be dismissed. No.16 (Emphasis in the original. f. . the petition is DENIED. b. modified. Hearing by court. We add that when it was declared in G. The question of validity of the contract containing the agreement to submit to arbitration will affect the applicability of the arbitration clause itself. viz: a. seeks to avoid. e. Climax Mining Ltd. No.543. Irrespective of the fact that the main contract is invalid. Five days notice in writing of the hearing of such application shall be served either personally or by registered mail upon the party in default. WHEREFORE. No. 876 "explicitly confines the court‘s authority only to the determination of whether or not there is an agreement in writing providing for arbitration. Indeed. which was for the nullification of the main contract on the ground of fraud. enunciates that an arbitration agreement is independent of the main contract. Whether or not the interest of Claimant in the project or its economic return in its investment was materially reduced as a result of any laws or regulations of the Philippine Government or any agency or body under its control. 161957. II . x x x x (Underscoring supplied) R.18 The ruling in Gonzales was." 15 Given petitioner‘s admission of the material allegations of respondent‘s complaint including the existence of a written agreement to resolve disputes through arbitration. 17 which declared that the therein complaint should be brought before the regular courts. Hence. or that there is no default in the proceeding thereunder. . SO ORDERED. Claimant is entitled to terminate the Agreement.19 (Emphasis and underscoring supplied) It bears noting that respondent does not seek to nullify the main contract. the arbitration clause/agreement still remains valid and enforceable. The arbitration agreement is to be treated as a separate agreement and the arbitration agreement does not automatically terminate when the contract of which it is a part comes to an end.R. as it involved a judicial issue. Even assuming arguendo that the clause is illegal. as it had already been determined that the case should have been brought before the regular courts involving as it did judicial issues. we now hold that the validity of the contract containing the agreement to submit to arbitration does not affect the applicability of the arbitration clause itself. WHEN IT DISMISSED PETITIONER‘S APPEAL AND AFFIRMED THE 05 APRIL 2004 ORDER OF THE TRIAL COURT WHICH RENDERED JUDGMENT ON THE PLEADINGS. shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement.R. does not affect the validity of the arbitration agreement.691. c. an order shall be made summarily directing the parties to proceed with the arbitration in accordance with the terms thereof. A party cannot rely on the contract and claim rights or obligations under it and at the same time impugn its existence or validity. That is exactly the situation that the separability doctrine. on motion for reconsideration filed by the parties. and for Other Purposes" which reads: SECTION 6. Petitioner argues that it tendered an issue in its Answer as it disputed the legality of the pretermination fee clause of the PSPA. The doctrine of separability. in this wise: x x x The adjudication of the petition in G. Whether or not the parties failed to reach an agreement on the amendments to the Agreement within 90 days from notice to respondent on May 3. as well as jurisprudence applying it.I . litigants are enjoined from taking inconsistent positions. citing Gonzales v. Held the Court: We agree that the case should not be brought under the ambit of the Arbitration Law xxx. neglect or refusal of another to perform under an agreement in writing providing for arbitration may petition the court for an order directing that such arbitration proceed in the manner provided for in such agreement. Claimant is entitled to terminate the Agreement. also referred to as the "container" contract. administrative expenses and legal fees. .14 (Underscoring supplied) The petition fails. 167994 effectively modifies part of the Decision dated 28 February 2005 in G. the assailed appellate court‘s affirmance of the trial court‘s grant of respondent‘s Motion for Judgment on the Pleadings is in order. Whether or not as a result of (a) and (b) above. the doctrine denotes that the invalidity of the main contract. No.R. 161957 that the case should not be brought for arbitration. Indeed. The court shall hear the parties. "An Act to Authorize the Making of Arbitration and Submission Agreements. or severability as other writers call it. Whether or not Respondent accorded preferential treatment to EAUC in violation of the Agreement.00. . 2004 of the material reduction in claimant‘s economic return under the Agreement. it would not affect the agreement between petitioner and respondent to resolve their dispute by arbitration. 876. Whether or not Claimant is entitled to a termination fee equivalent to P708. It merely submits these issues for resolution by the arbitration committee.A. A contrary ruling would suggest that a party‘s mere repudiation of the main contract is sufficient to avoid arbitration. the complaint should have been filed before the regular courts as it involved issues which are judicial in nature. and upon being satisfied that the making of the agreement or such failure to comply therewith is not in issue. the issues raised by respondent are subject to arbitration in accordance with the arbitration clause in the parties‘ agreement. however. The dispute raised by respondent calls for a proceeding under Section 6 of Republic Act No. . underscoring supplied) Petitioner nevertheless contends that the legality of the pre-termination fee clause is not arbitrable. and g. The separability of the arbitration agreement is especially significant to the determination of whether the invalidity of the main contract also nullifies the arbitration clause. If the finding be that a written provision for arbitration was made and there is a default in proceeding thereunder. WHEN IT AFFIRMED THE ORDER OF THE TRIAL COURT WHICH REFERRED RESPONDENT‘S REQUEST FOR ARBITRATION DESPITE THE FACT THAT THE ISSUE PRESENTED BY THE RESPONDENT IS NOT AN ARBITRABLE ISSUE. As previously discussed. — A party aggrieved by the failure. Whether or not as a result of (d) above. If the finding be that no agreement in writing providing for arbitration was made. If the making of the agreement or default be in issue the court shall proceed to summarily hear such issue. d. 20 In fine. and not before an arbitral tribunal. Who between Claimant and Respondent shall bear the cost and expenses of the arbitration. it should be clarified that the case referred to is the case actually filed by Gonzales before the DENR Panel of Arbitrators.
913. . On the other hand. Undaunted. put them under estoppel and cannot recover the proceeds of the checks against it. HON. and that third party plaintiff is barred from recovering from it base on the provisions of Sections 20 and 21 of the Philippine Clearing Rules and Regulations. PCHC Clearing House Rules and Regulations.: This is a petition for review on certiorari seeking the reversal of the decision of the Court of Appeals on November 18. Quezon City. In its Answer to the Third-Party Complaint. Br.FIRST DIVISION G. FAR EAST BANK & TRUST CO. and CITYTRUST BANKING CORPORATION. The facts of the case. Answering the complaint. HON. contribution. Philippine Commercial International Bank alleged that the subject check was complete and regular on its face and was paid by it only upon presentment to the drawee bank for clearing who. PHILIPPINE COMMERCIAL INTERNATIONAL BANK. respondents. 5 After the trial court denied plaintiffs Motion for Reconsideration. ASUNCION FLORES. as Presiding Judge of RTC. upon examination thereof. and plaintiff must suffer the loss as their negligence was the proximate cause thereof. Consequently this court has no jurisdiction over the third party complaint. applicable to Third-Party plaintiff and third party defendant. petitioner is now before this Court seeking a review of respondent court‘s decision on a lone assignment of error: . With leave of court.R. that it was only after said check was cleared by third-party plaintiff for payment that it allowed the payee to withdraw the proceeds of the check from its account. Security Bank and Trust Company and Citytrust Banking Corporation for reimbursement. plaintiffs 1 seek the recovery of the amount of P900. Branch 91 dismissing the petitioner‘s third-party complaint against private respondent banks for lack of jurisdiction. the provisions of the clearing house rules and regulations on arbitration are. vs. an innocent third-party. J. if any. as provided for in Section 17. 91. defendant bank claimed that the subject checks appeared to have been regularly issued and free from any irregularity which would excite or arouse any suspicion or warrant their dishonor when the same were negotiated and honored by it. KAPUNAN. care and the prescribed standard verification procedures before finally accepting and honoring the subject checks and that the proximate cause of plaintiffs‘ loss. Far East Bank & Trust Company. 91. MARINA L. MM. that it observed and exercised the required diligence. xxx xxx xxx As the plaintiffs are not parties to the third party complaint. COURT OF APPEALS. together with the returned checks and their own check stubs. 107918 June 14. 1992 dismissing the petition for lack of merit. indemnity from said third-party defendants for being the collecting banks of the subject checks and by virtue of their bank guarantee for all checks sent for clearing to the Philippine Clearing House Corporation (PCHC). defendant bank filed a Third-Party Complaint against Philippine Commercial International Bank. separate and distinct from the plaintiff‘s complaint. was their own laxity. MM. found the same to be complete and regular on its face. petitioner. (PCHC). the name Filipinas Shell was erased and substituted with Ever Trading and DBL Trading by their supervisor Jeremias Cabrera. VISITACION SERRA FLORES RTC. due care and diligence in the conduct of their business affairs. that this Court has no jurisdiction over the suit as it and third-party plaintiff are members of the Philippine Clearing House and bound by the Rules and Regulations thereof providing for arbitration. . although a "Reply To FEBTC Answer" was filed by third-party plaintiff. that the cause of action of the third-party plaintiff is barred by estoppel and/or laches for its failure to return the check to it within the period provided for under Clearing House Rules and Regulations. and that it was released from any liability with the acceptance by third-party plaintiff of the subject check. . The record does not show of any Answer to the Third-Party Complaint having been filed by Far East Bank & Trust Company. negligence and lack of control.. as provided for in Section 17. whereas the plaintiffs are private persons and the third-party complaint between participating member banks is only a consequence of the original action initiated by the plaintiffs. third-party plaintiff maintains that this Court has jurisdiction over the suit as the provisions of the Clearing House Rules and Regulations are applicable only if the suit or action is between participating member banks. 1994 ASSOCIATED BANK. 6 petitioner appealed to the Court of Appeals which promulgated the challenged decision on November 18. No. Quezon City. without their knowledge and consent. therefore. that plaintiffs‘ fault and negligence in failing to examine their monthly bank statements. as found by both the trial court and the Court of Appeals are undisputed: In a complaint for Violation of the Negotiable Instrument Law and Damages. 1992 affirming in toto the Order of the Regional Trial Court of Quezon City. SECURITY BANK & TRUST CO. 3 The trial court dismissed the third-party complaint for lack of jurisdiction citing Section 36 of the Clearing House Rules and Regulations of the PCHC providing for settlement of disputes and controversies involving any check or item cleared through the body with the PCHC. Br. that is. A Motion To Dismiss was filed by Security Bank and Trust Company on the grounds that third-party plaintiff failed to resort to arbitration as provided for in Section 36 of the Clearing House Rules and Regulations of the Philippine Clearing House Corporation. Citytrust Banking Corporation averred that the subject checks appeared to be complete and regular on their face with no indication that an original payee‘s name was erased and superimposed with another. 4 On the plaintiffs‘ contention that jurisdiction vests with the court only if the suit or action is between participating member banks without the involvement of private parties the trial court held: The third-party complaint concerning a dispute or controversy among clearing participants involving the subject checks cleared through PCHC is actually independent of. It ruled — citing the Arbitration Rules of Procedure — that the decision or award of the PCHC through its arbitration committee/arbitrator is appealable only on questions of law to any of the Regional Trial Courts in the National Capital Region where the head office of any of the parties is located. MA. BUZON.60 which defendant bank 2 charged against their current account by virtue of the sixteen (16) checks drawn by them despite the apparent alterations therein with respect to the name of the payee.
We find no merit in the petition.6 is even more emphatic: 36. It is an action "actually independent of. 11 IN VIEW OF THE FOREGOING. 36 — ARBITRATION The Clearing House Rules and Regulations on Arbitration of the Philippine Clearing House Corporation are clearly applicable to petitioner and private respondents. Security Bank and Trust Co. a party cannot invoke the jurisdiction of the courts over disputes and controversies which fall under the PCHC Rules and Regulations without first going through the arbitration processes laid out by the body. It cannot bypass the arbitration process on the basis of its averment that its third party complaint is inextricably linked to the original complaint in the Regional Trial Court. undeniable and is particularly applicable to all the parties in the third party complaint under their obligation to first seek redress of their disputes and grievances with the PCHC before going to the trial court. It is the general agreement and understanding. Co. the Far East Bank and Trust. the PCHC has adopted rules and regulations designed to provide member banks with a procedure whereby disputes involving the clearance of checks and other negotiable instruments undergo a process of arbitration prior to submission to the courts below.1 Any dispute or controversy between two or more clearing participants involving any check/item cleared thru PCHC shall be submitted to the Arbitration Committee. economical and relevant exchange and facilitate service limited to check processing and sorting by way of assisting member banks. Thus. by its voluntary participation and its consent to the arbitration rules cannot go directly to the Regional Trial Court when it finds it convenient to do so. . separate and distinct from the plaintiffs‘ complaint" (s)uch that.6 The fact that a bank participates in the clearing operations of PCHC shall be deemed its written and subscribed consent to the binding effect of this arbitration agreement as if it had done so in accordance with Section 4 of the Republic Act No. in connection with petitioner‘s having honored sixteen checks which said respondent banks supposedly endorsed to the former for collection in 1989. Petitioner Associated Bank‘s third party complaint in the trial court was one for reimbursement. but upon agreement in writing of the complaining party. thereby manifests its agreement to these Rules and Regulations. Finally. Under its Articles of Incorporation." Pursuant to its function involving the clearing of checks and other clearing items. and the CityTrust Banking Corporation (CTBC). Section 36. this does not preclude our lower courts from dealing with questions of fact already decided by the PCHC arbitration when warranted and appropriate. third party plaintiff and defendants. Under the rules and regulations of the Philippine Clearing House Corporation (PCHC). the mere act of participation of the parties concerned in its operations in effect amounts to a manifestation of agreement by the parties to abide by its rules and regulations. respectively. SO ORDERED. While the PCHC Rules and Regulations allow appeal to the Regional Trial Courts only on questions of law. by the mere act of participation. efficient. 3 — AGREEMENT TO THESE RULES 8 36. a participant subject to the Clearing House Rules and Regulations of the PCHC may go on appeal to any of the Regional Trial Courts in the National Capital Region where the head office of any of the parties is located only after a decision or award has been rendered by the arbitration committee or arbitrator on questions of law. The jurisdiction of the PCHC under the rules and regulations is clear. Equitable Banking Corporation this Court had the occasion to rule on the validity of these rules as well as the jurisdiction of the PCHC as a forum for resolving disputes and controversies involving checks and other clearing items when it held that "the participation of two banks. in the court below. Moreover. the PCHC provides "an effective. petitioner Associated Bank. (SBTC). and its subsequent amendments. the petition is DENIED for lack of merit. contribution and indemnity against the Philippine Commercial and Industrial Bank (PCIB). petitioner Associated Bank. In Banco de Oro Savings and Mortgage Banks vs. With costs against petitioner. 876 otherwise known as the Arbitration Law. 10 Clearly therefore. not only do the parties manifest by mere participation their consent to these rules. 7 As a consequence of such participation. . that any participant in the PCHC MICR clearing operations. said extension may be for such period as the latter may agree to. circular letters rules and regulations and policies in pursuance of Section 107 of RA 265. having voluntarily bound itself to abide by such rules and regulations. A third party complaint is a mere procedural device which under the Rules of Court is allowed only with the court‘s permission. upon written complaint of any involved participant by filing the same with the PCHC serving the same upon the other party or parties. is estopped from seeking relief from the Regional Trial Court on the coattails of a private claim and in the guise of a third party complaint without first having obtained a decision adverse to its claim from the said body. . xxx xxx xxx Sec. memoranda. (FEBTC). but such participation is deemed (their) written and subscribed consent to the binding effect of arbitration agreements under the PCHC rules. Since claims relating to the regularity of checks cleared by banking institutions are among those claims which should first be submitted for resolution by the PCHC‘s Arbitration Committee. convenient. This procedure not only ensures a uniformity of rulings relating to factual disputes involving checks and other negotiable instruments but also provides a mechanism for settling minor disputes among participating and member banks which would otherwise go directly to the trial courts. file with the Arbitration Committee its written answer to such written complaint and also within the same period serve the same upon the complaining participant." 9 The applicable PCHC provisions on the question of jurisdiction provide: Sec. in the Clearing Operations of the PCHC (was) a manifestation of its submission to its jurisdiction. were it not for the Rules of Court. it would be necessary to file the action separately from the original complaint by the defendant against the third party. entities in clearing checks and other clearing items as defined and existing in future Central Bank of the Philippines Circulars. the contention that the third party complaint should not have been dismissed for being a necessary and inseparable offshoot of the main case over which the court a quo had already exercised jurisdiction misses the fundamental point about such pleading.RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER DRAWEE BANK‘S THIRD PARTY COMPLAINT AGAINST PRIVATE RESPONDENT COLLECTING BANKS FALL WITHIN THE JURISDICTION OF THE PCHC AND NOT THE REGULAR COURT. This period of fifteen (15) days may be extended by the Committee not more than once for another period of fifteen (15) days. who shall within fifteen (15) days after receipt thereof.
(2) direct the banks to honor and perform their commitments under the alleged FRP. In the course of the trial.. together with the other stockholders of MMIC. Withdrawal and Compromise. develop and exploit nickel. of amount not exceeding US$100 Million. petitioner. DBP and PNB as mortgagees of MMIC assets. the Philippine Government obtained a firm. including taking possession of the mortgaged properties. attorney‘s fees. as amended by Republic Acts No. Article IV of the Mortgage Trust Agreement provides for Events of Default. 9900. JR. vs. Cabarrus. by virtue of which laws. 385. December 29. On February 28. Branch 62.. Kobe Steel. DBP approved guarantees in favor of MMIC and subsequent requests for guarantees were based on the unutilized portion of the Government commitment. for Annulment of Foreclosures. Deeds of Real Estate Mortgages. Cabarrus. 1984 and in the amount of P8. inter alia: NOW. Loans Documents. litigation expenses and costs. over all MMIC‘s assets. Ironically. THEREFORE. 2077 and 4167. during and after foreclosure. including interest). for and in consideration of the foregoing premises and the mutual covenants contain herein. Thus. Deeds of Undertakings. Further.537.792. COURT OF APPEALS. as successor of the DBP and PNB‘s interest in MMIC. J.249. The parties have agreed to withdraw their respective claims from the Trial Court and to resolve their dispute through arbitration by praying to the Trial Court to issue a Compromise Judgment based on this Compromise and Arbitration Agreement. the staggering amount of damages was imposed on the Government for exercising its legitimate right of foreclosure as creditor against the debtor MMIC as a consequence of the latter‘s failure to pay its overdue and unpaid obligation of P22 billion to the Philippine National Bank (PNB) and the Development Bank of the Philippines (DBP). mutually agreed to submit the case to arbitration by entering into a ―Compromise and Arbitration Agreement. MMIC is a domestic corporation engaged in mining with respondents Jesus S. whereby the Republic of the Philippines thru the Surigao Mineral Reservation Board. and (b) as successor and assignee of the PNB and DBP interest in MMIC and the MMIC accounts. In August and September 1984.‖ stipulating. approved or ratified by either PNB or DBP. 1981. and in compliance with the directive of Presidential Decree No. In 1986. be discharged by and be enforceable against APT. private respondents and petitioner APT. MMIC had an outstanding loan with DBP in the amount of P13. The Makati RTC‘s order upheld and confirmed the award made by the Arbitration Committee in favor of Marinduque Mining and Industrial Corporation (MMIC) and against the Government. No. APT shall likewise succeed to the rights and obligations of PNB and DBP in respect of the controversy subject of Civil Case No. nature or description. a Memorandum of Agreement was drawn on July 3. as President and among its original stockholders. JAIME T. docketed as Civil Case No. Jesus S.5 BILLION. a financial restructuring plan (FRP) designed to reduce MMIC'‘ interest expense through debt conversion to equity was drafted by the Sycip Gorres Velayo accounting firm. CABARRUS. these assets were transferred to the Asset Privatization Trust (APT). PNB and DBP executed a Mortgage Trust Agreement whereby MMIC. namely. The antecedent facts of the case The development. In withdrawing their dispute form the court and in choosing to resolve it through arbitration. MMIC.: The petition for review on certiorari before us seeks us to reverse and set aside the decision of the Court of Appeals which denied due course to the petition for certiorari filed by the Asset Privatization Trust (APT) assailing the order of the Regional Trial Court (RTC) Branch 62. In various request for advances/remittances of loans of huge amounts.5 BILLION (or approximately P4. ANTONIO. 1998] ASSET PRIVATIZATION TRUST. in replenishment. circumstances by which the mortgagor may be declared in default. represented by herein petitioner APT for damages in the amount of P2. PASTOR. By 1984. The Philippine Government undertook to support the financing of MMIC by purchase of MMIC debenture and extension of guarantees.. or in addition thereto. as the various loans and advances made by DBP and PNB to MMIC had become overdue and since any restructuring program relative to the loans was no longer feasible. and (3) pay moral and exemplary damages. Specific Performance and Damages.92 as of August 31. 1984 or a total Government exposure of Twenty Two Billion Six Hundred Sixty-Eight Million Five Hundred ThirtySeven Thousand Seven Hundred Seventy and 05/100 (P22. Promissory Notes.668. Nonoc Mining Corporation. filed a derivative suit against DBP and PNB before the RTC of Makati. SR.789. the partied having agreed to drop PNB and DBP from the arbitration.607. the proposed FRP had never been formally adopted.THIRD DIVISION [G. the procedure therefor. subject of real estate and chattel mortgage executed by the mortgagor. 1984. 1968. authority of Trustee before. Article V of the Mortgage Trust Agreement prescribes in detail. JESUS S. as mortgagor. the FRP was approved by the Board of Directors of the MMIC. which the mortgagor may acquire whether in substitution of. MIRANDA. waiver of period to foreclose. and Island Cement Corporation. as Minority Stock Holders of Marinduque Mining and Industrial Corporation. MMIC invariably committed to pay either on demand or under certain terms the loans and accommodations secured from or guaranteed by both DBP and PNB. which expressly includes the event that the MORTGAGOR shall fail to pay any amount secured by this Mortgage Trust Agreement when due. respondents. On July 13.028. 9900 to be transferred to arbitration and any arbitral award/order against either PNB and/or DBP shall be the responsibility of. JESUS S. cobalt and other minerals in the Surigao mineral reservation.. Philippine Currency. DBP and PNB‘s financial exposure both in loans and in equity in MMIC had reached tremendous proportions.770. granted MMIC the exclusive right to explore. and MIGUEL M. Makati City. the parties agreed as follows: 1. Sr. Sr. DECISION KAPUNAN. JR. However. commitment from the DBP and/or other government financing institutions to subscribed in MMIC and issue guarantee/s for foreign loans or deferred payment arrangements secured from the US Eximbank. The foreclosed assets were sold to PNB as the lone bidder and were assigned to three newly formed corporations. and MMIC was having a difficult time meeting its financial obligations. Asian Development Bank. Thereafter.565. and require the banks to account for their use and operation in the interim. 121171. restore the foreclosed assets to MMIC. ANTONIO U. JOSE MIGUEL CABARRUS. CABARRUS.38 as of July 15. the Government extended accommodations to MMIC in various amounts. The suit. prayed that the court: (1) annul the foreclosure. ALEJANDRO S.. and additional assets described and identified. On April 30. .05). including assets of whatever kind. exploration and utilization of the mineral deposits in the Surigao Mineral Reservation have been authorized by Republic Act No. agreed to constitute a mortgage in favor of PNB and DBP as mortgagees.R. Maricalum Mining and Industrial Corporation. the parties have agreed that: (a) their respective money claims shall be reduced to purely money claims. and in addition to the enumerated events of defaults. decided to exercise their right to extrajudicially foreclose the mortgages in accordance with the Mortgage Trust Agreement. 1985. CABARRUS. 1828.
