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Republic of the Philippines SUPREME COURT Manila EN BANC DECISION October 22, 1924 G.R. No.

L-21549 TEODORO VEGA, plaintiff-appellee, vs. THE SAN CARLOS MILLING CO., LTD., defendant-appellant. Fisher, Dewitt, Perkins, & Brady, John R. McFie, Jr., Jesus Trinidad, and Powell & Hill for appellant. R. Nolan and Feria & La O for appellee. Romualdez, J.: This action is for the recovery of 32,959 kilos of centrifugal sugar, or its value, P6,252, plus the payment of P500 damages and the costs. The defendants filed an answer, and set up two special defenses, the first of which is at the same time a counterclaim. The Court of First Instance of Occidental Negros that tried the case, rendered judgment, the dispositive part of which is as follows: By virtue of these considerations, the court is of opinion that with respect to the complaint, the plaintiff must be held to have a better right to the possession of the 32,959 kilos of centrifugal sugar manufactured in the defendants central and the latter is sentenced to deliver them to the plaintiff, and in default, the selling price thereof, amounting to P5,981.06 deposited in the office of the clerk of the court. Plaintiffs claim for damages is denied, because it has not been shown that the defendant caused the plaintiff any damages. Plaintiff is absolved from defendants counterclaim and declared not bound to pay the such claimed therein. Plaintiff is also absolved from the counterclaim of P1,000, for damages, it not having been proved that any damages were caused and suffered by defendant, since the writ of attachment issued in this case was legal and proper. Without pronouncement as to costs. So ordered. The defendant company appealed from this judgment, and alleges that the lower court erred in having held itself with jurisdiction to take cognizance of and render judgment in the cause; in holding that the defendant was bound to supply cars gratuitously to the plaintiff for the cane; in not ordering the plaintiff to pay to the defendant the sum of P2,866 for the cars used by him, with illegal interest on said sum from the filing of the counterclaim, and the costs, and that said judgment is contrary to the weight of the evidence and the law. The first assignment of error is based on clause 23 of the Mills covenants and clause 14 of the Planters Covenant as they appear in Exhibit A, which is the same instrument as Exhibit 1. Said clauses are as follows: 23. That it (the Mill Party of the first part) will submit and all differences that may arise between the Mill and the Planters to the decision of arbitrators, two of whom shall be chosen by the Mill and two by the Planters, who in case of inability to agree shall select a fifth arbitrator, and to respect and abide by the decision of said arbitrators, or any three of them, as the case may be. xxxxxxxxx 14. That they (the PlantersParties of the second part) will submit any and all differences that may arise between the parties of the first part and the parties of the second part of the decision of arbitrators, two of whom shall be chosen by the said parties of the first part and two by the said party of the second part, who in case of inability to agree, shall select a fifth arbitrator, and will respect and abide by the decision of said arbitrators, or any three of them, as the case may be.

It is an admitted fact that the differences which arose between the parties, and which are the subject of the present litigation have not been submitted to the arbitration provided for in the above quoted clauses. Defendant contends that as such stipulations on arbitration are valid, they constitute a condition precedent, to which the plaintiff should have resorted before applying to the courts, as he prematurely did. The defendant is right in contending that such covenants on arbitration are valid, but they are not for the reason a bar to judicial action, in view of the way they are expressed: An agreement to submit to arbitration, not consummated by an award, is no bar to suit at law or in equity concerning the subject matter submitted. And the rule applies both in respect of agreements to submit existing differences and agreements to submit differences which may arise in the future. (5 C. J., 42.) And in view of the terms in which the said covenants on arbitration are expressed, it cannot be held that in agreeing on this point, the parties proposed to establish the arbitration as a condition precedent to judicial action, because these clauses quoted do not create such a condition either expressly or by necessary inference. Submission as Condition Precedent to Suit. Clauses in insurance and other contracts providing for arbitration in case of disagreement are very similar, and the question whether submission to arbitration is a condition precedent to a suit upon the contract depends upon the language employed in each particular stipulation. Where by the same agreement which creates the liability, the ascertainment of certain facts by arbitrators is expressly made a condition precedent to a right of action thereon, suit cannot be brought until the award is made. But the courts generally will not construe an arbitration clause as ousting them of their jurisdiction unless such construction is inevitable, and consequently when the arbitration clause is not made a condition precedent by express words or necessary implication, it will be construed as merely collateral to the liability clause, and so no bar to an action in the courts without an award. (2 R. C. L., 362, 363.) Neither does not reciprocal covenant No. 7 of said contract Exhibit A expressly or impliedly establish the arbitration as a condition precedent. Said reciprocal covenant No. 7 reads: 7. Subject to the provisions as to arbitration, hereinbefore appearing, it is mutually agreed that the courts of the City of Iloilo shall have jurisdiction of any and all judicial proceedings that may arise out of the contractual relations herein between the party of the first and the part is of the second part. The expression subject to the provisions as to arbitration, hereinbefore appearing does not declare such to be a condition precedent. This phrase does not read subject to the arbitration, but subject to the provisions as to arbitration hereinbefore appearing. And, which are these provisions as to arbitration hereinbefore appearing? Undoubtedly clauses 23 and 14 quoted above, which do not make arbitration a condition precedent. We find no merit in the first assignment of error. The second raises the most important question in this controversy, to wit: Whether or not the defendant was obliged to supply the plaintiff which cars gratuitously for cane. The Central, of course, bound itself according to the contract exhibit A in clause 3 of the Covenant by Mill, as follows: 3. That it will construct and thereafter maintain and operate during the term of this agreement a steam or motor railway, or both, for plantation use in transporting sugar cane, sugar and fertilizer, as near the center of the can ands as to contour of the lands will permit paying due attention to grades and curves; that it will also construct branch lines at such points as may be necessary where the present plantations are of such shape that the main line cannot run approximately through the center of said plantations, free of charge to the Planters, and will properly equip said railway with locomotives or motors and cars, and will further construct a branch line from the main railway line, mill and warehouses to the before mentioned wharf and will further construct yard accomodations near the sugar mill. All steam locomotives shall be provided which effective spark arresters. The railway shall be constructed upon suitable and properly located right-of-way, through all plantations so as to give, as far as practicable, to each plantations equal benefit thereof; said right-of-way to b two and one-half meters in width on either said from the center of track on both main line and switches and branches.

By this covenant, the defendant, the defendant bound itself to construct branch lines of the railway at such points on the estate as might be necessary, but said clause No. 3 can hardly be construed to bind the defendant to gratuitously supply the plaintiff with cars to transport cane from his fields to the branch lines agreed upon on its estate. But on March 18, 1916, the defendant company, through its manager Mr. F. J. Bell, addressed the following communication to the plaintiff: DEAR SIR: In reply to yours of March 15th. Yesterday I tried to come out to San Antonio to see you but the railway was full of cars of San Jose and I could not get by with my car. I will try again as soon as I finish shipping sugar. The steamer is expected today. I had a switch built in the big cut on San Antonio for loading your cane near the boundary of Santa Cruz. will not this sufficient? We have no another switch here and I hope you can get along with the 3 you now have. Some of the planters are now using short switches made of 16-lb. portable track. These can be placed on the main line at any place and cars run off into the field and loaded. I think one on your hacienda would repay you in one season. The rain record can wait. Sincerely yours, SAN CARLOS MILLING CO., LTD. (Sgd.) F.J. BELLManager It is suggested to the plaintiff in this letter that he install a 16-lb. rail portable track switch, to be used in connection with the main line, so the cars may run on it. It is not suggested that he purchase cars, and the letter implies that the cars mentioned therein belong to the defendant. As a result of this suggestion, the plaintiff bought a portable track which cost him about P10,000, and after the track was laid, the defendant began to use it without comment or objection from the latter, nor payment of any indemnity for over four years. With this letter Exhibit D, and its conduct in regard to the same, the defendant deliberately and intentionally induced the plaintiff to believe that by the latter purchasing the said portable track, the defendant would allow the free use of its cars upon said track, thus inducing the plaintiff to act in reliance on such belief, that is, to purchase such portable track, as in fact he did and laid it and used it without payment, the cars belonging to the defendant. This is an estoppel, and defendant cannot be permitted to gainsay its own acts and agreement. The defendant cannot now demand payment of the plaintiff for such use of the cars. And this is so, not because the fact of having supplied them was an act of pure liberality, to which having once started it, the defendant was forever bound, which would be unreasonable, but because the act of providing such cars was, under the circumstances of the case, of compliance of an obligation to which defendant is bound on account of having induced the plaintiff to believe, and to act and incur expenses on the strenght of this belief. The question of whether or not the plaintiff was under the necessity of first showing a cooperative spirit and conduct, does not affect the right which he thus acquired of using the cars in question gratuitously. We do not find sufficient reason to support the second assignment of error. The point raised in the third assignment of error is a consequence of the second. If the plaintiff was entitled, as we have said, to use the cars gratuitously, the defendant has no right to demand any payment from him for the use of said cars. The other assignments of error are consequences of the preceding ones. We find nothing in the record to serve as a legal and sufficient bar to plaintiffs action against the defendant for the delivery of the sugar in question, or its value. A discussion as to the retention of this deposit to apply upon what is due by reason thereof made in the judgment appealed from, is here necessary. The parties do not raise this question in the present instance. Furthermore, it has not been proven that the plaintiff owes the defendant anything by reason of such deposit.

The judgment appealed from is hereby affirmed with the costs of this instance against the appellant. So ordered.

