Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No.

141833 March 26, 2003 LM POWER ENGINEERING CORPORATION, petitioner, vs. CAPITOL INDUSTRIAL CONSTRUCTION GROUPS, INC., respondent. PANGANIBAN, J.: Alternative dispute resolution methods or ADRs -- like arbitration, mediation, negotiation and conciliation -- are encouraged by the Supreme Court. By enabling parties to resolve their disputes amicably, they provide solutions that are less time-consuming, less tedious, less confrontational, and more productive of goodwill and lasting relationships.1 The Case Before us is a Petition for Review on Certiorari2 under Rule 45 of the Rules of Court, seeking to set aside the January 28, 2000 Decision of the Court of Appeals 3 (CA) in CA-GR CV No. 54232. The dispositive portion of the Decision reads as follows: "WHEREFORE, the judgment appealed from is REVERSED and SET ASIDE. The parties are ORDERED to present their dispute to arbitration in accordance with their Sub-contract Agreement. The surety bond posted by [respondent] is [d]ischarged."4 The Facts On February 22, 1983, Petitioner LM Power Engineering Corporation and Respondent Capitol Industrial Construction Groups Inc. entered into a "Subcontract Agreement" involving electrical work at the Third Port of Zamboanga.5 On April 25, 1985, respondent took over some of the work contracted to petitioner. 6 Allegedly, the latter had failed to finish it because of its inability to procure materials.7 Upon completing its task under the Contract, petitioner billed respondent in the amount of P6,711,813.90.8 Contesting the accuracy of the amount of advances and billable accomplishments listed by the former, the latter refused to pay. Respondent also took refuge in the termination clause of the Agreement.9 That clause allowed it to set off the cost of the work that petitioner had failed to undertake -- due to termination or take-over -- against the amount it owed the latter. Because of the dispute, petitioner filed with the Regional Trial Court (RTC) of Makati (Branch 141) a Complaint10 for the collection of the amount representing the alleged balance due it under the Subcontract. Instead of submitting an Answer, respondent filed a Motion to Dismiss, 11 alleging that the Complaint was premature, because there was no prior recourse to arbitration. In its Order12 dated September 15, 1987, the RTC denied the Motion on the ground that the dispute did not involve the interpretation or the implementation of the Agreement and was, therefore, not covered by the arbitral clause.13 After trial on the merits, the RTC14 ruled that the take-over of some work items by respondent was not equivalent to a termination, but a mere modification, of the Subcontract. The latter was ordered to give full payment for the work completed by petitioner. Ruling of the Court of Appeals On appeal, the CA reversed the RTC and ordered the referral of the case to arbitration. The appellate court held as arbitrabl e the issue of whether respondent‘s takeover of some work items had been intended to be a termination of the original contract under Letter "K" of the Subcontract. It ruled likewise on two other issues: whether petitioner was liable under the warranty clause of the Agreement, and whether it should reimburse respondent for the work the latter had taken over.15 Hence, this Petition.16 The Issues In its Memorandum, 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, 1983 that requires prior recourse to voluntary arbitration; "B In the affirmative, whether or not the requirements provided in Article III 1 of CIAC Arbitration Rules regarding request for arbitration ha[ve] been complied with[.]" 17 The Court’s Ruling The Petition is unmeritorious. First Issue: Whether Dispute Is Arbitrable Petitioner claims that there is no conflict regarding the interpretation or the implementation of the Agreement. Thus, without having to resort to prior arbitration, 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. On the other hand, the latter contends that there is a need for prior arbitration as provided in the Agreement. This is because there are some disparities betw een the parties‘ positions regarding the extent of the work done, the amount of advances and billable accomplishments, and the set off of expenses incurred by respondent in its take-over of petitioner‘s work. We side with respondent. Essentially, the dispute arose from the parties‘ ncongruent positions on whether certain provisions of their Agreement could be applied to the facts. The instant case involves technical discrepancies that are better left to an arbitral body that has expertise in those areas. In any event, 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, because the awards are still judicially reviewable under certain conditions.18 In the case before us, the Subcontract has the following arbitral clause: "6. 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."19 Clearly, the resolution of the dispute between the parties herein requires a referral to the provisions of their Agreement. Within the scope of the arbitration clause are discrepancies as to the amount of advances and billable accomplishments, the application of the provision on termination, and the consequent set-off of expenses. 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. According to respondent, the take-over was caused by petitioner‘s delay in completing the work. Such delay was in violation of the provision in the Agreement as to time schedule: "G. TIME SCHEDULE "[Petitioner] shall adhere strictly to the schedule related to the WORK and complete the WORK within the period set forth in Annex C hereof. 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."20 Because of the delay, respondent alleges that it took over some of the work contracted to petitioner, 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: xxx xxx xxx ‗6. If despite previous warnings by [respondent], [petitioner] does not execute the WORK in accordance with this Agreement, or persistently or flagrantly neglects to carry out [its] obligations under this Agreement."21 Supposedly, as a result of the "take-over," respondent incurred expenses in excess of the contracted price. It sought to set off those expenses against the amount claimed by petitioner for the work the latter accomplished, 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, the amount of such excess [may be] claimed by [respondent] from either of the following: ‗1. Any amount due [petitioner] from [respondent] at the time of the termination of this Agreement."22

1

1008.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. and other taxes that may be required by any government agencies in connection with this Agreement shall be for the sole account of [petitioner]. Provided such clause is susceptible of an interpretation that covers the asserted dispute. that in the case of government construction contracts. SP No. NIA filed its Answer wherein it 2 . using the foregoing provision as reference. even if they specifically choose another forum. Because that clause is binding. brochures. Cruz. foreign and local advances. as applied in the Tesco case. concur. 1. arbitration also hastens the resolution of disputes. 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 Publ ic Works and Highways] of the Certificate of Completion and final acceptance of the WORK by [the Ministry of Public Works and Highways]. courts should liberally construe arbitration clauses. petitioner even cites our ruling in Tesco Services Incorporated v. the National Irrigation Administration (hereafter NIA).J. All customs duties. conciliation and negotiation -. Submission to Arbitration -. On 6 January 1995. 28 Any doubt should be resolved in favor of arbitration. pertinent portions of which are reproduced hereunder: "C. No. which dismissed respectively NIA‘s petition for certiorari and prohibitionagainst the Construction Industry Arbitration Commission (hereafter CIAC). HONORABLE COURT OF APPEALS (4th Division). dollars. To bolster its position.R. 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. an order to arbitrate should be granted. i. the proper procedure to enable the CIAC to decide on the dispute is to request the stay or suspension of such action. Lauro M. Costs against petitioner. income taxes. they are expected to abide by it in good faith. JJ. for a particular construction contract to fall within the jurisdiction of CIAC. SO ORDERED. Hydro Resources Contractors Corporation (hereafter HYDRO) was awarded Contract MPIC-2 for the construction of the main civil works of the Magat River Multi-Purpose Project. On the other hand.27 Consistent with the above-mentioned policy of encouraging alternative dispute resolution methods. FIRST DIVISION [G.35 And because it covers the dispute between the parties in the present case. Sandoval-Gutierrez. vs. assuming arguendo that the dispute is arbitrable. there is no more need to file a request with the CIAC in order to vest it with jurisdiction to decide a construction dispute. Corona and Carpio-Morales. and the expenses each of them incurred in connection therewith. The contract provided that HYDRO would be paid partly in Philippine pesos and partly in U.. CONSTRUCTION INDUSTRY ARBITRATION COMMISSION. 1999] NATIONAL IRRIGATION ADMINISTRATION (NIA). it is merely required that the parties agree to submit the same to voluntary arbitration Unlike in the original version of Section 1. respondents.33 from which we quote thus: "Under the present Rules of Procedure. HYDRO." The foregoing amendments in the Rules were formalized by CIAC Resolution Nos. petitioner. HYDRO substantially completed the works under the contract in 1982 and final acceptance by NIA was made in 1984. The arbitral clause in the Agreement is a commitment on the part of the parties to submit to arbitration the disputes covered therein. Aside from unclogging judicial dockets.O.e. especially of the commercial kind."23 Being an inexpensive. Puno. "All expenses incurred by [respondent]. as provided under RA 876 [the Arbitration Law]. 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. their agreement will fall within the jurisdiction of the CIAC. E.37 WHEREFORE. When a contract contains a clause for the submission of a future controversy to arbitration. JR. the Petition is DENIED and the assailed Decision AFFIRMED. 37180 dated 28 June 1996 and 24 February 1997. These data can be gathered from a review of the Agreement. Arbitrators also need to look into the computation of foreign and local costs of materials. speedy and amicable method of settling disputes.24 arbitration -. 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.29 Second Issue: Prior Request for Arbitration According to petitioner. (Chairman). CONTRACT PRICE AND TERMS OF PAYMENT xxx xxx xxx "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. notwithstanding the reference to a different arbitration institution or arbitral body in such contract or submission. petitioner will still be fully responsible for all imported materials and equipment.. and taxes and duties as set forth in the Agreement.. November 17." in this wise: "SECTION 1. PROVIDED. Records show that in a competitive bidding held by NIA in August 1978. seeks to annul and set aside the Resolutions[1]of the Court of Appeals in CA-GR.36 Since petitioner has already filed a Complaint with the RTC without prior recourse to arbitration.: In this special civil action for certiorari under Rule 65 of the Rules of Court.[2] After unsuccessfully pursuing its case with NIA. as follows: "SECTION.32 (an extended unsigned Resolution) and reiterated in National Irrigation Administration v. DECISION DAVIDE.S.25 It is thus regarded as the "wave of the future" in international civil and commercial disputes. Section 1 of Article II of the old Rules of Procedure Governing Construction Arbitration indeed required the submission of a request for arbitration. 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.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. from among whom CIAC appointed Engr. all administrative remedies available to the parties must have been exhausted within 90 days from the time the dispute arose. No. Any claims by [respondent] on [petitioner] may be deducted by [respondent] from the progress payments and/or retained amount. either of them may compel the other to arbitrate. contractor‘s taxes. HYDRO thereafter determined that it still had an account receivable from NIA representing the dollar rate differential of the price escalation for the contract. OTHER CONDITIONS xxx xxx xxx "2. xxx xxx xxx "D. Court of Appeals.along with mediation. C. Vera. it is not necessary for the parties to enter into a submission agreement before the claimant may invoke the jurisdiction of CIAC. and HYDRO RESOURCES CONTRACTORS CORPORATION. Rather. 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. both in foreign and local currencies in connection with the opening of the letters of credit shall be deducted from the Contract Prices.31 The difference in the two provisions was clearly explained in China Chang Jiang Energy Corporation (Philippines) v. Rosal Infrastructure Builders et al. xxx xxx xxx "N. 129169. and the motion for reconsideration thereafter filed. retention fees and letters of credit.30 We are not persuaded." Tesco was promulgated by this Court. 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 controversy to arbitration. filed with the CIAC a Request for Adjudication of the aforesaid claim. such that.is encouraged by the Supreme Court."34 Clearly. the extent to which they did it. 2-91 and 3-93. However. it is plain and clear that as long as the parties agree to submit to voluntary arbitration. HYDRO nominated six arbitrators for the arbitration panel. on 7 December 1994. import duties. and other technical data of each items in the list have been formally approved by [the Ministry of Public Works and Highways]. regardless of what forum they may choose. 26 Brushing aside a contractual agreement calling for arbitration between the parties would be a step backward.