2. In fact. the sum of P10. Issues. which have not been converted into equity. 9900 an ―Application/Motion for Confirmation of Arbitration Award. and 24. Therefore. DBP shall share in the award of damages to. judgment is hereby rendered: 1. The Complaint is hereby DISMISSED. pursuant to paragraph (9) of the Compromise and Arbitration Agreement. Motions for reconsiderations were filed by both parties. to collect the same from MMIC pursuant to and based on the loan documents signed by MMIC. On November 24. As this Committee holds that the FRP is valid. Approving the Compromise and Arbitration Agreement dated October 6.000. 1992. 1984.‖ Petitioner countered with an ―Opposition and Motion to Vacate Judgment‖ raising the following grounds: 1. 1988 or to such subsequent escrow agreement that would supercede [sic] it pursuant to paragraph (9) of the Compromise and Arbitration Agreement. Approving the Transformation of the reliefs prayed for [by] the plaintiffs in this case into pure money claims. Sison and former Court of Appeals Justice Magdangal Elma as Members. and also Exhibit ―ZZZ‖) as their exhibits would show that the total outstanding obligation due to DBP and PNB as of the date of foreclosure is P22. except the DBP. after conducting several hearings. this Court orders: Substituting PNB and DBP with the Asset Privatization Trust as party defendant. This Decision is FINAL and EXECUTORY.531. with the approval of the Trial Court of this Compromise and Arbitration Agreement. and is still entitled to. 2. 9900 shall be submitted instead to arbitration under RA 876 and (b) the reliefs prayed for in Civil Case No. Payment of these actual damages shall be offset by APT from the outstanding and unpaid loans of the MMIC with DBP and PNB. the sum of P13. for the payment and recovery of which the void foreclosure sales were undertaken. more or less. which have not been converted into equity. the same shall be satisfied from the funds representing the purchase price of the sale of the shares of Island Cement Corporation in the amount of P503.000. the Makati RTC. the PNB-DBP foreclosure of the MMIC assets were proper.000. 9900 were the Development Bank of the Philippines and the Philippine National Bank (PNB). with interest thereon as stipulated in the loan documents from the date of foreclosure up to the time they are fully paid less the proportionate liability of DBP as owner of 87% of the total capitalization of MMIC under the FRP.425.000. Branch 62. attached as Annex ―C‖ of the Omnibus Motion. collect the outstanding obligations of MMIC to PNB and DBP amounting to P22. the Committee holds and so declares that the loans of PNB and DBP to MMIC.635. Jose C. as and for actual damages. Should there be any balance due to MMIC after the offsetting. The parties hereby agree that (a) the controversy in Civil Case No. continue to remain outstanding and unpaid.537. This agreement was presented for approval to the trial court. Ordering the defendant to pay to the Marinduque Mining and Industrial Corporation.770.654. more or less. IT IS SO ORDERED. Exhibits ―100‖. Such loans shall. 1992. 9. be transferred and reduced to pure pecuniary/money claims with the parties waiving and foregoing all other forms of reliefs which they prayed for or should have payed for in Civil Case No. Should there be any balance due to the MMIC after the offsetting.425. 1. 1993. the defendants in the said Civil Case No.668. Payment of these moral and exemplary damages shall be offset by APT from the outstanding and unpaid loans of MMIC with DBP and PNB. 1988 or to such subsequent escrow agreement that would supercede it.000. On October 17. and in obligations of MMIC in proportion to its 87% equity in the total capital stock of MMIC. 9900 shall.00 held under escrow pursuant to the Escrow Agreement dated April 22. pari passu. be reduced by the amount which APT may have realized from the sale of the seized assets of MMIC which by agreement should no longer be returned even if the foreclosure were found to be null and void. but the same were denied.00. except the DBP. subject to the legal and valid defenses that the latter may duly and seasonably interpose. as and for moral damages. So pursuant to the above provision of the Compromise and Arbitration Agreement.2. DBP‘s equity in MMIC is raised to 87%.000. 3. Jesus Cabarrus. and including.635. 9900. considering that the said motion is neither a part nor the continuation of the proceedings in Civil Case No. the 87% equity of DBP is hereby deducted from the actual damages of P19. Sr. The Arbitration Committee was composed of retired Supreme Court Justice Abraham Sarmiento as Chairman.770. 9900 which was dismissed upon motion of the parties. private respondents filed in the same Civil Case No. On October 14. The plaintiff‘s Application/Motion is improperly filed with this branch of the Court. 3. Simply put. Ordering the defendant to pay arbitration costs. and 4. the pertinent portions of which read as follows: Since.531. (b) Whether or not the actions leading to.. 1994.486. 1988 or to such subsequent escrow agreement that would supercede [sic] it pursuant to paragraph (9) of the Compromise and Arbitration Agreement. however.118. The documentary evidence submitted and adopted by both parties (Exhibits ―3‖.000.668. ―3-B‖. x x x.02 with interest thereon at the legal rate of six per cent (6%) per annum reckoned from August 3. to be satisfied likewise from the funds held under escrow pursuant to the Escrow Agreement dated April 22. DISPOSITION WHEREFORE.00 resulting in the net actual damages of P2. Ordering the defendant to pay to the plaintiff. issued an order.05. the Arbitration Committee rendered a majority decision in favor of MMIC. premises considered. valid and in good faith. Defendant APT as the successor-in-interest of PNB and DBP to the said loans is therefore entitled and retains the right. there is no foreclosure at all was not legally and validly done. defendant APT can.537. as this Committee finds. . Atty.02 plus interest. Ordering the defendant to pay to the Marinduque Mining and Industrial Corporation. to wit: WHEREFORE. Submission.00 as and for moral and exemplary damages. the sum of P2. the same shall be satisfied from the funds representing the purchase price of the sale of the shares of Island Cement Corporation in the of P503.05. The Compromise and Arbitration Agreement limited the issues to the following: 5.000.00 held under escrow pursuant to the Escrow Agreement dated April 22. and 4. The issues to be submitted for the Committee‘s resolution shall be: (a) Whether PLAINTIFFS have the capacity or the personality to institute this derivative suit in behalf of the MMIC or its directors.
9900 HAD LOST JURISDICTION TO CONFIRM THE ARBITRAL AWARD UNDER THE SAME CIVIL CASE AND IN NOT RULING THAT THE APPLICATION FOR CONFIRMATION SHOULD HAVE BEEN FILED AS A NEW CASE TO BE RAFFLED OFF AMONG THE DIFFERENT BRANCHES OF THE RTC. shall be executed against the APT. 1994 of Committee Member Elma. 8 paragraph 2 of the Compromise and Arbitration Agreement. (not necessarily with this Honorable Court) for an order confirming the award. TO CONFIRM THE ARBITRAL AWARD CONSIDERING THAT THE ORIGINAL CASE. awards. (c) Ordering the defendant to pay to Jesus S. that a mutual final and definite award upon the subject matter submitted to them was not made. and finally settled and clarified in the Separate Opinion dated September 2. Private respondents. arguing that a dismissal of Civil case No. 1988. premises considered.00 as and for moral damages. and the pertinent provisions of RA 876. Petitioner thereafter filed with the Court of Appeals a special civil action for certiorari with temporary restraining order and/or preliminary injunction dated February 13. 1993. and with this Court‘s Confirmation. and (d) Ordering the defendant to pay the herein plaintiffs/applicants/movants the sum of P1. the sum of P10. 1996 to annul and declare as void the Orders of the RTC-Makati dated November 28. the Court of Appeals. and operated simply as ―a mere suspension of the proceedings. II THE RESPONDENT JUDGE COMMITTED GRAVE ABUSE OF DISCRETION AND ACTED WITHOUT OR IN EXCESS OF JURISDICTION. the sum of P3. as affirmed in a Resolution dated July 26.‖ They denied that the Arbitration Committee had exceeded its powers. petitioner received private respondents‘ motion for Execution and Appointment of Custodian of Proceeds of Execution dated February 6. IN ISSUING THE QUESTIONED ORDERS CONFIRMING THE ARBITRAL AWARD AND DENYING THE MOTION FOR RECONSIDERATION OF ORDER OF AWARD. through its fifth Division denied due course and dismissed the petition for certiorari.000. 1994 on December 6. resolutions. the Decision of the Arbitration Committee promulgated on November 24. Sr. 1994. the issuance of the Arbitration Committee‘s Award shall henceforth be final and executory. 1994.‖ On February 7.425.00.00 pursuant to the Escrow Agreement dated April 22. 3. as and for actual damages. 9900. and the final edict of the Arbitration Committee‘s decision. 1994. 9900 was merely a ―qualified dismissal‖ to pave the way for the submission of the controversy to arbitration. The trial court declared that ―considering that the defendant APT through counsel. petitioner alleged that: I THE RESPONDENT JUDGE HAS NOT VALIDLY ACQUIRED JURISDICTION MUCH LESS. 1992.000. except the DBP. The arbitration award sought to be confirmed herein far exceeded the issues submitted and even granted moral damages to one of the herein plaintiffs. BUT FROM RECEIPT OF A XEROX COPY OF WHAT PRESUMABLY IS THE OPPOSING COUNSEL‘S COPY THEREOF.000. 1994. Under Section 24 of Rep. after the escrow funds are fully applied. II THE COURT OF APPEALS LIKEWISE ERRED IN HOLDING THAT PETITIONER WAS ESTOPPED . AND JUDGMENT IS HEREBY RENDERED: (a) Ordering the defendant APT to the Marinduque Mining and Industrial Corporation (MMIC. As ground therefor. which shall be partially satisfied from the funds held under escrow in the amount of P503. the trial court handed down its order denying APT‘s motion for reconsideration for lack of merit and for having been filed out of time. The Balance of the award. or so imperfectly executed them. 1984. or after the lapse of 21 days. Act 876. The issues submitted for arbitration have been limited to two: (1) propriety of the plaintiffs filing the derivative suit and (2) the regularity of the foreclosure proceedings. the instant petition for review on certiorari imputing to the Court of Appeals the following errors. the sum of P13. 1995.000. SO ORDERED. HAS THE COURT AUTHORITY. On July 12. 1995. In an Order dated November 28. 1994. ASSIGNMENT OF ERRORS I THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE MAKATI REGIONAL TRIAL COURT. in turn. (b) Ordering the defendant to pay to the MMIC.also known as the Arbitration Law. Act 876.2. BRANCH 62 WHICH HAS PREVIOULSY DISMISSED CIVIL CASE NO. 10 and Stipulation No. In reiteration of the mandates of Stipulation No. HAD PREVIOUSLY BEEN DISMISSED.22 as arbitration costs. Private respondents filed a ―REPLY AND OPPOSITION‖ dated November 10. NOT FROM THE DATE OF SERVICE OF THE COURT‘S COPY CONFIRMING THE AWARD. an arbitration under a contract or submission shall be deemed a special proceedings and a party to the controversy which was arbitrated may apply to the court having jurisdiction. the Court must make an order vacating the award where the arbitrators exceeded their powers. 1995. submitted their reply and opposition thereto. On December 27. and by necessary implication for the filling of a motion for reconsideration thereof.. the trial court confirmed the award of the Arbitration Committee. except the DBP. Hence. 1994. 4.410. 1995 for having been issued without or in excess of jurisdiction and/or with grave abuse of discretion. III THE RESPONDENT JUDGE GROSSLY ABUSED HIS DISCRETION AND ACTED WITHOUT OR IN EXCESS OF AND WITHOUT JURISDICTION IN RECKONING THE COUNTING OF THE PERIOD TO FILE MOTION FOR RECONSIDERATION. judgments or decisions of any court in all cases. this Court GRANTS PLAINTIFFS‘ APPLICATION AND THUS CONFIRMS THE ARBITRATION AWARD. The dispositive portion of said order reads: WHEREFORE.811. officially and actually received a copy of the Order of this Court dated November 28. and in the light of the parties [sic] Compromise and Arbitration Agreement dated October 6. On January 18. CIVIL CASE NO.705. 1994 and January 18.757.000. Cabarrus.00 as and moral and exemplary damages. petitioner filed its motion for reconsideration of the Order dated November 28. was clearly filed beyond the 15-day reglementary period prescribed or provided for by law for the filing of an appeal from final orders. 1995.000. the Motion for Reconsideration thereof filed by the defendant APT on December 27. Under Section 22 of Rep.
 The term ―dismiss‖ has a precise definition in law. III Appeal of petitioner to the Court of Appeals thru certiorari under Rule 65 was proper.‖ As a rule the. quash. 876. the respondent court erred in dismissing the special civil action for certiorari. We do not agree. or with grave abuse of discretion and there is no appeal. neither of the parties questioned said dismissal. provides that: x x x An appeal may be taken from an order made in a proceeding under this Act. The Court of Appeals in dismissing APT‘s petition for certiorari upheld the trial court‘s denial of APT‘s motion for reconsideration of the trial court‘s order confirming the arbitral award. Petition for Certiorari: . the order of Branch 62 in very clear terms stated that the ―complaint was dismissed. consequently. nor any plain. It is neither for the courts nor for the parties to violate or disregard that rule. IV THE COURT OF APPEALS ERRED IN NOT TREATING PETITIONER APT‘S PETITION FOR CERTIORARI AS AN APPEAL TAKEN FROM THE ORDER CONFIRMING THE AWARD V THE COURT OF APPEALS ERRED IN NOT RULING ON THE LEGAL ISSUE OF WHEN TO RECKON THE COUNTING OF THE PERIOD TO FILE A MOTION FOR RECONSIDERATION. as private respondents do. has acted without or in excess of its or his jurisdiction. Branch 62 made the fatal mistake of issuing a final order dismissing the case. III THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE RESPONDENT TRIAL COURT SHOULD HAVE EITHER DISMISSED/DENIED PRIVATE RESPONDENTS‘ MOTION/PETITION FOR CONFIRMATION OF ARBITRATION AWARD AND/OR SHOULD HAVE CONSIDERED THE MERITS OF THE MOTION TO VACATE ARBITRAL AWARD. It could not have validly reacquired jurisdiction over the said case on mere motion of one of the parties.‖ The dispositive portion of the Order of the trial court dated October 14. The aforequoted provision. that petitioner APT was charged with the knowledge that the ―case was merely stayed until arbitration finished. the petition to confirm the arbitral award should have been filed as a new case and raffled accordingly to one of the branches of the Regional Trial Court. a person aggrieved thereby may file a verified petition in the proper court alleging the facts with certainty and praying that judgment be rendered annulling or modifying the proceedings. it cannot be said that it was estopped from questioning the RTC‘s jurisdiction. speedy remedy in the course of law. it being from the pleadings and the evidence that the trial court lacked jurisdiction and/or committed grave abuse of discretion in taking cognizance of private respondent‘ motion to confirm the arbitral award and. ―To dispose of an action suit. However. One such exception was enunciated in Tijam vs. I The RTC of Makati. Thus. neither waiver nor estoppel shall apply to confer jurisdiction upon a court barring highly meritorious and exceptional circumstances. BRANCH 62 AND AT THE SAME TIME MOVED TO VACATE THE ARBITRAL AWARD. board or officer. or with grave abuse of discretion and there is no appeal. While Branch 62 should have merely suspended the case and not dismissed it. Consequently. as will be hereinafter demonstrated.‖ By its own action. The use of the term ―dismissed‖ is not a ―mere semantic imperfection.When any tribunal. The petition is impressed with merit. Sibonghanoy. it has consistently held the position that the RTC. worse. WHEN PETITIONER QUESTIONED THE JURISDICTION OF THE RTC-MAKATI. speedy. IV The nature and limits of the Arbitrators’ powers.FROM QUESTIONING THE ARBITRATION AWARD. where it was held that ―after voluntarily submitting a cause and encountering an adverse decision on the merits. but such appeals shall be limited to question of law. of such tribunal. the invocation of this defense may de done at any time. Section 29 of Republic Act No. the Regional Trial Court to which the award was submitted for confirmation has acted without jurisdiction. Branch 62 had no jurisdiction to confirm the arbitral award. in confirming said award which is grossly and patently not in accord with the arbitration agreement. as there was no ―pending action‖ to speak of. Branch 62. The Court of Appeals ruled that APT was already estopped to question the jurisdiction of the RTC to confirm the arbitral award because it sought affirmative relief in said court by asking that the arbitral award be vacated. and adequate remedy in the ordinary course of law. however. consequently. as the law requires. II Petitioner was not estopped from questioning the jurisdiction of Branch 62 of the RTC of Makati. board or officer exercising judicial functions. on the ground that said motion was filed beyond the 15-day reglementary period.‖ as again. it is too late for the loser to question the jurisdiction or power of the court.‖ Admittedly the correct procedure was for the parties to go back to the court where the case was pending to have the award confirmed by said court. nor any plain. Branch 62 had lost jurisdiction over the vase. discontinue. 1992 stated in no uncertain terms: 4. Section 1 of Rule 65 provides: SEC 1. x x x. the petition for certiorari could not be resorted to as substitute to the lost right of appeal. Thus. Petitioner‘s prayer for the setting aside of the arbitral award was not inconsistent with its disavowal of the court‘s jurisdiction. or from a judgment entered upon an award through certiorari proceedings. It is erroneous then to argue. terminate. both parties as well as said court are bound by such error. In the instant case. or motion without trial on the issues involved. The Rules of Court is specific on how a new case may be initiated and such is not done by mere motion in a particular branch of the RTC. The Complaint is hereby DISMISSED. did not have jurisdiction to confirm the arbitral award that jurisdiction. does not preclude a party aggrieved by the arbitral award from resorting to the extraordinary remedy of certiorari under Rule 65 of the Rules of Court where. let alone to confer . Conclude. The rule is that ―Where the court itself clearly has no jurisdiction over the subject matter or the nature of the action. as in this case." Petitioner‘s situation is different because from the outset. this matter being legislative in character.