THIRD DIVISION

[G.R. No. 139273. November 28, 2000]

CALIFORNIA AND HAWAIIAN SUGAR COMPANY; PACIFIC GULF MARINE, INC.; and C.F. SHARP & COMPANY, petitioners, vs. PIONEER INSURANCE AND SURETY CORPORATION, respondent. DECISION
PANGANIBAN, J.: Under the pre-1997 Rules of Court, a preliminary hearing on affirmative defenses may be allowed when a motion to dismiss has not been filed or when, having been filed, it has not been denied unconditionally. Hence, if its resolution has merely been deferred, the grounds it invokes may still be raised as affirmative defenses, and a preliminary hearing thereon allowed.
The Case

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the January 21, 1999 Decision of the Court of Appeals[1] (CA) in CA-GR SP No. 33723, as well as the July 6, 1999 CA Resolution[2] denying reconsideration. The challenged Decision, which sustained the Orders[3]of the Regional Trial Court of Makati City, disposed as follows:

WHEREFORE, [there being] no grave abuse of discretion on the part of public respondent, the instant petition is hereby DISMISSED. (emphasis in the original)
[4]

The Facts

The facts, as summarized by the CA, are as follows:

On November 27, 1990, the vessel MV SUGAR ISLANDER arrived at the port of Manila carrying a cargo of soybean meal in bulk consigned to several consignees, one of which was the Metro Manila Feed Millers Association (Metro for [b]revity). Discharging of cargo from vessel to barges commenced on November 30, 1990. From the barges, the cargo was allegedly offloaded, rebagged and reloaded on consignees delivery trucks. Respondent, however, claims that when the cargo [was] weighed on a licensed truck scale a shortage of 255.051 metric tons valued at P1,621,171.16 was discovered. The above-mentioned shipment was insured with private respondent against all risk in the amount of P19,976,404.00. Due to the alleged refusal of petitioners to settle their respective liabilities, respondent, as insurer, paid the consignee Metro Manila Feed Millers Association. On March 26, 1992, as alleged subrogee of Metro, private respondent filed a complaint for damages against herein petitioners. Within the reglementary period to file an Answer, petitioners filed a Motion to Dismiss the complaint on the ground that respondents claim is premature, the same being arbitrable. Private respondent filed its Opposition thereto and petitioners filed their Reply to Opposition. On November 11, 1992, [the RTC] issued an Order deferring the hearing on the Motion to Dismiss until the trial and directing petitioners to file their Answer. Petitioners then moved to reconsider said Order which was, however, denied by [the RTC] on the ground that the reason relied upon by herein petitioners in its Motion to Dismiss and Motion for Reconsideration [was] a matter of defense which they must prove with their evidence.

On August 20, 1993, petitioners filed their Answer with Counterclaim and Crossclaim alleging therein that plaintiff, herein respondent, did not comply with the arbitration clause of the charter party; hence, the complaint was allegedly prematurely filed. The trial court set the case for pre-trial on November 26, 1993. On November 15 and 16, 1993, petitioners filed a Motion to Defer Pre-Trial and Motion to Set for Preliminary Hearing the Affirmative Defense of Lack of Cause of Action for Failure to comply with Arbitration Clause, respectively. Private respondent did not file an Opposition to the said Motion to Set for Preliminary Hearing. On December 28, 1993, [the RTC] issued an Order denying the Motion to Set for Preliminary Hearing. On February 2, 1994 petitioners filed a Motion for Reconsideration of the Order dated December 28, 1993. On February 11, 1994, [the RTC] issued an Order denying petitioners Motion for Reconsideration. Hence, the instant petition.
[5]

Ruling of the Court of Appeals

Affirming the trial court, the CA held that petitioners cannot rely on Section 5, Rule 16 [6] of the pre1997 Rules of Court,[7] because a Motion to Dismiss had previously been filed. Further, it ruled that the arbitration clause provided in the charter party did not bind respondent. It reasoned as follows:

Petitioners argue that [the RTC] committed grave abuse of discretion amounting to lack or excess of jurisdiction in denying the preliminary hearing of the affirmative defense of lack of cause of action for failure to comply with the arbitration clause. Petitioners, in so filing the Motion to Set for Preliminary Hearing the Affirmative Defense of Lack of Cause of Action for Failure to Comply with Arbitration Clause, premised their alleged right to a preliminary hearing on the provision of Section 5, Rule 16 of the Old Rules of Court which provide[s]: Sec. 5. Pleading grounds as affirmative defenses. Any of the grounds for dismissal provided for in this rule, except improper venue, may be pleaded as an affirmative defense and a preliminary hearing may be had thereon as if a motion to dismiss had been filed. Petitioners reliance on said provision is misplaced. The above-mentioned provision contemplates a situation where no motion to dismiss is filed. If a motion to dismiss has been filed, as in the case at bar, Section 5, Rule 16 of the Old Rules of Court will not come into play. Furthermore, the same provision gives the judge discretion whether to set for preliminary hearing the grounds for affirmative defenses. Respondent judge deferred the hearing and determination of the Motion to Dismiss until the trial since the ground relied upon by petitioners therein did not appear to be indubitable. Petitioners then filed their Answer as ordered by the Court again raising as an affirmative defense lack of cause of action for failure to comply with [the] arbitration clause, praying for the dismissal of the complaint against them, and filing afterwards a Motion to Set for Preliminary Hearing the Affirmative Defense of lack of Cause of Action. In effect, petitioners are asking the trial court to set aside its Order denying the Motion to Dismiss and Order denying the Motion for Reconsideration thereof. Petitioners cannot do this. The remedy of the aggrieved party in a denied motion to dismiss is to file an answer and interpose as defense or defenses, the objection or objections raised by him in said motion to dismiss, then proceed to trial and, in case of adverse decision, to elevate the entire case by appeal in due course. Petitioners could also resort to the extraordinary legal remedies of certiorari, prohibition and mandamus to question the denial of the motion to dismiss. As correctly ruled by the trial court in its Order dated June 30, 1993, denying the

Motion for Reconsideration of the Order dated November 11, 1992 (denying the Motion to Dismiss) the ground relied upon by petitioners is a matter of defense which petitioners must prove with their evidence at the trial. Petitioners in asking the lower court to set the case for preliminary hearing further argue that this would give the court and the parties a shorter time to resolve the matter and the case without a full blown trial. However, petitioners fail to realize that they themselves are delaying the determination and resolution of the issues involved by resorting to an improper remedy. On the issue raised by petitioners that private respondents claim is premature for failure to comply with [the] arbitration clause, we hold that the right of the respondent as subrogee, in filing the complaint against herein petitions is not dependent upon the charter party relied upon by petitioners; nor does it grow out of any privity contract or upon written assignment of claim. It accrues simply upon payment of the insurance claim by respondent as insurer to the insured. This was the pronouncement by the Supreme Court in the case of Pan Malayan Insurance Corp. vs. Court of Appeals 184 SCRA 54, to wit: Payment by the insurer to the insured operates as an equitable assignment to the former of all the remedies which the latter may have against the third party whose negligence or wrongful (sic) caused the loss. The right of subrogation is not dependent upon, nor does it grow out of, any privity contract or upon written assignment of claim. It accrues simply upon payment of the insurance claim by the insurer.
[8]

Hence, this recourse.[9]


The Issues

In their Memorandum, petitioners submit the following issues for our consideration:[10]

1. Whether or not insurer, as subrogee of the consignee, is bound by the charter party which is incorporated and referred to in the bill of lading. 2. Whether or not the motion to dismiss should be granted on the ground that a condition precedent has not been complied with, based on the arbitration clause incorporated in the bill of lading. 3. Whether or not the Court of Appeals erred in holding that the trial court did not commit grave abuse of discretion in denying petitioners motion for preliminary hearing. 4. Whether or not the trial court can defer the resolution of a motion to dismiss on the ground that the ground relied upon is indubitable. 5. Whether or not the petitioners have resorted to an improper remedy which makes them responsible for delaying the case.
In the main, the two principal matters before us are: (1) the denial of petitioners Motion for Preliminary Hearing and (2) the propriety of the CA ruling regarding the arbitration clause.
The Courts Ruling

The Petition is meritorious.


First Issue: Preliminary Hearing of Affirmative Defense

At the outset, we must emphasize that the crux of the present controversy is the trial courts Order denying petitioners Motion to Set for Preliminary Hearing the affirmative defense of lack of cause of action. Not questioned here is the said courts Order holding in abeyance the hearing of petitioners Motion to Dismiss.
Affirmative Defense May Be Raised

Still in effect when the case was before the trial court, Section 5, Rule 16 of the pre-1997 Rules of Court, reads:

Sec. 5. Pleading grounds as affirmative defenses. - Any of the grounds for dismissal provided for in this Rule, except improper venue, may be pleaded as an affirmative defense, and a preliminary hearing may be had thereon as if a motion to dismiss had been filed.
Respondent argues that the above provision cannot be applied, because petitioners have already filed a Motion to Dismiss. We disagree. Respondent relies on the amendments introduced in the 1997 Rules on Civil Procedure ("1997 Rules), but ignores equally relevant provisions thereof, as well as the clear intendment of the pre-1997 Rules. True, Section 6, Rule 16 of the 1997 Rules,[11]specifically provides that a preliminary hearing on the affirmative defenses may be allowed only when no motion to dismiss has been filed. Section 6, however, must be viewed in the light of Section 3 of the same Rule, [12] which requires courts to resolve a motion to dismiss and prohibits them from deferring its resolution on the ground of indubitability. Clearly then, Section 6 disallows a preliminary hearing of affirmative defenses once a motion to dismiss has been filed because such defense should have already been resolved. In the present case, however, the trial court did not categorically resolve petitioners Motion to Dismiss, but merely deferred resolution thereof.[13] Indeed, the present Rules are consistent with Section 5, Rule 16 of the pre-1997 Rules of Court, because both presuppose that no motion to dismiss had been filed; or in the case of the pre-1997 Rules, if one has been filed, it has not been unconditionally denied.[14]Hence, the ground invoked may still be pleaded as an affirmative defense even if the defendants Motion to Dismiss has been filed but not definitely resolved, or if it has been deferred as it could be under the pre-1997 Rules.[15]
Denial of the Motion for a Preliminary Hearing Was a Grave Abuse of Discretion

The more crucial question that we must settle here is whether the trial court committed grave abuse of discretion when it denied petitioners Motion for a Preliminary Hearing on their affirmative defense of lack of cause of action. Undeniably, a preliminary hearing is not mandatory, but subject to the discretion of the trial court.[16] In the light of the circumstances in this case, though, we find that the lower court committed grave abuse of discretion in refusing to grant the Motion. We note that the trial court deferred the resolution of petitioners Motion to Dismiss because of a single issue. It was apparently unsure whether the charter party that the bill of lading referred to was indeed the Baltimore Berth Grain Charter Party submitted by petitioners. Considering that there was only one question, which may even be deemed to be the very touchstone of the whole case, the trial court had no cogent reason to deny the Motion for Preliminary Hearing. Indeed, it committed grave abuse of discretion when it denied a preliminary hearing on a simple issue of fact that could have possibly settled the entire case. Verily, where a preliminary hearing appears to suffice, there is no reason to go on to trial. One reason why dockets of trial courts are clogged is the unreasonable refusal to use a process or procedure, like a motion to dismiss, which is designed to abbreviate the resolution of a case.
Second Issue: The Arbitration Clause