NIA filed a Compliance wherein it nominated six arbitrators. Joy C. IT DID NOT WAIVE NOR IS IT ESTOPPED FROM ASSAILING THE SAME. Thus. NIA requested an opportunity to examine the originals of the documents which HYDRO agreed to provide. i. and the costs of the arbitration. Joaquin as Chairman of the Arbitration Panel. whereas the Construction Industry Arbitration Law creating CIAC was signed only in 1985.[27] Although there are exceptions to the rules. In the said special civil action. [18] The appeal from a final disposition of the Court of Appeals is a petition for review under Rule 45 and not a special civil action under Rule 65 of the Rules of Court. NIA‘s motion for reconsideration of the said decision was likewise denied by the Court of Appeals on 26 February 1997. a petitioner must show that he has no plain. In view of the pendency of the present petitions before us the appellate court issued a resolution dated 26 March 1998 holding in abeyance the resolution of the same until after the instant petitions have been finally decided. Hon. of the right of ordinary appeal. regardless of the nature of the action or proceedings involved. NIA further argued that records show that it had not voluntarily submitted itself to arbitration by CIAC citing TESCO Services. and the decision accordingly becomes final and executory. Custodio O. THE CONTROVERSY. laches and estoppel in view of HYDRO‘s alleged fail ure to avail of its right to submit the dispute to arbitration within the prescribed period as provided in the contract. now Rule 45 and Rule 65. 876 THE GOVERNING LAWS AT THE TIME CONTRACT WAS EXECUTED AND TERMINATED. Inc. Based on the foregoing. NIA filed with the Court of Appeals an original action of certiorari and prohibition with prayer for restraining order and/or injunction. final orders or resolutions of the Court of Appeals in any case. 25. as it was in this case. speedy and adequate‖ if it will promptly relieve the petitioner from the injurious effects of the judgment and the acts of the lower court or agency. NO. respectively.O. speedy and adequate remedy in the ordinary course of law against its perceived grievance.000 as exemplary damages. reiterating the issues and arguments it raised before the Court of Appeals. seeking to annul the Orders of the CIAC for having been issued without or in excess of jurisdiction.[8] wherein it was ruled: CIAC did not acquire jurisdiction over the dispute arising from the sub-contract agreement between petitioner TESCO and private respondent LAROSA.‖ NIA filed a motion for reconsideration of the aforesaid Order. dismissed the petition in its Resolution dated 28 June 1996. the CIAC. none is present in the case at bar.[16] Thus.000. and made a counterclaim for P1. 1008 HAD NO RETROACTIVE EFFECT. [26] For obvious reasons the rules forbid recourse to a special civil action for certiorari if appeal is available. NIA failed to show circumstances that will justify a deviation from the general rule as to make available a petition for certiorari in lieu of taking an appropriate appeal.[25] especially if such loss or lapse was occasioned by one‘s own neglect or error in the choice of remedies. any alleged errors committed by it in the exercise of its jurisdiction would be errors of judgment which are reviewable by timely appeal and not by a special civil action of certiorari. [13] NIA assailed the said decision with the Court of Appeals. et al. NIA should have filed a timely petition for review under Rule 45.000 as moral damages. THE AUTHORITY TO DECIDE AND THE DECISION. NIA filed before us an original action for certiorari and prohibition with urgent prayer for temporary restraining order and writ of preliminary injunction. Legaspi of the Office of the Government Corporate Counsel. the arbitral body issued an order[9] which deferred the determination of the motion to dismiss and resolved to proceed with the hearing of the case on the merits as the grounds cited by NIA did not seem to be ―indubitable. NO. praying for the annulment of the Resolutions of the Court of Appeals dated 28 June 1996 and 24 February 1997. THE SAME BECOMES FINAL. IF IT IS NOT APPEALED SEASONABLY. of the 1997 Rules of Civil Procedure.O. the parties scheduled the dates of hearings and of submission of simultaneous memoranda.. C E. While both parties in the sub-contract had agreed to submit the matter to arbitration. In support of its petition NIA alleged that: A RESPONDENT CIAC HAS NO AUTHORITY OR JURIDICTION TO HEAR AND TRY THIS DISPUTE BETWEEN THE HEREIN PARTIES AS E.[22] A remedy is considered ―plain. NIA did not appeal. the instant petition should be dismissed. Parlade. appeal was not only available but also a speedy and adequate remedy. NIA merely reiterates the issues it raised before the Court of Appeals. On 2 June 1997. where the latter remedy is available.questioned the jurisdiction of the CIAC alleging lack of cause of action. v. Instead of filing this petition for certiorari under Rule 65 of the Rules of Court. The parties were required to submit copies of the evidence they intended to present during the proceedings and were provided the draft Terms of Reference. The original jurisdiction of the Court of Appeals over special civil actions for certiorari is vested upon it under Section 9(1) of B. has no jurisdiction over the dispute.P.O 1008 and that the hearing should proceed as scheduled. E NIA HAS TIMELY RAISED THE ISSUE OF JURISDICTION.000 as attorney‘s fees. which would be but a continuation of the appellate process over the original case. since the Court of Appeals had jurisdiction over the petition under Rule 65. A special civil action under Rule 65 of the Rules of Court will not be a cure for failure to timely file a petition for review on certiorari under Rule 45 of the Rules of Court.[5] After reaching an accord on the issues to be considered by the arbitration panel. ART. we note that the petition suffers from a procedural defect that warrants its outright dismissal. xxxx. NOT MERELY PROCEDURAL AS RULED BY THE CIAC. NIA filed a Motion to Dismiss[7]alleging lack of jurisdiction over the disputes. as the remedies of appeal and certiorari are mutually exclusive and not alternative or successive. On 11 April 1995. There is no doubt that the Court of Appeals has jurisdiction over the special civil action for certiorari under Rule 65 filed before it by NIA. vest jurisdiction with the CIAC. [14] At the outset. it had until 19 March 1997 within which to perfect its appeal. The questioned resolutions of the Court of Appeals have already become final and executory by reason of the failure of NIA to appeal therefrom. no request having been made by both with the CIAC. NIA contended that there was no agreement with HYDRO to submit the dispute to CIAC for arbitration considering that the construction contract was executed in 1978 and the project completed in 1982. This jurisdiction is concurrent with the Supreme Court[15] and with the Regional Trial Court. NIA interposed the present special civil action of certiorari not because it is the speedy and adequate remedy but to make up for the loss. NIA through its counsel Atty. Obviously. including that under Rule 45. as already stated. Abraham Vera. may be appealed to this Court by filing a petition for review. [11] The Court of Appeals. 2046 OF THE CIVIL CODE AND R. CIAC in denying the motion for reconsideration ruled that it has jurisdiction over the HYDRO‘s claim over NIA pursuant to E. manifested that it could not admit the genuineness of HYDRO‘s evidence since NIA‘s records had already been destroyed.[20] Under Rule 45 the reglementary period to appeal is fifteen (15) days from notice of judgment or denial of motion for reconsideration. much less.e. after finding that there was no grave abuse of discretion on the part of the CIAC in issuing the aforesaid Orders. 3 .. What it did was to file an original action for certiorari before this Court. and that while they have agreed to arbitration as a mode of settlement of disputes. CIAC rendered a decision in the main case in favor of HYDRO. For the writ of certiorari under Rule 65 of the Rules of Court to issue. 1008 IS A SUBSTANTIVE LAW. [12] We take judicial notice that on 10 June 1997. [4] At the preliminary conference. It is elementary that the special civil action of certiorari is not and cannot be a substitute for an appeal. [24] Rule 65 is an independent action that cannot be availed of as a substitute for the lost remedy of an ordinary appeal. at least P100. [19] Rule 45 is clear that decisions. Hence.[23] In this case. this was only between themselves.[3] The two designated arbitrators appointed Certified Public Accountant Joven B. his predicament being the effect of his deliberate inaction.[10] On 26 May 1996.[21] In the instant case the Resolution of the Court of Appeals dated 24 February 1997 denying the motion for reconsideration of its Resolution dated 28 June 1997 was received by NIA on 4 March1997. he cannot avail himself of the writ of certiorari.A. 129. from among whom CIAC appointed Atty. NO. through omission or oversight. On the same date.[6] On 13 March 1995. F THE LEGAL DOCTRINE THAT JURISDICTION IS DETERMINED BY THE STATUTE IN FORCE AT THE TIME OF THE COMMENCEMENT OF THE ACTION DOES NOT ONLY APPLY TO THE INSTANT CASE. D AN INDORSEMENT OF THE AUDITOR GENERAL DECIDING A CONTROVERSY IS A DECISION BECAUSE ALL THE ELEMENTS FOR JUDGMENT ARE THERE. P100.[17] If the aggrieved party fails to do so within the reglementary period. Nowhere in the said article (sub-contract) does it mention the CIAC. B THE DISPUTE BETWEEN THE PARTIES SHOULD BE SETTLED IN ACCORDANCE WITH GC NO. The records do not show that the parties agreed to submit the disputes to arbitration by the CIAC xxxx. they could not have contemplated submission of their disputes to CIAC.

No. SO ORDERED. However. It must. regardless of what forum they may choose. the jurisdiction of CIAC is over the dispute. An allegation of prescription can effectively be used in a motion to dismiss only when the complaint on its face shows that indeed the action has already prescribed.[28] The complaint of HYDRO against NIA on the basis of the contract executed between them was filed on 7 December 1994. and Joo Han Lee assisted by Roy V. 2-91 and 3-93. it is undeniable that NIA agreed to submit the dispute for arbitration to the CIAC. The disputes may involve government or private contracts. Movido. even if these occurred before the constitution of the CIAC. 1008.000. as well as its compliance wherein it nominated arbitrators to the proposed panel. notwithstanding the reference to a different arbitration institution or arbitral body in such contract or submission. Puno. WHEREFORE. Petitioner paid up to the 7th monthly progress billing sent by Mabunay. otherwise known as the ―Construction Industry Arbitration Law‖ which was promulgated on 4 February 1985. the claim of HYDRO having arisen from the contract is arbitrable. 1008. E. 112808. not retroactive. Mabunay. JJ. Aklan. the date the parties entered into a contract and the date of completion of the same.. As of September 16.5 Mabunay also submitted the required Performance Bond6 issued by respondent Utility Assurance Corporation (UTASSCO) in the amount equivalent to 20% down payment or P8. It is undisputed that the contracts between HYDRO and NIA contained an arbitration clause wherein they agreed to submit to arbitration any dispute between them that may arise before or after the termination of the agreement. E. such that. as of said date..O.R. the CIAC has jurisdiction over the controversy. 2008. Pardo.979. [29] NIA‘s argument that CIAC had no jurisdiction to arbitrate on contract which preceded its existence is untenable.4 million. and Ynares-Santiago. however. not the contract. Under the present Rules of Procedure.[31] Moreover. i. during the effectivity of E. as applied in the Tesco case. Stated differently. The 1988 CIAC Rules of Procedure which were applied by this Court in Tesco case had been duly amended by CIAC Resolutions No. accurate and correct:cralavvonlinelawlibrary III] STATUS OF PROJECT AS OF 14 NOVEMBER 2008 4 . NIA through its counsel actively participated in the arbitration proceedings by filing an answer with counterclaim. the request for arbitration filed with CIAC should be made by both parties. costing P42. Hence.472. concur. DECISION VILLARAMA.00 down payment was fully paid on January 14. Elwin Olavario. petitioner J Plus Asia Development Corporation represented by its Chairman. it is merely required that the parties agree to submit the same to voluntary arbitration. be pointed that under the new rules. deny it. Kapunan. No.O.5% of the project. the parties to a dispute must agree to submit the same to voluntary arbitration.O. NIA‘s reliance with the ruling on the case of Tesco Services Incorporated v. in order.O. even if they specifically choose another forum.[35] In the instant case.[32] As to the defenses of laches and prescription.An arbitration clause in a construction contract or a submission to arbitration of 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. Mabunay had accomplished only 27. Petitioner. even if the issue of technicality is disregarded and recourse under Rule 65 is allowed. as amended. No. G. Executive Order No. the same result would be reached since a review of the questioned resolutions of the CIAC shows that it committed no grave abuse of discretion. The Court of Appeals is hereby DIRECTED to proceed with reasonable dispatch in the disposition of C. petitioner had paid the total amount of P15. was to be completed within one year or 365 days reckoned from the first calendar day after signing of the Notice of Award and Notice to Proceed and receipt of down payment (20% of contract price). J. 44527 and include in the resolution thereof the issue of laches and prescription. 2008. the instant petition is DISMISSED for lack of merit. 1008. participating in the deliberations on. When a contract contains a clause for the submission of a future controversy to arbitration.400. doing business under the name and style of Seven Shades of Blue Trading and Services. Section 1 of Article III of which read as follows: Submission to CIAC Jurisdiction . assailing the Decision1 dated January 27. their agreement will fall within the jurisdiction of the CIAC.A. The P8. The court may either grant the motion to dismiss. Those issues must be resolved at the trial of the case on the merits wherein both parties will be given ample opportunity to prove their respective claims and defenses. did not automatically divest the CIAC of jurisdiction as long as the dispute submitted for arbitration arose after the constitution of the CIAC. For the Board to acquire jurisdiction. The project. and the instant dispute having arisen when CIAC was already constituted. Respondent. the issue of prescription and laches cannot be resolved on the basis solely of the complaint. the completion date of the project was December 2008. it is not necessary for the parties to enter into a submission agreement before the claimant may invoke the jurisdiction of CIAC.. and the formulation of. 2011 of the Court of Appeals (CA) in CA-G. As such. 2008. Mabunay commenced work at the project site on January 7. No. vests upon CIAC original and exclusive jurisdiction over disputes arising from . and examining the documents submitted by HYDRO after NIA asked for the originals of the said documents. they are evidentiary in nature which could not be established by mere allegations in the pleadings and must not be resolved in a motion to dismiss. or order the amendment of the pleading. the following findings were accepted as true. 2013 J PLUS ASIA DEVELOPMENT CORPORATION. 1008 is a substantive or procedural statute. or connected with contracts entered into by parties involved in construction in the Philippines.R. June 26.: Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure. Contrary to the claim of NIA. jurisdiction.1008. the Terms of Reference of the arbitration proceeding. Vera.7 In the Joint Construction Evaluation Result and Status Report8 signed by Mabunay assisted by Arch.R. for a particular construction contract to fall within the jurisdiction of CIAC. Malay. FIRST DIVISION G. as provided under E. there is no need to pass upon the issue of whether E.[36] deferment of the resolution is no longer permitted.e.00. The jurisdiction of a court is determined by the law in force at the time of the commencement of the action. NIA also contended that the CIAC did not acquire jurisdiction over the dispute since it was only HYDRO that requested for arbitration. Consequently.In any case. 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. UTILITY ASSURANCE CORPORATION. It asserts that to acquire jurisdiction over a case.000. the arbitral board was actually exercising current. JR. No. Joo Han Lee. Thus. 199650. 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.4 Payment of the balance of the contract price will be based on actual work finished within 15 days from receipt of the monthly progress billings.000. thus. 2011 2 and Resolution dated December 8. Per the agreed work schedule. 2007. 1008 is clear that the CIAC has jurisdiction over all disputes arising from or connected with construction contract whether the dispute arises before or after the completion of the contract. and hence the request by one party is not enough. The Facts On December 24. and Martin E. [30] is misplaced. Rather. or after the abandonment or breach thereof.[33] Under the rule[34] the deferment of the resolution of the said issues was. whether the dispute arises before or after the completion of the contract. v. Unlike in the original version of Section 1. it is plain and clear that as long as the parties agree to submit to voluntary arbitration. entered into a Construction Agreement3 whereby the latter undertook to build the former‘s 72 -room condominium/hotel (Condotel Building 25) located at the Fairways & Bluewaters Golf & Resort in Boracay Island.O. it is well within the jurisdiction of CIAC. SP No.03 inclusive of the 20% down payment.