The terms of the award shall be confined to such disputes. The foreclosure was not a wrongful act of the banks and. 20. the court must make an order modifying or correcting the award. 24. thing or property referred to in the award. As correctly stated by Mr. Grounds for modifying or correcting award – In anyone of the following cases. nevertheless. under Sections 24 and 25. In the same manner. and willfully refrained from disclosing such disqualifications or any other misbehavior by which the rights of any party have been materially prejudiced. xxx. rescinding or modifying an arbitration award. xxx. of litigation. V There was no financial structuring program. Section 24 of the same law enumerating the grounds for vacating an award states: SEC. Judicial review of an arbitration is. Section 20 of R. or other undue means. we find that the arbitrators came out with an award in excess of their powers and palpably devoid of factual and legal basis. Accordingly. Thus. therefore. that a mutual. (Underscoring ours). The arbitrators cannot resolve issues beyond the scope of the submission agreement. final and definite award upon the subject matter submitted to them was not made. or so imperfectly executed them. and 2040 applicable to both compromises and arbitration are obtaining. Where the conditions described in Articles 2038. Court of Appeals. the arbitrators' award may be annulled or rescinded. fraud. or an erroneous decision of matters submitted to the judgment of the arbitrators. are insufficient to invalidate an award fairly and honestly made. if and when the factual circumstances referred to in the above-cited provisions are present. but not be limited to. the court must make an order vacating the award upon the petition of any party to the controversy when such party proves affirmatively that in the arbitration proceedings: (a) The award was procured by corruption. which shall include. Sison. foreclosure of mortgage was fully justified. upon the application of any party to the controversy which was arbitrated: (a) Where there was an evident miscalculation of figures. if an examination of the record reveals no support whatever for the arbitrators‘ determinations. and by the sole arbitrator. of the Arbitration Law. Nonetheless. could not be the basis of any award of damages. x x x.” Against the backdrop of the foregoing provisions and principles. – In any one of the following cases. (Underscoring ours). modifying or rescinding an arbitrator‘s award. Additionally. we held: x x x. 2044 of the Civil Code that the finality of the arbitrators‘ awards is not absolute and without exceptions. The arbitrators in their award may grant any remedy or relief which they deem just and equitable and within the scope of the agreement of the parties. Each party shall be furnished with a copy of the award. or (d) That the arbitrators exceeded their powers. They will not review the findings of law and fact contained in an award. there are grounds for vacating. the arbitrators‘ awards is not absolute and without exceptions. Jose C. it should be stressed that while a court is precluded from overturning an award for errors in determination of factual issues. a member of the Arbitration Committee who wrote a separate opinion: . 2039. judicial review of the award is properly warranted. their award must be vacated. Sections 24 and 25 of the Arbitration Law provide grounds for vacating. Courts are without power to amend or overrule merely because of disagreement with matters of law or facts determined by the arbitrators. thus. and will not undertake to substitute their judgment for that of the arbitrators. The parties to such an agreement are bound by the arbitrators‘ award only to the extent and in the manner prescribed by the contract and only if the award is rendered in conformity thereto. Where the conditions described in Articles 2038. since any other rule would make an award the commencement. or (c) That the arbitrators were guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown. The point need not be belabored that PNB and DBP had the legitimate right to foreclose of the mortgages of MMIC whose obligations were past due. if more than one. Form and contents of award. if there is only one. Thus. Grounds for vacating award. xxx The arbitrators shall have the power to decide only those matters which have been submitted to them. Section 25 which enumerates the grounds for modifying the award provides: SEC. 2039 and 2040 of the Civil Code applicable to compromises and arbitration are attendant. an award must be vacated if it was made in ―manifest disregard of the law. and if it had been a commissioner‘s report. – The award must be made in writing and signed and acknowledged by a majority of the arbitrators. that one or more of the arbitrators was disqualified to act as such under section nine hereof. the award of an arbitrator cannot be set aside for mere errors of judgment either as to the law or as to the facts. the defect could have been amended or disregarded by the court. or (b) Where the arbitrators have awarded upon a matter not submitted to them. There was no financial restructuring agreement to speak of that could have constituted an impediment to the exercise of the bank‘s right to foreclose. Errors of law and fact. Finally.As a rule. or in refusing to hear evidence pertinent and material to the controversy. It is stated explicitly under Art. 876 provides: SEC. 25. more limited than judicial review of a trial. not affecting the merits of the decision upon the matter submitted. or an evident mistake in the description of any person. the arbitration award may also be annulled. not the end. the specific performance of a contract.) vs. or (b) That there was evident partiality or corruption in arbitrators or any of them. In Chung Fu Industries (Phils. or (c) Where the award is imperfect in a matter of form not affecting the merits of the controversy.A.
2. It will become the new loan agreement between the lenders and the borrowers. used in the financial reorganization program that will make it viable were not met nor expected to be met? : Yes. 2. temporary or permanent injunction is sought by the borrower(s) or any third party or parties. may I know from you. Dr. credits. No restraining order. just what is meant ―by no longer feasible‖? : Because the revenue that they were counting on to make the rehabilitation plan possible. as appearing in the books of account and/or related records of the financial institutions concerned. whether such restraining order. : And I supposed that was you were referring to when you stated that the production targets and assumed prices of MMIC‘s products. there must therefore be a meeting of minds of the parties. private respondent Cabarrus. This shall be without prejudice to the exercise by the government financial institutions of such rights and/or remedies available to them under their respective contracts with their debtor. : And this statement that ―it was premised upon the known fact‖ that means. the PNB and DBP must have to validly adopt and ratify such FRP before they can be bound by it. it was referring to the decision to foreclose. Neither does it mean that the FRP is legally binding and implementable. but also. a decision further explained by Dr. it only means that MMIC had been informed or notified that its obligations were past due and that foreclosure is forthcoming. supersede the existing and past due loans of MMIC with PNB-DBP. and/or guarantees granted by them whenever the arrearages on such account. Mapa what you meant by ―that the decision to foreclose was neither precipitate nor arbitrary‖? : Well. prayed for judgment in their favor: 1. 3. Was PNB and DBP absolutely unjustified in foreclosing the mortgages? In this connection. ―Q : Now in this portion of Exh. The pertinent provisions of said decree read as follows: SEC. MMIC also knew that PNB-DBP had the option of either approving the FRP or proceeding with the foreclosure. It shall be mandatory for government financial institutions. Restructuring simply connotes that the obligations are past due that is why it is ―restructurable‖. So when PNB-DBP proceeded with the foreclosure. the arbitrators in making the award went beyond the arbitration agreement. 385. and we adopted as Exh. amount to at least twenty percent (20%) of the total outstanding obligations. The fact that a FRP was drawn up is enough to establish that MMIC has not been complying with the terms of the loan agreement. Yet Cabarrus himself opposed the FRP. credit. they are likewise ―forecloseable‖. it only meant that these loans were already due and unpaid. who filed this case supposedly in behalf of MMIC should have insisted on the FRP. Declaring the foreclosure effected by the defendants DBP and PNB on the assets of MMIC null and void and directing said defendants to restore the foreclosed assets to the possession of MMIC. Cabarrus. including interest and other charges. among other projections. including accrued interest and other charges. The option is with the PNB-DBP on what steps to take. including the right to foreclosure on loans. ―L-1‖. In any case. If these loans were restructurable because they were already due and unpaid. not an iota of proof has been presented by the PLAINTIFFS showing that PNB and DBP ratified and adopted the FRP. When MMIC adopted a restructuring program for its loan. 4. It must be pointed that said FRP will.) Private respondents‘ thesis that the foreclosure proceedings were null and void because of lack of publication in the newspaper is nothing more than a mere unsubstantiated allegation not borne out by the evidence.D. The mere fact that MMIC adopted the FRP does not mean that DBP-PNB lost the option to foreclose. temporary or permanent injunction shall be issued by the court against any government financial institution in any action taken by such institution in compliance with the mandatory foreclosure provided in Section 1 hereof. Moreover. it can readily be seen and it cannot quite be denied that MMIC accounts in PNB-DBP were past due. (Underscoring supplied. before it can be implemented. Placido Mapa who testified that foreclosure was. SEC. The various loans and advances made by DBP and PNB to MMIC have become overdue and remain unpaid. in the judgment of PNB. As in all other contracts. accommodations. to render an accounting of their use and/or operation of said assets and to indemnify MMIC for the loss occasioned by its dispossession or the deterioration thereof. PNB and DBP had to initiate foreclosure proceedings as mandated by P. from the facts of the case. 1974. When MMIC thru its board and the stockholders agreed and adopted the FRP. ―L‖ which was marked as Exh. Directing the defendants DBP and PNB to honor and perform their commitments under the financial reorganization plan which was approved at the annual stockholders‘ meeting of MMIC on 30 April 1984. et al. in effect. The decree requires government financial institutions to foreclose collaterals for loans where the arrearages amount to 20% of the total outstanding obligations. In their complaint filed before the trial court. and listening to the prospects which reported to us that we had assumed would be the premises of the financial rehabilitation plan was not materialized nor expected to materialized. a disputable presumption exists in favor of petitioner that official duty has been regularly performed and ordinary course of business has been followed. The drawing up of the FRP is the best proof of this. 2. VI Not only was the foreclosure rightfully exercised by the PNB and DBP. accommodations and/or guarantees on which the arrearages are less than twenty percent (20%). A Q A Q A . was not anymore expected to be forthcoming because it will result in a short fall compared to the prices that were actually taking place in the market.1. after the lapse of sixty (60) days from the issuance of this Decree to foreclose the collaterals and/or securities for any loan. In this case. was premised upon the known fact that the rehabilitation plan earlier approved by the stockholders was no longer feasible. except after due hearing in which it is established by the borrower and admitted by the government financial institution concerned that twenty percent (20%) of the outstanding arrearages has been paid after the filing of foreclosure proceedings. At that stage. No. which took effect on January 31. 1. it is not a whimsical decision but rather decision arrived at after weighty considerations of the information that we have received. 37-A for the respondent. the best move to save MMIC itself. PLAINTIFFS simply relied on a legal doctrine of promissory estoppel to support its allegation in this regard.‖ xxx Which brings me to my last point in this separate opinion. it was done without bad faith but with honest and sincere belief that foreclosure was the only alternative.
In the event the committee finds that PLAINTIFFS have the personality to file this suit and extrajudicial foreclosure of the MMIC assets wrongful. in case the arbitration committee finds that PLAINTIFFS have no capacity to sue and/or that the extra-judicial foreclosure is valid and legal. It is not excuse. however. But those representatives. as a contract. Upon submission for arbitration. and the fact is that adequate or not (the FRP). In the case at bar. requires the consent of the parties thereto. and including. The nearest that there can be said of any estoppel being present in this case is the fact that the board of MMIC was.3. Sr. are not themselves PNB or DBP. did not itself promise a resounding success. Assuming that the FRP would fail to meet its targets. expressly or impliedly. it shall also make an award in favor of APT based on the counterclaims of DBP and PNB in an amount as may be established or warranted by the evidence. (b) in awarding damages to MMIC which was not a party to the derivative suit. had ratified the FRP. and gave effect to. the fact remains that the DBP itself which made representations that the FRP constituted a ―way out‖ for MMIC. singly or collectively. and the costs legally taxable in this litigation. a corporation exercises its powers. moral damages in such amount as this Honorable Court may deem just and equitable in the premises. As a rule.00. the DBP-and so this Committee holds-can not. to the proposed FRP. valid and in good faith. Such award shall be paid by the APT or its successor-in-interest within sixty (60) days from the date of the award in accordance with the provisions of par.000. The Arbitration Committee ruled that there was ―a commitment to carry out the FRP‖ on the ground of promissory estoppel. is that as APT itself asserted. money claims. it shall make an award in favor of the PLAINTIFFS (excluding DBP). distinct and autonomous legal entities like PNB and DBP with thousands of stockholders will be suppressed and rendered nugatory. PNB and DBP have different boards with different members who may have different decisions. at the time the FRP was adopted. This decision of the arbitration committee in favor of APT shall likewise finally settle all issues regarding the foreclosure of the MMIC assets so that the funds held in escrow mentioned in par. however. The Arbitration Committee went beyond its mandate and thus acted in excess of its powers when it ruled on the validity of. there was no showing that the banks. Although the plaintiffs are agreed that the government executed no formal agreement. Atty. Estoppel is a principle based on equity and it is certainly not equitable to apply it in this particular situation. (b) whether or not the actions leading to. 9 hereunder will thus be released in full in favor of APT. The fact. However. Similarly. the fact that the government (that is Alfredo Velayo) was the FRP‘s proponent. It cannot be overemphasized that a FRP. the Compromise and Arbitration Agreement of the parties clearly and explicitly defined and limited the issues to the following: (a) whether PLAINTIFFS have the capacity or the personality to institute this derivative suit in behalf of the MMIC or its directors. Sison. it would supposedly fall short of its targets. Decision. Plaintiffs pray for such other reliefs as may be just and equitable in the premises. Further. should not exceed his authority. Although the DBP sat in the board in a dual capacity-as holder of 36% of MMIC‘s equity (at that time) and as MMIC‘s creditor-the DBP can not validly renege on its commitments simply because at the same time. the arbitration Committee not only declared the FRP valid and effective. There is absolutely no evidence that the DBP and PNB agreed. jointly and severally to pay the plaintiffs actual damages consisting of the loss of value of their investment amounting to not less than P80. the FRP was being ―carried out‖ although apparently. The committee shall issue a decision on the controversy not later than six (6) months from the date of its constitution. of course. The clear and explicit terms of the submission notwithstanding. it is bound nonetheless if only for its conspicuous representations. of course. all such remedies being cumulative and not exclusive of each other. as well as the nature thereof: 8. including the power to enter into contracts. attorney‘s fees and litigation expenses in such amounts as may be proven during the trial. They are individuals with personalities separate and distinct from the banks they represent. although it raised DBP‘s equity in MMIC to 87%. the principle of promissory estoppel applies in the present case considering as we observed. The FRP. Cabarrus. and (c) in awarding moral damages to Jesus S. It is unfair to impose upon them the decision of the board of another company and thus pin them down on the equitable principle of estoppel. 8 of the Agreement provides for the period by which the Committee was to render its decision. The Committee believes that although the DBP did not formally agree (assuming that the board and stockholders‘ approvals were not formal enough). exemplary damages in such amount as this Honorable Court may consider appropriate for the purpose of setting an example for the public good. the damnum emerges and lucrum cessans in such amount as may be establish during the trial. Condemning the defendants DBP and PNB. for the government to deny its commitments. The arbiters overstepped their powers by declaring as valid proposed Financial Restructuring Program. in an amount as may be established or warranted by the evidence which shall be payable in Philippine Pesos at the time of the award. 9 hereunder. The contract must bind both contracting parties. Item No. brook any denial that it was bound to begin with. Otherwise the rights of entirely separate. the PNB-DBP foreclosure of the MMIC assets were proper. Private respondents even by their own admission recognized that the FRP had yet not been carried out and that the loans of MMIC had not yet been converted into equity. there was no showing that the representatives of PNB and DBP in MMIC even had the requisite authority to enter into a debt-for-equity swap. it held interest against the MMIC. The PLAINTIFFS‘ remedies under this Section shall be in addition to other remedies that may be available to the PLAINTIFFS. the government is still bound by virtue of its acts. did not agree and correctly observed that: But the doctrine of promissory estoppel can hardly find application here. the Arbitration Committee clearly exceeded its powers or so imperfectly executed them: (a) in ruling on and declaring valid the FRP. through its board of directors. the agent.000. In submitting the case to arbitration. And if they had such authority. the proposed FRP. but also converted the loans of MMIC into equity raising the equity of DBP to 87%. While a corporation may appoint agents to enter into a contract in its behalf. mostly composed of PNB and DBP representatives. the parties had mutually agreed to limit the issue to the ―validity of the foreclosure‖ and to transform the relief s prayed for therein into pure . x x x. in any event. On the other hand. through their board of directors.
Cabarrus. The reason given is that the judgment must be made binding upon the corporation and in order that the corporation may get the benefit of the suit and may not bring a subsequent suit against the same defendants for the same cause of action. our Supreme Court held in the case of Evangelista v. and the distribution among them of part of the corporate assets before the dissolution of the corporation and the It is perplexing how the Arbitration Committee can in one breath rule that the case before it is a derivative suit. this time asking for moral damages which he failed to get from the earlier case. private respondents violated the rule against non-forum shopping. MMIC should have been impleaded as a party. So it could not be said that there was a ―reputation‖ besmirches by the act of foreclosure. which was not a party before the Arbitration Committee. whenever the officials of the corporation refuse to sue. including the monetary award. is a complete nullity. While the Supreme Court may have awarded moral damages to a corporation for besmirched reputation in Mambulao vs. Cabarrus. (IEI). that both of these are in the corporation itself for the benefit of the stockholders. The company then was already suffering from serious financial crisis which definitely projects an image not compatible with good and wholesome reputation. judgment is hereby rendered: xxx. DBP‘s alleged equity. how could the MMIC be entitled to a big amount of moral damages when its credit reputation was not exactly something to be considered sound and wholesome. Ordering the defendant to pay to the plaintiff. premises considered. liquidation of its debts and liabilities. The corporation should be included as a party in the suit.. the suing stockholder is regarded as a nominal party. Thus. it is not yet a well settled jurisprudence that corporations are entitled to moral damages. Sr. Civil Code No. 1988 or to such subsequent escrow agreement that would supersede it. The reasons given for not allowing direct individual suit are: (1) x x x ―the universally recognized doctrine that a stockholder in a corporation has no title legal or equitable to the corporate property. to allow shareholders to sue separately would conflict with the separate corporate entity principle. 9900 filed before the RTC being a derivative suit. PNB 22 SCRA 359. It is a condition sine qua non that the corporation be impleaded as a party becausex x x. Compromise and Arbitration Agreement. likewise. the stipulation even had the effect of prejudicing the other creditors of MMIC.000. x x x The majority decision of the Arbitration Committee sought to justify its award of moral damages to Jesus S. Settled is the doctrine that in a derivative suit.Notably. which is not impleaded as a party to the derivative suit. from which he obtained actual damages. regardless of whether or not the party liable had equity in the corporation. Sison in his separate opinion persuasively put it: Besides. but that ―he won no more than actual damages. to wit: WHEREFORE. that ―the stockholders may not directly claim those damages for themselves for that would result in the appropriation by. did not give it ownership over any corporate property. exceeded their authority in awarding moral damages to Jesus Cabarrus. the award of damages to MMIC. suffered moral damages on account of that specific foreclosure. It was not joined as a party plaintiff or party defendant at any stage of the proceedings. even if it were indeed 87%. the corporation is the real party in interest while the stockholder filing suit for the corporation‘s behalf is only nomi nal party. which it was not. its right over said corporate property being a mere expectancy or inchoate right. Cabarrus. to be satisfied likewise from the funds held under escrow pursuant to the Escrow Agreement dated April 22. but it is also the present rule that it must be served with process. MMIC‘s credit reputation was no longer a desirable one.Further. Jesus S. in which the aggrieved party or the real party in interest is supposedly the MMIC.000. there is no doubt that Jesus S. x x x. having been ventilated in a complaint he previously filed with the RTC. Worse. of which Cabarrus is the majority stockholder. damages the Committee believes and so holds. If at all an award was due MMIC. Cabarrus. of which he is the majority stockholder. In such actions. may be awarded in this proceeding. (4) it would produce wasteful multiplicity of suits. by pointing to the fact that among the assets seized by the government were assets belonging to Industrial Enterprise Inc. Santos. Sr.00. with the corporation as the real party in interest. as and for moral damages. As Atty. An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds stock in order to protect or vindicate corporate rights.. he Jesus S. moral damages include besmirched reputation which a corporation may possibly suffer. something which cannot be legally done in view of section 16 of the Corporation Law xxx. (2) x x x that the prior rights of the creditors may be prejudiced. In other words the corporations must be joined as party because it is its cause of action that is being litigated and because judgment must be a res ajudicata against it. The arbiters exceeded their authority in awarding damages to MMIC. Sr. 3.‖ (3) the filing of such suits would conflict with the duty of the management to sue for the protection of all concerned. he was barred res judicata from filing a similar case in another court.‖ In other words. The arbiters. such ruling cannot find application in this case. Under Article 2217 of the Civil Code. Not only is the corporation an indispensible party. or are the ones to be sued or hold the control of the corporation.. It must be pointed out that when the supposed wrongful act of foreclosure was done. Sr. Sr.‖ Cabarrus‘ cause of action for the seizure of the assets belonging to IEI. the sum of P10. It then acknowledge that Cabarrus had already recovered said assets in the RTC. A corporation whose overdue and unpaid debts to the Government alone reached a tremendous amount of P22 Billion Pesos cannot certainly have a solid business reputation to brag about. While the Committee cannot possibly speak for the RTC. in view of the doctrine that a corporation has a personality separate and distinct from its individual stockholders or members. and at the same time award moral damages to an individual stockholder. and (5) it would involve confusion in a ascertaining the effect of partial recovery by an individual on the damages recoverable by the corporation for the same act. It is a basic postulate that s corporation has a personality separate and distinct from its . pursuant to paragraph (9). As it is. the same should have been given sans deduction.
the rule has been reiterated that ‗a stockholder is not the co-owner of corporate property. the wrong committed. legal or equitable to the property which is owned by the corporation (13 Am. The pleadings and memoranda filed with this Court.stockholders. is done against the corporation. It is thus quite patent that the arbitration committee exceeded the authority granted to it by the parties‘ Compromise and Arbitration Agreement by awarding moral damages to Jesus S. et al. but also. as well as in the Court of Appeals. Such being the case. By agreeing to this stipulation. From the foregoing discussions. Therefore. The Compromise and Arbitration Agreement itself and the elementary principles of Corporation Law say so. Sison. Sr. likewise expressed befuddlement to the award of moral damages to Jesus S. not to its stockholders. Cabarrus. as well as the Orders of the Regional Trial Court of Makati. Pascual vs. 6 SCRA 373. Sr. In Ganzon & Sons vs. not only did the arbitration committee exceed its powers or so imperfectly execute them. Jur. and the decision of the Arbitration Committee is hereby VACATED. is hereby REVERSED and SET ASIDE. therefore. Another reason is that Jesus S. I am constrained to dissent from the award of moral damages to Cabarrus. 1995. Atty. could recover damages in their personal capacities even assuming or just because the foreclosure is improper or invalid. Perforce this has to be so because it is the basic rule in Corporation Law that ―the shareholders have no title. 1994 and January 19. in his separate opinion. the parties themselves have agreed that the basic ingredient of the causes of action in this case is the wrong committed on the corporation (MMIC) for the alleged illegal foreclosure of its assets. him part of the corporation‘s assets before the dissolution of the corporation and the liquidation of its debts and liabilities. Hence.) admit that the cause of action pertains only to the corporation (MMIC) and that they are filing this for and in behalf of MMIC. 1995.: It is clear and it cannot be disputed therefore that based on these stipulated issues. if any. there is sufficient basis for us to resolve the controversy between the parties anchored on the records and the pleadings before us. Cabarrus. We do not find it necessary to remand this case to the RTC for appropriate action. passed upon matters not submitted to it. if wrong was committed in the foreclosure.‘ Since the property or assets foreclosed belongs [sic] to MMIC. Branch 62. 165. it is evident that. 83). the Decision of the Court of Appeals dated July 17. There is no way. legal or equitable. Register of Deeds. Moreover. PLAINTIFFS themselves (Cabarrus. The Arbitration Committee. SO ORDERED . its findings and conclusions are palpably devoid of any factual basis and in manifest disregard of the law. Oresco. raised and extensively discussed the issues on the merits. Cabarrus. and the distribution to. said cause of action had already been decided in a separate case. by which Cabarrus et al. cannot directly claim those damages for himself that would result in the appropriation by. 14 Phil. it was done against the corporation. dated November 28. WHEREFORE. Sr. There is therefore no direct injury or direct violation of the rights of Cabarrus et al. The properties foreclosed belonged to MMIC.