The CA also erred when it held that the arbitration clause was not binding on respondent. We reiterate that the crux of this case is whether the trial court committed grave abuse of discretion in

denying the aforecited Motion. There was neither need nor reason to rule on the applicability of the arbitration clause. Be that as it may, we find the CAs reasoning on this point faulty. Citing Pan Malayan Insurance Corporation v. CA,[17] it ruled that the right of respondent insurance company as subrogee was not based on the charter party or any other contract; rather, it accrued upon the payment of the insurance claim by private respondent to the insured consignee. There was nothing in Pan Malayan, however, that prohibited the applicability of the arbitration clause to the subrogee. That case merely discussed, inter alia, the accrual of the right of subrogation and the legal basis therefor.[18] This issue is completely different from that of the consequences of such subrogation; that is, the rights that the insurer acquires from the insured upon payment of the indemnity. WHEREFORE, the Petition is GRANTED and the appealed Decision is hereby REVERSED. The case is REMANDED to the trial court for preliminary hearing on petitioners affirmative defense. No costs. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION

G.R. No. 107918 June 14, 1994 ASSOCIATED BANK, petitioner, vs. HON. COURT OF APPEALS, HON. MARINA L. BUZON, as Presiding Judge of RTC, Quezon City, MM, Br. 91, VISITACION SERRA FLORES RTC, Quezon City, MM, Br. 91, MA. ASUNCION FLORES, PHILIPPINE COMMERCIAL INTERNATIONAL BANK, FAR EAST BANK & TRUST CO., SECURITY BANK & TRUST CO. and CITYTRUST BANKING CORPORATION, respondents. Soluta, Leonidas, Marifosque, Balce, Santiago & Aguila Law Office for petitioner. Rector Law Office for respondent Flores. Balgos and Perez Law Office for respondent PCIB. Dumaraos, Oracion, Panganiban & Associates for respondent FEBTC. Cauton, Banares, Carpio, Ishiwata and Associates for respondent SBTC. Gonzaga, Soneja and Gale Law Offices for respondent Citytrust.

KAPUNAN, J.: This is a petition for review on certiorari seeking the reversal of the decision of the Court of Appeals on November 18, 1992 affirming in toto the Order of the Regional Trial Court of Quezon City, Branch 91 dismissing the petitioners third-party complaint against private respondent banks for lack of jurisdiction. The facts of the case, as found by both the trial court and the Court of Appeals are undisputed:
In a complaint for Violation of the Negotiable Instrument Law and Damages, plaintiffs seek the recovery 2 of the amount of P900,913.60 which defendant bank charged against their current account by virtue of the sixteen (16) checks drawn by them despite the apparent alterations therein with respect to the name of the payee, that is, the name Filipinas Shell was erased and substituted with Ever Trading and DBL Trading by their supervisor Jeremias Cabrera, without their knowledge and consent.
1

Answering the complaint, defendant bank claimed that the subject checks appeared to have been regularly issued and free from any irregularity which would excite or arouse any suspicion or warrant their dishonor when the same were negotiated and honored by it; that it observed and exercised the required diligence, care and the prescribed standard verification procedures before finally accepting and honoring the subject checks and that the proximate cause of plaintiffs loss, if any, was their own laxity, negligence and lack of control, due care and diligence in the conduct of their business affairs. With leave of court, defendant bank filed a Third-Party Complaint against Philippine Commercial International Bank, Far East Bank & Trust Company,

Security Bank and Trust Company and Citytrust Banking Corporation for reimbursement, contribution, indemnity from said third-party defendants for being the collecting banks of the subject checks and by virtue of their bank guarantee for all checks sent for clearing to the Philippine Clearing House Corporation (PCHC), as provided for in Section 17, (PCHC), as provided for in Section 17, PCHC Clearing House Rules and Regulations. In its Answer to the Third-Party Complaint, Citytrust Banking Corporation averred that the subject checks appeared to be complete and regular on their face with no indication that an original payees name was erased and superimposed with another; that plaintiffs fault and negligence in failing to examine their monthly bank statements, together with the returned checks and their own check stubs, put them under estoppel and cannot recover the proceeds of the checks against it, an innocent third-party, and plaintiff must suffer the loss as their negligence was the proximate cause thereof; and that third party plaintiff is barred from recovering from it base on the provisions of Sections 20 and 21 of the Philippine Clearing Rules and Regulations. Philippine Commercial International Bank alleged that the subject check was complete and regular on its face and was paid by it only upon presentment to the drawee bank for clearing who, upon examination thereof, found the same to be complete and regular on its face; that it was only after said check was cleared by third-party plaintiff for payment that it allowed the payee to withdraw the proceeds of the check from its account; that the cause of action of the third-party plaintiff is barred by estoppel and/or laches for its failure to return the check to it within the period provided for under Clearing House Rules and Regulations; that this Court has no jurisdiction over the suit as it and third-party plaintiff are members of the Philippine Clearing House and bound by the Rules and Regulations thereof providing for arbitration. A Motion To Dismiss was filed by Security Bank and Trust Company on the grounds that third-party plaintiff failed to resort to arbitration as provided for in Section 36 of the Clearing House Rules and Regulations of the Philippine Clearing House Corporation, and that it was released from any liability with the acceptance by third-party plaintiff of the subject check. The record does not show of any Answer to the Third-Party Complaint having been filed by Far East Bank & Trust Company, although a "Reply To FEBTC Answer" was filed by third-party plaintiff.
On the other hand, third-party plaintiff maintains that this Court has jurisdiction over the suit as the provisions of the Clearing House Rules and Regulations are applicable only if the suit or action is between participating member banks, whereas the plaintiffs are private persons and the third-party complaint between participating member banks is only a consequence of the original action initiated by 3 the plaintiffs.

The trial court dismissed the third-party complaint for lack of jurisdiction citing Section 36 of the Clearing House Rules and Regulations of the PCHC providing for settlement of disputes and controversies involving any check or item cleared through the body with the PCHC. It ruled citing the Arbitration Rules of Procedure that the decision or award of the PCHC through its arbitration committee/arbitrator is appealable only on questions of law to any of the Regional Trial Courts in the National Capital Region where the head office of any of the parties is located. 4 On the plaintiffs contention that jurisdiction vests with the court only if the suit or action is between participating member banks without the involvement of private parties the trial court held:

The third-party complaint concerning a dispute or controversy among clearing participants involving the subject checks cleared through PCHC is actually independent of, separate and distinct from the plaintiffs complaint. . . . xxx xxx xxx
As the plaintiffs are not parties to the third party complaint, the provisions of the clearing house rules and regulations on arbitration are, therefore, applicable to Third-Party plaintiff and third party defendant. 5 Consequently this court has no jurisdiction over the third party complaint.

After the trial court denied plaintiffs Motion for Reconsideration, 6 petitioner appealed to the Court of Appeals which promulgated the challenged decision on November 18, 1992 dismissing the petition for lack of merit. Undaunted, petitioner is now before this Court seeking a review of respondent courts decision on a lone assignment of error: RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER DRAWEE BANKS THIRD PARTY COMPLAINT AGAINST PRIVATE RESPONDENT COLLECTING BANKS FALL WITHIN THE JURISDICTION OF THE PCHC AND NOT THE REGULAR COURT. We find no merit in the petition. The Clearing House Rules and Regulations on Arbitration of the Philippine Clearing House Corporation are clearly applicable to petitioner and private respondents, third party plaintiff and defendants, respectively, in the court below. Petitioner Associated Banks third party complaint in the trial court was one for reimbursement, contribution and indemnity against the Philippine Commercial and Industrial Bank (PCIB), the Far East Bank and Trust, Co. (FEBTC), Security Bank and Trust Co. (SBTC), and the CityTrust Banking Corporation (CTBC), in connection with petitioners having honored sixteen checks which said respondent banks supposedly endorsed to the former for collection in 1989. Under the rules and regulations of the Philippine Clearing House Corporation (PCHC), the mere act of participation of the parties concerned in its operations in effect amounts to a manifestation of agreement by the parties to abide by its rules and regulations. 7 As a consequence of such participation, a party cannot invoke the jurisdiction of the courts over disputes and controversies which fall under the PCHC Rules and Regulations without first going through the arbitration processes laid out by the body. Since claims relating to the regularity of checks cleared by banking institutions are among those claims which should first be submitted for resolution by the PCHCs Arbitration Committee, petitioner Associated Bank, having voluntarily bound itself to abide by such rules and regulations, is estopped from seeking relief from the Regional Trial Court on the coattails of a private claim and in the guise of a third party complaint without first having obtained a decision adverse to its claim from the said body. It cannot bypass the arbitration process on the basis of its averment that its third party complaint is inextricably linked to the original complaint in the Regional Trial Court. Under its Articles of Incorporation, the PCHC provides "an effective, convenient, efficient, economical and relevant exchange and facilitate service limited to check processing and sorting by way of assisting member banks, entities in clearing checks and other clearing items as defined and existing in future Central Bank of the Philippines Circulars, memoranda, circular letters rules and regulations and policies in pursuance of Section 107 of RA 265." Pursuant to its function involving the clearing of checks and other clearing items, the PCHC has adopted rules and regulations designed to provide member banks with a procedure whereby disputes involving the clearance of checks and other negotiable instruments undergo a process of arbitration prior to submission to the courts below. This procedure not only ensures a uniformity of rulings relating to factual disputes involving checks and other negotiable instruments but also provides a mechanism for settling minor disputes among participating and member banks which would otherwise go directly to the trial courts. While