which is respondent [Mabunay‘s] share in the arbitration cost claimant had advanced. with legal interest thereon from January 8. As to the claim for alleged over payment to Mabunay.424.84 The unrecouped 4) amount of the down payment is P2. 13 In its Answer Ex Abundante Ad Cautelam With Compulsory Counterclaims and Cross-claims.980. and b) P2.379. Citing Aerospace Chemical Industries.419. the obligation wa s not yet demandable. Inc.364.19 the appellate court said that not all requisites in order to consider the obligor or debtor in default were present in this case. Respondent Mabunay to pay to claimant the amount of P98. SSB assisted by Arch. The CIAC thus declared that Mabunay is deemed to have waived his right to present evidence.39%) complete. concluded and agreed that as of 14 November 2008. the Writ of Execution dated 24 November 2010 issued by the same tribunal is hereby ANNULLED and SET ASIDE.After conducting 1) a joint inspection and evaluation of the project to determine the actual percentage of accomplishment.85%) with a gross value of P1.89. Accordingly. 5 .435. the termination of the contract by petitioner was premature and the filing of the complaint against him was baseless.53 after deducting the cost of materials on site and the net billable amount reflected in the reconciled and consolidated 8th and 9th billings. in view of our foregoing discussions and dispositions. petitioner filed a Request for Arbitration10 before the Construction Industry Arbitration Commission (CIAC). malicious and in bad faith. the Tribunal hereby adjudges. the completion by Mabunay of 31. SO ORDERED. respondent‘s obligation under the performance bond had been fully extinguished. Respondent Mabunay to indemnify respondent Utassco of the amounts respondent Utassco will have paid to claimant under this decision.11 In his Answer.20 Petitioner moved for reconsideration of the CA decision while respondent filed a motion for partial reconsideration.53 as unrecouped down payment plus interest thereon at the rate of 6% per annum computed from the date of this decision up to the time this decision becomes final.441. Mabunay failed to appear in the scheduled hearings and to present his evidence despite due notice to his counsel of record. plus interest thereon at the rate of 12% per annum computed from the date he is notified of such payment made by respondent Utassco to claimant until fully paid. and 12% per annum computed from the date this decision becomes final until fully paid. premises considered. Both motions were denied. He asserted that he actually had until April 30. and to pay Utassco P100. the CA agreed with the CIAC that the specific condition in the Performance Bond did not clearly state the limitation of the surety‘s liability.4 million.049. reflected in its reconciled and consolidated 8th and 9th billings. 2009 to finish the project since the 365 days period of completion started only on May 2. 2010 until fully paid. the contracting parties.14 respondent argued that the performance bond merely guaranteed the 20% down payment and not the entire obligation of Mabunay under the Construction Agreement. 03-2009 is hereby REVERSED and SET ASIDE. 3. the project is only Thirty One point Thirty Nine Percent (31. 2008 after clearing the retrofitted old structure.379.969. SO ORDERED.441. is Three point Eighty Five Percent (3.34 amount creditable to SSB after deducting the withholding tax is P1. filed a motion to dismiss on the ground that petitioner has no cause of action and the complaint states no cause of action against it.538.9 (Emphasis supplied.89 as liquidated damages and P2. 2010. petitioner‘s termination of the contract was premature since the delay in this case was merely speculative.) On November 19. Hence. Hence. Respondent also set up a cross-claim against Mabunay who executed in its favor an Indemnity Agreement whereby Mabunay undertook to indemnify respondent for whatever amounts it may be adjudged liable to pay petitioner under the surety bond.15 On February 2. It held that it is only from December 24.000.379. the CIAC rendered its Decision16 and made the following award:cralavvonlinelawlibrary Accordingly.52.575. Respondent‘s motion for reconsideration was likewise denied. Elwin Olavario and JPLUS assisted by Engrs.53 corresponding to the unrecouped down payment or overpayment petitioner made to Mabunay. as amended. the CA said that the provision should be construed in favor of petitioner considering that the obscurely phrased provision was drawn up by respondent and Mabunay.00 as attorney‘s fees.61% with an estimated value per construction agreement signed is P27. Pursuant to Article 137718 of the Civil Code. the appellate court stated that respondent could not possibly guarantee the down payment because it is not Mabunay who owed the down payment to petitioner but the other way around. 2. 2)the value of construction materials allocated for the completion of the project and currently on site has been determined and agreed to be ONE MILLION FORTY NINE THOUSAND THREE HUNDRED SIXTY FOUR PESOS AND FORTY FIVE CENTAVOS (P1.] It being understood that respondent Utassco‘s liability shall in no case exceed P8.90.4 million was a limit on the amount of respondent‘s liability and not a limitation as to the obligation or undertaking it guaranteed. petitioner terminated the contract and sent demand letters to Mabunay and respondent surety.553. assisted by their respective technical groups. The P8. plus legal interest thereon at the rate of 6% per annum computed from the date of this decision up to the time this decision becomes final. As its demands went unheeded. The dispositive portion of the CA Decision reads:cralavvonlinelawlibrary WHEREFORE. 2008 (completion date) that we should reckon default because the Construction Agreement provided only for delay in the completion of the project and not delay on a monthly basis using the work schedule approved by petitioner as the reference point. The uncompleted portion of the project is 68. respondent filed in the CA a petition for review under Rule 43 of the 1997 Rules of Civil Procedure. Petitioner prayed that Mabunay and respondent be ordered to pay the sums of P8. Furthermore. orders and directs:cralavvonlinelawlibrary 1.39% of the construction would not lead to the extinguishment of respondent‘s liability. However. In the assailed decision. the instant petition for review is GRANTED. The CIAC denied the motion to dismiss.469. on the other hand. 2008.563. Both petitioner and respondent submitted their respective documentary and testimonial evidence. Since the value of the project‘s accomplishment already exceeded the said amount. the CA reversed the CIAC‘s ruling that Mab unay had incurred delay which entitled petitioner to the stipulated liquidated damages and unrecouped down payment.441. v. respondent contended that it should not be credited against the 20% down payment which was already exhausted and such application by petitioner is tantamount to reviving an obligation that had been legally extinguished by payment. Consequently. Respondent.17 Dissatisfied.880. The assailed Decision dated 13 January 2010 rendered by the CIAC Arbitral Tribunal in CIAC Case No.12 Mabunay claimed that the delay was caused by retrofitting and other revision works ordered by Joo Han Lee.45) The additional 3) accomplishment of SSB. Further. Court of Appeals. as liquidated damages. Respondents Mabunay and Utassco to jointly and severally pay claimant the following:cralavvonlinelawlibrary a) P4. and 12% per annum computed from the date this decision becomes final until fully paid[. Joey Rojas and Shiela Botardo.

INC. We reverse the CA. 7902 and promulgation of the 1997 Rules of Civil Procedure. the CA was divested of jurisdiction to review the decisions or awards of the CIAC. 1008. which is distinct from the issue of the extent of respondent‘s liability under the Performance Bond. thus:cralavvonlinelawlibrary SEC. or after the abandonment or breach thereof. 9285 explicitly excluded CIAC awards from domestic arbitration awards that need to be confirmed to be executory. 07-11-08-SC (Special ADR Rules) promulgated by this Court and which took effect on October 30. The confirmation of a domestic award shall be made by the regional trial court in accordance with the Rules of Procedure to be promulgated by the Supreme Court.22 otherwise known as the Alternative Dispute Resolution Act of 2004.A. Specifically. B. petitioner alleged that – A. No. On the contrary. which are appealable to the Supreme Court.A. unless the delay is excused or waived.A. 315 SCRA 94. – The confirmation of a domestic arbitral award shall be governed by Section 23 of R. Said detailed work schedule shall follow the general schedule of activities and shall serve as basis for the evaluation of the progress of work by CONTRACTOR. No. It is the non-fulfillment of an obligation with respect to time. or connected with. No. A CIAC arbitral award need not be confirmed by the regional trial court to be executory as provided under E. 1169.A. the CIAC was included in the enumeration of quasi-judicial agencies whose decisions or awards may be appealed to the CA in a petition for review under Rule 43. this assertion has no basis. The CONTRACTOR shall complete the works called for under this Agreement within ONE (1) YEAR or 365 Days reckoned from the 1st calendar day after signing of the Notice of Award and Notice to Proceed and receipt of down payment. said awards are therefore not covered by Rule 11 of the Special ADR Rules. 876. COURT OF APPEALS. Indeed. THE COURT OF APPEALS SERIOUSLY ERRED IN RELYING ON THE CASE OF AEROSPACE CHEMICAL INDUSTRIES. correct or vacate a domestic arbitral award. resolution of the issue of delay was crucial upon which depends petitioner‘s right to the liquidated damages pursuant to the Construction Agreem ent.28 The Construction Agreement provides in Article 10 thereof the following conditions as to completion time for the project 1. of law.O.27 Article 1169 of the Civil Code provides:cralavvonlinelawlibrary ART. as amended and the rules of procedure of the CIAC.24 as they continue to be governed by EO No. and consequently Mabunay‘s liability for liquidated damages arises only upon the happening of such condition. As to the alleged error committed by the CA in deciding the case upon an issue not raised or litigated before the CIAC. 9285. AND NOT ARGUED IN ANY OF THE PLEADINGS FILED BEFORE THE COURT. Whether or not Mabunay had incurred delay in the performance of his obligations under the Construction Agreement was the very first issue stipulated in the Terms of Reference26 (TOR). Default or mora on the part of the debtor is the delay in the fulfillment of the prestation by reason of a cause imputable to the former. In this regard the CONTRACTOR shall submit a detailed work schedule for approval by OWNER within Seven (7) days after signing of this Agreement and full payment of 20% of the agreed contract price. With the amendments introduced by R. except on questions of law. as amended. No.A. xxxx It is a general rule that one who contracts to complete certain work within a certain time is liable for the damage for not completing it within such time.M. NOT IDENTIFIED IN THE TERMS OF REFERENCE. 9285 did not confer on regional trial courts jurisdiction to review awards or decisions of the CIAC in construction disputes. – A petition for review from a final award may be taken by any of the parties within fifteen (15) days from receipt thereof in accordance with the provisions of Rule 43 of the Rules of Court. 2010 CIAC Decision. Petitioner erroneously relied on the provision in said law allowing any party to a domestic arbitration to file in the Regional Trial Court (RTC) a petition either to confirm. Contrary to the CIAC‘s findings. 1008. C. Confirmation of Award. A domestic arbitral award when confirmed shall be enforced in the same manner as final and executory decisions of the Regional Trial Court. Section 40 thereof expressly declares that confirmation by the RTC is not required. By express provision of Section 19 thereof. We hold that R.The Issues Before this Court petitioner seeks to reverse the CA insofar as it denied petitioner‘s claims under the Performance Bond and to reinstate in its entirety the February 2. Such review of the CIAC award may involve either questions of fact. No. 2009.29 6 . v. The CIAC Revised Rules of Procedure Governing Construction Arbitration25 provide for the manner and mode of appeal from CIAC decisions or awards in Section 18 thereof. 23 Petitioner misread the provisions of A. the arbitral award of the CIAC is final and unappealable. whether the dispute arises before or after the completion of the contract. Since R.2 Petition for review. or of fact and law. 1008 vests upon the CIAC original and exclusive jurisdiction over disputes arising from.) Executive Order (EO) No. contracts entered into by parties involved in construction in the Philippines. 40. 2. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation.) No. THE COURT OF APPEALS SERIOUSLY ERRED IN REVERSING THE ARBITRAL AWARD ON AN ISSUE THAT WAS NOT RAISED IN THE ANSWER. WHICH HAS NOTHING TO DO WITH CONSTRUCTION AGREEMENTS. we find no merit in petitioner‘s contention that with the institutionalization of alternative dispute resolution under Republic Act (R. 21 Our Ruling On the procedural issues raised. which reads:cralavvonlinelawlibrary SECTION 18.(Emphasis supplied. NOT ASSIGNED AS AN ERROR. the CA opined that delay should be reckoned only after the lapse of the one -year contract period. THE COURT OF APPEALS SERIOUSLY ERRED IN NOT HOLDING THAT THE ALTERNATIVE DISPUTE RESOLUTION ACT AND THE SPECIAL RULES ON ALTERNATIVE DISPUTE RESOLUTION HAVE STRIPPED THE COURT OF APPEALS OF JURISDICTION TO REVIEW ARBITRAL AWARDS.