the CA reversed the RTC and ordered the referral of the case to arbitration. DECISION PANGANIBAN. The dispositive portion of the Decision reads as follows: ―WHEREFORE. of the Subcontract.due to termination or take-over -. 1983 that requires prior recourse to voluntary arbitration. 1985. less confrontational. petitioner. but a mere modification. the dispute arose from the parties‘ ncongruent positions on whether certain provisions of their Agreement could be applied to the facts. because there was no prior recourse to arbitration.711. respondent. That clause allowed it to set off the cost of the work that petitioner had failed to undertake -.: Alternative dispute resolution methods or ADRs -. less tedious.THIRD DIVISION [G. the latter refused to pay. The appellate court held as arbitrable the issue of whether respondent‘s take -over of some work items had been intended to be a termination of the original contract under Letter ―K‖ of the Subcontract. Such delay was in violation of the provision in the Agreement as to time schedule: ―G. the application of the provision on termination. petitioner raises the following issues for the Court‘s consideration: “A Whether or not there exist[s] a controversy/dispute between petitioner and respondent regarding the interpretation and implementation of the Sub-Contract Agreement dated February 22. and whether it should reimburse respondent for the work the . The instant case involves technical discrepancies that are better left to an arbitral body that has expertise in those areas. On April 25. CAPITOL INDUSTRIAL CONSTRUCTION GROUPS. The Case latter had taken over. Hence. seeking to set aside the January 28. the take-over was caused by petitioner‘s delay in completing the work. the resolution of the dispute between the parties herein requires a referral to the provisions of their Agreement. the latter contends that there is a need for prior arbitration as provided in the Agreement. Upon completing its task under the Contract. it is entitled to collect the value of the services it rendered through an ordinary action for the collection of a sum of money from respondent. We side with respondent. entered into a ―Subcontract Agreement‖ involving electrical work at the Third Port of Zamboanga.]‖ The Court’s Ruling The Petition is unmeritorious. whether or not the requirements provided in Article III  of CIAC Arbitration Rules regarding request for arbitration ha[ve] been complied with[. 2003] LM POWER ENGINEERING CORPORATION. Respondent also took refuge in the termination clause of the Agreement. March 26. and the set off of expenses incurred by respondent in its take-over of petitioner‘s work. vs. In its Order dated September 15.‖ Clearly. “B In the affirmative. Allegedly. Petitioner LM Power Engineering Corporation and Respondent Capitol Industrial Construction Groups Inc. respondent took over some of the work contracted to petitioner. mediation. INC. Ruling of the Court of Appeals On appeal. respondent filed a Motion to Dismiss. this Petition. the RTC ruled that the take-over of some work items by respondent was not equivalent to a termination. The parties are ORDERED to present their dispute to arbitration in accordance with their Sub-contract Agreement. The Issues In its Memorandum. It ruled likewise on two other issues: whether petitioner was liable under the warranty clause of the Agreement. they provide solutions that are less time-consuming. 54232. 1983. the Subcontract has the following arbitral clause: ―6. therefore. After trial on the merits. alleging that the Complaint was premature.90. Within the scope of the arbitration clause are discrepancies as to the amount of advances and billable accomplishments. the inclusion of an arbitration clause in a contract does not ipso facto divest the courts of jurisdiction to pass upon the findings of arbitral bodies.‖ The Facts On February 22. In any event. TIME SCHEDULE ―[Petitioner] shall adhere strictly to the schedule related to the WORK and Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court. the amount of advances and billable accomplishments. First Issue: Whether Dispute Is Arbitrable Petitioner claims that there is no conflict regarding the interpretation or the implementation of the Agreement. 141833. J. In the case before us. the RTC denied the Motion on the ground that the dispute did not involve the interpretation or the implementation of the Agreement and was. petitioner filed with the Regional Trial Court (RTC) of Makati (Branch 141) a Complaint for the collection of the amount representing the alleged balance due it under the Subcontract. This is because there are some disparities between the parties‘ positions regarding the extent of the work done. negotiation and conciliation -. Contesting the accuracy of the amount of advances and billable accomplishments listed by the former. 1987.against the amount it owed the latter. the judgment appealed from is REVERSED and SET ASIDE. By enabling parties to resolve their disputes amicably. Because of the dispute. petitioner billed respondent in the amount of P6. and the consequent set-off of expenses. Essentially.R. Thus. without having to resort to prior arbitration. On the other hand. No. because the awards are still judicially reviewable under certain conditions.813. The latter was ordered to give full payment for the work completed by petitioner.are encouraged by the Supreme Court. 2000 Decision of the Court of Appeals (CA) in CA-GR CV No. and more productive of goodwill and lasting relationships. Instead of submitting an Answer. The Parties hereto agree that any dispute or conflict as regards to interpretation and implementation of this Agreement which cannot be settled between [respondent] and [petitioner] amicably shall be settled by means of arbitration x x x. According to respondent.. The surety bond posted by [respondent] is [d]ischarged. not covered by the arbitral clause.like arbitration. A review of the factual allegations of the parties reveals that they differ on the following questions: (1) Did a take-over/termination occur? (2) May the expenses incurred by respondent in the take-over be set off against the amounts it owed petitioner? (3) How much were the advances and billable accomplishments? The resolution of the foregoing issues lies in the interpretation of the provisions of the Agreement. the latter had failed to finish it because of its inability to procure materials.
―N. and other taxes that may be required by any government agencies in connection with this Agreement shall be for the sole account of [petitioner]. ―D. Provided such clause is susceptible of an interpretation that covers the asserted dispute. the amount of such excess [may be] claimed by [respondent] from either of the following: ‗1.along with mediation. Brushing aside a contractual agreement calling for arbitration between the parties would be a step backward.‖ Tesco was promulgated by this Court. as follows: ―SECTION. On the other hand. All customs duties. courts should liberally construe arbitration clauses.complete the WORK within the period set forth in Annex C hereof. It is thus regarded as the ―wave of the future‖ in international civil and commercial disputes. notwithstanding the reference to a different arbitration institution or arbitral body in such contract or submission. Submission to Arbitration -. assuming arguendo that the dispute is arbitrable. To bolster its position. foreign and local advances. Consistent with the above-mentioned policy of encouraging alternative dispute resolution methods. Any claims by [respondent] on [petitioner] may be deducted by [respondent] from the progress payments and/or retained amount. pertinent portions of which are reproduced hereunder: ―C. Arbitrators also need to look into the computation of foreign and local costs of materials.‖ respondent incurred expenses in excess of the contracted price. These data can be gathered from a review of the Agreement. Second Issue: Prior Request for Arbitration According to petitioner. income taxes. that in the case of government construction contracts.is encouraged by the Supreme Court. pursuant to the following provision in the Agreement: ―K. TERMINATION OF AGREEMENT ―[Respondent] has the right to terminate and/or take over this Agreement for any of the following causes: ‗6. brochures. using the foregoing provision as reference. If despite previous warnings by [respondent]. 1. Section 1 of Article III of the new Rules of Procedure Governing Construction Arbitration has dispensed with this requirement and recourse to the CIAC may now be availed of whenever a contract ―contains a clause for the submission of a future co ntroversy to arbitration.‖ in this wise: ―SECTION 1. and taxes and duties as set forth in the Agreement. Submission to CIAC Jurisdiction — An arbitration clause in a construction contract or a submission to arbitration of a construction dispute shall be deemed an agreement to submit an existing or future controversy to CIAC jurisdiction.‖ The issue as to the correct amount of petitioner‘s advances and billable accomplishments involves an evaluation of the manner in which the parties completed the work. an order to arbitrate should be granted. the failure to file a formal request for arbitration with the Construction Industry Arbitration Commission (CIAC) precluded the latter from acquiring jurisdiction over the question. IMPORTED MATERIALS AND EQUIPMENT ―[Respondent shall open the letters of credit for the importation of equipment and materials listed in Annex E hereof after the drawings. both in foreign and local currencies in connection with the opening of the letters of credit shall be deducted from the Contract Prices. Any excess from the retained amount after deducting [respondent‘s] claims shall be released by [respondent] to [petitioner] after the issuance of [the Ministry of Public Works and Highways] of the Certificate of Completion and final acceptance of the WORK by [the Ministry of Public Works and Highways]. Any doubt should be resolved in favor of arbitration. It sought to set off those expenses against the amount claimed by petitioner for the work the latter accomplished. ―All expenses incurred by [respondent]. petitioner even cites our ruling in Tesco Services Incorporated v. the extent to which they did it. We are not persuaded.‖ Supposedly. pursuant to the following provision: ―If the total direct and indirect cost of completing the remaining part of the WORK exceed the sum which would have been payable to [petitioner] had it completed the WORK. respondent alleges that it took over some of the work contracted to petitioner. Aside from unclogging judicial dockets. OTHER CONDITIONS ―2. Section 1 of Article II of the old Rules of Procedure Governing Construction Arbitration indeed required the submission of a request for arbitration. or persistently or flagrantly neglects to carry out [its] obligations under this Agreement.‖ Being an inexpensive. PROVIDED. and other technical data of each items in the list have been formally approved by [the Ministry of Public Works and Highways]. speedy and amicable method of settling disputes. conciliation and negotiation -. arbitration . contractor‘s taxes. Vera. as a result of the ―take-over. import duties. petitioner will still be fully responsible for all imported materials and equipment. CONTRACT PRICE AND TERMS OF PAYMENT ―All progress payments to be made by [respondent] to [petitioner] shall be subject to a retention sum of ten percent (10%) of the value of the approved quantities. However. When a contract . especially of the commercial kind. arbitration also hastens the resolution of disputes. retention fees and letters of credit. Any amount due [petitioner] from [respondent] at the time of the termination of this Agreement.‖ Because of the delay.Any party to a construction contract wishing to have recourse to arbitration by the Construction Industry Arbitration Commission (CIAC) shall submit its Request for Arbitration in sufficient copies to the Secretariat of the CIAC. [petitioner] does not execute the WORK in accordance with this Agreement. NO time extension shall be granted by [respondent] to [petitioner] unless a corresponding time extension is granted by [the Ministry of Public Works and Highways] to the CONSORTIUM. all administrative remedies available to the parties must have been exhausted within 90 days from the time the dispute arose. and the expenses each of them incurred in connection therewith.
as applied in the Tesco case.contains a clause for the submission of a future controversy to arbitration. Rosal Infrastructure Builders et al. either of them may compel the other to arbitrate. from which we quote thus: ―Under the present Rules of Procedure. E. Court of Appeals. the law as it now stands does not provide that the parties should agree to submit disputes arising from their agreement specifically to the CIAC for the latter to acquire jurisdiction over the same. they are expected to abide by it in good faith. the parties will not be precluded from electing to submit their dispute before the CIAC because this right has been vested upon each party by law.‖ Clearly. for a particular construction contract to fall within the jurisdiction of CIAC. it is not necessary for the parties to enter into a submission agreement before the claimant may invoke the jurisdiction of CIAC. Because that clause is binding. 2-91 and 3-93. it is plain and clear that as long as the parties agree to submit to voluntary arbitration. regardless of what forum they may choose. there is no more need to file a request with the CIAC in order to vest it with jurisdiction to decide a construction dispute. the Petition is DENIED and the assailed Decision AFFIRMED. even if they specifically choose another forum. i. as provided under RA 876 [the Arbitration Law]. No. The arbitral clause in the Agreement is a commitment on the part of the parties to submit to arbitration the disputes covered therein. 1008. SO ORDERED. The difference in the two provisions was clearly explained in China Chang Jiang Energy Corporation (Philippines) v. the proper procedure to enable the CIAC to decide on the dispute is to request the stay or suspension of such action. it is merely required that the parties agree to submit the same to voluntary arbitration Unlike in the original version of Section 1. And because it covers the dispute between the parties in the present case. their agreement will fall within the jurisdiction of the CIAC.e. Costs against petitioner. Since petitioner has already filed a Complaint with the RTC without prior recourse to arbitration.  (an extended unsigned Resolution) and reiterated in National Irrigation Administration v.O.. .‖ The foregoing amendments in the Rules were formalized by CIAC Resolution Nos. WHEREFORE. such that. Rather.
with prayer for temporary restraining order and writ of preliminary injunction.SECOND DIVISION [G. enjoining LHC from calling on the Securities or any renewals or substitutes thereof and ordering respondent banks to cease and desist from transferring. E001126/8400 with the local branch of respondent Australia and New Zealand Banking Group Limited (ANZ Bank) and Standby Letter of Credit No. vs. DECISION TINGA.: Subject of this case is the letter of credit which has evolved as the ubiquitous and most important device in international trade. It debunked petitioner‘s contention that the principle of ―independent contract‖ could be invoked only by respondent banks since according to it respondent LHC is the ultimate beneficiary of the Securities. or disposition of the Securities in favor of LHC or any person claiming under LHC would constrain it to hold respondent banks liable for liquidated damages. INC. the Project). Despite the letters of petitioner.7. The extensions were requested allegedly due to several factors which prevented the completion of the Project on target date. In its Resolution dated 28 November 2000. such as force majeure occasioned by typhoon Zeb. petitioner elevated the case to the Court of Appeals via a Petition for Certiorari under Rule 65. Inc. AUSTRALIA and NEW ZEALAND BANKING GROUP LIMITED and SECURITY BANK CORPORATION. extending the temporary restraining order for a period of seventeen (17) days or until 26 November 2000. petitioner sought various EOT to complete the Project. At the same time. petitioner opened in favor of LHC two (2) standby letters of credit both dated 20 March 2000 (hereinafter referred to as ―the Securities‖). It ruled that petitioner had no legal right and suffered no irreparable injury to justify the issuance of the writ. testing and completion of the Project. Petitioner sought to restrain respondent LHC from calling on the Securities and respondent banks from transferring. The RTC issued a seventy-two (72)-hour temporary restraining order on the same day. As petitioner had anticipated.3 of the Turnkey Contract. conciliation and such other means enumerated under Clause 20. among which are variations. the appellate court failed to act on the application for preliminary injunction until the temporary restraining order expired on 27 January 2001. . and (2) petitioner is entitled to claim extensions of time (EOT) for reasons enumerated in the Turnkey Contract. petitioner warned respondent banks that any transfer. against herein respondents as defendants before the Regional Trial Court (RTC) of Makati. SP No. In both arbitration proceedings. however. Further. Oscar Pimentel. The case was docketed as Civil Case No. the letter of credit is also unique in the number of parties involved and its supranational character. or such later date as may be agreed upon between petitioner and respondent LHC or otherwise determined in accordance with the Turnkey Contract. in its Order dated 24 November 2000. The trial court further ruled that the banks were mere custodians of the funds and as such they were obligated to transfer the same to the beneficiary for as long as the latter could submit the required certification of its claims. v. as Turnkey Contractor. 61901 entitled ―Transfield Philippines. et al. foreseeing that LHC would call on the Securities pursuant to the pertinent provisions of the Turnkey Contract. LUZON HYDRO CORPORATION. accordingly it declared petitioner in default/delay in the performance of its obligations under the Turnkey Contract and demanded from petitioner the payment of US$75. petitioner and respondent Luzon Hydro Corporation (hereinafter. the parties are bound to settle their differences through mediation. the Court of Appeals issued a temporary restraining order. It asserted that until the fact of delay could be established. both banks informed petitioner that they would pay on the Securities if and when LHC calls on them. and [2) whether LHC had the right to terminate the Turnkey Contract for failure of petitioner to complete the Project on target date. LHC denied the requests. Meanwhile. The first of the actions was a Request for Arbitration which LHC filed before the Construction Industry Arbitration Commission (CIAC) on 1 June 1999. to wit: Standby Letter of Credit No.‖ promulgated on 31 January 2001. November 22. on a turnkey basis.1 of the Turnkey Contract.R. the trial court ruled that LHC should be allowed to draw on the Securities for liquidated damages. 2004] TRANSFIELD PHILIPPINES. Dissatisfied with the trial court‘s denial of its application for a writ of preliminary injunction. release. LHC sent notice to petitioner that pursuant to Clause 8. No. LHC had no right to draw on the Securities for liquidated damages. it failed to comply with its obligation to complete the Project. Petitioner submitted to the appellate court that LHC‘s call on the Securities was premature considering that the issue of its default had not yet been resolved with finality by the CIAC and/or the ICC. force majeure.000. LHC served notice that it would call on the securities for the payment of liquidated damages for the delay. the common issues presented were: [1) whether typhoon Zeb and any of its associated events constituted force majeure to justify the extension of time sought by petitioner. 146717. The Turnkey Contract provides that: (1) the target completion date of the Project shall be on 1 June 2000. LHC asserted that additional extension of time would not be warranted. paying on. Petitioner was given the sole responsibility for the design. However.R. Asserting that LHC had no right to call on the Securities until the resolution of disputes before the arbitral tribunals. with prayer for the issuance of a temporary restraining order and writ of preliminary injunction. in case of dispute. This was followed by another Request for Arbitration. On 26 March 1997. LHC claimed that petitioner had no right to restrain its call on and use of the Securities as payment for liquidated damages. On 5 November 2000. on 27 June 2000. LHC) entered into a Turnkey Contract whereby petitioner.2 of the Turnkey Contract.00 for each day of delay beginning 28 June 2000 until actual completion of the Project pursuant to Clause 8. construction.00. however. Petitioner has appealed from the Decision of the Court of Appeals in CA-G. Immediately thereafter. A creation of commerce and businessmen. Hon. Refuting petitioner‘s contentions. denied petitioner‘s application for a writ of preliminary injunction. this time filed by petitioner before the International Chamber of Commerce (ICC) on 3 November 2000.988. paying or in any manner disposing of the Securities. To secure performance of petitioner‘s obligation on or bef ore the target completion date. It averred that the Securities are independent of the main contract between them as shown on the face of the two Standby Letters of Credit which both provide that the banks have no responsibility to investigate the authenticity or accuracy of the certificates or the declarant‘s capacity or entitlement to so certify. a seventy (70)-Megawatt hydro-electric power station at the Bakun River in the provinces of Benguet and Ilocos Sur (hereinafter. or such time for completion as may be determined by the parties‘ agreement. barricades and demonstrations. the trial court issued an Order on 9 November 2000.907. petitioner—in two separate letters both dated 10 August 2000—advised respondent banks of the arbitration proceedings already pending before the CIAC and ICC in connection with its alleged default in the performance of its obligations. undertook to construct.. The RTC. or in any manner disposing of the Securities or any renewals or substitutes thereof. In the course of the construction of the project.. petitioner as plaintiff filed a Complaint for Injunction. Employing the principle of ―independent contract‖ in letters of credit. J. petitioner. respondents. commissioning. IBDIDSB-00/4 with respondent Security Bank Corporation (SBC) each in the amount of US$8. 00-1312 and raffled to Branch 148 of the RTC of Makati. After appropriate proceedings. and delays caused by LHC itself. This gave rise to a series of legal actions between the parties which culminated in the instant petition.