the PCHC Rules and Regulations allow appeal to the Regional Trial Courts only on questions of law, this does not preclude our lower courts from dealing with questions of fact already decided by the PCHC arbitration when warranted and appropriate. In Banco de Oro Savings and Mortgage Banks vs. Equitable Banking Corporation 8 this Court had the occasion to rule on the validity of these rules as well as the jurisdiction of the PCHC as a forum for resolving disputes and controversies involving checks and other clearing items when it held that "the participation of two banks. . . in the Clearing Operations of the PCHC (was) a manifestation of its submission to its jurisdiction." 9 The applicable PCHC provisions on the question of jurisdiction provide: Sec. 3 AGREEMENT TO THESE RULES It is the general agreement and understanding, that any participant in the PCHC MICR clearing operations, by the mere act of participation, thereby manifests its agreement to these Rules and Regulations, and its subsequent amendments. xxx xxx xxx Sec. 36 ARBITRATION 36.1 Any dispute or controversy between two or more clearing participants involving any check/item cleared thru PCHC shall be submitted to the Arbitration Committee, upon written complaint of any involved participant by filing the same with the PCHC serving the same upon the other party or parties, who shall within fifteen (15) days after receipt thereof, file with the Arbitration Committee its written answer to such written complaint and also within the same period serve the same upon the complaining participant. This period of fifteen (15) days may be extended by the Committee not more than once for another period of fifteen (15) days, but upon agreement in writing of the complaining party, said extension may be for such period as the latter may agree to. Section 36.6 is even more emphatic: 36.6 The fact that a bank participates in the clearing operations of PCHC shall be deemed its written and subscribed consent to the binding effect of this arbitration agreement as if it had done so in accordance with Section 4 of the Republic Act No. 876 otherwise known as the Arbitration Law. Thus, not only do the parties manifest by mere participation their consent to these rules, but such participation is deemed (their) written and subscribed consent to the binding effect of arbitration agreements under the PCHC rules. Moreover, a participant subject to the Clearing House Rules and Regulations of the PCHC may go on appeal to any of the Regional Trial Courts in the National Capital Region where the head office of any of the parties is located only after a decision or award has been rendered by the arbitration committee or arbitrator on questions of law. 10 Clearly therefore, petitioner Associated Bank, by its voluntary participation and its consent to the arbitration rules cannot go directly to the Regional Trial Court when it finds it convenient to do so. The jurisdiction of the PCHC under the rules and regulations is clear, undeniable and is particularly applicable to all the parties in the third party complaint under their obligation to first seek redress of their disputes and grievances with the PCHC before going to the trial court. Finally, the contention that the third party complaint should not have been dismissed for being a necessary and inseparable offshoot of the main case over which the court a quo had already exercised jurisdiction misses the fundamental point about such pleading. A third party

complaint is a mere procedural device which under the Rules of Court is allowed only with the courts permission. It is an action "actually independent of, separate and distinct from the plaintiffs complaint" (s)uch that, were it not for the Rules of Court, it would be necessary to file the action separately from the original complaint by the defendant against the third party. 11 IN VIEW OF THE FOREGOING, the petition is DENIED for lack of merit. With costs against petitioner. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 99042 September 26, 1994 BLOOMFIELD ACADEMY AND RODOLFO J. LAGERA, petitioners, vs. THE HONORABLE COURT OF APPEALS, BLOOMFIELD ACADEMY PARENTS ADVISORY ASSOCIATION, INC. (BAPAA), represented by its Vice-President, Menardo Bordeos; and The Hon. SALVADOR P. DE GUZMAN, JR., Presiding Judge of the Regional Trial Court, National Capital Judicial Region, Branch 142, Makati, Metro Manila, respondents. Villaranza & Cruz for petitioners. San Buenaventura, Reyes, Moraleda (SAREM) Law Offices for private respondent.

VITUG, J.: This petition for review on certiorari seeks to reverse the decision of the Court of Appeals dismissing, in CA-G.R. SP. No. 20846, the special civil action for certiorari that has assailed a writ of preliminary injunction issued by the court a quo. We adopt, for purposes of this review, the case and factual settings recited by the appellate court in its decision. We quote: The petition originated in a complaint for injunction filed on April 6, 1990 by private respondent, the association of parents and guardians of students enrolled in petitioner. One of the defendants in the said case is petitioner which is a non-stock, non-profit educational institution. What is being disputed before respondent court is the increase in tuition fee. More particularly, the complaint alleged, among other things, that: xxx xxx xxx 4. On the pretext that the operation, much more the survival of defendant educational institution is in danger due to the mandatory increase of the minimum wage under R.A. 6727, which the former is to comply, the defendant Corporation decided to increase its aforesaid tuition fees under the following rates: FROM TO INCREASE IN P% Grade I P6,135 P7,485 P1,350 22.00 Grade II 6,135 7,485 1,350 22.00 Grade III 6,235 7,675 1,350 21.34 Grade IV 6,235 7,675 1,350 21.34 Grade V 6,380 7,730 1,350 21.16

Grade VI 6,380 7,770 1,350 21.79 HS 1st year 6,700 8,050 1,350 20.15 HS 2nd year 6,700 8,050 1,350 20.15 Average 6,385 7,740 1,355 21.22 ====== ====== ====== ====== 5. The amount of the increase constitutes a whopping 21.22% average increase of the 89-90 tuition fees and that the said increase was made without prior consultation to the parents which is a requirement before any such increase should be made effective; 6. The aforesaid increases was not approved and vigorously objected to by the plaintiff as contained in its letters to defendant Rodolfo J. Lagera . . . Honorable Isidro Cario in his capacity as the Secretary of Education, Culture and Sports . . . These two letters brought to the attention of the defendants that the tuition fees presently being charged by defendants Bloomfield Academy are already among the highest in the community, even if compared to Dela Salle Ayala and Elizabeth Seton which have much better school and library facilities than the defendant, and that the proposed increase is not only untimely but grossly inappropriate, and, worse, without any valid basis already, after both parties agreed on 50% of the increase which was implemented and paid by the students during the school year with the clear understanding that the other 50% is waived by the defendant; 7. In spite of the clear sharing by the plaintiff through the aforesaid letters of the gross inappropriateness of the aforesaid proposal increase in tuition fees, defendants Honorable Isidro Cario, blindly approved such proposal in its letter addressed to defendant Rodolfo S. Lagera dated March 27, 1990 . . .; 8. Subsequently plaintiff received from the defendant Bloomfield Academy through defendant Rodolfo S. Lagera a letter . . . demanding full payment of the approved tuition fee increase on or before April 6, 1990 in blatant isolation of the agreement with the plaintiff that only 50% of the increase will be collected. As a matter of fact, the plaintiff has already paid the said 50% of the increase; 9. The implementation of the aforesaid approval to increase tuition fees, if not retained by this Honorable Court, would work injustice to the herein plaintiff . . . while incorporators keep huge profits, by siphoning them to another corporation, Rudlin International, Inc. while they also owned and is now asking for increase in the rentals of the buildings retroactively for three (3) years. On the date the complaint was filed, respondent court issued an order enjoining petitioners and Secretary Cario and/or their agents, representatives or persons acting in their behalf from implementing their aforesaid increase in tuition fees, and not withholding their release of the report cards and/or other papers necessary for the students desiring to transfer to other schools until further

orders from respondent court. The application for injunction was set for hearing on April 19, 1990 at 2:00 p.m. Answer to the complaint was filed by petitioners on April 19, 1990. On the same date, respondent court conducted the first hearing on the application for a writ of preliminary injunction which hearing was followed by settings on April 25, 26 and 27, 1990.
After petitioners submitted their complete set of exhibits and memorandum in opposition to the application 1 for a writ of preliminary injunction, respondent court issued the disputed order . . .

The order of the court a quo, dated 30 April 1990, referred to by the appellate court read:
WHEREFORE, let a writ of preliminary injunction be issued ordering the defendants, their agents, their representatives, and all persons acting under them from collecting the second P675.00 from the enrollees, limiting themselves only to the first P675.00 and/or from withholding or refusing the release of the report cards and other papers necessary for students transferring to other school, until further order from this court, upon the posting by the plaintiff of a bond in the sum of P200,000.00 conditioned to the payment in favor of the defendants of whatever damages they may suffer by virtue of this injunction 2 should it appear that the plaintiff is not entitled thereto.

In holding to be without merit the petition for certiorari attributing to the court a quo grave abuse of discretion in the issuance of the aforequoted order, the appellate court ratiocinated thusly: It is a well established rule that the grant or denial of an injunction rests upon the sound discretion of the court, in the exercise of which appellate courts will not interfere except on a case of a clear abuse (Belisle Investment and Finance Co., Inc. W. State Investment House; Rodolfo vs. Alfonso, 76 Phil. 225). And to justify the issuance of a writ of certiorari it must be shown that the abuse of discretion was grave and patent and that the discretion was exercised arbitrarily or despotically (Soriano, et al., vs. Atienza, et al., 171 SCRA 284). xxx xxx xxx Rightly or wrongly, respondent judge's conclusion, which served as basis in issuing the questioned writ, was reached only after considering the facts bared in the course of the hearing. In other words, respondent judge was merely exercising his judgment. Errors of judgment are not within the province of a special civil action for certiorari (Purefoods Corporation vs. NLRC, 174 SCRA 415). One thing we noticed about this petition is that the issues raised are factual involving as they do errors of judgment on the part of respondent judge. Invariably, we encounter the following arguments: . . . public respondent Judge de Guzman appears to have been mislead by the private respondent BAPAA's claim that petitioner Bloomfield Academy did not conduct the requisite consultation before implementing the tuition fee increase. . . . public respondent Judge de Guzman appears to have been mislead by the private respondent's untruthful claim. It must emphatically be reiterated, since so often it is overlooked, the special civil action for certiorariis a remedy designed for the correction of errors of jurisdiction and not errors of judgment. Consequently, an error of jurisdiction is not controvertible through the original civil action of certiorari(Purefoods Corporation vs. NLRC, 171 SCRA 418).

Anent the allegation that respondent judge disregarded the fact that the private respondent failed to exhaust available administrative remedies in assailing the decision of the Department of Education Culture and Sports approving the tuition fee increase suffice it to state that the principle requiring the previous exhaustion of administrative remedies is not applicable when the respondent is a department secretary whose act as an alter-ego of the President bears the implied or assumed approval of the latter 3 (Animos vs. Phil. Veterans Affairs Office, 174 SCRA 214.).