Substantial delay was noted in concreting works that affects your roof framing that should have been 40% completed as of this date.30 In holding that Mabunay has not at all incurred delay. 2008 Seven Shades of Blue Boracay Island Malay. In the succeeding months. 2008 regarding the delay in the implementation of major activities based on your submitted construction schedule. Martin Mabunay General Manager Engr. We have noticed continuous absence of all the Engineers that you have assigned on-site to administer and supervise your contracted work. Mabunay was still unable to catch up with his accomplishment even as petitioner constantly advised him of the delays. 2008 regarding the construction of the Field Office and Stock Room for Materials intended for Villa Beatriz use only. attributing to the doubtful ones that sense which may result from all of them taken jointly. Mabunay. or within four months after Mabunay commenced work activities. the CA pointed out that the obligation to perform or complete the project was not yet demandable as of November 19. Ar ticle 1374 of the Civil Code requires that the various stipulations of a contract shall be interpreted together. not only to serve as its basis for the payment of monthly progress billings.‖31 Records showed that as early as April 2008. We understand that you have committed to complete it November 5. and (3) that the creditor requires the performance judicially or extrajudicially. x x x x33 November 5. it had delayed without justifiable cause the completion of the project ―by more than thirty (30) calendar days based on official work schedule duly approved by the OWNER. We would highly appreciate if you could attend our next regular meeting so we could immediately address this matter. We are expecting deliveries of Owner Supplied Materials very soon. (2) that the debtor delays performance. 2008 but as of this date there is no improvement or any ongoing construction activity on the said field office and stockroom. the following requisites must be present in order that the debtor may be in default: (1) that the obligation be demandable and already liquidated. In this regard. In this regard. We will highly appreciate if this matter will be given your immediate attention. Botardo Construction Manager – LMI/FEPI32 October 15.01 (g) (iii) of the Construction Agreement provides that the contractor shall be deemed in default if. we would highly recommend the immediate replacement of your Project Engineer within the week. Thank you. but also for evaluation of the progress of work by the contractor. the project was already behind schedule for reasons not attributable to petitioner. the work schedule approved by petitioner was intended. For the past two (2) weeks[. This is in reference to your discussion during the meeting with Mr. Mabunay:cralavvonlinelawlibrary This is to formalize our discussion with your Engineers during our meeting last April 23. as can be gleaned from the following notices of d elay sent by petitioner‘s engineer and construction manager. Mabunay. because the agreed completion date was still more than one month away (December 24. we recommend that you prepare a catch-up schedule and expedite the delivery of critical materials on site. Aklan Attention Thru Project Subject : : : : Mr. this stockroom is badly needed. 2008 xxxx Dear Mr. therefore. Joohan Lee last October 30. x x x x34 November 6. Reynaldo Gapasin Villa Beatriz Notice of Delay Dear Mr. This delay will create major impact on your over-all schedule as the finishing works will all be dependent on the enclosure of the building. Engr. Article 13. 2008). Very truly yours. 2008 when petitioner terminated the contract. Sheila N. 2008 xxxx Dear Mr. the CA concluded that the failure of the contractor to catch up with schedule of work activities did not constitute delay giving rise to the contractor‘s liability for damages. Here. Sheila N. Botardo:cralavvonlinelawlibrary April 30. Thank you. We would highly appreciate your usual attention on this matter. Since the parties contemplated delay in the completion of the entire project. 2008 xxxx 7 . Engr.In this jurisdiction. among others.] your company does not have a Technical Representative manning the jobsite considering the critical activities that are in progress and the delays in schedule that you have already incurred. We cannot sustain the appellate court‘s interpretation as it is inconsistent with the terms of the Construction Agreement.

2008.Dear Mr. A stipulation for liquidated damages is attached to an obligation in order to ensure performance and has a double function: (1) to provide for liquidated damages. the law shall determine the measure of damages. authorizes the OWNER to deduct any amount that may be due under Item (a) above. 2226. which reads:cralavvonlinelawlibrary ARTICLE 13 – DEFAULT OF CONTRACTOR: 13. the project was only 31.38%) of the work he contracted on account of delays in executing the scheduled work activities and repeated failure to provide sufficient manpower to expedite construction works. petitioner advised Mabunay of its decision to terminate the contract on account of the tremendous delay the latter incurred. Any sum which maybe payable to the OWNER for such loss may be deducted from the amounts retained under Article 9 or retained by the OWNER when the works called for under this Agreement have been finished and completed. 2228.52. has failed to commence the construction or has suspended the progress of the Project for twenty-eight days (iii. to be paid in case of breach thereof. from any and all money or amounts due or which will become due to the CONTRACTOR by virtue of this Agreement and/or to collect such amounts from the Performance Bond filed by the CONTRACTOR in this Agreement.419. on November 19. When the breach of the contract committed by the defendant is not the one contemplated by the parties in agreeing upon the liquidated damages. is not executing the construction works in accordance with the Agreement or is persistently or flagrantly 8 . at anytime. 2008. b. plus One (1) Week grace period . whether intended as an indemnity or a penalty. ART. The events of default and remedies of the Owner are set forth in Article 13. Liquidated Damage[s] payable to the OWNER shall be automatically deducted from the contractors collectibles without prior consent and concurrence by the CONTRACTOR. 2008.01 Any of the following shall constitute an Event of Default on the [part] of the CONTRACTOR.) without justifiable cause. and not the stipulation. Mabunay. Should the CONTRACTOR fail to complete the PROJECT within the period stipulated herein or within the period of extension granted by the OWNER. Please note that based on your submitted revised schedule you are already delayed by approximately 57% and this will worsen should you not address this matter properly. however. Thus. and (2) to strengthen the coercive force of the obligation by the threat of greater responsibility in the event of breach. ask for an extension to complete the project.38 As a precondition to such award. Liquidated damages.) without reasonable cause. which provide:cralavvonlinelawlibrary ART. We have observed that for the past three (3) weeks instead of increasing your manpower to catch up with the delay it was reduced to only 8 workers today from an average of 35 workers in the previous months. without necessity of any further act and deed. 37 The amount agreed upon answers for damages suffered by the owner due to delays in the completion of the project. The CONTRACTOR shall pay the OWNER liquidated damages equivalent to One Tenth of One Percent (1/10 of 1%) of the Contract Amount for each day of delay after any and all extensions and the One (1) week Grace Period until completed by the CONTRACTOR.) has abandoned the Project (ii. a joint inspection and evaluation was conducted with the assistance of the architects and engineers of petitioner and Mabunay and it was found that as of November 14.39% complete and that the uncompleted portion was 68. without any justifiable reason. ART.36 (Emphasis supplied. x x x x35 Subsequently.880.) Liability for liquidated damages is governed by Articles 2226 to 2228 of the Civil Code. the CONTRACTOR hereby. The CONTRACTOR. Mabunay did nothing to remedy the delays and even reduced the deployment of workers at the project site. 12. However. Article 12. We would like to call your attention regarding the decrease in your manpower assigned on site. Liquidated damages are those agreed upon by the parties to a contract.01 Time is of the essence in this Agreement.02 To give full force and effect to the foregoing. there must be proof of the fact of delay in the performance of the obligation. as fo llows:cralavvonlinelawlibrary ARTICLE 12 – LIQUIDATED DAMAGES: 12. this will not defeat petitioner‘s claim for damages nor respondent‘s liability under the Performance Bond. has delayed the completion of the Project by more than thirty (30) calendar days based on official work schedule duly approved by the OWNER (iv. Petitioner‘s claim against the Performance Bond included the liquidated damages provided in the Construction Agreement. Mabunay was clearly in default considering the dismal percentage of his accomplishment (32.) despite previous written warning by the OWNER. This was followed by the claim against the Performance Bond upon the respondent on December 18. In case the CONTRACTOR has done any of the following:cralavvonlinelawlibrary (i. Instead of doubling his efforts as the scheduled completion date approached. shall be equitably reduced if they are iniquitous or unconscionable.01 of the Construction Agreement mentioned only the failure of the contractor to complete the project within the stipulated period or the extension granted by the owner. the CONTRACTOR hereby agrees – a.61% with an estimated value per Construction Agreement as P27. even after paying for the liquidated damages due to unexecuted works and/or delays shall not relieve it of the obligation to complete and finish the construction. Neither did Mabunay. We are looking forward for [sic] your cooperation and continuous commitment in delivering this project as per contract agreement.39 Concededly. xxxx g. 2227.

INC. vs. however.44 Moreover. and usually provides that if the contractor defaults and fails to complete the contract. citations omitted.. Such stipulation allowing the confiscation of the contractor‘s performance bond partakes of the nature of a penalty clause. to post a bond of the abovestated sum to guarantee 20% down payment for the construction of Building 25 (Villa Beatriz) 72-Room Condotel. The pertinent portions of the Performance Bond provide:cralavvonlinelawlibrary The conditions of this obligation are as follows: Whereas the JPLUS ASIA. Whereas. Therefore. the petition for review on certiorari is GRANTED. The Lodgings inside Fairways and Bluewater. Aldanese and Union Gurantee Co. loss of use of any equipment or property.43(Emphasis supplied. It stresses that with the 32. Also without diminishing or affecting the rights and powers conferred on the OWNER by this Agreement and the OWNER may himself complete the work or may employ any other contractor to complete the work. in effect. The Decision dated January 27. The obligor would then be bound to pay the stipulated indemnity without the necessity of proof on the existence and on the measure of damages caused by the breach. or releasing the CONTRACTOR from any of its obligations. if the Principal shall well and truly perform and fulfill all the undertakings. 42 Respondent. for whose benefit it was ostensibly executed. the contractor‘s default in this case pertains t o his failure to substantially perform the work on account of tremendous delays in executing the scheduled work activities. Boracay Island. The appellate court correctly rejected this theory of respondent when it ruled that the P erformance Bond guaranteed the full and faithful compliance of Mabunay‘s obligations under the Construction Agreement. it is clear from the above-cited jurisprudence that petitioner‘s liability for the payment of interest is not by reason of the suretyship agreement itself but because of the delay in the payment of its obligation under the said agreement. enter upon the site and expel the CONTRACTOR therefrom without voiding this Agreement. The CONTRACTOR will not be compensated for any loss of profit. loss of business opportunity. insists that it is not liable for the breach committed by Mabunay because by the terms of the surety bond it issued. loss of goodwill. Further. Having elected to terminate the contract and expel t he contractor from the project site under Article 13 of the said Agreement..R. additional financing cost or overhead or opportunity losses related to the unaccomplished portions of the work. its liability becomes more than the principal obligation. 13. P. 2011 of the Court of Appeals in CA-G. other expenses incurred by the OWNER have been ascertained which amount shall be deducted from any money due to the CONTRACTOR on account of this Agreement. said contract required said Principal to give a good and sufficient bond in the above-stated sum to secure the full and faithful performance on his part of said contract. Court of Appeals46 Petitioner argues that it should not be made to pay interest because its issuance of the surety bonds was made on the condition that its liability shall in no case exceed the amount of the said bonds.000. a performance bond guarantees that the contractor will perform the contract. 2011 and Resolution dated December 8. terms. It is a special provision of this undertaking that the liability of the surety under this bond shall in no case exceed the sum ofP8. 2010 of the Construction Industry Arbitration Commission is hereby REINSTATED with the following MODIFICATIONS: 9 . the rest of the recitals in the bond unequivocally declare that it secures the full and faithful performance of Mabunay‘s obligations under the Construction Agreement with petitioner. sublet any part of the Agreement. requires the principal SEVEN SHADES OF BLUE CONSTRUCTION AND DEVELOPMENT.. As we held in Commonwealth Insurance Corporation v. 41 The plain and unambiguous terms of the Construction Agreement authorize petitioner to confiscate the Performance Bond to answer for all kinds of damages it may suffer as a result of the contractor‘s failure to complete the building. Petitioner‘s argument is misplaced. the OWNER may after giving fourteen (14) calendar days notice in writing to the CONTRACTOR. Inc. However. A penalty clause.L.. Where a party to a building construction contract fails to comply with the duty imposed by the terms of the contract. a breach occurs where the contractor inexcusably fails to perform substantially in accordance with the terms of the contract. It functions to strengthen the coercive force of obligation and to provide. to the detriment of good workmanship or in defiance of the Owner‘s instructions to the contrary.02 If the CONTRACTOR has committed any of the above reasons cited in Item 13. and of course. we have sustained the principle that if a surety upon demand fails to pay.) As already demonstrated. then this obligation shall be null and void.47 (Emphasis supplied. and that nowhere in law or jurisprudence does it state that the obligation or undertaking by a surety may be apportioned. and reiterated in Plaridel Surety & Insurance Co. a breach results for which an action may be maintained to recover the damages sustained thereby. even if in thus paying. otherwise to remain in full force and effect. damages for the delay in the completion. if any. petitioner is clearly entitled to the proceeds of the bond as indemnification for damages it sustained due to the breach committed by Mabunay. in this case petitioner as the Project Owner. for what could be the liquidated damages resulting from such a breach. All expenses incurred to finish the Project shall be charged to the CONTRACTOR and/or his bond. conditions and agreements stipulated in said contract. Jurisprudence is clear on this matter. and more recently. Court of Appeals and R & B Surety and Insurance Company. its liability was extinguished because the value of such accomplishment already exceeded the sum equivalent to 20% down payment (P8.01.40 (Emphasis supplied. petitioner should not be made to pay more than its assumed obligation under the surety bonds. (v. Petitioner‘s liability under the suretyship contract is different from its liability under the law. Aklan. 112808 are hereby REVERSED and SET ASIDE. As early as Tagawa vs. covenants.38% completion of the project by Mabunay. its liability is limited to the performance by said contractor to the extent equivalent to 20% of the down payment. the OWNER shall not be liable to pay the CONTRACTOR until the cost of execution. If the OWNER shall enter and expel the CONTRACTOR under this clause. and all.) WHEREFORE. it is strictly binding upon the obligor. the surety can itself complete the contract or pay damages up to the limit of the bond. in Republic vs.) has.neglecting to carry out its obligations under the Agreement. By its nature. It is well-settled that so long as such stipulation does not contravene law. Inc. There is no question that as a surety. or public order. The Award made in the Decision dated February 2. Malay. expressly recognized by law. morals. is an accessory undertaking to assume greater liability on the part of the obligor in case of breach of an obligation.) While the above condition or specific guarantee is unclear. Now. he can be held liable for interest. Galang Machinery Co. it will be construed most strongly against a compensated surety and in favor of the obligees or beneficiaries under the bond. the OWNER shall be entitled to confiscate the performance bond of the CONTRACTOR to compensate for all kinds of damages the OWNER may suffer.400. The increased liability is not because of the contract but because of the default and the necessity of judicial collection. Inc. and liabilities under this Agreement. the rule is that if the language of the bond is ambiguous or uncertain. SP No.45 The imposition of interest on the claims of petitioner is likewise in order.00 Philippine Currency.4 million). We are not persuaded.