04-332. which is an action to enforce and obtain execution of the ICC‘s partial award mentioned in petitioner‘s Manifestation of 12 April 2004. LHC stresses that the question of whether the funds it drew on the subject letters of credit should be returned is outside the issue in this appeal. v. It adds that petitioner has filed two other proceedings. the ICC handed down its Third Partial Award. it was of no moment that he had not complied with the underlying contract. it points out that since the Standby Letter of Credit No. LHC contends that the supplemental pleadings filed by petitioner present erroneous and misleading information which would change petitioner‘s theory on appeal. unlike error of jurisdiction. Thus.‖ in which the parties made claims and counterclaims arising from petitioner‘s performance/misperformance of its obligations as contractor for LHC. thereby reducing the balance in ANZ Bank to US$1. At the core of the present controversy is the applicability of the ―independence principle‖ and ―fraud exception rule‖ in letters of cre dit. because both privity and a meeting of the minds are lacking. entitled ― Transfield Philippines Inc. if properly used. The letter of credit evolved as a mercantile specialty.representatives of LHC trooped to ANZ Bank and withdrew the total amount of US$4. stating that petitioner‘s Manifestation dated 12 April 2004 enlarges the scope of its Petition for Review of the 31 January 2001 Decision of the Court of Appeals. entitled ―Transfield Philippines. Reiterating that fraud constitutes an exception to the independence principle. . On 2 February 2001. Luzon Hydro Corporation. the appellate court held that even assuming that the trial court‘s denial of petitioner‘s application for a writ of preliminary injunction was erroneous. Respondent SBC in its Memorandum. because it is not payable to order or bearer and is generally conditional. because it entails a primary liability following a default. Since the bank‘s customer cannot draw on the letter. injunction was the appropriate remedy obtainable from the competent local courts. 04-332.852. WHETHER LHC HAS THE RIGHT TO CALL AND DRAW ON THE SECURITIES BEFORE THE RESOLUTION OF PETITIONER‘S AND LHC‘S DISPUTES BY THE APPROPRIATE TRIBUNAL. petitioner filed the instant Petition for Review raising the following issues for resolution: WHETHER THE ―INDEPENDENCE PRINCIPLE‖ ON LETTERS OF CREDIT MAY BE INVOKED BY A BENEFICIARY THEREOF WHERE THE BENEFICIARY‘S CALL THEREON IS WRONGFUL OR FRAUDULENT. The appellate court expressed conformity with the trial court‘s decision that LHC could call on th e Securities pursuant to the first principle in credit law that the credit itself is independent of the underlying transaction and that as long as the beneficiary complied with the credit. a discussion of the nature and use of letters of credit. dated 10 March 2003 contends that the Court of Appeals correctly dismissed the petition for certiorari. a number of documentary and testimonial evidence came out through the use of different modes of discovery available in the ICC Arbitration. On 25 August 2003. Nor is it a third-party beneficiary contract. as well as contrary to law and basic principles of equity. it constituted only an error of judgment which is not correctible by certiorari. It adds that the act sought to be enjoined by petitioner was already fait accompli and the present petition would no longer serve any remedial purpose. also referred to simply as ―credits. In its Comment to petitioner‘s Motion for Leave to File Addendum to Petitioner’s Memorandum. Undaunted. SBC argues that it was under no obligation to look into the validity or accuracy of the certification submitted by respondent LHC or into the latter‘s capacity or entitlement to so certify.‖ would provide a better perspective of the case. and the only way to understand all its facets is to recognize that it is an entity unto itself. B. and (2) Civil Case No. In a similar fashion. Nor. In its Manifestation dated 8 September 2003. Petitioner contends that the courts below imprope rly relied on the ―independence principle‖ on letters of credit when this case falls squarely within the ―fraud exception rule. At any rate. Finally. yet strict compliance with its terms is an enforceable right. LHC adds that the action to enforce the ICC‘s partial award is now fully within the Makati RTC‘s jurisdiction in Civil Case No. E001126/8400 had been fully drawn. Luzon Hydro Corporation‖ before Branch 56 of the RTC of Makati. In yet another Manifestation dated 12 April 2004. under the premises. petitioner urges that this warrants a ruling from this Court that the call on the Securities was wrongful. petitioner filed a Supplement to the Petition and Supplemental Memorandum.00. alleging that in the course of the proceedings in the ICC Arbitration. Invoking the independence principle. WHETHER ANZ BANK AND SECURITY BANK ARE JUSTIFIED IN RELEASING THE AMOUNTS DUE UNDER THE SECURITIES DESPITE BEING NOTIFIED THAT LHC‘S CALL THEREON IS WRONGFUL. LHC DOES NOT RETURN THE AMOUNTS IT HAD WRONGFULLY DRAWN FROM THE SECURITIES. respondent ANZ Bank in its Memorandum dated 13 March 2003 posits that its actions could not be regarded as unjustified in view of the prevailing independence principle under which it had no obligation to ascertain the truth of LHC‘s allegations that petitioner defaulted in its obligations. It avers that it would suffer grave irreparable damage if LHC would be allowed to use the proceeds of the Securities and not ordered to return the amounts it had wrongfully drawn thereon. The relationship between the beneficiary and the issuer of a letter of credit is not strictly contractual. petitioner‘s prayer for preliminary injunction had been rendered moot and academic. Petitioner asserts that LHC should be ordered to return the proceeds of the Securities pursuant to the principle against unjust enrichment and that. Further. Moreover. because the issuer must honor drafts drawn against a letter regardless of problems subsequently arising in the underlying contract.00. petitioner alleges that on 18 February 2004.000. petitioner continues. Inc. LHC filed a Counter-Manifestation dated 29 June 2004. LHC notes that the Petition for Review essentially dealt only with the issue of whether injunction could issue to restrain the beneficiary of an irrevocable letter of credit from drawing thereon. 11264/TE/MW. LHC IS ALLOWED TO CALL AND DRAW ON. declaring that LHC wrongfully drew upon the Securities and that petitioner was entitled to the return of the sums wrongfully taken by LHC for liquidated damages. WHETHER OR NOT PETITIONER WILL SUFFER GRAVE AND IRREPARABLE DAMAGE IN THE EVENT THAT: A.814.‖ Respondent LHC deliberately misrepresented the supposed existence of delay despite its knowledge that the issue was still pending arbitration. is it a contract of suretyship or guarantee. it is not in itself a negotiable instrument. the appellate court dismissed the petition for certiorari. AND ANZ BANK AND SECURITY BANK ARE ALLOWED TO RELEASE. THE REMAINING BALANCE OF THE SECURITIES PRIOR TO THE RESOLUTION OF THE DISPUTES BETWEEN PETITIONER AND LHC. v. to wit: (1) ICC Case No. yet the draft presented under it is often negotiable. LHC asserts that petitioner is engaged in forum-shopping by keeping this appeal and at the same time seeking the suit for enforcement of the arbitral award before the Makati court.950. It contends that after the filing of the petition facts and admissions were discovered which demonstrate that LHC knowingly misrepresented that petitioner had incurred delays— notwithstanding its knowledge and admission that delays were excused under the Turnkey Contract—to be able to draw against the Securities. it does not function as an assignment by the customer to the beneficiary.
A beneficiary can in no case avail himself of the contractual relationships existing between the banks or between the applicant and the issuing bank. value or existence of the goods represented by any documents. First.‖ Petitioner‘s argument that any dispute must first be resolved by the parties. the ICC has published from time to time updates on the Uniform Customs and Practice (UCP) for Documentary Credits to standardize practices in the letter of credit area. Generally. Thus. i. In brief. or the insurers of the goods. LHC asserts it is entitled to invoke the principle. Can the beneficiary invoke the independence principle? Petitioner insists that the independence principle does not apply to the instant case and assuming it is so. In both cases the payment may be enjoined if in the light of the purpose of the credit the payment of the credit would constitute fraudulent abuse of the credit. packing. are separate transactions from the sales or other contract(s) on which they may be based and banks are in no way concerned with or bound by such contract(s). The vast majority of letters of credit incorporate the UCP. contends that it would be contrary to common sense to deny the benefit of an independent contract to the very party for whom the benefit is intended. this Court ruled that the observance of the UCP is justified by Article 2 of the Code of Commerce which provides that in the absence of any particular provision in the Code of Commerce. Jurisprudence has laid down a clear distinction between a letter of credit and a guarantee in that the settlement of a dispute between the parties is not a pre-requisite for the release of funds under a letter of credit. The use of credits in commercial transactions serves to reduce the risk of nonpayment of the purchase price under the contract for the sale of goods. this Court ruled that there being no specific provisions which govern the legal complexities arising from transactions involving letters of credit. The independent nature of the letter of credit may be: (a) independence in toto where the credit is independent from the justification aspect and is a separate obligation from the underlying agreement like for instance a typical standby. the noted authority on letters of credit. Consequently. there would be no practical and beneficial use for letters of credit in commercial transactions. The beneficiary of a commercial credit must demonstrate by documents that he has performed his contract. A letter of credit. First published in 1933. there is a definite undertaking by the issuing bank to pay the beneficiary provided that the stipulated documents are presented and the conditions of the credit are complied with. where the credit is stipulated as irrevocable. weight.e. sufficiency. It is for this reason that the party who is entitled to the proceeds of the letter of credit is appropriately called ―beneficiary.In commercial transactions. Letters of credit are employed by the parties desiring to enter into commercial transactions. it is a defense available only to respondent banks. accept and pay draft(s) or negotiate and/or fulfill any other obligation under the credit is not subject to claims or defenses by the applicant resulting from his relationships with the issuing bank or the beneficiary. by their nature. who wants to have control of the goods before paying. the party who applied for and obtained it may confidently present the letter of credit to the beneficiary as a security to convince the beneficiary to enter into the business transaction. or for the general and/or particular conditions stipulated in the documents or superimposed thereon. quantity. the carriers. banks assume no liability or responsibility for the form. However. and a buyer. can be rest assured of being empowered to call on the letter of credit as a security in case the commercial transaction does not push through. the independence doctrine works to the benefit of both the issuing bank and the beneficiary. the beneficiary of the letter of credit. the UCP for Documentary Credits has undergone several revisions. quality. such as in this case. De Reny Fabric Industries. or (b) independence may be only as to the justification aspect like in a commercial letter of credit or repayment standby. In other words. More recently. Precisely. the engagement of the issuing bank is to pay the seller or beneficiary of the credit once the draft and the required documents are presented to it. as the case may be. The documents that accompany the beneficiary's draft tend to show that the applicant has not performed. The beneficiary of the standby credit must certify that his obligor has not performed the contract. the undertaking of a bank to pay. however. falsification or legal effect of any documents. By definition. on the other hand. delivery. before the beneficiary is entitled to call on the letter of credit in essence would convert the letter of credit into a mere guarantee. condition. the obligation under the letter of credit is independent of the related and originating contract. As discussed above. the independence principle liberates the issuing bank from the duty of ascertaining compliance by the parties in the main contract. sheds more light on the issue: The standby credit is an attractive commercial device for many of the same reasons that . which is identical with the same obligations under the underlying agreement. As it is. Since letters of credit have gained general acceptability in international trade transactions. who refuses to part with his goods before he is paid. nor do they assume any liability or responsibility for the description.. Such credits become payable upon the presentation by the seller-beneficiary of documents that show he has taken affirmative steps to comply with the sales agreement. not only between or among banks themselves but also between banks and the seller or the buyer. or any other person whomsoever. On the other hand. There are three significant differences between commercial and standby credits. a letter of credit is a written instrument whereby the writer requests or authorizes the addressee to pay money or deliver goods to a third person and assumes responsibility for payment of debt therefor to the addressee. As beneficiary of the letter of credit. commercial credits involve the payment of money under a contract of sale. credits are also used in non-sale settings where they serve to reduce the risk of nonperformance. Professor John F. Dolan. or for the good faith or acts and/or omissions. If a letter of credit is drawable only after settlement of the dispute on the contract entered into by the applicant and the beneficiary. NT & SA v. Given the nature of letters of credit. the latest of which was in 1993. whether through negotiations or arbitration. genuineness. the credit is payable upon certification of a party's nonperformance of the agreement. even if any reference whatsoever to such contract(s) is included in the credit.. changes its nature as different transactions occur and if carried through to completion ends up as a binding contract between the issuing and honoring banks without any regard or relation to the underlying contract or disputes between the parties thereto. As the principle‘s nomenclature clearly suggests. a letter of credit is a financial device developed by merchants as a convenient and relatively safe mode of dealing with sales of goods to satisfy the seemingly irreconcilable interests of a seller. the other party to the business transaction. The so-called ―independence principle‖ assures the seller or the beneficiary of prompt payment independent of any breach of the main contract and precludes the issuing bank from determining whether the main contract is actually accomplished or not. or the applicant fails to perform his part of the transaction. petitioner‘s argument—that it is only the issuing bank that may invoke the independence principle on letters of credit —does not impress this Court. To say that the independence principle may only be invoked by the issuing banks would render nugatory the purpose for which the letters of credit are used in commercial transactions. In the standby type. in Bank of America. solvency. Inc . credits in the non-sale settings have come to be known as standby credits. in a letter of credit transaction. LHC. performance or standing of the consignor. not for the benefit of the issuing bank but mainly for the benefit of the parties to the original transactions. commercial transactions shall be governed by usages and customs generally observed. the applicability of the UCP is undeniable. the letter of credit is separate and distinct from the underlying transaction. Under this principle. accuracy. Court of Appeals. Article 3 of the UCP provides that credits. the argument is incompatible with the very nature of the letter of credit. With the letter of credit from the issuing bank. In Bank of the Philippine Islands v.
1 If the Contractor fails to comply with Clause 8. often involve costs of determining whether the obligor defaulted (a matter over which the surety and the beneficiary often litigate) plus the cost of performance. during the litigation to determine whether the applicant has in fact breached the obligation to perform. the distinction between surety contracts and credits merits some reflection. Next. then. In the surety contract setting. There is a tendency in some quarters to overlook this distinction between surety contracts and standby credits and to reallocate burdens by permitting the obligor or the issuer to litigate the performance question before payment to the beneficiary. while not an exclusive remedy on the part of LHC. without prejudice to any other method of recovery. The standby credit has this opposite effect of the surety contract: it reverses the financial burden of parties during litigation. The two commercial devices share a common purpose. Thus.7. there is no duty to indemnify the beneficiary until the beneficiary establishes the fact of the obligor‘s performance. which is to serve the commercial function of the credit. Would injunction then be the proper remedy to restrain the alleged wrongful draws on the Securities? . it is imperative to resolve. holds the money. thus: 4. or to become due to the Contractor and/or by drawing on the Security. fraudulently presents to the confirming bank. He knows that the surety. the beneficiary. The standby credit has different expectations. issued and confirmed by banks or financial institutions acceptable to the Employer.907. the Contractor shall pay to the Employer by way of liquidated damages (―Liquidated Damages for Delay‖) the amount of US$75. Essentially. Respondent banks had squarely raised the independence principle to justify their releases of the amounts due under the Securities. the beneficiary avoids that litigation burden and receives his money promptly upon presentation of the required documents. petitioner insists. It is worthy of note that the propriety of LHC‘s call on the Securities is largely intertwined with the fact of default which is the self-same issue pending resolution before the arbitral tribunals. The call upon the Securities. Each of the Securities must be in form and substance acceptable to the Employer and may be provided on an annually renewable basis. provided that Liquidated Damages for Delay payable by the Contractor shall in the aggregate not exceed 20% of the Contract Price. petitioner argues that the independence principle is not without limits and it is important to fashion those limits in light of the principle‘s purpose. If it does not serve those functions.‖ A contract once perfected. performed and that the beneficiary‘s presentation of those documents is not rightful. may be in keeping with good faith. the surety undertakes to complete the obligor‘s performance. each in the amount of US$8. LHC has a right rooted in the Contract to call on the Securities. The beneficiary also should understand that such performance must await the sometimes lengthy and costly determination that the obligor has defaulted. is certainly an alternative recourse available to it upon the happening of the contingency for which the Securities have been proffered. this Court is not called upon to rule upon the issue of default—such issue having been submitted by the parties to the jurisdiction of the arbitral tribunals pursuant to the terms embodied in their agreement. documents that contain. He reasonably expects that he will receive cash in the event of nonperformance. A careful perusal of the Turnkey Contract reveals the intention of the parties to make the Securities answerable for the liquidated damages occasioned by any delay on the part of petitioner. In that case. the Contractor at its cost shall on the Commencement Date provide security to the Employer in the form of two irrevocable and confirmed standby letters of credit (the ―Securities‖).988. but.000 for each and every day or part of a day that shall elapse between the Target Completion Date and the Completion Date. Owing to the nature and purpose of the standby letters of credit. in distinctly different ways. in fact. injunction is recognized as a remedy available to it.1.7. upon the obligor‘s default. or in breach of warranty.commercial credits are attractive. Unfortunately for petitioner. Both ensure against the obligor‘s nonperformance. Because parties and courts should not confuse the different functions of the surety contract on the one hand and the standby credit on the other. Citing Dolan‘s treatise on letters of credit. During the litigation. which tend to generate higher costs than credits do and are usually triggered by a factual determination rather than by the examination of documents. the surety holds the money and the beneficiary bears most of the cost of delay in performance. even without the use of the ―independence principle. for the purpose of drawing on the credit. While it is the bank which is bound to honor the credit.2. this Court rules that the respondent banks were left with little or no alternative but to honor the credit and both of them in fact submitted that it was ―ministerial‖ for them to honor the call for payment. however. and law. In such a situation. however. Often they replace surety contracts. the applicant may sue the beneficiary in tort. Parties that use a standby credit and courts construing such a credit should understand this allocation of burdens. In addition. The relevant provisions of the Contract read. material representations of fact that to his knowledge are untrue. The Contractor shall pay Liquidated Damages for Delay for each day of the delay on the following day without need of demand from the Employer. The situation itself emasculates petitioner‘s posture that LHC cannot in voke the independence principle and highlights its puerility.‖ the Turnkey Contract itself bestows upon LHC the right to call on the Securities in the event of default.2. 8. petitioner invokes the ―fraud exception‖ principle. 8. among others. It asserts that the ―fraud exception‖ exists when the beneficiary. it is the beneficiary who has the right to ask the bank to honor the credit by allowing him to draw thereon. often an insurance company. is a strong financial institution that will perform if the obligor does not. the surety‘s performance takes time. It avers that LHC‘s call on the Securities is wrongful because it fraudulently misrepresented to ANZ Bank and SBC that there is already a breach in the Turnkey Contract knowing fully well that this is yet to be determined by the arbitral tribunals. whether petitioner was in fact guilty of delay in the performance of its obligation. Furthermore. more so in this case where the banks concerned were impleaded as parties by petitioner itself. Traditionally. binds the parties not only to the fulfillment of what has been expressly stipulated but also to all the consequences which according to their nature. that he will receive it promptly. It may be that the applicant has. and that he will receive it before any litigation with the obligor (the applicant) over the nature of the applicant‘s performance takes place. usage. They function. these credits are inexpensive and efficient. expressly or by implication.2 The Employer may. The beneficiary may have to establish that fact in litigation. In order to secure the performance of its obligations under this Contract. not the applicant. Surety contracts. application of the principle is not warranted. deduct the amount of such damages from any monies due. The benefit of the surety contract to the beneficiary is obvious. usually by hiring someone to complete that performance. and the commonlaw principles of contract should apply. To be able to declare the call on the Securities wrongful or fraudulent. In the standby credit case. in contract.
to wit: ICC Case No.2. 04-332 before the RTC of Makati. but more so. a proviso that only the final determination by the arbitral tribunals that default had occurred would justify the enforcement of the Securities. without prejudice to any other method of recovery. (b) the fraud constitutes fraudulent abuse of the independent purpose of the letter of credit and not only fraud under the main agreement. deduct the amount of such damages from any monies due. This fact alone would have been sufficient reason to dismiss the instant petition. provided that no notice will be required if the Employer calls upon any of the Securities for the payment of Liquidated Damages for Delay or for failure by the Contractor to renew or extend the Securities within 14 days of their expiration in accordance with Clause 4. the Turnkey Contract is plain and unequivocal in that it conferred upon LHC the right to draw upon the Securities in case of default. Professor Dolan opines that the untruthfulness of a certificate accompanying a demand for payment under a standby credit may qualify as fraud sufficient to support an injunction against payment. The lower courts could thus not be faulted for not applying the fraud exception rule not only because the existence of fraud was fundamentally interwoven with the issue of default still pending before the arbitral tribunals. Settled is the rule that injunction would not lie where the acts sought to be enjoined have already become fait accompli or an accomplished or consummated act. the only limitation being that this discretion should be exercised based upon the grounds and in the manner provided by law. in a Manifestation. pursuant to the principle of autonomy of contracts embodied in Article 1306 of the Civil Code. then LHC would not be entitled to any liquidated damages.7. Petitioner should not be allowed in this instance to bring into play the fraud exception rule to sustain its claim for the issuance of an injunctive relief. LHC has charged petitioner of forum-shopping. as earlier stated. To repeat. it is not a cause of action in itself but merely a provisional remedy. therefore. In the instant case. injunction should not be granted unless: (a) there is clear proof of fraud. the consummation of the act sought to be restrained had rendered the instant petition moot—for any declaration by this Court as to propriety or impropriety of the non-issuance of injunctive relief could have no practical effect on the existing controversy.7. Indeed. the right of LHC to call on the Securities was contractually rooted and subject to the express stipulations in the Turnkey Contract. prudence should have impelled LHC to await resolution of the pending issues before the arbitral tribunals prior to taking action to enforce the Securities.2 The Employer may. It argued that if its claims for extension would be found meritorious by the ICC. LHC argues that petitioner‘s acts constitutes forum-shopping which should be punished . Nowhere in its complaint before the trial court or in its pleadings filed before the appellate court. However. 11264/TE/MW and Civil Case No. or to become due. in relation to Clause 8. With respect to the issue of whether the respondent banks were justified in releasing the amounts due under the Securities. Moreover. In its complaint for injunction before the trial court. should petitioner finally prove in the pending arbitration proceedings that LHC‘s draws upon the Securities were wrongful due to the non-existence of the fact of default. However. But. petitioner alleged that it is entitled to a total extension of two hundred fifty-three (253) days which would move the target completion date. In Ticzon v. The remedy for fraudulent abuse is an injunction. dated 30 March 2001. respondent banks‘ undertaking was simply to pay once the required documents are presented by the beneficiary. By petitioner‘s own admission. theories or arguments not brought out in the proceedings below will ordinarily not be considered by a reviewing court as they cannot be raised for the first time on appeal.2. it was merely enforcing its rights in accordance with the tenor thereof. as provided in Clause 4. It raised the charge on two occasions. Generally. there must be a clear showing by the complaint that there exists a right to be protected and that the acts against which the writ is to be directed are violative of the said right. an adjunct to a main suit. In the instant case. hence. thus: 4.5 The Employer shall give the Contractor seven days‘ notice of calling upon any of the Securities. petitioner failed to show that it has a clear and unmistakable right to restrain LHC‘s call on the Securities which would justify the issuance of preliminary injunction.2.2. and (c) irreparable injury might follow if injunction is not granted or the recovery of damages would be seriously damaged. Video Post Manila. The pendency of the arbitration proceedings would not per se make LHC‘s draws on the Securities wrongful or fraudulent for there was nothing in the Contract which would indicate that the parties intended that all disputes regarding delay should first be settled through arbitration before LHC would be allowed to call upon the Securities. to the Contractor and/or by drawing on the Security. What petitioner did assert before the courts below was the fact that LHC‘s draws on the Securities would be premature and without basis in view of the pending disputes between them. petitioner utterly failed to show that it had a clear and unmistakable right to prevent LHC‘s call upon the Securities. Inc. The issuance of the writ of preliminary injunction as an ancillary or preventive remedy to secure the rights of a party in a pending case is entirely within the discretion of the court taking cognizance of the case. Moreover. did petitioner invoke the fraud exception rule as a ground to justify the issuance of an injunction. because petitioner never raised it as an issue in its pleadings filed in the courts below. At any rate. The other issues raised by petitioner particularly with respect to its right to recover the amounts wrongfully drawn on the Securities. One final point. that the right of complainant is clear and unmistakable and that there is an urgent and paramount necessity for the writ to prevent serious damage.2. the fact is petitioner did not do so. 8. Before a writ of preliminary injunction may be issued. Neither were they bound by petitioner‘s declaration that LHC‘s call thereon was wrongful. First. could properly be threshed out in a separate proceeding. the Turnkey Contract did not require LHC to do so and.5. It must be shown that the invasion of the right sought to be protected is material and substantial. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. stating the nature of the default for which the claim on any of the Securities is to be made. LHC informed this Court that the subject letters of credit had been fully drawn. an injunctive remedy may only be resorted to when there is a pressing necessity to avoid injurious consequences which cannot be remedied under any standard compensation.Most writers agree that fraud is an exception to the independence principle. this Court ruled that where the period within which the former employees were prohibited from engaging in or working for an enterprise that competed with their former employer—the very purpose of the preliminary injunction —has expired. this Court reiterates that pursuant to the independence principle the banks were under no obligation to determine the veracity of LH C‘s certification that default has occurred. its right to seek indemnification for damages it suffered would not normally be foreclosed pursuant to general principles of law. It is therefore premature and absurd to conclude that the draws on the Securities were outright fraudulent given the fact that the ICC and CIAC have not ruled with finality on the existence of default. More importantly. Of course. Matters. At any rate. injunction is a preservative remedy for the protection of one‘s substantive right or interest. any declaration upholding the propriety of the writ would be entirely useless as there would be no actual case or controversy between the parties insofar as the preliminary injunction is concerned. according to it. petitioner could have incorporated in its Contract with LHC. it would have to live with its inaction. in its Counter-Manifestation dated 29 June 2004 LHC alleges that petitioner presented before this Court the same claim for money which it has filed in two other proceedings.