In the herein petition for review on certiorari before this Court, petitioners formulate the sole issue of whether or not the court a quo has acted within its jurisdiction in issuing the questioned order and, in the affirmative, whether or not it has committed grave abuse of discretion specifically in granting private respondent's application for a writ of preliminary injunction. We see merit in the petition. The pertinent provisions of Republic Act No. 6728, also commonly known as "An Act Providing Government Assistance to Students and Teachers in Private Education, And Appropriating Funds Therefor," provide: Sec. 9. Further Assistance To Students in Private Colleges and Universities. . ... (b) For students enrolled in schools charging above one thousand five hundred pesos (P1,500.00) per year in tuition and other fees during the school year 19881989 or such amount in subsequent years as may be determined from time to time by the State Assistance Council, no assistance for tuition fees shall be granted by the Government: Provided, however, That the schools concerned may raise their tuition fees subject to Section 10 hereof. xxx xxx xxx Sec. 10. Consultation. In any proposed increase in the rate of tuition fee, there shall be appropriate consultations conducted by the school administration with the duly organized parents and teachers associations and faculty associations with respect to secondary schools, and with students governments or councils, alumni and faculty associations with respect to colleges. For this purpose, audited financial statements shall be made available to authorized representatives of these sectors.Every effort shall be exerted to reconcile possible differences. In case of disagreement, the alumni association of the school or any other impartial body of their choosing shall act as arbitrator. xxx xxx xxx Sec. 14. Program Administration/Rules and Regulations. The State Assistance Council shall be responsible for policy guidance and direction, monitoring and evaluation of new and existing programs, and the promulgation of rules and regulations, while the Department of Education, Culture and Sports shall be responsible for the day to day administration and program implementation.Likewise, it may engage the services and support of any qualified government or private entity for its implementation. (Emphasis supplied.) Private respondent filed with the court a quo an action, entitled "Injunction with Preliminary Prohibitory Injunction with Prayer for Temporary Restraining Order" (docketed Civil Case No. 90-971), against petitioners and the Secretary of Education, Culture and Sports ("DECS") seeking to stop the implementation of the increase in tuition fees by petitioner school. Private respondent asserted that the increase was adopted without the prior consultation required by law and that, in any case, the approved increase was exorbitant (at 21.22%). Petitioners, on their part, contended that the parties did, in fact, hold consultations at which the wage increase for teachers mandated by Republic Act 6727 and the resulting

increase in tuition fees allowed by Republic Act No. 6728 were discussed at length. The Solicitor General, answering the complaint for and in behalf of the DECS Secretary, attested to the approval by DECS of a fifty percent (50%) tuition fee increase for the school year 19891990. The judicial action initiated by private respondent before the court a quo appears to us to be an inappropriate recourse. It remains undisputed that the DECS Secretary has, in fact, taken cognizance of the case for the tuition fee increase and has accordingly acted thereon. We can only assume that in so doing the DECS Secretary has duly passed upon the relevant legal and factual issues dealing on the propriety of the matter. In the decision process, the DECS Secretary has verily acted in a quasi-judicial capacity. The remedy from that decision is an appeal. Conformably with Batas Pambansa Blg. 129, the exclusive appellate jurisdiction to question that administrative action lies with the Court of Appeals, not with the court a quo. If we were to consider, upon the other hand, the case for injunction filed with the court a quo to be a ordinary action solely against herein petitioner (with DECS being then deemed to be merely a nominal party), it would have meant the court's taking cognizance over the case in disregard of the doctrine of primary jurisdiction. 4 Neither can we treat the case as a special civil action for certiorari or prohibition as the complaint filed by private respondent with the court a quo, contains no allegation of lack, or grave abuse in the exercise, of jurisdiction on the part of DECS nor has there been any finding made to that effect by either the court a quo or the appellate court that could warrant the extraordinary remedy. A special civil action, either for certiorari or prohibition, can be grounded only on either lack of jurisdiction or grave abuse of discretion. 5 In passing, we also observe that the parties have both remained silent on the provisions of Republic Act No. 6728 to the effect that in case of disagreement on tuition fee increases (in this instance by herein private parties), the issue should be resolved through arbitration. Although the matter has not been raised by the parties, it is an aspect, nevertheless, in our view, that could have well been explored by them instead of immediately invoking, such as they apparently did, the administrative and judicial relief to resolve the controversy. All told, we hold that the court a quo has been bereft of jurisdiction in taking cognizance of private respondent's complaint. We see no real justification, on the basis of the factual and case settings here obtaining, to permit a deviation from the long standing rule that the issue of jurisdiction may be raised at any time even on appeal. WHEREFORE, conformably with our above opinion, the instant petition is GRANTED and the questioned ordered of the court a quo and the decision of the appellate court are SET ASIDE. No costs. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-23390 April 24, 1967

MINDANAO PORTLAND CEMENT CORPORATION, petitioner-appellee, vs. McDONOUGH CONSTRUCTION COMPANY OF FLORIDA, respondent-appellant. Gonzalo W. Gonzalez for respondent-appellant. Alberto B. Villaraza for petitioner-appellee. BENGZON, J.P. J.: On February 13, 1961, petitioner Mindanao Portland Cement Corporation and respondent McDonough Construction Company of Florida, U.S.A., executed a contract 1 for the construction by the respondent for the petitioner of a dry portland, cement plant at Iligan City. In a separate contract, Turnbull, Inc. the "engineer" referred to in the construction contract was engaged to design and manage the construction of the plant, supervise the construction, schedule deliveries and the construction work as well as check and certify ill contractors' progress and fiscal requests for payment. Alterations in the plans and specifications were subsequently made during the progress of the construction as set forth in Addenda 2 to 8 thereto. Due to this and to other causes deemed sufficient by Turnbull, Inc., extensions of time for the termination of the project, initially agreed to be finished on December 17, 1961, were granted.2 Respondent finally completed the project on October 22, 1962, except as to delivery of certain spare parts for replacements and installations of floodlamps; and on November 14, 1962, these latter items were complied with. As to the Addenda in the plans and specifications, Addenda 2, 3 and 7 were not signed by petitioner although the same were forwarded to it, after having been signed by respondent; these are still in its possession. Addenda 4, 5 and 6 were signed by petitioner and respondent.3 Differences later arose. Petitioner claimed from respondent damages in the amount of more than P2,000,000 allegedly occasioned by the delay in the project's completion. Respondent in turn asked for more than P450,000 from petitioner for alleged losses due to cost of extra work and overhead as of April 1962. A conference was held on about May 29, 1962 between petitioner and Turnbull, Inc., on one hand, and respondent on the other, to settle the differences aforementioned, but no satisfactory results were reached.
1wph1.t

Petitioner sent respondent, on August 8, 1962, and again on September 24,1962, written invitations to arbitrate, invoking a provision in their contract regarding arbitration of disputes. Instead of answering said invitations, respondent, on November 14, 1962, with Turnbull, Inc.'s approval, submitted to petitioner for payment its final statement of work accomplished, asking for P403,700 as unpaid balance of the consideration of the contract. Petitioner, on January 29, 1963, filed the present action in the Court of First Instance of Manila to compel respondent to arbitrate with it concerning alleged disputes arising from their contract. It averred inter alia that deletions and additions to the plans and specifications were agreed upon during the progress of the construction; that disagreement arose between them as to the cost of the additional or extra work done, and respondent's deviation from some agreed specifications; that petitioner claims having overpaid respondent by P33,810.81; that petitioner further claims to have suffered damages due to respondent's delay in finishing the

project; that respondent, on the other hand, still claims an unpaid balance of about P403,700; that these matters fall under the general arbitration clause of their contract; and that respondent has failed to proceed to arbitration despite several requests therefor. Respondent filed, on February 23, 1963, its answer. It denied the alleged existence of disagreement between the parties. And as special defense, it alleged that its claim for P403,700 was not disputed and that the respective claims for damages should be resolved by Turnbull, Inc., pursuant to the exception in the arbitration clause of the construction contract. After stipulation of facts and submission of documentary evidence, the court, on May 13, 1964, rendered its decision finding that dispute or disagreement obtained between the parties with respect to their rights and obligations under their contract and that the same should be submitted to arbitration pursuant to par. 39 of said contract the arbitration clause and to Republic Act 876 the Arbitration Law. And thus it ordered petitioner and respondent to proceed to arbitration in accordance with the terms of their contract. Not satisfied with the ruling, respondent appealed therefrom to Us to raise the purely legal question of whether under these facts respondent is duty-bound to submit to arbitration. The provision of the contract on "Arbitration of Disagreements" (par. 39) says: 39. In the event of disagreement between the Owner and the Contractor in respect of the rights or obligations of either of the parties hereunder except the interpretation of the plans and specifications and questions concerning the sufficiency of materials, the time, sequence and method of performing the work, which questions are to be finally determined by the Engineer, they shall submit the matter to arbitration, the Owner choosing one arbitrator, the Contractor one, and the two so chosen shall select a third. The decision of such arbitrators or a majority of them shall be made in writing to both parties and when so made shall be binding upon the parties thereto. (Emphasis supplied). Respondent, herein appellant, contends first, that there is no showing of disagreement; and second, that if there is, the same falls under the exception, to be resolved by the engineer. As to the first point, the fact of disagreement has been determined by the court below upon the stipulation of facts and documentary evidence submitted. In this appeal involving pure questions of law, the above finding should not be disturbed. Furthermore, the existence of disagreement is plainly shown in the record. Respondent admits the existence of petitioner's claim but denies its merit.4 It likewise admits that petitioner has refused to pay its claim for the unpaid balance of the price of the contract.5 Paragraph 8 of the stipulation of facts shows the dispute of the parties regarding their mutual claims and that said dispute remained unsettled: 8. That on or about May 29, 1962, a conference was held between petitioner and Turnbill, Inc., on the one hand, and respondent, on the other, to settle their differences involving the claim for damages of petitioner in the amount of more than P2,000,000, occasioned by the delay in the completion of the project, and the claim of respondent for losses due to the cost of extra plant and overhead in the amount of more thanP450,000, as of April, 1962, but no satisfactory results were reached; (Emphasis supplied). Regarding the second point, the parties agreed by way of exception that disagreements with respect to the following matters shall be finally resolved by the engineer, instead of being submitted to arbitration: (1) The interpretation of plans and specifications; (2) sufficiency of materials; and (3) the time, sequence and method of performing the work. The disputes involved here, on the other hand, are on (1) the proper computation of the total contract price,6including the cost of additional or extra work;7 and (2) the liability for alleged