000 for the first year up to P4. 116865.J. DECISION PEREZ. were as follows: 1. The rental for the second 25 years shall not exceed three percent (3%) of the fair market value of the land excluding the improvements as determined by the Board of Arbitrators. application or execution of this [2000 Lease Contract] shall be submitted to a board of three (3) arbitrators constituted in accordance with the arbitration law of the Philippines. SO ORDERED.R. 2007. Republic Act 878.00. pursuant to Art. Pertinent terms of such lease agreement. was the registered owner of a parcel of land located at Km. as provided in the Deed of Donation. a lease agreement between FKI and the respondent was. including those relating to the lease of the subject land. 198075. C. Leonardo-De Castro. FKI and the respondent executed an Amended Deed of Donation14 that reiterated the provisions of the Deed of Donation. 2013 KOPPEL. the Tribunal hereby adjudges. INC.000. The amount of rent to be paid by FKI for the first twenty-five (25) years is P40. INC. Governing Law – The provisions of this [2000 Lease Contract] shall be governed. 16cralaw virtualaw library The 2000 Lease Contract also contained an arbitration clause enforceable in the event the parties come to disagreement about the ―interpretation. plus interest thereon at the rate of 12% per annum computed from the date he is notified of such payment made by respondent Utassco to claimant until fully paid.00 perannum. Incorporated (FKI). and 12% per annum computed from the date this decision becomes final until fully paid. with annual rents ranging from P4.: This case is an appeal1 from the Decision2 dated 19 August 2011 of the Court of Appeals in C. Petitioner. effectively incorpo rated in the Deed of Donation.6 The respondent accepted the donation with all of its conditions. MAKATI ROTARY CLUB FOUNDATION. FKI5 bequeathed the subject land (exclusive of the improvements thereon) in favor of herein respondent Makati Rotary Club Foundation. (Chairperson). The decision of the majority of the arbitrators shall be binding upon [FKI and respondent]. the amount of rent shall be determined in accordance with item 2(g) of the Deed of Donation. Respondent. application and execution‖ of the lease. FKI was able to continue in its possession and use of the subject land. Any disagreement as to the interpretation. any increase in the fair market value of the land shall not exceed twenty five percent (25%) of the original value of the land donated as stated in paragraph 2(c) of this Deed. whose function shall be to decide the current fair market value of the land excluding the improvements. 16.‖ With the above modifications. INC. interpreted and construed in all aspects in accordance with the laws of the Republic of the Philippines. viz:chanrobles virtua1aw 1ibrary 19. FKI and respondent agreed on a new five-year lease to take effect on the 26th of May 2000.900. by virtue of the lease agreement contained in the Deed of Donation and Amended Deed of Donation. The period of the lease is for twenty-five (25) years.7 On 26 May 1975. South Superhighway. 03-2009 is hereby REINSTATED and UPHELD.000.11 The Deed of Donation also stipulated that the lease over the subject property is renewable for another period of twenty-five (25) years ―upon mutual agreement‖ of FKI and the respondent. the Writ of Execution dated November 24. No. SECOND DIVISION G. in view of our foregoing discussions and dispositions. Parañaque City (subject land). Sereno. 2010 issued by the CIAC Arbitral Tribunal in CIAC Case No.10 or until the 25th of May 2000. Jr.126. The Lease and the Amended Deed of Donation One of the conditions of the donation required the respondent to lease the subject land back to FKI under terms specified in their Deed of Donation. and 2) Respondent Mabunay to indemnify respondent Utassco of the amounts respondent Utassco will have paid to claimant under this decision.17 (Emphasis supplied) 10 . 13 of the Construction Agreement dated December 24.. The rental for the second 25 years shall be the subject of mutual agreement and in case of disagreement the matter shall be referred to a Board of three Arbitrators appointed and with powers in accordance with the Arbitration Law of the Philippines.R. Verily. with interest at the rate of 6% per annum computed from the date of the filing of the complaint until the finality of this decision.000 for the fifth year.12In which case..).00 as attorney‘s fees. that. Bersamin.400.3 Within the subject land are buildings and other improvements dedicated to the business of FKI. The facts: The Donation Fedders Koppel.000. 13 In October 1976. v. a manufacturer of air-conditioning products.. Incorporated by way of a conditionaldonation. orders and directs:cralavvonlinelawlibrary 1) Respondent Utassco to pay to petitioner J Plus Asia Development Corporation the full amount of the Performance Bond. FKI and the respondent executed a Deed of Donation8 evidencing their consensus. concur. P8.―Accordingly. viz:chanrobles virtua1aw 1ibrary g. or on 23 May 2000. provided. JJ. 2.4cralaw virtualaw library In 1975. therefore.. FKI and respondent executed another contract of lease (2000 Lease Contract)15 covering the subject land. (FORMERLY KNOWN AS KPL AIRCON. and to pay Utassco P100. No pronouncement as to costs.A. J. September 04. In this 2000 Lease Contract.-G. SO ORDERED. SP No. 2000 Lease Contract Two (2) days before the lease incorporated in the Deed of Donation and Amended Deed of Donation was set to expire. and Reyes.9 With the respondent‘s acceptance of the donation.

200.20 Such donations ranged from P3. Respondent.00. Consequently. as stated in the Deed of Donation and Amended Deed of Donation. reiterating its demand for the payment of the obligations already due under the 2005 Lease Contract. and another lease for the next twenty-five (25) years thereafter or from 2000 to 2025.49 The stipulation in the 2005 Lease Contract requiring petitioner to give yearly ―donations‖ to respondent is a simulation.19 In addition to paying the fixed rent.2005 Lease Contract After the 2000 Lease Contract expired. however. the refusal to comply therewith does not give rise to an action for unlawful detainer. application or execution of this [2005 Lease Contract] shall be submitted to a board of three (3) arbitrators constituted in accordance with the arbitration law of the Philippines. The decision of the majority of the arbitrators shall be binding upon [FKI and respondent].30cralaw virtualaw library The Demand Letters On 1 June 2009. ejectment still would not lie as the 2005 Lease Contract is void ab initio. formally assigned all of its interests and obligations under theAmended Deed of Donation and the 2005 Lease Contract in favor of petitioner. in the same letter.900. petitioner cites item 2(g) of the Deed of Donation and Amended Deed of Donation that supposedly limits the amount of rent for the lease over the second twenty-five (25) years to only ―three percent (3%) of the fair market value of the [subject] land excluding the improvements. Instead.45 In addition to the foregoing. cannot be given effect because they violated one of the ―material conditions‖ of the donation of the subject land. it may not exercise the same until the disagreement between the parties is first referred to arbitration pursuant to the arbitration clause of the 2005 Lease Contract. material conditions of the donation of the subject land. both deeds nevertheless prescribed rules and limitations by which the same may be determined. Petitioner‘s refusal to pay such rent and ―donation‖ emanated from its belief that the rental stipulations of the 2005 Lease Contract. CV 09-0346. in fact. FKI and respondent agreed to renew their lease for another five (5) years. 2009-307.32 Petitioner received the First Demand Letter on 2 June 2009. petitioner discontinued the payment of the rent and ―donation‖ under the 2005 Lease Contract. parts of the rent.29cralaw virtualaw library For petitioner then.27 Both leases are material conditions of the donation of the subject land. Such rules and limitations ought to be observed in any succeeding lease agreements between petitioner and respondent for they are.36Respondent refused this offer.51 31 11 . The following year.‖ In lieu of the amount demanded by the respondent.502. petitioner filed with the Regional Trial Court (RTC) of Parañaque City a complaint42 for the rescission or cancellation of the Deed of Donation and Amended Deed of Donation against the respondent. On 4 November 2009. interpreted and construed in all aspects in accordance with the laws of the Republic of the Philippines. the 2005 Lease Contract also obligated FKI to make a yearly ―donation‖ of money to the respondent. FKI and petitioner executed an Assignment and Assumption of Lease and Donation25—wherein FKI. FKI faithfully paid the rentals and ―donations‖ due it per the 2005 Lease Contract.50 Such grants were only denominated as ―donations‖ in the contract so that the respondent—a non-stock and non-profit corporation—could evade payment of the taxes otherwise due thereon. with the conformity of the respondent.000. which purportedly totaled to P8.” “unconscionable” and “in clear violation to the nominal rentals mandated by the Amended Deed of Donation. the 2005 Lease Contract contained an arbitration clause similar to that in the 2000 Lease Contract.44 In it.000.. petitioner filed an Answer with Compulsory Counterclaim.000 for the first year up to P3. docketed as Civil Case No.48cralaw virtualaw library 3.28cralaw virtualaw library In this connection.e. exclusive of interests. one lease for the first twenty-five (25) years or from 1975 to 2000. petitioner reiterated its objection over the rental stipulations of the 2005 Lease Contract for being violative of the material conditions of the Deed of Donation and Amended Deed of Donation. The MeTC was not able to validly acquire jurisdiction over the instant unlawful detainer case in view of the insufficiency of respondent‘s demand.41cralaw virtualaw library Petitioner refused to comply with the demands of the respondent. The Ejectment Suit On 5 October 2009. i. on 30 September 2009. This case is currently pending before Branch 257 of the RTC. respondent sent a letter (First Demand Letter) to petitioner notifying the latter of its default ―per Section 12 of the [2005 Lease Contract]‖ and demanding for the settlement of the rent and ―donation‖ due for the year 2009.39 The respondent warned of taking ―legal steps‖ in the event that petitioner failed to comply with any of the said demands. petitioner also interposed the following defenses: 1. in view of their exorbitant exactions. The Second Demand Letter also contained a demand for petitioner to ―immediately vacate the leased premises‖ should it fail to pay such obligations within seven (7) days from its receipt of the letter. and even of the 2000 Lease Contract.37cralaw virtualaw library On 25 September 2009. therefore.22 (Emphasis supplied) The Assignment and Petitioner’s Refusal to Pay From 2005 to 2008. petitioner offered to pay only P80. 24 On 29 August 2008.47cralaw virtualaw library 2. the Deed of Donation and Amended Deed of Donation actually established not only one but two (2) lease agreements between FKI and respondent. The ejectment case was raffled to Branch 77 and was docketed as Civil Case No.35 in accordance with the rental provisions of the Deed of Donation and Amended Deed of Donation.26cralaw virtualaw library According to petitioner. respondent filed an unlawful detainer case43 against the petitioner before the Metropolitan Trial Court (MeTC) of Parañaque City. petitioner insists that the amount of rent it has to pay thereon is and must still be governed by the limitations prescribed in the Deed of Donation and Amended Deed of Donation. respondent sent another letter (Second Demand Letter)38 to petitioner. 21cralaw virtualaw library Notably.79. Petitioner points out that while a definite amount of rent for the second twenty-five (25) year lease was not fixed in the Deed of Donation and Amended Deed of Donation. Assuming further that the MeTC has jurisdiction that it can exercise. for they are. in themselves.33cralaw virtualaw library On 22 September 2009.40 Petitioner received the Second Demand Letter on 26 September 2009. FKI sold all its rights and properties relative to its business in favor of herein petitioner Koppel. This new lease ( 2005 Lease Contract)18 required FKI to pay a fixed annual rent of P4. Any disagreement as to the interpretation.000. petitioner sent a reply34 to respondent expressing its disagreement over the rental stipulations of the 2005 Lease Contract—calling them ―severely disproportionate.23 But in June of 2008. in violation of the aforementioned threshold in item 2(g) of the Deed of Donation and Amended Deed of Donation. further intimated of cancelling the 2005 Lease Contract should petitioner fail to settle the said obligations. to wit:chanrobles virtua1aw 1ibrary 19.000 for the fifth year. Assuming that the MeTC was able to acquire jurisdiction. Governing Law – The provisions of this [2005 Lease Contract] shall be governed.46 The First Demand Letter did not contain an actual demand to vacate the premises and. however. the rental stipulations of both the 2000 Lease Contract and 2005 Lease Contract cannot be enforced as they are clearly.394. Incorporated.