Second. (Chairman). To determine whether a party violated the rule against forum-shopping. Puno.. Callejo. or already resolved adversely. all substantially founded on the same transactions and the same essential facts and circumstances. in its Comment to Petitioner’s Motion for Leave to File Addendum to Petitioner’s Memorandum dated 8 October 2004. It exists when a party repetitively avails of several judicial remedies in different courts. with costs against petitioner. WHEREFORE. In both instances. . JJ. or the institution of two or more actions or proceedings grounded on the same cause on the supposition that one or the other court might look with favor upon the other party. simultaneously or successively. the instant petition is DENIED. Forum-shopping constitutes improper conduct and may be punished with summary dismissal of the multiple petitions and direct contempt of court. Austria-Martinez. however. LHC alleges that by maintaining the present appeal and at the same time pursuing Civil Case No. Petitioner is hereby required to answer the charge of forum-shopping within fifteen (15) days from notice. petitioner has apparently opted not to respond to the charge. and Chico-Nazario. Considering the seriousness of the charge of forum-shopping and the severity of the sanctions for its violation. Forum-shopping is a very serious charge. by some other court. 04-332—wherein petitioner pressed for judgment on the issue of whether the funds LHC drew on the Securities should be returned—petitioner resorted to forum-shopping. Sr. and all raising substantially the same issues either pending in. of seeking another and possibly favorable opinion in another forum other than by appeal or special civil action of certiorari. the test applied is whether the elements of litis pendentia are present or whether a final judgment in one case will amount to res judicata in another. the Court will refrain from making any definitive ruling on this issue until after petitioner has been given ample opportunity to respond to the charge. concur.by the dismissal of the claim in both forums.. It may also consist in the act of a party against whom an adverse judgment has been rendered in one forum. SO ORDERED.
(STANFILCO DIVISION). 10. Petitioner. Chairperson. The BPPA provided that SEARBEMCO shall sell exclusively to DOLE. In the case of any such rejected bananas. Inc. DEL CASTILLO. JJ.) That about 373 ―CONSUL‖ marked boxes were packed and . however. It assails: (a) the decision of the Court of Appeals (CA) in CA-G. as buyer. However. and which is planted and authorized under letter of instruction no. 2009 x ------------------------------------------------------------------------------------------x DECISION BRION. Promulgated: November 27. denying SEARBEMCO‘s motion for reconsideration. SEARBEMCO. 1999 under the terms and conditions herein stipulated. as the case may be. ARBITRATION OF DISPUTE All disputes arising in connection with this Agreement shall be finally settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by three (3) Arbitrators appointed in accordance with said Rules. 2002 in the same case. in violation of Section 5(p) Article V of the Banana Production and Purchase Agreement. all Cavendish bananas of required specifications to be planted on the land owned by SEARBEMCO. the SELLER may reduce said area(s) provided that if the SELLER replaces the reduction by planting bananas on an equivalent area(s) elsewhere. J. DOLE filed a complaint with the Regional Trial Court ( RTC) against SEARBEMCO.SECOND DIVISION STANFILCO EMPLOYEES AGRARIAN REFORM BENEFICIARIES MULTIPURPOSE COOPERATIVE. entered into a Banana Production and Purchase Agreement (BPPA). The BPPA states: The SELLER agrees to sell exclusively to the BUYER. and respondent DOLE Philippines. and Oribanex Services. to do the following: V. as much as practicable. 1998. SPECIFIC OBLIGATIONS OF THE SELLER xxx p. the SELLER shall have the right to sell such rejected bananas to third parties. Article V of the BPPA which limited the sale of rejected bananas for ―domestic non-export consumption. and the latter shall buy from the former. and SPOUSES ELLY AND MYRNA ABUJOS.] DOLE PHILIPPINES. Judgment upon the award rendered may be entered in any Philippine Court having jurisdiction or application may be made to such court for judicial acceptance of the award and as order of enforcement. in violation of paragraph 5(p). SELLER will produce banana to the maximum capacity of the plantation.‖ DOLE further alleged that Oribanex is likewise an exporter of bananas and is its direct competitor. and (b) the CA‘s resolution of June 13. BRION.6367 hectares. consistent with good agricultural Any dispute arising from or in connection with the BPPA between the parties shall be finally settled through arbitration. 2000 at about 5:00 o‘clock in the afternoon. DOLE alleged that SEARBEMCO sold and delivered to Oribanex.) Sell exclusively to the BUYER all bananas produced from the subject plantation. the spouses Elly and Myrna Abujos ( spouses Abujos).. except those rejected by the BUYER for failure to meet the specifications and conditions contained in Exhibit ―A‖ hereof. 66148 dated November 27. J. To quote the BPPA: IX. and ABAD. DOLE narrated in its complaint how SEARBEMCO sold and delivered the rejected bananas to Oribanex through the spouses Abujos: 9. it is agreed that such replacement area(s) shall be deemed covered by the Agreement.6367 hectares. The Arbitration shall be held in a venue to be agreed by the parties. on April 12. 2001. more or less. 154048 Present: CARPIO. (Stanfilco Division) (DOLE). packed the bananas rejected by [DOLE] in boxes marked ―CONSUL‖ in Packing Plant 32 in DAPCO Panabo and sold and delivered them to defendant Abujos. Inc. [DOLE] through its authorized security personnel discovered that defendant SEARBEMCO. INC. 790 as amended on November 6.R. practices designed to produce banana of quality having the standards hereinafter set forth for the duration of this Banana Production and Purchase Agreement. LEONARDO-DE CASTRO. No. THE FACTUAL ANTECEDENTS On January 29. the bananas rejected by DOLE. with a prayer for the issuance of a writ of preliminary injunction and of a temporary restraining order. If the SELLER plants an area(s) in excess of said 351. through the spouses Abujos. [Emphasis supplied. (Oribanex) for specific performance and damages. INC.: Before this Court is the petition for review on certiorari filed by petitioner Stanfilco Employees Agrarian Reform Beneficiaries Multi-Purpose Cooperative (SEARBEMCO). ORIBANEX SERVICES. and the BUYER agrees to buy all Cavendish Banana of the Specifications and Quality described in EXHIBIT ―A‖ hereof produced on the SELLER‘S plantation covering an area of 351. versus G. SP No.) That. for domestic non-export consumption. The SELLER shall not increase or decrease the area(s) stated above without the prior written approval of the BUYER. SEARBEMCO bound and obliged itself. as seller. On December 11. The SELLER shall only sell bananas produced from the plantation and not from any other source. Respondents. inter alia. 2000. the parties may enter into a separate agreement regarding the production of said additional acreage.R.
that: 1) the dispute between the parties is not an agrarian dispute within the exclusive jurisdiction of the DARAB under Republic Act No. through defendants Abujos who carried and loaded the same on board a red Isuzu Forwarder. Subsequently. 6657. Thus. April 13. Sec. but is an action to compel SEARBEMCO to comply with its obligations under the BPPA. as case law has it that only the parties to a suit. the spouses Abujos and Oribanex who are not parties to the BPPA) as defendants. The RTC denied the motion for lack of merit in its Order of July 12. 12. In a decision dated November 27. since the rejected bananas were sold to the spouses Abujos who were third-party buyers and not exporters of bananas.) That the following day. applies only when the parties involved are parties to the agreement. SEARBEMCO responded with a motion to dismiss on the grounds of lack of jurisdiction over the subject matter of the claim. any dispute arising from the interpretation and implementation of the BPPA is an agrarian dispute within the exclusive jurisdiction of the DARAB. 6657). LCV 918. said the CA. in violation of paragraph 5(p) Article V of the Banana Production and Purchase Agreement.e. 2) 3) 4) DOLE opposed SEARBEMCO‘s motion to dismiss alleging. The trial court stated that the case does not involve an agrarian conflict and is a judicial matter that it can resolve. a copy of which is hereto attached and marked as Annex ―C‖. 02. 2000. SEARBEMCO argued that the BPPA the parties executed is an agri-business venture agreement contemplated by DAR‘s AO No. as the dispute between DOLE and SEARBEMCO has not been referred to and resolved by arbitration. 9-98. but the CA denied the motion for lack of merit in its resolution of June 13. through defendant Abujos is in utter violation of the Agreement between plaintiff [DOLE] and defendant SEARBEMCO that SEARBEMCO may sell bananas rejected by plaintiff to parties for domestic non-export consumption only. ASSIGNMENT OF ERRORS In the present petition. SEARBEMCO moved for the reconsideration of the RTC Order. 30(g) of AO No. 2001. lack of cause of action. Article V of the BPPA. the same is fatally defective. INC. and 2) the Arbitration Clause of the BPPA is not applicable as. it did not violate Section 5(p).. THE RTC RULING The RTC denied SEARBEMCO‘s motion to dismiss in an Order dated May 16. SEARBEMCO filed a special civil action for certiorari with the CA alleging grave abuse of discretion on the part of the RTC for denying its motion to dismiss and the subsequent motion for reconsideration. INC. in its complaint. SEARBEMCO.‖ It held that the case is not an agrarian dispute within the purview of Section 3(d) of RA No. Series of 1999 (AO No. 2-99) of the Department of Agrarian Reform (DAR). DOLE‘s Zone Manager. through defendants Abujos who carried and loaded the same on board a blue Isuzu Canter bearing plate no. since the dispute between the parties is an agrarian dispute within the exclusive competence of the DARAB to resolve. THE CA RULING On July 26. bearing plate no. for export. any judgment rendered by the latter. 09. therefore. INC. SEARBEMCO moved for reconsideration of the decision. 2001. 2001.‖ the CA ruled that the omission of the word ―personal‖ did not re nder the Verification and Certification defective. and the complaint is fatally defective as the Board of Directors of DOLE did not approve any resolution authorizing Atty. the filing of the complaint is premature. over actions between [SEARBEMCO] and [DOLE] for enforcement of the said Agreement when one commits a breach thereof and for redress by way of specific performance and damages inclusive of injunctive relief. ―if [DOLE] referred its dispute with [SEARBEMCO] to a Panel of Arbitrators. SEARBEMCO argued that: 1) the Department of Agrarian Reform Adjudication Board ( DARAB) has exclusive jurisdiction over the action filed by DOLE. 6657 ( RA No. 9-98 of the DAR. 6657. under said [AO No. 11. 9-98) and Section 5(a) and (c) of Administrative Order No. The CA likewise disregarded SEARBEMCO‘s emphatic argument that DOLE‘s complaint was prematurely filed because of its failure to first resort to arbitration. 2000.. According to the CA. Quinto. pursuant to Sections 1 and 3(e) of Administrative Order No.) That the sale of a total of 712 boxes of rejected bananas covering April 12 and 13.) That about 648 ―CONSUL‖ marked boxes were packed and knowingly sold by defendant SEARBEMCO to ORIBANEX SERVICES. SEARBEMCO submits that the CA erred in ruling that: 1. INC. are bound by the judgment of the Court or quasi-judicial bodies. again the same security found that defendant SEARBEMCO continued to pack the bananas rejected by plaintiff in boxes marked as ―CONSUL‖ and. a copy of which is hereto attached as Annex ―B‖. whether for or against [DOLE] will not be binding on the [spouses Abujos] and [Oribanex]. and the complaint‘s defective verification and certification of non-forum shopping. 2002. or any other dates prior thereto or made thereafter by defendant SEARBEMCO to defendant ORIBANEX SERVICES. the amendment consisting of the Verification and Certification against forum shopping for DOLE executed by Danilo C. through defendants Abujos. The arbitration clause under the BPPA. as well as their successors-in-interest. Series of 1998 (AO No. not RA No. The CA ruled that ―the [DAR] has no jurisdiction. 9-98].) the RTC has jurisdiction over the subject matter of the complaint of DOLE. DOLE included the spouses Abujos and Oribanex as defendants. LDM 976 and delivered to defendant ORIBANEX for export at the TEFASCO Wharf covered by Abujos Delivery Receipt. 13. Reynaldo Echavez to execute the requisite Verification and Certification Against Forum Shopping and. DOLE impleaded other parties (i. failure to submit to arbitration which is a condition precedent to the filing of a complaint. 2001 an amended complaint.. sold and delivered them to defendant ORIBANEX SERVICES.knowingly sold by defendant SEARBEMCO to ORIBANEX SERVICES. the CA found that the RTC did not gravely abuse its discretion in denying SEARBEMCO‘s motion to dismiss and motion for reconsideration. aside from . among others. and delivered to defendant ORIBANEX for export at the TEFASCO Wharf covered by Abujos Delivery Receipt. it called for the application of the provisions of the Civil Code. DOLE filed on February 2. contrary to Article IX of the BPPA and Article V. 2001.‖ On SEARBEMCO‘s argument that the Verification and Certification Against Forum Shopping under DOLE‘s amended complaint is defective for failure to state that this was based on ―personal knowledge.
maintaining. 6657 is] broad enough to include disputes arising from any tenurial arrangement beyond the traditional landowner-tenant or lessor-lessee relationship. De Tangub v. SEARBEMCO concludes that the BPPA is not an ordinary contract. Notably. SEARBEMCO claims. we held that: For DARAB to have jurisdiction over a case. the law acknowledges other modes of tenurial arrangements to effect the implementation of CARP. and (6) the harvest is shared between the landowner and the tenant or the agricultural lessee. restructuring or readjustment of agricultural lands into residential. In fact. A principal factor. Instead. not a review on appeal.) the filing of the complaint is not premature.) adjudication of all matters involving implementation of agrarian reform. of the challenged RTC ruling. 2-99. processing and marketing agreement. THE COURT’S RULING We do not find the petition meritorious. We have always held that tenancy relations cannot be presumed. as defined under Section 5 (c) (i) and (ii) of DAR AO No. Therefore. DOLE’s complaint falls within the jurisdiction of the regular courts. We clarify at the outset that what we are reviewing in this petition is the legal question of whether the CA correctly ruled that the RTC committed no grave abuse discretion in denying SEARBEMCO‘s motion to dismiss. as where the power is exercised in an arbitrary and despotic manner by reason or passion or personal hostility.) resolution of agrarian conflicts and land tenure related problems. as the CA and the RTC correctly ruled. (2) the subject matter of the relationship is an agricultural land. the RTC’s action was not attended by any grave abuse of discretion and the RTC correctly ruled in denying SEARBEMCO’s motion to dismiss. we have to view the CA decision in the same context that the petition for certiorari it ruled upon was presented to the appellate court. 6657 and the characterization of the controversy as an agrarian dispute or as an agrarian reform matter in contending that the present controversy falls within the competence of the DARAB and not of the regular courts. stewardship or otherwise. (5) there is personal cultivation on the part of the tenant or agricultural lessee. Corporation and Cubero v. x x x. and written agreements between the parties. The elements of tenancy must first be proved by substantial evidence which can be shown through records. and other non-agricultural uses. speaking through former Chief Justice Panganiban. any dispute arising from the BPPA is within the exclusive jurisdiction of the DARAB. The case of Pasong Bayabas Farmers Association. and supplier of agricultural inputs. or lessor and lessee. xxx [A]grarian reform extends beyond the mere acquisition and redistribution of land. however. documents. Inc. commercial. changing or seeking to arrange terms or conditions of such tenurial arrangements. as such. It includes any controversy relating to compensation of lands acquired under this Act and other terms and conditions of transfer of ownership from landowners to farmworkers. the present petition is properly cognizable by the regular courts. whether the disputants stand in the proximate relation of farm operator and beneficiary. the requirement of the existence of tenurial relationship has been relaxed in the cases of Islanders CARP-Farmers Beneficiaries Muti-Purpose Cooperative. 6657 is procedurally implemented through the 2003 DARAB Rules of Procedure . In Heirs of the Late Hernan Rey Santos v. The abuse of discretion must be so patent and gross as to amount to an evasion of a positive duty or to a virtual refusal to perform a duty enjoined by law. SEARBEMCO also asserts that the parties‘ relationship in the present case is not only that of buyer and seller. is a joint venture and a production. 6657 is clear in defining an agrarian dispute: ―any controversy relating to tenurial arrangements. Court of Appeals (191 SCRA 885). too. It also cannot be gleaned from the intention of the parties that they intended to form a tenancy relationship between them. there must exist a tenancy relationship between the parties. despite the fact that SEARBEMCO has not violated any provision of the BPPA. Court of Appeals lists down the indispensable elements for a tenancy relationship to exist: ―(1) the parties are the landowner and the tenant or agricultural lessee. In the absence of any such intent and resulting relationship. or to act at all in contemplation of the law. over lands devoted to agriculture.considering that the case involves an agrarian dispute within the exclusive jurisdiction of the DARAB. Lapanday Agricultural and Dev’t. As the CA found. In ruling for legal correctness. but also that of supplier of land covered by the CARP and of manpower on the part of SEARBEMCO.‖ RA No. hence. 6657 and its implementing rules is the focus on agricultural lands and the relationship over this land that serves as the basis in the determination of whether a matter falls under DARAB jurisdiction. including dispute concerning farm-workers‘ associations or representations of persons in negotiating. We fully agree with the CA. tenancy. industrial. not the DARAB. [Emphasis supplied]. 2. whether leasehold. despite DOLE‘s failure to submit its claim to arbitration – a condition precedent to any juridical recourse. and 3. The BPPA. where Section 1. is imbued with public interest. landowner and tenant. financing and technological expertise on the part of DOLE. leads us to conclude that significant differences exist in the factual circumstances between those cases and the present case. Inc. to consider in determining whether a tenancy relationship exists is the intent of the parties. The Court. tenants and other agrarian reform beneficiaries. In Vda. (4) the purpose of the relationship is to bring about agricultural production. leasehold. Inc. In other words. Court of Appeals. but one that involves an agrarian element and. fixing. thus rendering the rulings SEARBEMCO mainly relies on Section 50 of RA No. we have to be keenly aware that the CA undertook a Rule 65 review. SEARBEMCO has no allegation whatsoever in its motion to dismiss regarding any tenancy relationship between it and DOLE that gave the present dispute the character of an agrarian dispute. the DARAB cannot have jurisdiction.) approval and disapproval of the conversion. and c. While Islanders and Cubero may seem to serve as precedents to the present case. Laguna West Multi-Purpose Cooperative. A court acts with grave abuse of discretion amounting to lack or excess of jurisdiction when its action was performed in a capricious and whimsical exercise of judgment equivalent to lack of discretion. a close analysis of these cases. A notable feature of RA No. (3) there is consent between the parties to the relationship. Rule II enumerates the instances where the DARAB shall have primary and exclusive jurisdiction. we have to examine the CA decision from the prism of whether it correctly determined the presence or absence of grave abuse of discretion in the RTC ruling before it. v.‖ The parties in the present case have no tenurial. declared in Islanders that: [The definition of ‗agrarian dispute‘ in RA No. we held that the jurisdiction of the Department of Agrarian Reform is limited to the following: a. Section 3(d) of RA No. not on the basis of whether the RTC ruling on the merits of the case was correct. b. or any other agrarian relationship that could bring their controversy within the ambit of agrarian reform laws and within the jurisdiction of the DARAB. SEARBEMCO has not shown that the above-mentioned indispensable elements of tenancy relations are present between it and DOLE.) the complaint of DOLE states a cause of action. v.