delay in completing the project and for alleged losses due to change in the plans and specifications. Now from the contract itself We can determine the scope of the exceptions aforementioned. Thus, pars. 19 to 22 of its General Conditions deal with the subject "Interpretation of Plans and Specifications". And thereunder, the engineer is empowered to correct all discrepancies, errors or omissions in the plans and specifications; to explainall doubts that may arise thereon; and to furnish further plans and specifications as may be required. No mention is made therein as to the cost of the project; this matter is covered by the engineering contract, under which Turnbull, Inc.'s function is limited to making estimates of costs only. "Sufficiency of materials" and "method of performing the work" under the second and third exceptions above-mentioned are treated in pars. 2 to 6 of the General Conditions under the heading "QUALITY OF WORKS AND MATERIALS". Turnbull, Inc., is therein empowered to determine the land fitness of the several kinds of work and materials furnished and to reject or condemn many of them which, in its opinions, does not fully conform to the terms of the contract. In the present case, the dispute is not as to the quality of the materials or of the kind of work done. "Time" and "Sequence of Work" are covered by pars. 9 to 17 of the General Conditions under the heading "SCHEDULING." Neither would the disputes fall under these exceptions. Turnbull, Inc.'s power here is to schedule the deliveries and construction work and expedite the same so that the project can be finished on time. It is also authorized, under par. 15, to determine whether any eventuality is sufficient enough to warrant in extension of time and if so, to determine the period of such extension. The delay envisioned here is one that occurs during the progress of the work which disturbs the pre-scheduling plan, thus necessitating an extension of the over-all deadline precisely to prevent respondent from going beyond the same. Turnbull, Inc.'s function goes no further than to calculate and fix the period of extension. But the delay petitioner alleged is different; it is delay beyond the last date of extension fixed by Turnbull, Inc. Clearly, the question of liability therefor, is not embraced in the exception. To none of the exceptions then do the disagreements in question belong, the rule of arbitration therefore applies. The parties in fact also stipulated in their contract, under "EXTRA WORK", that the cost of extra work to be paid shall be subject to negotiations.8 This negates the proposition that Turnbull, Inc.'s cost estimates appearing in Addenda 2, 3 and 7 are final and conclusive. The reason, moreover, for the exceptions interpretation of plans and specifications; sufficiency of materials; sequence, time and method of performing the work is the need to decide these matters immediately, since the progress of the work would await their determination. The same is not true as to matters relating to the liability for delay in the project's completion; these are questions that the engineer does not have to resolve before the project can go on. Consequently, We view that it is not included in the exceptions, as indeed the related provisions of their agreement indicate. Since there obtains herein a written provision for arbitration as well as failure on respondent's part to comply therewith, the court a quo rightly ordered the parties to proceed to arbitration in accordance with the terms of their agreement (Sec. 6, Republic Act 876). Respondent's arguments touching upon the merits of the dispute are improperly raised herein. They should be addressed to the arbitrators. This proceeding is merely a summary remedy to enforce the agreement to arbitrate. The duty of the court in this case is not to resolve the merits of the parties' claims but only to determine if they should proceed to arbitration or not. And although it has been ruled that a frivolous or patently baseless claim should not be ordered to arbitration, it is also recognized that the mere fact that a defense exists against a claim does not make it frivolous or baseless.9

Wherefore, the judgment appealed from, ordering the parties to proceed to arbitration according to the terms of their agreement, is hereby affirmed, with costs against appellant. So ordered.

SPECIAL SECOND DIVISION


JORGE GONZALES and PANEL OF ARBITRATORS, Petitioners, G.R. No. 161957 Present: PUNO, C. J., Chairperson, AUSTRIA-MARTINEZ, CALLEJO, SR., TINGA, and NAZARIO, JJ.

versus

CLIMAX MINING LTD., CLIMAX-ARIMCO MINING CORP., and AUSTRALASIAN PHILIPPINES MINING INC., Respondents.

Promulgated: January 22, 2007

x--------------------------------------------------------------------------------- x

JORGE GONZALES, Petitioner, versus

G.R. No. 167994

HON. OSCAR B. PIMENTEL, in his capacity as PRESIDING JUDGE of BR. 148 of the REGIONAL TRIAL COURT of MAKATI CITY, and CLIMAX-ARIMCO MINING CORPORATION, Respondents. x-------------------------- --------------------------------------------------- x

R E S O L U T I ON TINGA, J.:
This is a consolidation of two petitions rooted in the same disputed Addendum Contract entered into by the parties. In G.R. No. 161957, the Court in its Decision of 28 February 2005[1] denied the Rule 45 petition of petitioner Jorge Gonzales (Gonzales). It held that the DENR Panel of Arbitrators had no jurisdiction over the complaint for the annulment of the Addendum Contract on grounds of fraud and violation of the Constitution and that the action

should have been brought before the regular courts as it involved judicial issues. Both parties filed separate motions for reconsideration. Gonzales avers in his Motion for Reconsideration[2] that the Court erred in holding that the DENR Panel of Arbitrators was bereft of jurisdiction, reiterating its argument that the case involves a mining dispute that properly falls within the ambit of the Panels authority. Gonzales adds that the Court failed to rule on other issues he raised relating to the sufficiency of his complaint before the DENR Panel of Arbitrators and the timeliness of its filing. Respondents Climax Mining Ltd., et al., (respondents) filed their Motion for Partial Reconsideration and/or Clarification[3]seeking reconsideration of that part of the Decision holding that the case should not be brought for arbitration under Republic Act (R.A.) No. 876, also known as the Arbitration Law.[4] Respondents, citing American jurisprudence[5] and the UNCITRAL Model Law,[6] argue that the arbitration clause in the Addendum Contract should be treated as an agreement independent of the other terms of the contract, and that a claimed rescission of the main contract does not avoid the duty to arbitrate. Respondents add that Gonzaless argument relating to the alleged invalidity of the Addendum Contract still has to be proven and adjudicated on in a proper proceeding; that is, an action separate from the motion to compel arbitration. Pending judgment in such separate action, the Addendum Contract remains valid and binding and so does the arbitration clause therein. Respondents add that the holding in the Decision that the case should not be brought under the ambit of the Arbitration Law appears to be premised on Gonzaless having impugn[ed] the existence or validity of the addendum contract. If so, it supposedly conveys the idea that Gonzaless unilateral repudiation of the contract or mere allegation of its invalidity is all it takes to avoid arbitration. Hence, respondents submit that the courts holding that the case should not be brought under the ambit of the Arbitration Law be understood or clarified as operative only where the challenge to the arbitration agreement has been sustained by final judgment. Both parties were required to file their respective comments to the other partys motion for reconsideration/clarification.[7] Respondents filed their Comment on 17 August 2005,[8] while Gonzales filed his only on 25 July 2006.[9] On the other hand, G.R. No. 167994 is a Rule 65 petition filed on 6 May 2005, or while the motions for reconsideration in G.R. No. 161957[10] were pending, wherein Gonzales challenged the orders of the Regional Trial Court (RTC) requiring him to proceed with the arbitration proceedings as sought by Climax-Arimco Mining Corporation (Climax-Arimco).

On 5 June 2006, the two cases, G.R. Nos. 161957 and 167994, were consolidated upon the recommendation of the Assistant Division Clerk of Court since the cases are rooted in the same Addendum Contract. We first tackle the more recent case which is G.R. No. 167994. It stemmed from the petition to compel arbitration filed by respondent Climax-Arimco before the RTC of Makati City on 31 March 2000 while the complaint for the nullification of the Addendum Contract was pending before the DENR Panel of Arbitrators. On 23 March 2000, Climax-Arimco had sent Gonzales a Demand for Arbitration pursuant to Clause 19.1[11] of the Addendum Contract and also in accordance with Sec. 5 of R.A. No. 876. The petition for arbitration was subsequently filed and Climax-Arimco sought an order to compel the parties to arbitrate pursuant to the said arbitration clause. The case, docketed as Civil Case No. 00-444, was initially raffled to Br. 132 of the RTC of Makati City, with Judge Herminio I. Benito as Presiding Judge. Respondent Climax-Arimco filed on 5 April 2000 a motion to set the application to compel arbitration for hearing.

On 14 April 2000, Gonzales filed a motion to dismiss which he however failed to set for hearing. On 15 May 2000, he filed an Answer with Counterclaim,[12] questioning the validity of the Addendum Contract containing the arbitration clause. Gonzales alleged that the Addendum Contract containing the arbitration clause is void in view of Climax-Arimcos acts of fraud, oppression and violation of the Constitution. Thus, the arbitration clause, Clause 19.1, contained in the Addendum Contract is also null and void ab initio and legally inexistent. On 18 May 2000, the RTC issued an order declaring Gonzaless motion to dismiss moot and academic in view of the filing of his Answer with Counterclaim.[13] On 31 May 2000, Gonzales asked the RTC to set the case for pre-trial.[14] This the RTC denied on 16 June 2000, holding that the petition for arbitration is a special proceeding that is summary in nature.[15] However, on 7 July 2000, the RTC granted Gonzaless motion for reconsideration of the 16 June 2000 Order and set the case for pre-trial on 10 August 2000, it being of the view that Gonzales had raised in his answer the issue of the making of the arbitration agreement.[16] Climax-Arimco then filed a motion to resolve its pending motion to compel arbitration. The RTC denied the same in its 24 July 2000 order.

On 28 July 2000, Climax-Arimco filed a Motion to Inhibit Judge Herminio I. Benito for not possessing the cold neutrality of an impartial judge.[17] On 5 August 2000, Judge Benito issued an Order granting the Motion to Inhibit and ordered the re-raffling of the petition for arbitration.[18] The case was raffled to the sala of public respondent Judge Oscar B. Pimentel of Branch 148. On 23 August 2000, Climax-Arimco filed a motion for reconsideration of the 24 July 2000 Order.[19] Climax-Arimco argued that R.A. No. 876 does not authorize a pre-trial or trial for a motion to compel arbitration but directs the court to hear the motion summarily and resolve it within ten days from hearing. Judge Pimentel granted the motion and directed the parties to arbitration. On 13 February 2001, Judge Pimentel issued the first assailed order requiring Gonzales to proceed with arbitration proceedings and appointing retired CA Justice Jorge Coquia as sole arbitrator.[20] Gonzales moved for reconsideration on 20 March 2001 but this was denied in the Order dated 7 March 2005.[21] Gonzales thus filed the Rule 65 petition assailing the Orders dated 13 February 2001 and 7 March 2005 of Judge Pimentel. Gonzales contends that public respondent Judge Pimentel acted with grave abuse of discretion in immediately ordering the parties to proceed with arbitration despite the proper, valid, and timely raised argument in his Answer with Counterclaim that the Addendum Contract, containing the arbitration clause, is null and void. Gonzales has also sought a temporary restraining order to prevent the enforcement of the assailed orders directing the parties to arbitrate, and to direct Judge Pimentel to hold a pre-trial conference and the necessary hearings on the determination of the nullity of the Addendum Contract. In support of his argument, Gonzales invokes Sec. 6 of R.A. No. 876:
SEC. 6. Hearing by court.A party aggrieved by the failure, neglect or refusal of another to perform under an agreement in writing providing for arbitration may petition the court for an order directing that such arbitration proceed in the manner provided for in such agreement. Five days notice in writing of the hearing of such application shall be served either personally or by registered mail upon the party in default. The court shall hear the parties, and upon being satisfied that the making of the agreement or such failure to comply therewith is not in issue, shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement. If the making of the agreement or default be in issue the court shall proceed to summarily hear such issue. If the finding be that no agreement in writing providing for arbitration was made, or that there is no default in the proceeding thereunder, the proceeding shall be dismissed. If the finding be that a written provision for arbitration was made and there is a default in proceeding

thereunder, an order shall be made summarily directing the parties to proceed with the arbitration in accordance with the terms thereof. The court shall decide all motions, petitions or applications filed under the provisions of this Act, within ten (10) days after such motions, petitions, or applications have been heard by it.