64 There was. 67 Hence. under the foregoing premises. pet itioner.52 Remarkably. 2009 to May 25. the MeTC. As the Court sees it.00). the dispute between the petitioner and respondent arose from the application or execution of the 2005 Lease Contract. in substance.00. the petitioner appealed to the Court of Appeals. it nonetheless sided with the petitioner with respect to the issues regarding the insufficiency of the responden t‘s demand and the nullity of the 2005 Lease Contract. without pronouncement as to costs. The petitioner cannot validly invoke the arbitration clause of the 2005 Lease Contractwhile.60cralaw virtualaw library 2. the provisions of Art. For this reason. Rulings of the MeTC. and ordering the latter – (1) (2) to vacate the lease[d] premises made subject of the case and to restore the possession thereof to the plaintiff-appellant. though not submitted in evidence. xxxx SO ORDERED. as these were built in good faith. the Court of Appeals affirmed 66 the decision of the RTC:chanrobles virtua1aw 1ibrary WHEREFORE.362. to pay to the plaintiff-appellant the amount of Nine Million Three Hundred Sixty Two Thousand Four Hundred Thirty Six Pesos (P9. The respondent insists upon the enforceability and validity of such stipulations.436. at the same time.‖ Moreover. interpreted and construed in all aspects in accordance with the laws of the Republic of the Philippines. It is from petitioner‘s apparent breach of the 2005 Lease Contract that respondent filed the instant unlawful detainer action. 1678 of the Civil Code shall apply. application or execution‖ of the 2005 Lease Contract ought to be submitted to arbitration. OUR RULING Independently of the merits of the case. over which. for the lease period from May 25. Branch 274. One cannot escape the conclusion that. SO ORDERED.65 Aggrieved. The assailed Decision of the Regional Trial Court of Parañaque City. the issue of sufficiency of the respondent‘s demand ought to have been laid to rest by the Second Demand Letterwhich. On 5 September 2011. On 29 October 2010. penalties and net of 5% withholding tax. together with their other documentary evidence. The application of the arbitration clause of the 2005 Lease Contract in this case carries with it certain legal effects. This appeal was assigned to Branch 274 of the RTC of Parañaque City and was docketed as Civil Case No. was nonetheless admitted by petitioner as containing a ―demand to eject‖ in its Answer with Compulsory Counterclaim.57 The ruling of the RTC is premised on the following ratiocinations: 1. The decision of the majority of the arbitrators shall be binding upon [FKI and respondent]. in this case. petitioner and respondent both submitted their position papers. the petition is DENIED. application or execution of this [2005 Lease Contract] shall be submitted to a board of three (3) arbitrators constituted in accordance with the arbitration law of the Philippines. Governing Law – The provisions of this [2005 Lease Contract] shall be governed. is hereby reversed. all the foregoing duly considered. that is a fatal mistake. however. such kinds of dispute are covered by the arbitration clause of the 2005 Lease Contract to wit:chanrobles virtua1aw 1ibrary 19. However. On 19 August 2011. before discussing what these legal effects 12 . 10-0255 is AFFIRMED. repudiates them. Undoubtedly. We grant the petition.63cralaw virtualaw library 3. it has exclusive original jurisdiction. it is discernable that the dispute between the petitioner and respondent emanates from the rental stipulations of the 2005 Lease Contract. in Civil Case No. (3) to pay attorney‘s fees in the sum of P100.000. The 2005 Lease Contract must be sustained as a valid contract since petitioner was not able to adduce any evidence to support its allegation that the same is void. RTC and Court of Appeals all erred in overlooking the significance of the arbitration clause incorporated in the 2005 Lease Contract. 53 As to the existing improvements belonging to the defendant-appellee.000. Parañaque City.70 To the mind of this Court.61 Even assuming that it can.58 The First Demand Letter. Present Dispute is Arbitrable Under the Arbitration Clause of the 2005 Lease Agreement Contract Going back to the records of this case. contains a demand for petitioner to vacate when it mentioned that it was a notice ― per Section 12 of the [2005 Lease 59 Contract]. The respondent had adequately complied with the requirement of demand as a jurisdictional precursor to an unlawful detainer action. judgment is thus rendered in favor of the plaintiff-appellant and against the defendant-appellee. RTC and Court of Appeals On 27 April 2010. the RTC reversed56 the MeTC and ordered the eviction of the petitioner from the subject land:chanrobles virtua1aw 1ibrary WHEREFORE. the MeTC would not be precluded from exercising its jurisdiction over an action for unlawful detainer. Any disagreement as to the interpretation. no evidence that respondent is guilty of any tax evasion. SO ORDERED. While the MeTC refused to dismiss the action on the ground that the dispute is subject to arbitration. Branch 77. the appealed Decision of the Metropolitan Trial Court. 2010 and such monthly rental as will accrue during the pendency of this case.62 At any rate. petitioner still did not file a formal application before the MeTC so as to render such arbitration clause operational. 10-0255. whereas.54 The MeTC thus disposed:chanrobles virtua1aw 1ibrary WHEREFORE. in substance.69 (Emphasis supplied) The arbitration clause of the 2005 Lease Contract stipulates that ―any disagreement‖ as to the ―interpretation. this appeal. (4) and costs of suit.55 The respondent appealed to the Regional Trial Court (RTC). this Court granted petitioner‘s prayer for the issuance of a Temporary Restraining Order68 staying the immediate implementation of the decisions adverse to it. impugn such contract‘s validity.In due course. such stipulation is clear and is comprehensive enough so as to include virtually any kind of conflict or dispute that may arise from the 2005 Lease Contract including the one that presently besets petitioner and respondent.00 plus appearance fee of P3. respondent failed to submit theSecond Demand Letter as part of its documentary evidence. judgment is hereby rendered dismissing the case x x x. the MeTC rendered judgment in favor of the petitioner.

Gonzales rejected the complaint for arbitration because the issue raised therein is not a mining dispute per R. Petitioner and respondent already underwent Judicial Dispute Resolution (JDR) proceedings before the RTC. 7942 and it is for this reason. No. Climax Mining. The petitioner cannot validly invoke the arbitration clause of the 2005 Lease Contractwhile. 93cralaw virtualaw library Once again instructive is Cargill. Gonzales decided the issue in the negative. of such contract‘s rental stipulations would have to be determined. Petitioner may still invoke the arbitration clause of the 2005 Lease Contractnotwithstanding the fact that it assails the validity of such contract.71 It was submitted that one of the reasons offered by the petitioner in justifying its failure to pay under the 2005 Lease Contract was the nullity of such contract for being contrary to law and public policy. At different points in the proceedings of this case. This is due to the doctrine of separability. Inc. or at least. 9285 is not the sole means by which an arbitration clause may be validly invoked in a pending suit.90 (Emphasis ours) Second. or upon the request of both parties thereafter. First. 7942 clearly limited the jurisdiction of the PA-MGB only to mining disputes. We find that the filing of a ―request‖ pursuant to Section 24 of R.75cralaw virtualaw library 3. 9285 reads:chanrobles virtua1aw 1ibrary SEC. a complaint for arbitration was filed before the Panel of Arbitrators of the Mines and Geosciences Bureau (PA-MGB) seeking the nullification of a Financial Technical Assistance Agreement and other mining related agreements entered into by private parties. In Gonzales. These questions are legal in nature and require the application and interpretation of laws and jurisprudence which is necessarily a judicial function.A. Such argument is misplaced and respondent cannot rely on the Gonzalescase to support its argument. It is not proper when one of the parties repudiates the existence or validity of such contract or agreement on the ground of fraud or oppression as in this case. this Court ruled in favor of arbitrability. RTC and the Court of Appeals.A court before which an action is brought in a matter which is the subject matter of an arbitration agreement shall. . that such issue is rendered non-arbitrable before the PA-MGB. 82 Grounds invoked for the nullification of such agreements include fraud and unconstitutionality. The quotation fromGonzales that was used to justify the contrary position was taken out of context. it is entitled to rescind the contract with damages. an ejectment case. already fulfills the prime purpose of arbitration. or the Mining Act of 1995. this Court pointed out to the provisions of R. the CA's decision declining referral of the parties' dispute to arbitration is still correct. No. As highlighted in the previous discussion.‖ ―mineral agreements or permits. the validity of contracts. v. 81 None of the arguments have any merit. 9285 requires the party seeking arbitration to first file a ―request‖ or an application therefor with the court not later than the preliminary conference. 84 Accordingly. is the recent case of Cargill Philippines. No.89 Thus. Section 24 of R.83 The pivotal issue that confronted the Court then was whether the PA-MGB has jurisdiction over that particular arbitration complaint. and that the complaint should have been filed with the regular courts as it involved issues which are judicial in nature. Allegations of fraud and duress in the execution of a contract are matters within the jurisdiction of the ordinary courts of law. R. claimholders or concessionaires‖ requiring the technical knowledge and experience of mining authorities in order to be resolved. No. an arbitration agreement is considered as independent of the main contract.‖ and ―surface owners. in view of its summary nature. which needs the interpretation and the application of that particular knowledge and expertise possessed by members of that Panel.e. disputes involving ―rights to mining areas. We held:chanrobles virtua1aw 1ibrary Respondent contends that assuming that the existence of the contract and the arbitration clause is conceded. 78 Hence. refer the parties to arbitration unless it finds that the arbitration agreement is null and void.73 held that ―the validity of contract cannot be subject of arbitration proceedings” as such questions are “legal in nature and require the application and interpretation of laws and jurisp rudence which is necessarily a judicial function. The validity of the contract cannot be subject of arbitration proceedings. is per se non-arbitrable. the validity of the 2005 Lease Contract.85 It is in this context that we made the pronouncement now in discussion:chanrobles virtua1aw 1ibrary Arbitration before the Panel of Arbitrators is proper only when there is a disagreement between the parties as to some provisions of the contract between them. i. a further referral of the dispute to arbitration would only be circuitous. We now address them. A rereading ofGonzales would fix its relevance to this case.. It claims that its complaint in the RTC presents the issue of whether under the facts alleged. and that issue constitutes a judicial question or one that requires the exercise of judicial function and cannot be the subject of an arbitration proceeding. as well as the MeTC. Even assuming that it can invoke the arbitration clause whilst denying the validity of the 2005 Lease Contract. San Fernando Regal Trading..A. As stated beforehand. despite the lucidity of the arbitration clause of the 2005 Lease Contract. to provide parties in conflict with an expedient method for the resolution of their dispute. italics original] 13 .A. No.91cralaw virtualaw library Under the doctrine of separability.. inoperative or incapable of being performed.A. Stated otherwise. the petitioner. which granted the PA-MGB with exclusive original jurisdiction only over mining disputes. After dissecting Gonzales. A plethora of arguments was hurled in favor of bypassing arbitration. this Court answered the question of whether issues involving the rescission of a contract are arbitrable.A. vouched for the non-application of the same in the instant case. even the very party who repudiates the main contract may invoke its arbitration clause.94cralaw virtualaw library Third. if at least one party so requests not later that the pre-trial conference. in Gonzales v. 80 Arbitration then would no longer be necessary in this case. and only for this reason. While it may be conceded that in the arbitration of such disagreement. The disagreement between the petitioner and respondent is non-arbitrable as it will inevitably touch upon the issue of the validity of the 2005 Lease Contract.A. The respondent in Cargill argued against arbitrability. Challenges Against the Application of the Arbitration Clause of the 2005 Lease Contract Curiously. the disagreement between the petitioner and respondent falls within the all-encompassing terms of the arbitration clause of the 2005 Lease Contract. No.e. the following arguments were offered against the application of the arbitration clause of the 2005 Lease Contract: 1.87cralaw virtualaw library Much more instructive for our purposes. wherein we held that a panel of arbitrator is bereft of jurisdiction over the complaint for declaration of nullity/or termination of the subject contracts on the grounds of fraud and oppression attendant to the execution of the addendum contract and the other contracts emanating from it. as a further consequence of the doctrine of separability. the same would not render such disagreement non -arbitrable.79 Moreover. 24. this Court held that such complaint could not be arbitrated before the PA-MGB.are. 7942. also citing therein Gonzales. The operation of the arbitration clause in this case is not at all defeated by the failure of the petitioner to file a formal ― request‖ or application therefor with the MeTC.88 In Cargill.86 (Emphasis supplied) The Court in Gonzales did not simply base its rejection of the complaint for arbitration on the ground that the issue raised therein. We shall first deal with the challenges posed against the application of such arbitration clause. In holding that the PA-MGB was devoid of any jurisdiction to take cognizance of the complaint for arbitration. 7942 upon the jurisdiction of the PA-MGB as an arbitral body. 92 Being a separate contract in itself. impugn such contract‘s validity. the arbitration agreement may thus be invoked regardless of the possible nullity or invalidity of the main contract. on the other hand. Ltd.‖74cralaw virtualaw library 2. i. No.72 The Supreme Court. Respondent cites our ruling in Gonzales. The real consideration behind the ruling was the limitation that was placed by R. Inc.. since the complaint for arbitration in Gonzales did not raisemining disputes as contemplated under R. occupants. i. wherein this Court held that.e.77cralaw virtualaw library 4. 76 Section 24 of Republic Act No. petitioner still did not file a formal application before the MeTC so as to render such arbitration clause operational. 7942 but only issues relating to the validity of certain mining related agreements. [Emphasis ours. the question was whether the complaint for arbitration raises arbitrable issues that the PA-MGB can take cognizance of. Referral to Arbitration. at the same time.A.