Islanders questioned (through a petition for declaration of nullity filed before the RTC of Tagum City) the lack of authority of the farmer-beneficiaries‘ alleged representative to enter into a Joint Production Agreement with Lapanday. In so ruling. DOLE’s complaint validly states a cause of action SEARBEMCO asserts that the pleading containing DOLE‘s claim against it states no cause of action.” We find SEARBEMCO‘s reliance on DAR AO No. The action of [DOLE] involves and calls for the application of the New Civil Code. the complaint is sufficient ―if it contains sufficient notice of the cause of action even though the allegations may be vague or indefinite. 6657. 6657. we must hypothetically assume the truth of DOLE‘s allegations. The CA is thus legally correct in its declaration that ―the action before the RTC does not involve an agrarian dispute. Indeed. and determine whether the RTC can render a valid judgment in accordance with its prayer.. and the inferences fairly deductible from. 6657. Due consideration of the basic rules on ―lack of cause of action‖ as a ground for a motion to dismiss weighs against SEARBEMCO‘s argument. Inc. the issue of the nullity of the joint economic enterprise agreements in Islanders and Cubero would directly affect the agricultural land covered by CARP. since the bananas rejected by DOLE were sold to the spouses Abujos who are third-party buyers and are not exporters of bananas – transactions that the BPPA allows. cultivation. The successors of the farmer-beneficiaries assailed the agreement before the RTC of Tanauan. 9-98 and 2-99 cannot validly extend the scope of the jurisdiction set by law. the material consideration is merely what the complaint expressly alleged. the movant needs to show that the plaintiff‘s claim for relief does not exist at all. we hold that the present case is best resolved by the trial court. Carefully analyzed. In the case of Jimenez. Since the sole basis of DOLE‘s complaint was SEARBEMCO‘s alleged violation of the BPPA. the proper recourse would be. the case falls squarely within the jurisdictional ambit of the DAR. administrative issuances like DAR AO Nos. That the sale had been to the spouses Abujos who are not exporters is essentially a denial of DOLE‘s allegations and is not therefore a material consideration in weighing the merits of the alleged ―lack of cause of action. as follows: In a motion to dismiss. Hypothetically admitting the allegations in DOLE‘s complaint that SEARBEMCO sold the rejected bananas to Oribanex. through the spouses Abujos. a cause of action exists. In applying this authoritative test. and is a defense that it will have to prove at the trial. and use of the CARP-covered agricultural land. in tandem with the terms and conditions of the [BPPA] of [SEARBEMCO] and [DOLE]. the complaint therefore did not state a cause of action. but a motion for a bill of particulars. Hypothetically assuming DOLE‘s allegations of ultimate sale to Oribanex. 6657. 6657. nor does it call for the application of Agrarian Reform laws. considering that the farmerbeneficiaries claimed that the agreements contravened specific provisions of that law. which SEARBEMCO insists did not take place. The resolution of the present case would therefore involve. In both cases. The farmers-beneficiaries assailed the validity of the agreement by additionally claiming that its terms contravened RA No. v. Even assuming that the present case can be classified as an agrarian dispute involving the interpretation or implementation of agribusiness venture agreements. x x x. more than anything else. to enforce the BPPA between them and to compel the latter to comply with its obligations. This hypothetical admission extends to the relevant and material facts pleaded in.e. DARAB‘s jurisdiction under Section 50 of RA No. Jr. however. Based on our above discussion.in these cited cases inapplicable. Cubero likewise involved a petition to declare the nullity of a Joint Venture Agreement between the farmer-beneficiaries and Laguna West Multi-Purpose Cooporative. Moreover. It contends that it did not violate any of the provisions of the BPPA. in which event. the Court ruled that the RTC lacked jurisdiction to hear the complaint and declared the DARAB as the competent body to resolve the dispute. Hence. a defendant hypothetically admits the truth of the material allegations of the plaintiff‘s complaint. DOLE‘s complaint for specific performance and damages before the RTC did not question the validity of the BPPA that would require the application of the provisions of RA No. a competitor of DOLE and also an exporter of bananas. we do not pass upon the validity of these administrative issuances. We do recognize the possibility that disputes may exist between parties to joint economic enterprises that directly pertain to the management. through the spouses Abujos. to be true. DOLE. In the present case. and use of CARPcovered agricultural land. DOLE did not attempt to settle their controversy .‖ What SEARBEMCO stated is a counter-statement of fact and conclusion. 9-98 and AO No. 2-99 as bases for DARAB‘s alleged expanded jurisdiction over all disputes arising from the interpretation of agribusiness ventures to be misplaced. the buyer. Batangas for having been executed within the 10-year prohibitory period under Section 27 of RA No. i. Those cases significantly did not pertain to postharvest transactions involving the produce from CARP-covered agricultural lands. DARAB still cannot validly acquire jurisdiction. the parties have capitalized and focused on their relationship as buyer and seller. a valid judgment may be rendered by the RTC holding SEARBEMCO liable for breach of contract. this Court had the opportunity to discuss the sufficiency of the allegations of the complaint to uphold a valid cause of action. At this point. neither did SEARBEMCO‘s motion to dismiss nor its other pleadings assail the validity of the BPPA on the ground that its provisions violate RA No. the complaint. as the case before us does now. The Court declared that when the question involves the rights and obligations of persons engaged in the management. the test is as follows: admitting the truth of the facts alleged. the application of civil law provisions on breaches of contract. cultivation. cultivation. and use of an agricultural land covered by CARP. filed a complaint against SEARBEMCO. not a motion to dismiss. To prevent multiple actions. in support of their arguments. we hold – following the test of sufficiency in Jordana – that DOLE‘s prayer for specific performance and damages may be validly granted. On the contrary. rather than agrarian reform principles. at least insofar as DOLE‘s cause of action against the third parties – the spouses Abujos and Oribanex – is concerned. 6657 should be read in conjunction with the coverage of agrarian reform laws. The filing of the complaint is not premature since arbitration proceedings are not necessary in the present case SEARBEMCO argues that DOLE failed to comply with a condition precedent before the filing of its complaint with the RTC. the principal issue raised in Islanders and Cubero referred to the management. We find the allegations in DOLE‘s complaint to be sufficient basis for the judgment prayed for. the seller. can the court render a valid judgment in accordance with the prayer? To sustain a motion to dismiss. Jordana. the resolution of the issue raised in Islanders and Cubero required the interpretation and application of the provisions of RA No. these disputes will fall within DARAB‘s jurisdiction. to determine whether the sufficiency of the facts alleged in the complaint constitutes a cause of action. hence.
As a rule. the parties are thereby expected to abide with good faith in their contractual commitments. Section 30(g) of DAR AO No. their assigns and heirs. the inclusion of third parties in the complaint supports our declaration that the present case does not fall under DARAB‘s jurisdiction. Since the present dispute need not be referred to arbitration (including mediation or conciliation) because of the inclusion of third parties. 998 and Section 10 of DAR AO No. SO ORDERED. Consequently. However. . i. we find – as the CA did – that SEARBEMCO‘s arguments anchored on these laws are completely baseless. Branch 34. or to hold trial in abeyance pending arbitration between petitioners and respondent Laperal Realty. are not bound by the Agreement and the arbitration clause therein. referral to arbitration in the State of California pursuant to the arbitration clause and the suspension of the proceedings in Civil Case No. the ruling in the Toyota case has been superseded by the more recent cases of Heirs of Augusto L.e. Petitioners Daniel Collins and Luis Hidalgo. We agree with the CA ruling that the BPPA arbitration clause does not apply to the present case since third parties are involved. ―the contention that the arbitration clause has become dysfunctional because of the presence of third parties is untenable. SEARBEMCO cites the case of Toyota Motor Philippines Corp. Derby. Jr. since the arbitral ruling will not bind them. and private respondents MMI and Lily Sy.. 2-99.e. no law and no agreement made with their participation can compel them to submit to arbitration. the interest of justice would only be served if the trial court hears and adjudicates the case in a single and complete proceeding. 6657 may be invoked only when there is prior certification from the Barangay Agrarian Reform Committee (or BARC) that the dispute has been submitted to it for mediation and conciliation. and private respondent SFI. Additionally.. contracts are respected as the law between the contracting parties and produce effect as between them. To require the spouses Abujos and Oribanex to submit themselves to arbitration and to abide by whatever judgment or ruling the panel of arbitrators shall make is legally untenable.‖ not a strict requirement of referral to arbitration. The provision to submit to arbitration any dispute arising therefrom and the relationship of the parties is part of that contract and is itself a contract. duplicitous procedure and unnecessary delay. the CA was therefore correct in its conclusion that the parties’ agreement to refer their dispute to arbitration applies only where the parties to the BPPA are solely the disputing parties. Following our conclusion that agrarian laws find no application in the present case. As such. v. 2-99 which provide that ―as a rule. Court of Appeals which holds that. Court of Appeals. 6657. which superseded that of [sic] Toyota Motor Philippines Corp. only parties to the Agreement.‖ SEARBEMCO argues that the presence of third parties in the complaint does not affect the validity of the provisions on arbitration. Derby. v. v. it would be in the interest of justice if the trial court hears the complaint against all herein respondents and adjudicates petitioner‘s rights as against theirs in a single and complete proceeding. On the other hand. In the present case. only mentions a ―preference. v. Costs against petitioner SEARBEMCO. Jr. Salas. in accordance with the recent case of Heirs of Augusto L. xxxx The object of arbitration is to allow the expeditious determination of a dispute. this Court held: Respondent Laperal Realty. Furthermore. there will be no compliance with Section 53 of RA No. and private respondents MMI and its Managing Director Lily Sy are bound by the Agreement and its arbitration clause as they are the only signatories thereto. to split the proceedings into arbitration for respondent Laperal Realty and trial for the respondent lot buyers.‖ SEARBEMCO also cites Section IX of the BPPA which provides that all disputes arising out of or in connection with their agreement shall be finally settled through arbitration. DARAB‘s quasijudicial powers under Section 50 of RA No. In ruling that prior resort to arbitration is not necessary. they are not parties to the arbitration agreement.through arbitration proceedings. Clearly. Following these precedents. The Regional Trial Court. they were directly involved in the BPPA violation DOLE alleged. Laperal Realty Corporation and Del Monte Corporation-USA v. has the right to compel petitioners to first arbitrate before seeking judicial relief. Any judgment or ruling to be rendered by the panel of arbitrators will be useless if third parties are included in the case. Unfortunately. Salas. we hereby DENY the petition for certiorari for lack of merit. the issue before us could not be speedily and efficiently resolved in its entirety if we allow simultaneous arbitration proceedings and trial. Accordingly. neither SEARBEMCO nor DOLE will be able to present the requisite BARC certification that is necessary to invoke DARAB‘s jurisdiction. i. shall be preferred in resolving disputes involving joint economic enterprises. or suspension of trial pending arbitration. and their participation are indispensable for a complete resolution of the dispute. is hereby directed to proceed with the case in accordance with this Decision. on its face. Heirs of Salas involved the same issue now before us: whether or not the complaint of petitioners-heirs in that case should be dismissed for their failure to submit the matter to arbitration before filing their complaint. premises considered. The petitioners-heirs included as respondents third persons who were not parties to the original agreement between the petitioners-heirs and respondent Laperal Realty. the cited DAR AO No. In support of its position. Court of Appeals. The case of Del Monte is more direct in stating that the doctrine held in the Toyota case has already been abandoned: The Agreement between petitioner DMC-USA and private respondent MMI is a contract. 2637-MN pending the return of the arbitral award could be called for but only as to petitioners DMC-USA and Paul E. not parties to the Agreement and cannot even be considered assigns or heirs of the parties. hence. without any success of settlement. SEARBEMCO relies on Article V. Panabo City. voluntary methods such as mediation or conciliation. Clearly. would in effect result in multiplicity of suits. as a contracting party to the Agreement. WHEREFORE.. Contracts are respected as the law between the contracting parties. and not as to other parties in this case. Jr. DOLE included as parties the spouses Abujos and Oribanex since they are necessary parties. petitioners DMC-USA and its Managing Director for Export Sales Paul E. The BPPA-based argument deserves more and closer consideration. Laperal Realty Corporation.
Recognition.6 and five (5) Philippine tuna processors. Ruiz of Branch 61.10). is the sum of ONE MILLION SEVEN HUNDRED FIFTY THOUSAND EIGHT HUNDRED FORTY SIX DOLLARS AND TEN CENTS ($1. DECISION PEREZ.1 petitioner Tuna Processing.750.8 pertinent provisions of which read: 1. Bank account.20 Petitioner TPI now seeks to nullify. 185582 February 29.16 After the court denied the motion for lack of merit. (A) For breach of the MOA by not paying past due assessments. withdrew from petitioner TPI and correspondingly reneged on their obligations.846. 18 Judge Alameda inhibited himself notwithstanding "[t]he unfounded allegations and unsubstantiated assertions in the motion. the licensees. sue here to enforce a foreign arbitral award? In this Petition for Review on Certiorari under Rule 45. 5. Inc. Inc. 5. granted respondent‘s Motion for Reconsideration and dismissed the petition on the ground that the petitioner lacked legal capacity to sue in the Philippines. Patent No. INC. and Indonesian Patent No. Background and objectives. East Asia Fish Co. and collecting royalties. The petition was raffled to Branch 150 presided by Judge Elmo M. Ownership of TPI. co-owner of U. ID0003911 (collectively referred to as the "Yamaoka Patent"). Establishment of Tuna Processors.619. RESPONDENT KINGFORD shall pay CLAIMANT the total sum of TWO HUNDRED SEVENTY ONE THOUSAND FOUR HUNDRED NINETY DOLLARS AND TWENTY CENTS ($271.R.000.484. TPI shall open and maintain bank accounts in the United States. Mommy Gina Tuna Resources. and Indonesian Patent No. pursuant to the terms of this award. ID0003911 xxx wishes to form an alliance with Sponsors for purposes of enforcing his three aforementioned patents.619. granting licenses under those patents.355. At Branch 150. Recognition.. Due to a series of events not mentioned in the petition. namely. co-patentee of U..S. 9 xxx The parties likewise executed a Supplemental Memorandum of Agreement 10 dated 15 January 2003 and an Agreement to Amend Memorandum of Agreement 11 dated 14 July 2003.00).]14 and (C) For violation of THE LANHAM ACT and infringement of the YAMAOKA 619 PATENT.90) which is 20% of MOA assessments since September 1. and respondent Kingford (collectively referred to as the "sponsors"/"licensees")7 entered into a Memorandum of Agreement (MOA).490. Angel Seafood Corporation. PHILIPPINE KINGFORD. No. Kanemitsu Yamaoka (hereinafter referred to as the "licensor").. 4 on the ground that petitioner lacked legal capacity to sue. In the assailed Resolution. vs. the order of the trial court dismissing its Petition for Confirmation. Licensor shall be assigned one share of TPI for the purpose of being elected as member of the board of directors. Inc.SECOND DIVISION G. the Philippines. The Sponsors wish to be licensed under the aforementioned patents in order to practice the processes claimed in those patents in the United States.484.. United States and won the case against respondent. (Kingford). ("TPI").. (TPI).5 The Antecedents On 14 January 2003. Recognition. a corporation duly organized and existing under the laws of the Philippines. 5. 31138. Petitioner. and Indonesia. and Enforcement of Foreign Arbitral Award. Alameda. Inc. prays that the Resolution 2 dated 21 November 2008 of the Regional Trial Court (RTC) of Makati City be declared void and the case be remanded to the RTC for further proceedings.S. including respondent Kingford. which will be used exclusively to deposit funds that it will collect and to disburse cash it will be obligated to spend in connection with the implementation of this Agreement. 13 Pertinent portions of the award read: 13. Santa Cruz Seafoods.17 respondent sought for the inhibition of Judge Alameda and moved for the reconsideration of the order denying the motion. Respondent. respondent Kingford filed a Motion to Dismiss. Issue The core issue in this case is whether or not the court a quo was correct in so dismissing the petition on the ground of petitioner‘s lack of legal capacity to sue. to which the case was re-raffled. RESPONDENT KINGFORD shall pay CLAIMANT the total sum of ONE MILLION TWO HUNDRED FIFTY THOUSAND DOLLARS AND NO CENTS ($1. xxx 4. the RTC dismissed petitioner‘s Petition for Confirmation. enforce those patents and collect royalties in conjunction with Licensor.250. xxx xxx15 To enforce the award. 6. petitioner TPI filed on 10 October 2007 a Petition for Confirmation.20)[. Inc. J. in turn. RESPONDENT KINGFORD shall pay CLAIMANT the total sum of TWO HUNDRED TWENTY NINE THOUSAND THREE HUNDRED AND FIFTY FIVE DOLLARS AND NINETY CENTS ($229. Our Ruling . Inc. 2005[.: Can a foreign corporation not licensed to do business in the Philippines. The remaining shares of TPI shall be held by the Sponsors according to their respective equity shares.1 Within thirty (30) days from the date of transmittal of this Award to the Parties.Patent No. and Enforcement of Foreign Arbitral Award before the RTC of Makati City. 2012 TUNA PROCESSING. in this instant Petition for Review on Certiorari under Rule 45. INC. 31138. in order to implement the objectives of this Agreement. and Enforcement of Foreign Arbitral Award3 against respondent Philippine Kingford. TPI shall be owned by the Sponsors and Licensor. but which collects royalties from entities in the Philippines. The parties hereto agree to the establishment of Tuna Processors. Philippine Patent No. The Licensor.] (B) For breach of the MOA in failing to cooperate with CLAIMANT TPI in fulfilling the objectives of the MOA. the total sum to be paid by RESPONDENT KINGFORD to CLAIMANT TPI." 19 Judge Cedrick O. 12 Petitioner submitted the dispute for arbitration before the International Centre for Dispute Resolution in the State of California. Philippine Letters Patent No. a foreign corporation not licensed to do business in the Philippines. a corporation established in the State of California.
Arcenas.would suggest.24 Simply put. as it [i]s imperative to clarify whether the Philippines‘ international obligations and State policy to strengthen arbitration as a means of dispute resolution may be defeated by misplaced technical considerations not found in the relevant laws.30 Inasmuch as the Alternative Dispute Resolution Act of 2004. In an earlier case ." Now.An Act to Institutionalize the Use of an Alternative Dispute Resolution System in the Philippines and to Establish the Office for Alternative Dispute Resolution.] namely[. the latter shall prevail —generalia specialibus non derogant. we ruled that: "The Corporation Code. Presidential Agrarian Reform Council.] Angel Seafood Corporation.22 the Convention on the Recognition and Enforcement of Foreign Arbitral Awards drafted during the United Nations Conference on International Commercial Arbitration in 1958 (New York Convention). There is no doubt. On the other hand. Thus. As between a general and special law. In particular.. .No foreign corporation transacting business in the Philippines without a license. 42. xxx SEC." acknowledges that it "is a foreign corporation established in the State of California" and "was given the exclusive right to license or sublicense the Yamaoka Patent" and "was assigned the exclusive right to enforce the said patent and collect corresponding royalties" in the Philippines. 9285 (Alternative Dispute Resolution Act of 2004). Corporation Code v. Santa Cruz Seafoods. the New York Convention and the Model Law on the other? In several cases. and for Other Purposes . Inc. 133. Rejection of a Foreign Arbitral Award. International commercial arbitration shall be governed by the Model Law on International Commercial Arbitration (the "Model Law") adopted by the United Nations Commission on International Trade Law on June 21. 1985 xxx. etc. or Model Law. Jr. After all. . Incorporated v. suit or proceeding in any court or administrative agency of the Philippines. in Koruga this Court rejected the application of the Corporation Code and applied the Act. or its successors or assigns. viz-a-viz other special laws. in the mind of this Court that TPI has been doing business in the Philippines. Inc. both already form part of the law. etc. as its title ..23 as none of these specifically requires that the party seeking for the enforcement should have legal capacity to sue.. the Alternative Dispute Resolution Act of 2004 incorporated the New York Convention in the Act by specifically providing: SEC. Koruga‘s invocation of the provisions of the Corporation Code is misplaced. enforcement has been effectively refused on a ground not found in the [Alternative Dispute Resolution Act of 2004].21 The petitioner counters. Adoption of the Model Law on International Commercial Arbitration. Thus: Herein plaintiff TPI‘s "Petition. and the Alternative Dispute Resolution Act of 2004. 45. 19. but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws. to wit: Sec. when it collected royalties from "five (5) Philippine tuna processors[. . East Asia Fish Co. suit or proceedings in any court or administrative agency of the Philippines. TPI likewise admits that it does not have a license to do business in the Philippines.The New York Convention shall govern the recognition and enforcement of arbitral awards covered by the said Convention.28 Following the same principle. Inc. and respondent Philippine Kingford."29 It specifically provides exclusive grounds available to the party opposing an application for recognition and enforcement of the arbitral award.A party to a foreign arbitration proceeding may oppose an application for recognition and enforcement of the arbitral award in accordance with the procedural rules to be promulgated by the Supreme Court only on those grounds enumerated under Article V of the New York Convention.The petition is impressed with merit. the "Petition. the latter shall prevail – generalia specialibus non derogant. while the New Central Bank Act regulates specifically banks and other financial institutions. TPI cannot be permitted to maintain or intervene in any action. therefore. It is for this reason that TPI has brought this matter before this most Honorable Court." A priori." extant of the plaintiff TPI should be dismissed for it does not have the legal personality to sue in the Philippines. is a general law applying to all types of corporations. but sans a license to do so issued by the concerned government agency of the Republic of the Philippines. in the recent case of Hacienda Luisita.27 this Court held: Without doubt. RA 6657 is the special law on agrarian reform. however. As between a general and special law. The Corporation Code of the Philippines expressly provides: Sec. It ratiocinated: with similar antecedents. does a foreign corporation not licensed to do business in the Philippines have legal capacity to sue under the provisions of the Alternative Dispute Resolution Act of 2004? We answer in the affirmative. a municipal law. we do not see the need to discuss compliance with international obligations under the New York Convention and the Model Law. It is pursuant to the aforequoted provision that the court a quo dismissed the petition. shall be permitted to maintain or intervene in any action." This being the real situation. the Alternative Dispute Resolution Act of 2004 shall apply in this case as the Act. applies in the instant petition. It anchors its argument on the following: In the present case. how do we reconcile the provisions of the Corporation Code of the Philippines on one hand. is a law especially enacted "to actively promote party autonomy in the resolution of disputes or the freedom of the party to make their own arrangements to resolve their disputes. New York Convention. however. It also expressly adopted the Model Law." (Emphasis supplied)26 Further. Application of the New York Convention. including the dissolution and liquidation thereof. that it is entitled to seek for the recognition and enforcement of the subject foreign arbitral award in accordance with Republic Act No. the Corporation Code is the general law providing for the formation. Mommy Gina Tuna Resources. Doing business without a license. and the UNCITRAL Model Law on International Commercial Arbitration (Model Law).25 New Central Bank this Court had the occasion to discuss the nature and applicability of the of the Philippines. Any other ground raised shall be disregarded by the regional trial court. organization and regulation of private corporations. a general law.