Gonzales also cites Sec. 24 of R.A. No. 9285 or the Alternative Dispute Resolution Act of 2004:
SEC. 24. Referral to Arbitration.A court before which an action is brought in a matter which is the subject matter of an arbitration agreement shall, if at least one party so requests not later than the pre-trial conference, or upon the request of both parties thereafter, refer the parties to arbitration unless it finds that the arbitration agreement is null and void, inoperative or incapable of being performed.

According to Gonzales, the above-quoted provisions of law outline the procedure to be followed in petitions to compel arbitration, which the RTC did not follow. Thus, referral of the parties to arbitration by Judge Pimentel despite the timely and properly raised issue of nullity of the Addendum Contract was misplaced and without legal basis. Both R.A. No. 876 and R.A. No. 9285 mandate that any issue as to the nullity, inoperativeness, or incapability of performance of the arbitration clause/agreement raised by one of the parties to the alleged arbitration agreement must be determined by the court prior to referring them to arbitration. They require that the trial court first determine or resolve the issue of nullity, and there is no other venue for this determination other than a pre-trial and hearing on the issue by the trial court which has jurisdiction over the case. Gonzales adds that the assailed 13 February 2001 Order also violated his right to procedural due process when the trial court erroneously ruled on the existence of the arbitration agreement despite the absence of a hearing for the presentation of evidence on the nullity of the Addendum Contract. Respondent Climax-Arimco, on the other hand, assails the mode of review availed of by Gonzales. Climax-Arimco cites Sec. 29 of R.A. No. 876:
SEC. 29. Appeals.An appeal may be taken from an order made in a proceeding under this Act, or from a judgment entered upon an award through certiorari proceedings, but such appeals shall be limited to questions of law. The proceedings upon such an appeal, including the judgment thereon shall be governed by the Rules of Court in so far as they are applicable.

Climax-Arimco mentions that the special civil action for certiorari employed by Gonzales is available only where there is no appeal or any plain, speedy, and adequate remedy in the ordinary course of law against the challenged orders or acts. Climax-Arimco then points out that R.A. No. 876 provides for an appeal from such orders, which, under the Rules of Court, must be filed within 15 days from notice of the final order or resolution appealed from or of the denial of the motion for reconsideration filed in due time. Gonzales has not denied that the relevant 15-day period for an appeal had elapsed long before he filed this petition for certiorari. He cannot use the special civil action of certiorari as a remedy for a lost appeal. Climax-Arimco adds that an application to compel arbitration under Sec. 6 of R.A. No. 876 confers on the trial court only a limited and special jurisdiction, i.e., a jurisdiction solely to determine (a) whether or not the parties have a written contract to arbitrate, and (b) if the defendant has failed to comply with that contract. Respondent cites La Naval Drug Corporation v. Court of Appeals,[22] which holds that in a proceeding to compel arbitration, [t]he arbitration law explicitly confines the courts authority only to pass upon the issue of whether there is or there is no agreement in writing providing for arbitration, and [i]n the affirmative, the statute ordains that the court shall issue an order summarily directing the parties to proceed with the arbitration in accordance with the terms thereof. [23] ClimaxArimco argues that R.A. No. 876 gives no room for any other issue to be dealt with in such a proceeding, and that the court presented with an application to compel arbitration may order arbitration or dismiss the same, depending solely on its finding as to those two limited issues. If either of these matters is disputed, the court is required to conduct a summary hearing on it. Gonzaless proposition contradicts both the trial courts limited jurisdiction and the summary nature of the proceeding itself. Climax-Arimco further notes that Gonzaless attack on or repudiation of the Addendum Contract also is not a ground to deny effect to the arbitration clause in the Contract. The arbitration agreement is separate and severable from the contract evidencing the parties commercial or economic transaction, it stresses. Hence, the alleged defect or failure of the main contract is not a ground to deny enforcement of the parties arbitration agreement. Even the party who has repudiated the main contract is not prevented from enforcing its arbitration provision. R.A. No. 876 itself treats the arbitration clause or agreement as a contract separate from the commercial, economic or other transaction to be arbitrated. The statute, in particular paragraph 1 of Sec. 2 thereof, considers the arbitration stipulation an independent contract in its own right whose enforcement may be prevented only on grounds which legally make the arbitration agreement itself revocable, thus:
SEC. 2. Persons and matters subject to arbitration.Two or more persons or parties may submit to the arbitration of one or more arbitrators any controversy

existing, between them at the time of the submission and which may be the subject of an action, or the parties to any contract may in such contract agree to settle by arbitration a controversy thereafter arising between them. Such submission or contract shall be valid, enforceable and irrevocable, save upon such grounds as exist at law for the revocation of any contract. xxxx

The grounds Gonzales invokes for the revocation of the Addendum Contractfraud and oppression in the execution thereofare also not grounds for the revocation of the arbitration clause in the Contract, Climax-Arimco notes. Such grounds may only be raised by way of defense in the arbitration itself and cannot be used to frustrate or delay the conduct of arbitration proceedings. Instead, these should be raised in a separate action for rescission, it continues. Climax-Arimco emphasizes that the summary proceeding to compel arbitration under Sec. 6 of R.A. No. 876 should not be confused with the procedure in Sec. 24 of R.A. No. 9285. Sec. 6 of R.A. No. 876 refers to an application to compel arbitration where the courts authority is limited to resolving the issue of whether there is or there is no agreement in writing providing for arbitration, while Sec. 24 of R.A. No. 9285 refers to an ordinary action which covers a matter that appears to be arbitrable or subject to arbitration under the arbitration agreement. In the latter case, the statute is clear that the court, instead of trying the case, may, on request of either or both parties, refer the parties to arbitration, unless it finds that the arbitration agreement is null and void, inoperative or incapable of being performed. Arbitration may even be ordered in the same suit brought upon a matter covered by an arbitration agreement even without waiting for the outcome of the issue of the validity of the arbitration agreement. Art. 8 of the UNCITRAL Model Law[24] states that where a court before which an action is brought in a matter which is subject of an arbitration agreement refers the parties to arbitration, the arbitral proceedings may proceed even while the action is pending. Thus, the main issue raised in the Petition for Certiorari is whether it was proper for the RTC, in the proceeding to compel arbitration under R.A. No. 876, to order the parties to arbitrate even though the defendant therein has raised the twin issues of validity and nullity of the Addendum Contract and, consequently, of the arbitration clause therein as well. The resolution of both Climax-Arimcos Motion for Partial Reconsideration and/or Clarification in G.R. No. 161957 and Gonzaless Petition for Certiorari in G.R. No. 167994 essentially turns on whether the question of validity of the Addendum Contract bears upon the applicability or enforceability of the arbitration clause contained therein. The two pending matters shall thus be jointly resolved.

We address the Rule 65 petition in G.R. No. 167994 first from the remedial law perspective. It deserves to be dismissed on procedural grounds, as it was filed in lieu of appeal which is the prescribed remedy and at that far beyond the reglementary period. It is elementary in remedial law that the use of an erroneous mode of appeal is cause for dismissal of the petition for certiorari and it has been repeatedly stressed that a petition for certiorari is not a substitute for a lost appeal. As its nature, a petition for certiorari lies only where there is no appeal, and no plain, speedy and adequate remedy in the ordinary course of law. [25] The Arbitration Law specifically provides for an appeal by certiorari, i.e., a petition for review under certiorari under Rule 45 of the Rules of Court that raises pure questions of law.[26] There is no merit to Gonzaless argument that the use of the permissive term may in Sec. 29, R.A. No. 876 in the filing of appeals does not prohibit nor discount the filing of a petition for certiorari under Rule 65.[27] Proper interpretation of the aforesaid provision of law shows that the term may refers only to the filing of an appeal, not to the mode of review to be employed. Indeed, the use of may merely reiterates the principle that the right to appeal is not part of due process of law but is a mere statutory privilege to be exercised only in the manner and in accordance with law. Neither can BF Corporation v. Court of Appeals[28] cited by Gonzales support his theory. Gonzales argues that said case recognized and allowed a petition for certiorari under Rule 65 appealing the order of the Regional Trial Court disregarding the arbitration agreement as an acceptable remedy.[29] The BF Corporation case had its origins in a complaint for collection of sum of money filed by therein petitioner BF Corporation against Shangri-la Properties, Inc. (SPI). SPI moved to suspend the proceedings alleging that the construction agreement or the Articles of Agreement between the parties contained a clause requiring prior resort to arbitration before judicial intervention. The trial court found that an arbitration clause was incorporated in the Conditions of Contract appended to and deemed an integral part of the Articles of Agreement. Still, the trial court denied the motion to suspend proceedings upon a finding that the Conditions of Contract were not duly executed and signed by the parties. The trial court also found that SPI had failed to file any written notice of demand for arbitration within the period specified in the arbitration clause. The trial court denied SPI's motion for reconsideration and ordered it to file its responsive pleading. Instead of filing an answer, SPI filed a petition for certiorari under Rule 65, which the Court of Appeals, favorably acted upon. In a petition for review before this Court, BF Corporation alleged, among others, that the Court of Appeals should have dismissed the petition for certiorari since the order of the trial court denying the motion to suspend proceedings is a resolution of an incident on the merits and upon the continuation of the proceedings, the trial court would eventually render a decision on the merits, which decision could then be elevated to a higher court in an ordinary appeal.[30]