101the petitioner and the respondent should have been referred to arbitration pursuant to the arbitration clause of the 2005 Lease Contract. The violation by the MeTC of the clear directives under R. In arbitration. the court in which such suit or proceeding is pending. The fact that the petitioner and respondent already underwent through JDR proceedings before the RTC. in fact. inoperative or incapable of being performed. Rule 4. implemented by Rules 4.A.99cralaw virtualaw library Clearly. italics original] Attention must be paid. 07 -11-08-SC or the Special Rules of Court on Alternative Dispute Resolution (Special ADR Rules): RULE 4: REFERRAL TO ADR Rule 4. (B) Submission agreement. 9285.95cralaw virtualaw library In this case. this critical feature can never be satisfied in an ejectment case no matter how summary it may be. in a more informal and less antagonistic environment under the terms of their choosing. on the other hand.The ―request‖ referred to in the above provision is. will not make the subsequent conduct of arbitration between the parties unnecessary or circuitous. It reads: ― [a] party to a pending action filed in violation of the arbitration agreement x x x may request the court to refer the parties to arbitration in accordance with such agreement.The request for referral shall be made not later than the pretrial conference. the mere submission of a dispute to JDR proceedings would not necessarily render the subsequent conduct of arbitration a mere surplusage. the instant unlawful detainer action should have been stayed. . of its desire to have the same enforced in this case.A party to a pending action filed in violation of the arbitration agreement. the parties‘ mutual aspiration to achieve such resolution outside of judicial auspices. Legal Effect of the Application of the Arbitration Clause Since there really are no legal impediments to the application of the arbitration clause of the2005 Contract of Lease in this case. No. had already apprised the MeTC of the existence of the arbitration clause in the 2005 Lease Contract96 and. We find that the instant unlawful detainer action was instituted in violation of such clause. in turn. if not more so.2. .A court before which an action is brought in a matter which is the subject matter of an arbitration agreement shall. After the pre-trial conference. No.‖ In using the word ―may‖ to qualify the act of filing a ―request‖ under Section 24 of R. RTC and the Court of Appeals must all be vacated and set aside. upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration. The Law.1 to 4. if at least one party so requests not later that the pre-trial conference. The JDR system is substantially different from arbitration proceedings. Inevitably. the decisions of the MeTC. may request the court to refer the parties to arbitration in accordance with such agreement. Referral to Arbitration. The party making the request shall serve it upon the respondent to give him the opportunity to file a comment or opposition as provided in the immediately succeeding Rule before the hearing. may even be raised in an answer as provided in our ordinary rules of procedure. The MeTC. Who makes the request. Stay of civil action. The JDR framework is based on the processes of mediation. as such. This situation precisely finds application to the case at bench. or upon the request of both parties thereafter. No.3 of A.‖100 Arbitration agreements manifest not only the desire of the parties in conflict for an expeditious resolution of their dispute. Rule 4.1. We shall now proceed with the discussion of its legal effects. Notwithstanding the summary nature of ejectment cases. affirmed by the RTC and Court of Appeals on appeal. 876 and 9285 renders invalid all proceedings it undertook in the ejectment case after the filing by petitioner of its Answer with Counterclaim—the point when the petitioner and the respondent should have been referred to arbitration. .If there is no existing arbitration agreement at the time the case is filed but the parties subsequently enter into an arbitration agreement. the dispute is submitted to an arbitrator/s—a neutral third person or a group of thereof—who shall have the authority to render a resolution binding upon the parties. they may request the court to refer their dispute to arbitration at any time during the proceedings. That the applicant for the stay is not in default in proceeding with such arbitration. be supplemented by their resort to arbitration where a binding resolution to the dispute could finally be achieved. the movant shall attach to his motion an authentic copy of the arbitration agreement. Nos. however. Having hurdled all the challenges against the application of the arbitration clause of the 2005 Lease Agreement in this case. [Emphasis supplied] R. therefore. 9285 Section 24.1. Needless to state. When to make request.97 This act of petitioner is enough valid invocation of his right to arbitrate.‖ After all. which shall state that the dispute is covered by an arbitration agreement. therefore. . Neither would the summary nature of ejectment cases be a valid reason to disregard the enforcement of the arbitration clause of the 2005 Lease Contract. arbitration still remains relevant as it aims not only to afford the parties an expeditious method of resolving their dispute.A. However. to the salient wordings of Rule 4. first and foremost. the Special ADR Rules clearly did not intend to limit the invocation of an arbitration agreement in a pending suit solely via such ―request. more significantly.A. . Contents of request. the JDR judge lacks the authority to render a resolution of the dispute that is binding upon the parties in conflict. as early as in its Answer with Counterclaim.3. They also represent. The request shall contain a notice of hearing addressed to all parties specifying the date and time when it would be heard. however. No.If any suit or proceeding be brought upon an issue arising out of an agreement providing for the arbitration thereof. A pivotal feature of arbitration as an alternative mode of dispute resolution is that it is.(A) Where the arbitration agreement exists before the action is filed . 876 Section 7. 14 .The request for referral shall be in the form of a motion. This case must. in turn. [Emphasis supplied] It is clear that under the law. . it is conceded that petitioner was not able to file a separate ―request‖ of arbitration before the MeTC. Apart from other submissions. . [Emphasis ours. it is equally conceded that the petitioner. be remanded to the MeTC and be suspended at said point. should have governed the fate of the parties and this suit:chanrobles virtua1aw 1ibrary R. shall stay the action or proceeding until an arbitration has been had in accordance with the terms of the agreement : Provided. the court will only act upon the request for referral if it is made with the agreement of all parties to the case. did not do so in violation of the law—which violation was.‖98 Thus in JDR. The failure of the parties in conflict to reach an amicable settlement before the JDR may. a product of party autonomy or the freedom of the parties to ―make their own arrangements to resolve their own disputes. whether contained in an arbitration clause or in a submission agreement. refer the parties to arbitration unless it finds that the arbitration agreement is null and void. Fourth. conciliation or early neutral evaluationwhich entails the submission of a dispute before a ―JDR judge‖ who shall merely ―facilitate settlement‖ between the parties in conflict or make a ―non-binding evaluation or assessment of the chances of each party’s case.M. non-compliance with an arbitration agreement is a valid defense to any offending suit and.A.

SETTING ASIDE all the proceedings undertaken by the Metropolitan Trial Court. the petition is hereby GRANTED.A. Branch 77.R. 2009-307 after the filing by petitioner of its Answer with Counterclaim. and 4. Gone should be the days when courts treat otherwise valid arbitration agreements with disdain and hostility. Abad. x-----------------------------------------------------------------------------------------x 15 . 116865. Decision dated 19 August 2011 of the Court of Appeals in C. CV 09-0346 This Court notes that. Brion. J. SECOND DIVISION TUNA PROCESSING.* and Perlas-Bernabe. INC.106 Today.bona fide arbitration agreements are recognized as valid. a complaint107 for the rescission or cancellation of the Deed of Donation and Amended Deed of Donation against the respondent. of Parañaque City in relation to Civil Case No. Branch 274. REMANDING the instant case to the MeTC. CV 090346.‖105 and then get away with it.R. docketed as Civil Case No. JJ. Civil Case No. PEREZ. We can never know with true certainty and only speculate. possible.. This Court is not unaware of the apparent harshness of the Decision that it is about to make. if not outright ―jealousy. this Court only performs its part in upholding a once disregarded state policy. No. application to Civil Case No. 185582 Present: -versus- CARPIO. INC. 10-0255. on 30 September 2009. repeatedly included in the 2000 Lease Contract and in the 1976 Amended Deed of Donation. Nonetheless.-G.. No costs. This Court recognizes the great possibility that issues raised in Civil Case No. c. Respondent. The case is currently pending before Branch 257 of the RTC. Accordingly. Petitioner. of Parañaque City in Civil Case No. to afford them judicial restraint. Chairperson.The petitioner and the respondent must then be referred to arbitration pursuant to the arbitration clause of the 2005 Lease Contract. However. REFERRING the petitioner and the respondent to arbitration pursuant to the arbitration clause of the 2005 Lease Contract. G. SP No. application to Civil Case No. Promulgated: February 29. In this light. SERENO. SETTING ASIDE the following: a. in our jurisdiction. in the case of arbitration agreements. of Parañaque City in Civil Case No. 2012 PHILIPPINE KINGFORD.chanroblesvirtualawlibrary SO ORDERED. this Court must make the same if only to stress the point that. JJ. WHEREFORE. 2. premises considered. concur. Decision dated 27 April 2010 of the Metropolitan Trial Court. b. and REYES. let a copy of this Decision be also served to Branch 257 of the RTC of Parañaque for its consideration and. 2009-307.. since the records of Civil Case No. CV 09-0346. BRION. Del Castillo. Decision dated 29 October 2010 of the Regional Trial Court. Branch 77. CV 09-0346 are not before this Court. Let a copy of this Decision be served to Branch 257 of the RTC of Parañaque for its consideration and. CV 09-0346 may involve matters that are rightfully arbitrable per the arbitration clause of the 2005 Lease Contract. 3.103 rules and regulations104 do exist protecting and ensuring their enforcement as a matter of state policy. CV 090346. petitioner filed with the RTC of Parañaque City.102 and that laws. Courts should instead learn to treat alternative means of dispute resolution as effective partners in the administration of justice and. possible. SUSPENDED at the point after the filing by petitioner of its Answer with Counterclaim. We hereby render a Decision: 1..