42 we opt to . that award was made." 36 Indeed. failing any indication thereon. conceding thereby the capacity of the other party to enter into the contract. Pertinent provisions of the Special Rules of Court on Alternative Dispute Resolution. Romero in her Dissenting Opinion in Asset Privatization Trust v. only if that party furnishes to the competent authority where the recognition and enforcement is sought. proof that: (a) The parties to the agreement referred to in article II were. it becomes bound by the contract. or (c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration." The contents of such petition are enumerated in Rule 13.5. When a party enters into a contract containing a foreign arbitration clause and. petitioner TPI. Clearly. warrants the outright dismissal of the case. 9285 has certainly erased any conflict of law question.1 of the Special Rules provides that "[a]ny party to a foreign arbitration may petition the court to recognize and enforce a foreign arbitral award. was not in accordance with the law of the country where the arbitration took place. While we agree that petitioner failed to observe the principle of hierarchy of courts. even assuming. or. Recognition and enforcement of the award may be refused. under some incapacity. is gaining adherents in legal and judicial circles here and abroad. although not licensed to do business in the Philippines. may seek recognition and enforcement of the foreign arbitral award in accordance with the provisions of the Alternative Dispute Resolution Act of 2004. or it contains decisions on matters beyond the scope of the submission to arbitration. but because Republic Act No. or (b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case. governs the subject arbitral award. or (d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties. Finally. We reiterate that the foreign corporation‘s capacity to sue in the Philippines is not material insofar as the recognition and enforcement of a foreign arbitral award is concerned. or (b) The recognition or enforcement of the award would be contrary to the public policy of that country. under the law applicable to them.Sec. Although not on all fours with the instant case. if the decisions on matters submitted to arbitration can be separated from those not so submitted.40 Premises considered. or under the law of which. since the Model Law prescribes substantially identical exclusive grounds for refusing recognition or enforcement. one who. validity and enforceability of such arbitration agreement" 34 available to the parties before the commencement of arbitration and/or a petition for "judicial relief from the ruling of the arbitral tribunal on a preliminary question upholding or declining its jurisdiction" 35 after arbitration has already commenced should state "[t]he facts showing that the persons named as petitioner or respondent have legal capacity to sue or be sued. on the matter of capacity to sue. at the request of the party against whom it is invoked. Second. in fact submits itself to arbitration. we deny availment by the losing party of the rule that bars foreign corporations not licensed to do business in the Philippines from maintaining a suit in our courts. We have. that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced. that the court a quo correctly observed that the Model Law. Respondent cannot fault petitioner for not filing a motion for reconsideration of the assailed Resolution dated 21 November 2008 dismissing the case. which. II The remaining arguments of respondent Kingford are likewise unmeritorious. it will destroy the very essence of mutuality inherent in consensual contracts. it must be stressed. not one of these exclusive grounds touched on the capacity to sue of the party seeking the recognition and enforcement of the award. time and again.38 Clearly. or the said agreement is not valid under the law to which the parties have subjected it or.32 Capacity to sue is not included. or has been set aside or suspended by a competent authority of the country in which. as in this case. in the Rule on local arbitral awards or arbitrations in instances where "the place of arbitration is in the Philippines. it is in the best interest of justice that in the enforecement of a foreign arbitral award. There is no need to consider respondent‘s contention that petitioner TPI improperly raised a question of fact when it posited that its act of entering into a MOA should not be considered "doing business" in the Philippines for the purpose of determining capacity to sue. likewise support this position. not the New York Convention. only for the sake of argument. failing such agreement. Oppositely.39 petitioner may still seek recognition and enforcement of the award in Philippine court."33 it is specifically required that a petition "to determine any question concerning the existence. as an alternative mode of settlement. a foreign arbitral award should be respected not because it is favored over domestic laws and procedures. voluntarily and actively participated in the arbitration proceedings from the very beginning. by the arbitration and by the result of arbitration. to wit: Article V 1. Rule 13. 45 of the Alternative Dispute Resolution Act of 2004 provides that the opposing party in an application for recognition and enforcement of the arbitral award may raise only those grounds that were enumerated under Article V of the New York Convention. provided that. 2. First. under the law of the country where the award was made.31 which was promulgated by the Supreme Court. Court of Appeals.37 to wit: xxx Arbitration. under ordinary circumstances. Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that: (a) The subject matter of the difference is not capable of settlement by arbitration under the law of that country. ruled that the prior filing of a motion for reconsideration is not required in certiorari under Rule 45. If its tested mechanism can simply be ignored by an aggrieved party. also worthy to consider is the wisdom of then Associate Justice Flerida Ruth P. or (e) The award has not yet become binding on the parties.41 Third. participate in the arbitration and cause the implementation of the result.
Branch 61. the motion was forwarded to the Regional Trial Court. 1âwphi1 In these types of questions. Recognition. Declaration of Policy. . is not. xxx Upon confirmation with the Regional Trial Court. SO ORDERED. but if only to strengthen arbitration as a means of dispute resolution.43 to wit: [I]t must be remembered that [the principle of hierarchy of courts] generally applies to cases involving conflicting factual allegations. the Resolution dated 21 November 2008 of the Regional Trial Court. The case is REMANDED to Branch 61 for further proceedings. for that reason alone. reference to "Branch 67" in petitioner TPI‘s "Motion for Time to File a Petition for Review on Certiorari under Rule 45" is a typographical error. however. Branch 61.47 We. Cases which depend on disputed facts for decision cannot be brought immediately before us as we are not triers of facts. precluded from filing the Petition for Confirmation. this Court has the ultimate say so that we merely abbreviate the review process if we. 44 A strict application of this rule may be excused when the reason behind the rule is not present in a case. Ang. a copy of petitioner TPI‘s motion was received by the Metropolitan Trial Court. Fifth. Makati City. On 8 January 2009. because of the unique circumstances of a case. as in the present case. As regards the issue on the validity and enforceability of the foreign arbitral award. Branch 67. M-6533 is hereby REVERSED and SET ASIDE. As correctly pointed out by respondent Kingford.45 Moreover. there is a need to take cognizance of the case not only to guide the bench and the bar. the State shall encourage and actively promote the use of Alternative Dispute Resolution (ADR) as an important means to achieve speedy and impartial justice and declog court dockets. . Makati City. xxx Fourth. petitioner TPI. Respondent claims that petitioner failed to furnish the court of origin a copy of the motion for time to file petition for review on certiorari before the petition was filed with this Court. and Enforcement of Foreign Arbitral Award before a Philippine court. where the issues are not factual but purely legal. 27. although a foreign corporation not licensed to do business in the Philippines.46 Surely. Makati City. 2. find petitioner‘s reply in order. the novelty and the paramount importance of the issue herein raised should be seriously considered.It is hereby declared the policy of the State to actively promote party autonomy in the resolution of disputes or the freedom of the party to make their own arrangements to resolve their disputes. Thus: 26. choose to hear and decide the legal issues outright.relax the rules following the pronouncement in Chua v. the order sought to be assailed originated from Regional Trial Court. 48 All considered. and uphold the policy of the State embodied in the Alternative Dispute Resolution Act of 2004. Admittedly. Makati City. Branch 61. Makati City in Special Proceedings No. WHEREFORE. we leave its determination to the court a quo where its recognition and enforcement is being sought. Branch 61. to wit: Sec. Towards this end.
 which was opposed by the petitioner.00 representing the total amount of the three checks drawn and debited against its clearing account. 2000 Order denying reconsideration thereof.000. to produce and permit plaintiff to inspect. 91-069. 1999. 1999. to wit: WHEREFORE. except the payment of docket fees. In view of the fact. On November 9. Far East Bank and Trust Company (Respondent) filed a complaint against Home Bankers Trust and Company (HBTC) with the Philippine Clearing House Corporation‘s (PCHC) Arbitration Committee docketed as Arbicom Case No. 1999. petitioner filed a petition for review in the earlier case filed by respondent in Branch 135 of the RTC of Makati and docketed as Civil Case No.FIRST DIVISION INSULAR SAVINGS BANK. 1992. the Omnibus Order dated 30 April 1992 is hereby reconsidered by deleting the phrase ―since the complaint also seeks exemplary damages. Aware of the arbitration proceedings between respondent and petitioner. to which petitioner filed a Rejoinder. the RTC directed both petitioner and respondent to file their respective memoranda.‖ on page 4 thereof and par. on January 17. Respondent then filed its Reply to the opposition. The complaint was filed not only against HBTC but also against Robert Young. 1999. Meanwhile.000. 92-145. judgment is hereby rendered in favor of the plaintiff and against the defendant sentencing the latter to pay the plaintiff the sum of P25.600. copy and/or photograph the checking account deposit ledger of Victor Tancuan‘s Account No. suspended the proceedings in the case against all the defendants pending the decision of the Arbitration Committee. in Civil Case No. the same must comply with all the requirements for filing initiatory pleadings for civil actions before this Court so that since the commencement of the subject petition lacks the mandatory requirements provided for.200. .‖ HBT and Tancuan‘s separate Motions Reconsiderations are hereby denied.versus FAR EAST BANK AND TRUST COMPANY. J. and (c) Proceedings in this case against all defendants be suspended pending award/decision in the arbitration proceedings against Home Bankers and Trust Co.: This petition for review on certiorari assails the November 9. Branch 135.00 plus interest on this latter amount at the rate of 12% per annum from February 11. thus: Acting on plaintiff Far East Bank and Trust Company‘s ―Motion To Dismiss Petition For Review For Lack Of Jurisdiction‖. however. in an Omnibus Order dated April 30. for Promulgated: June 22. 141818 WHEREFORE.x DECISION YNARES-SANTIAGO. In view of the facts found by the committee. the RTC rendered the assailed Order which held. 1991. Consequently. The motion for reconsideration filed by petitioner was denied by the Arbitration Committee. On February 8. 1992. respondent filed a Motion to Dismiss Petition for Review for Lack of Jurisdiction. respondent filed another complaint but this time with the Regional Trial Court (RTC) in Makati City docketed as Civil Case No. G. Respondent. the date when the total amount of P25. the latter refused to accept them since the checks were returned by respondent after the reglementary regional clearing period. On February 2.2 Million was split between plaintiff and defendant up to the date of payment. to appeal the decision of the Arbitration Committee in Arbicom Case No. HBTC sent these checks to respondent for clearing by operation of the PCHC clearing system. Petitioner. attorney‘s fees. 91 -069. 2006 x ---------------------------------------------------------------------------------------.R. said petition would be deemed submitted for resolution. SO ORDERED. The antecedent facts are as follows: On December 11. for lack of jurisdiction. 1998. Thereafter. before the termination of the arbitration proceedings. 1999 Order of the Regional Trial Court of Makati City. the Court hereby orders: (a) Home Bankers & Trust Co. that this amount was split between the plaintiff and the defendant in the course of the proceedings. 92-145 which dismissed the petition for review for lack of jurisdiction and its February 1. after which. litigation expenses and costs of suit against HBT. 1992 Order. Respondent sought to recover from the petitioner. Eugene Arriesgado and Victor Tancuan (collectively known as Defendants). no attorney‘s fees nor other damages are awarded. the RTC. for lack of merit. are suspended pending award/decision in the arbitration proceedings while those against individual defendants be immediately reinstated and continued. SO ORDERED. In an order dated January 20. SO ORDERED. No. (Emphasis supplied) The above Omnibus Order was amended by the trial court in its October 1. 92-145 for Sum of Money and Damages with Preliminary Attachment. respondent dishonored the checks for insufficiency of funds and returned the checks to HBTC. SO ORDERED. 1992. the PCHC Arbitration Committee rendered its decision in favor of respondent.2 million as principal. C of its dispositive portion is amended to read: (c) ―Procedings against Home Bankers and Trust Co. thus: IN VIEW OF ALL THE FOREGOING. respondent submitted its Surrejoinder. the petition for review is hereby dismissed. 1803-00605-3. considering that the petition for review is a separate and distinct case. who were the president and depositors of HBTC respectively. On August 16. the sum of P25. However. Both parties filed several pleadings. for lack of merit. (b) The Motions to Dismiss filed by all defendants denied. the amount to be paid by the defendant to the plaintiff should only be P12. the dispositive portion of which reads as follows: .
i.The RTC denied petitioner‘s motion for reconsideration. but such appeals shall be limited to questions of law. and Section 13 of the PCHC Rules. The decision or award of the Arbitration Committee or of the Sole Arbitrator or of the Board of Directors. any petition questioning the decision of the Arbitration Committee must be filed in Civil Case No. for an order confirming the award. The order may modify and correct the award so as to effect the intent thereof and promote justice between the parties. Respondent argues that petitioner‘s claim that the parties by agreement had conferred on the RT C appellate jurisdiction over decisions of private arbitrators is erroneous because they cannot confer a nonexistent jurisdiction on the RTC or any court. xxxx SEC. including the judgment thereon shall be governed by the Rules of Court insofar as they are applicable. the petition for review filed by petitioner violated the rule on commencing an original action under Section 5.. 13. thing or property referred to in the award. or in refusing to hear evidence pertinent and material to the controversy. the defect could have been amended or disregarded by the court. Likewise. Furthermore. and willfully refrained from disclosing such disqualification or of any other misbehavior by which the rights of any party have been materially prejudiced. also known as The Arbitration Law and supplemented by the Rules of Court. or (b) Where the arbitrators have awarded upon a matter not submitted to them. as the case may be. The proceedings upon such an appeal. within a non-extendible period of fifteen (15) days from and after its . The Philippine Clearing House Corporation was created to facilitate the clearing of checks of member banks. we first thresh out the remedy of petition for review availed of by the petitioner to appeal the order of the Arbitration Committee. 876. or an evident mistake in the description of any person. as the case may be. as provided in Section 28. SEC. final and definite award upon the subject matter submitted to them was not made. as prescribed herein. that a mutual. that one or more of the arbitrators was disqualified to act as such under section nine hereof. Grounds for vacating award. Rule 20 of the Rules of Court. 92-145 and should not be docketed as a separate action. Petitioner and respondent are members of PCHC. Appeals. Sections 23. – An appeal may be taken from an order made in a proceeding under this Act. Among these member banks exists a compromissoire. or (c) That the arbitrators were guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown. this petition on the sole ground. petitioner avers that had it filed a separate action. modified or corrected. or (b) That there was evident partiality or corruption in the arbitrators or any of them. which is abhorred in procedure. this is governed by Republic Act No. 29. fraud or other undue means. ―this would have resulted in a multiplicity of suits.e. 25. 92-145 was merely suspended to await the outcome of the arbitration case pending before the PCHC. or from judgment entered upon an award through certiorari proceedings. Rule 1. – The findings of facts of the decision or award rendered by the Arbitration Committee or by the sole Arbitrator as the case may be shall be final and conclusive upon all the parties in said arbitration dispute. 24 and 29 of The Arbitration Law. Civil Case No. the court must make an order modifying or correcting the award. – In any one of the following cases. The PCHC has its own Rules of Procedure for Arbitration (PCHC Rules). Grounds for modifying or correcting award. not affecting the merits of the decision upon the matter submitted.‖ Meanwhile respondent avers that the RTC correctly dismissed the appeal from the award of private arbitrators since there is no statutory basis for such appeal. 24. – At any time within one month after the award is made. or an arbitration agreement embedded in their contract wherein they consent that any future dispute or controversy between its PCHC participants involving any check would be submitted to the Arbitration Committee for arbitration. Notice of such motion must be served upon the adverse party or his attorney as prescribed by law for the service of such notice upon an attorney in action in the same court. The petition lacks merit. upon the application of any party to the controversy which was arbitrated: (a) Where there was an evident miscalculation of figures. and if it had been a commissioner‘s report. and the raffle of cases under Section 2. Petitioner contends that Civil Case No. AMENDED ARBITRATION RULES OF PROCEDURE OF PCHC Sec. Confirmation of award. within a non-extendible period of fifteen (15) days from and after its receipt of the order denying or granting said motion for reconsideration or new trial had been filed. SEC. thus they underwent arbitration proceedings. to wit: THE REGIONAL TRIAL COURT ERRED IN DISMISSING THE PETITION OF PETITIONER FOR LACK OF JURISDICTION ON THE GROUND THAT IT SHOULD HAVE BEEN DOCKETED AS A SEPARATE CASE. the court must make an order vacating the award upon the petition of any party to the controversy when such party proves affirmatively that in the arbitration proceedings: (a) The award was procured by corruption. Thus. hence. any party to the controversy which was arbitrated may apply to the court having jurisdiction . when it filed the same in Branch 135 of the RTC of Makati where there was already a pending original action. 23. or (d) That the arbitrators exceeded their powers. – In any one of the following cases. However. shall be appealable only on questions of law to any of the Regional Trial Courts in the National Capital Region where the Head Office of any of the parties is located. or so imperfectly executed them. provide: SEC. The appellant shall perfect his appeal by filing a notice of appeal to the Arbitration Secretariat and filing a Petition with the Regional Trial Court of the National Capital Region for the review of the decision or award of the committee or sole arbitrator or of the Board of Directors. and thereupon the court must grant such order unless the award is vacated. or (c) Where the award is imperfect in a matter of form not affecting the merits of the controversy. 92-145. Thus.
or mixed questions of fact and law. Lastly. the decision of the Arbitration Committee is subject to judicial review. petitioner and respondent have agreed that the PCHC Rules would govern in case of controversy. By enabling parties to resolve their disputes amicably. SO ORDERED.the right to act in a case.receipt of the order denying or granting said motion for reconsideration or of the decision rendered after the new trial if one had been granted. Jurisdiction over the subject matter is the power to hear and determine the general class to which the proceedings in question belong. Petitioner likewise has the option to file a petition for review under Rule 43 of the Rules of Court with the Court of Appeals on questions of fact. the RTC of Makati did not err in dismissing the petition for review for lack of jurisdiction but not on the ground that petitioner should have filed a separate case from Civil Case No. 2039 and 2040 applicable to both compromises and arbitrations are obtaining. the validity of any stipulation on the finality of the arbitrators‘ award or decision is recognized. petitioner did not avail of any of the abovementioned remedies available to it. Alternative dispute resolution methods or ADRs – like arbitration. Thus. Instead it filed a petition for review with the RTC where Civil Case No. in light of the foregoing. Furthermore. petitioner had several judicial remedies available at its disposal after the Arbitration Committee denied its Motion for Reconsideration. of law. WHEREFORE. Since this case involves acts or omissions of a quasi-judicial agency. . the petition is DENIED. 92-145 but on the necessity of filing the correct petition in the proper court. It may petition the proper RTC to issue an order vacating the award on the grounds provided for under Section 24 of the Arbitration Law. Having established that petitioner failed to avail of the abovementioned remedies. 92-145 which dismissed the petition for review for lack of jurisdiction and the February 1. 92-145 as an appeal of the arbitral award or whether it filed a separate case in the RTC. It must be borne in mind that arbitration proceedings are mainly governed by the Arbitration Law and suppletorily by the Rules of Court. cannot be given effect. petitioner filed a petition for review with the RTC when the same should have been filed with the Court of Appeals under Rule 43 of the Rules of Court. it erred in the procedure it chose for judicial review of the arbitral award. Under Article 2044 of the New Civil Code. Jurisdiction is the authority to hear and determine a cause . Consequently. a petition for review with the Court of Appeals under Rule 43 of the Rules of Court. 2000 Order denying its reconsideration. (Emphasis supplied) As provided in the PCHC Rules. x x x x. in Civil Case No. with respect to the filing of separate action from Civil Case No. Consequently. Branch 135. However. negotiation and conciliation – are encouraged by the Supreme Court. it cannot confer jurisdiction to the RTC. In the case at bar. 92-145 resulting in a multiplicity of suits. However. the petition should be filed in and cognizable only by the Court of Appeals. considering that the RTC will only have jurisdiction over an arbitral award in cases of motions to vacate the same. less tedious. cannot be given due course. or a petition for certiorari under Rule 65 of the Rules of Court. since the PCHC Rules came about only as a result of an agreement between and among member banks of PCHC and not by law. they provide solutions that are less time-consuming. the arbitrators‘ award may be annulled or rescinded. the findings of facts of the decision or award rendered by the Arbitration Committee shall be final and conclusive upon all the parties in said arbitration dispute. as elucidated herein. petitioner‘s arguments. 92-145 is pending pursuant to Section 13 of the PCHC Rules to sustain its action. where the conditions described in Articles 2038. In this instance. the proper recourse of petitioner from the denial of its motion for reconsideration by the Arbitration Committee is to file either a motion to vacate the arbitral award with the RTC. Thus. Jurisdiction over the subject matter is conferred by law and not by the consent or acquiescence of any or all of the parties or by erroneous belief of the court that it exists. mediation. and more productive of goodwill and lasting relationships. the portion of the PCHC Rules granting jurisdiction to the RTC to review arbitral awards. Clearly. Consequently. The November 9. are AFFIRMED. less confrontational. In the instant case. 1999 Order of the Regional Trial Court of Makati City. petitioner may file a petition for certiorari under Rule 65 of the Rules of Court on the ground that the Arbitrator Committee acted without or in excess of its jurisdiction or with grave abuse of discretion amounting to lack or excess of jurisdiction. we now discuss the issue of the jurisdiction of the trial court with respect to the petition for review filed by petitioner. only on questions of law. the Court of Appeals retains jurisdiction in petitions for review or in petitions for certiorari. It is immaterial whether petitioner filed the petition for review in Civil Case No. Otherwise.
This action might not be possible to undo. Are you sure you want to continue?
We've moved you to where you read on your other device.
Get the full title to continue listening from where you left off, or restart the preview.