[4] on the ground that petitioner lacked legal capacity to sue. [18] Judge Alameda inhibited himself notwithstanding ―[t]he unfounded allegations and unsubstantiated assertions in the motion. Bank account. and Indonesian Patent No. in order to implement the objectives of this Agreement.355. 16 . xxx xxx[15] To enforce the award. petitioner TPI filed on 10 October 2007 a Petition for Confirmation. The remaining shares of TPI shall be held by the Sponsors according to their respective equity shares. Patent No. RESPONDENT KINGFORD shall pay CLAIMANT the total sum of TWO HUNDRED TWENTY NINE THOUSAND THREE HUNDRED AND FIFTY FIVE DOLLARS AND NINETY CENTS ($229. The Licensor. respondent Kingford filed a Motion to Dismiss.[13] Pertinent portions of the award read: 13.[12] Petitioner submitted the dispute for arbitration before the International Centre for Dispute Resolution in the State of California. Angel Seafood Corporation. Inc. [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. TPI shall open and maintain bank accounts in the United States. Mommy Gina Tuna Resources. to which the case was re-raffled.484. Recognition.[5] The Antecedents On 14 January 2003. RESPONDENT KINGFORD shall pay CLAIMANT the total sum of ONE MILLION TWO HUNDRED FIFTY THOUSAND DOLLARS AND NO CENTS ($1. [17] respondent sought for the inhibition of Judge Alameda and moved for the reconsideration of the order denying the motion. including respondent Kingford. but which collects royalties from entities in the Philippines. and collecting royalties. (TPI).1 Within thirty (30) days from the date of transmittal of this Award to the Parties. a corporation duly organized and existing under the laws of the Philippines. Background and objectives. ID0003911 (collectively referred to as the ―Yamaoka Patent‖). enforce those patents and collect royalties in conjunction with Licensor. co -patentee of U. in this instant Petition for Review on Certiorari under Rule 45. pursuant to the terms of this award. Due to a series of events not mentioned in the petition.] (B) For breach of the MOA in failing to cooperate with CLAIMANT TPI in fulfilling the objectives of the MOA. East Asia Fish Co. J. and respondent Kingford (collectively referred to as the ―sponsors‖/―licensees‖)[7] entered into a Memorandum of Agreement (MOA). Philippine Patent No. the order of the trial court dismissing itsPetition for Confirmation. and Enforcement of Foreign Arbitral Award.][14] and (C) For violation of THE LANHAM ACT and infringement of the YAMAOKA 619 PATENT. 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.00). [20] Petitioner TPI now seeks to nullify.S. and Enforcement of Foreign Arbitral Award before the RTC of Makati City.[8] pertinent provisions of which read: 1. granting licenses under those patents. namely. Kanemitsu Yamaoka (hereinafter referred to as the ―licensor‖).90) which is 20% of MOAassessments since September 1. (Kingford). Recognition. At Branch 150. 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.. Philippine Letters Patent No.. the licensees.750.DECISION PEREZ.[1] petitioner Tuna Processing.S. granted respondent‘s Motion for Reconsideration and dismissed the petition on the ground that the petitioner lacked legal capacity to sue in the Philippines. TPI shall be owned by the Sponsors and Licensor. The parties hereto agree to the establishment of Tuna Processors. 6. Inc. Inc. 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.10). Alameda. 5. In the assailed Resolution. and Indonesian Patent No.000. The Sponsors wish to be licensed under the aforementioned patents in order to practice the processes claimed in those patents in the United States. [6] and five (5) Philippine tuna processors. Establishment of Tuna Processors. United States and won the case against respondent. in turn.‖[19] Judge Cedrick O.490.619. (―TPI‖). Inc. (A) For breach of the MOA by not paying past due assessments. sue here to enforce a foreign arbitral award? In this Petition for Review on Certiorari under Rule 45. the Philippines.619. 31138. 5.484. Inc. a foreign corporation not licensed to do business in the Philippines. and Indonesia. 2005[. withdrew from petitioner TPI and correspondingly reneged on their obligations. 5..Patent No. Ruiz of Branch 61. a corporation established in the State of California.250. [16] After the court denied the motion for lack of merit. RESPONDENT KINGFORD shall payCLAIMANT the total sum of TWO HUNDRED SEVENTY ONE THOUSAND FOUR HUNDRED NINETY DOLLARS AND TWENTY CENTS ($271. Santa Cruz Seafoods. Ownership of TPI. The petition was raffled to Branch 150 presided by Judge Elmo M. xxx 4.20)[. 31138. co-owner of U. Inc. is the sum of ONE MILLION SEVEN HUNDRED FIFTY THOUSAND EIGHT HUNDRED FORTY SIX DOLLARS AND TEN CENTS ($1. and Enforcement of Foreign Arbitral Award[3] against respondent Philippine Kingford. Recognition. Licensor shall be assigned one share of TPI for the purpose of being elected as member of the board of directors. ID0003911 xxx wishes to form an alliance with Sponsors for purposes of enforcing his three aforementioned patents. Our Ruling The petition is impressed with merit. the RTC dismissed petitioner‘s Petition for Confirmation.: Can a foreign corporation not licensed to do business in the Philippines.846. the total sum to be paid by RESPONDENT KINGFORD to CLAIMANT TPI.

Application of the New York Convention. how do we reconcile the provisions of the Corporation Code of the Philippines on one hand.‖ Now.[23] as none of these specifically requires that the party seeking for the enforcement should have legal capacity to sue.[25] this Court rejected the application of the Corporation Code and applied the New Central Bank Act. 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 def eated by misplaced technical considerations not found in the relevant laws. viz-a-viz other special laws. under the law of the country where the award was made.‖ 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.[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).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. Thus: Herein plaintiff TPI‘s ―Petition. New York Convention. On the other hand. . 9285 (Alternative Dispute Resolution Act of 2004). as its title . when it collected royalties from ―five (5) Philippine tuna processors[. including the dissolution and liquidation thereof. Doing business without a license. suit or proceeding in any court or administrative agency of the Philippines. It is pursuant to the aforequoted provision that the court a quo dismissed the petition.[30] Inasmuch as the Alternative Dispute Resolution Act of 2004. the Corporation Code is the general law providing for the formation. but sans a license to do so issued by the concerned government agency of the Republic of the Philippines.‖ A priori. Incorporated v. we do not see the need to discuss compliance with international obligations under the New York Convention and the Model Law.‖ This being the real situation. suit or proceedings in any court or administrative agency of the Philippines. orModel Law. It is for this reason that TPI has brought this matter before this most Honorable Court.No foreign corporation transacting business in the Philippines without a license. 1985 xxx. in the recent case of Hacienda Luisita. In an earlier case with similar antecedents. 42.An Act to Institutionalize the Use of an Alternative Dispute Resolution System in the Philippines and to Establish the Office for Alternative Dispute Resolution. only if that party furnishes to the competent authority where the recognition and enforcement is sought. 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.. . 45. Any other ground raised shall be disregarded by the regional trial court. under the law applicable to them. After all.] Angel Seafood Corporation. in the mind of this Court that TPI has been doing business in the Philippines. etc. to wit: Sec. Mommy Gina Tuna Resources. 133. and for Other Purposes . As between a general and special law. the Alternative Dispute Resolution Act of 2004 incorporated the New York Convention in the Act by specifically providing: SEC.. and respondent Philippine Kingford. Jr. the latter shall prevail —generalia specialibus non derogant. failing any indication thereon. a municipal law. however. 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. In particular. Sec.‖ (Emphasis supplied)[26] Further. TPI cannot be permitted to maintain or intervene in any action. or 17 . It anchors its argument on the following: In the present case. [27] this Court held: Without doubt. and the Alternative Dispute Resolution Act of 2004. [21] The petitioner counters. however. 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. that it is entitled to seek for the recognition and enforcement of the subject foreign arbitral award in accordance with Republic Act No. or the said agreement is not valid under the law to which the parties have subjected it or. As between a general and special law. is a law especially enacted ―to actively promote p arty autonomy in the resolution of disputes or the freedom of the party to make their own arrangements to resolve their disputes. or its successors or assigns. and the UNCITRAL Model Law on International Commercial Arbitration (Model Law). Thus. in Koruga v. while the New Central Bank Act regula tes specifically banks and other financial institutions. enforcement has been effectively refused on a ground not found in the [Alternative Dispute Resolution Act of 2004]. the ―Petition. Santa Cruz Seafoods. There is no doubt. Inc. the New York Convention and the Model Law on the other? In several cases. Inc. Presidential Agrarian Reform Council. Adoption of the Model Law on International Commercial Arbitration. East Asia Fish Co. TPI likewise admits that it does not have a license to do business in the Philippines. It also expressly adopted the Model Law. Rejection of a Foreign Arbitral Award. under some incapacity.[24] Simply put. It ratiocinated: Koruga‘s invocation of the provisions of the Corporation Code is misplaced.] namely[.would suggest. is a general law applying to all types of corporations. 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. xxx SEC. Arcenas. at the request of the party against whom it is invoked. both already form part of the law.. . 19. the latter shall prevail –generalia specialibus non derogant.The New York Convention shall govern the recognition and enforcement of arbitral awards covered by the said Convention. organization and regulation of private corporations. to wit: Article V 1. we ruled that: ―The Corporation Code. etc.[28] Following the same principle. applies in the instant petition.‖[29] It specifically provides exclusive grounds available to the party opposing an application for recognition and enforcement of the arbitral award. Inc. Recognition and enforcement of the award may be refused.‖ extant of the plaintiff TPI should be dismissed for it does not have the legal personality to sue in the Philippines. shall be permitted to maintain or intervene in any action.The Corporation Code of the Philippines expressly provides: Sec. the Alternative Dispute Resolution Act of 2004 shall apply in this case as the Act. a general law. RA 6657 is the special law on agrarian reform. proof that: (a) The parties to the agreement referred to in article II were. therefore. this Court had the occasion to discuss the nature and applicability of the Corporation Code of the Philippines.

‖ The contents of such petition are enumerated in Rule 13. Oppositely. or it contains decisions on matters beyond the scope of the submission to arbitration. this Court has the ultimate say so that we merely abbreviate the review process if we. that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced. and uphold the policy of the State embodied in the Alternative Dispute Resolution Act of 2004. was not in accordance with the law of the country where the arbitration took place. Romero in her Dissenting Opinion in Asset Privatization Trust v. only for the sake of argument. but if only to strengthen arbitration as a means of dispute resolution.[41] Third. we leave its determination to the court a quo where its recognition and enforcement is being sought. 2.[37] to wit: xxx Arbitration. 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. likewise support this position. . governs the subject arbitral award.[44] A strict application of this rule may be excused when the reason behind the rule is not present in a case. the novelty and the paramount importance of the issue herein raised should be seriously considered. or (e) The award has not yet become binding on the parties. In these types of questions. 9285 has certainly erased any conflict of law question.[40] Premises considered. [32] Capacity to sue is not included. 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.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.‖[36] Indeed. failing such agreement. Declaration of Policy. Finally. First.[45] Moreover. not the New York Convention. Second. Towards this end. Ang. or (d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties. warrants the outright dismissal of the case.5. even assuming. it must be stressed. or (c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration. it will destroy the very essence of mutuality inherent in consensual contracts.[42] we opt to relax the rules following the pronouncement in Chua v. it is in the best interest of justice that in the enforecement of a foreign arbitral award. in fact submits itself to arbitration. but because Republic Act No. [46] Surely. 2. Admittedly. or. as in the present case. by the arbitration and by the result of arbitration.[39] petitioner may still seek recognition and enforcement of the award in Philippine court. 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. While we agree that petitioner failed to observe the principle of hierarchy of courts. the order sought to be assailed originated from Regional Trial Court. or under the law of which. Branch 61.[43] to wit: [I]t must be remembered that [the principle of hierarchy of courts] generally applies to cases involving conflicting factual allegations.[47] We. 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 capac ity to sue. petitioner TPI.[31] which was promulgated by the Supreme Court. under ordinary circumstances.‖ [33] it is specifically required that a petition ―to determine any question concerning the existence. conceding thereby the capacity of the other party to enter into the contract. voluntarily and actively participated in the arbitration proceedings from the very beginning. although not licensed to do business in the Philippines. Clearly. Cases which depend on disputed facts for decision cannot be brought immediately before us as we are not triers of facts.(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. Pertinent provisions of the Special Rules of Court on Alternative Dispute Resolution. Court of Appeals. 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. Respondent cannot fault petitioner for not filing a motion for reconsideration of the assailed Resolution dated 21 November 2008dismissing the case. participate in the arbitration and cause the implementation of the result. find petitioner‘s reply in order. 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. choose to hear and decide the legal issues outright.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. may seek recognition and enforcement of the foreign arbitral award in accordance with the provisions of the Alternative Dispute Resolution Act of 2004. Fifth. not one of these exclusive grounds touched on the capacity to sue of the party seeking the recognition and enforcement of the award. also worthy to consider is the wisdom of then Associate Justice Flerida Ruth P. as in this case.[38] Clearly. or has been set aside or suspended by a competent authority of the country in which. in the Rule on local arbitral awards or arbitrations in instances where ―the place of arbitration is in the Philippines. is gaining adherents in legal and judicial circles here and abroad. xxx Fourth. there is a need to take cognizance of the case not only to guide the bench and the bar. however. where the issues are not factual but purely legal. II The remaining arguments of respondent Kingford are likewise unmeritorious. that the court a quo correctly observed that the Model Law. We have. 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. a foreign arbitral award should be respected not because it is favored over domestic laws and procedures. Respondent claims that petitioner failed to furnish the court of origin a copy of the motion for time to file petition for review on certioraribefore the petition was filed with this Court. As correctly pointed out by respondent Kingford. Thus: 26. time and again. provided that. because of the unique circumstances of a case. one who. As regards the issue on the validity and enforceability of the foreign arbitral award. which. if the decisions on matters submitted to arbitration can be separated from those not so submitted. as an alternative mode of settlement. If its tested mechanism can simply be ignored by an aggrieved party. or (b) The recognition or enforcement of the award would be contrary to the public policy of that country. Makati City. that award was made. it becomes bound by the contract. 18 . on the matter of capacity to sue. Rule 13. since the Model Law prescribes substantially identical exclusive grounds for refusing recognition or enforcement. When a party enters into a contract containing a foreign arbitration clause and. to wit: Sec. Although not on all fours with the instant case.

Branch 61. and Enforcement of Foreign Arbitral Award before a Philippine court. Branch 61. [48] All considered. Makati City. although a foreign corporation not licensed to do business in the Philippines. a copy of petitioner TPI‘s motion was received by the Metropolitan Trial Court. the motion was forwarded to the Regional Trial Court. WHEREFORE. On 8 January 2009. xxx Upon confirmation with the Regional Trial Court. the Resolution dated 21 November 2008 of the Regional Trial Court. petitioner TPI.27. SO ORDERED. for that reason alone. precluded from filing the Petition for Confirmation. Recognition. Branch 67. 19 . is not. Branch 61. Makati City in Special Proceedings No. M-6533 is hereby REVERSED and SET ASIDE. The case is REMANDED to Branch 61 for further proceedings. Makati City. Makati City.

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