The Court did not uphold BF Corporations argument. The issue raised before the Court was whether SPI had taken the proper mode of appeal before the Court of Appeals. The question before the Court of Appeals was whether the trial court had prematurely assumed jurisdiction over the controversy. The question of jurisdiction in turn depended on the question of existence of the arbitration clause which is one of fact. While on its face the question of existence of the arbitration clause is a question of fact that is not proper in a petition for certiorari, yet since the determination of the question obliged the Court of Appeals as it did to interpret the contract documents in accordance with R.A. No. 876 and existing jurisprudence, the question is likewise a question of law which may be properly taken cognizance of in a petition for certiorari under Rule 65, so the Court held.[31] The situation in B.F. Corporation is not availing in the present petition. The

disquisition in B.F. Corporation led to the conclusion that in order that the question of jurisdiction may be resolved, the appellate court had to deal first with a question of law which could be addressed in a certiorari proceeding. In the present case, Gonzaless petition raises a question of law, but not a question of jurisdiction. Judge Pimentel acted in accordance with the procedure prescribed in R.A. No. 876 when he ordered Gonzales to proceed with arbitration and appointed a sole arbitrator after making the determination that there was indeed an arbitration agreement. It has been held that as long as a court acts within its jurisdiction and does not gravely abuse its discretion in the exercise thereof, any supposed error committed by it will amount to nothing more than an error of judgment reviewable by a timely appeal and not assailable by a special civil action of certiorari.[32] Even if we overlook the employment of the wrong remedy in the broader interests of justice, the petition would nevertheless be dismissed for failure of Gonzalez to show grave abuse of discretion. Arbitration, as an alternative mode of settling disputes, has long been recognized and accepted in our jurisdiction. The Civil Code is explicit on the matter.[33] R.A. No. 876 also expressly authorizes arbitration of domestic disputes. Foreign arbitration, as a system of settling commercial disputes of an international character, was likewise recognized when the Philippines adhered to the United Nations "Convention on the Recognition and the Enforcement of Foreign Arbitral Awards of 1958," under the 10 May 1965 Resolution No. 71 of the Philippine Senate, giving reciprocal recognition and allowing enforcement of international arbitration agreements between parties of different nationalities within a contracting state.[34] The enactment of R.A. No. 9285 on 2 April 2004 further institutionalized the use of alternative dispute resolution systems, including arbitration, in the settlement of disputes.

Disputes do not go to arbitration unless and until the parties have agreed to abide by the arbitrators decision. Necessarily, a contract is required for arbitration to take place and to be binding. R.A. No. 876 recognizes the contractual nature of the arbitration agreement, thus:
SEC. 2. Persons and matters subject to arbitration.Two or more persons or parties may submit to the arbitration of one or more arbitrators any controversy existing, between them at the time of the submission and which may be the subject of an action, or the parties to any contract may in such contract agree to settle by arbitration a controversy thereafter arising between them. Such submission or contract shall be valid, enforceable and irrevocable, save upon such grounds as exist at law for the revocation of any contract. Such submission or contract may include question arising out of valuations, appraisals or other controversies which may be collateral, incidental, precedent or subsequent to any issue between the parties.

A controversy cannot be arbitrated where one of the parties to the controversy is an infant, or a person judicially declared to be incompetent, unless the appropriate court having jurisdiction approve a petition for permission to submit such controversy to arbitration made by the general guardian or guardian ad litem of the infant or of the incompetent. [Emphasis added.]

Thus, we held in Manila Electric Co. v. Pasay Transportation Co.[35] that a submission to arbitration is a contract. A clause in a contract providing that all matters in dispute between the parties shall be referred to arbitration is a contract,[36] and inDel Monte Corporation-USA v. Court of Appeals[37] that [t]he provision to submit to arbitration any dispute arising therefrom and the relationship of the parties is part of that contract and is itself a contract. As a rule, contracts are respected as the law between the contracting parties and produce effect as between them, their assigns and heirs.[38] The special proceeding under Sec. 6 of R.A. No. 876 recognizes the contractual nature of arbitration clauses or agreements. It provides:
SEC. 6. Hearing by court.A party aggrieved by the failure, neglect or refusal of another to perform under an agreement in writing providing for arbitration may petition the court for an order directing that such arbitration proceed in the manner provided for in such agreement. Five days notice in writing of the hearing of such application shall be served either personally or by registered mail upon the party in default. The court shall hear the parties, and upon being satisfied that the making of the agreement or such failure to comply therewithis not in issue, shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement. If the making of the agreement or default be in issue the court shall proceed to summarily hear such issue. If the finding be that no agreement in writing providing for arbitration was made, or that there is no default in the proceeding thereunder, the proceeding shall be dismissed. If the finding be that a written provision for arbitration was made and

there is a default in proceeding thereunder, an order shall be made summarily directing the parties to proceed with the arbitration in accordance with the terms thereof. The court shall decide all motions, petitions or applications filed under the provisions of this Act, within ten days after such motions, petitions, or applications have been heard by it. [Emphasis added.]

This special proceeding is the procedural mechanism for the enforcement of the contract to arbitrate. The jurisdiction of the courts in relation to Sec. 6 of R.A. No. 876 as well as the nature of the proceedings therein was expounded upon in La Naval Drug Corporation v. Court of Appeals.[39] There it was held that R.A. No. 876 explicitly confines the court's authority only to the determination of whether or not there is an agreement in writing providing for arbitration. In the affirmative, the statute ordains that the court shall issue an order "summarily directing the parties to proceed with the arbitration in accordance with the terms thereof." If the court, upon the other hand, finds that no such agreement exists, "the proceeding shall be dismissed."[40] The cited case also stressed that the proceedings are summary in nature. [41] The same thrust was made in the earlier case ofMindanao Portland Cement Corp. v. McDonough Construction Co. of Florida[42] which held, thus:
Since there obtains herein a written provision for arbitration as well as failure on respondent's part to comply therewith, the court a quorightly ordered the parties to proceed to arbitration in accordance with the terms of their agreement (Sec. 6, Republic Act 876). Respondent's arguments touching upon the merits of the dispute are improperly raised herein. They should be addressed to the arbitrators. This proceeding is merely a summary remedy to enforce the agreement to arbitrate. The duty of the court in this case is not to resolve the merits of the parties' claims but only to determine if they should proceed to arbitration or not. x x x x [43]

Implicit in the summary nature of the judicial proceedings is the separable or independent character of the arbitration clause or agreement. This was highlighted in the cases of Manila Electric Co. v. Pasay Trans. Co.[44] and Del Monte Corporation-USA v. Court of Appeals.[45] The doctrine of separability, or severability as other writers call it, enunciates that an arbitration agreement is independent of the main contract. The arbitration agreement is to be treated as a separate agreement and the arbitration agreement does not automatically terminate when the contract of which it is part comes to an end.[46]

The separability of the arbitration agreement is especially significant to the determination of whether the invalidity of the main contract also nullifies the arbitration clause. Indeed, the

doctrine denotes that the invalidity of the main contract, also referred to as the container contract, does not affect the validity of the arbitration agreement. Irrespective of the fact that the main contract is invalid, the arbitration clause/agreement still remains valid and enforceable.[47] The separability of the arbitration clause is confirmed in Art. 16(1) of the UNCITRAL Model Law and Art. 21(2) of the UNCITRAL Arbitration Rules.[48] The separability doctrine was dwelt upon at length in the U.S. case of Prima Paint Corp. v. Flood & Conklin Manufacturing Co.[49] In that case, Prima Paint and Flood and Conklin (F & C) entered into a consulting agreement whereby F & C undertook to act as consultant to Prima Paint for six years, sold to Prima Paint a list of its customers and promised not to sell paint to these customers during the same period. The consulting agreement contained an arbitration clause. Prima Paint did not make payments as provided in the consulting agreement, contending that F & C had fraudulently misrepresented that it was solvent and able for perform its contract when in fact it was not and had even intended to file for bankruptcy after executing the consultancy agreement. Thus, F & C served Prima Paint with a notice of intention to arbitrate. Prima Paint sued in court for rescission of the consulting agreement on the ground of fraudulent misrepresentation and asked for the issuance of an order enjoining F & C from proceeding with arbitration. F & C moved to stay the suit pending arbitration. The trial court granted F & Cs motion, and the U.S. Supreme Court affirmed. The U.S. Supreme Court did not address Prima Paints argument that it had been fraudulently induced by F & C to sign the consulting agreement and held that no court should address this argument. Relying on Sec. 4 of the Federal Arbitration Actwhich provides that if a party [claims to be] aggrieved by the alleged failure x x x of another to arbitrate x x x, [t]he court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration x x x. If the making of the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereofthe U.S. High Court held that the court should not order the parties to arbitrate if the making of the arbitration agreement is in issue. The parties should be ordered to arbitration if, and only if, they have contracted to submit to arbitration. Prima Paint was not entitled to trial on the question of whether an arbitration agreement was made because its allegations of fraudulent inducement were not directed to the arbitration clause itself, but only to the consulting agreement which contained the arbitration agreement.[50] Prima Paint held that arbitration clauses are separable from the contracts in which they are embedded, and that where no claim is made that fraud was directed to the

arbitration clause itself, a broad arbitration clause will be held to encompass arbitration of the claim that the contract itself was induced by fraud.[51] There is reason, therefore, to rule against Gonzales when he alleges that Judge Pimentel acted with grave abuse of discretion in ordering the parties to proceed with arbitration. Gonzaless argument that the Addendum Contract is null and void and, therefore the arbitration clause therein is void as well, is not tenable. First, the proceeding in a petition for arbitration under R.A. No. 876 is limited only to the resolution of the question of whether the arbitration agreement exists. Second, the separability of the arbitration clause from the Addendum Contract means that validity or invalidity of the Addendum Contract will not affect the enforceability of the agreement to arbitrate. Thus, Gonzaless petition for certiorari should be dismissed. This brings us back to G.R. No. 161957. The adjudication of the petition in G.R. No. 167994 effectively modifies part of the Decision dated 28 February 2005 in G.R. No. 161957. Hence, we now hold that the validity of the contract containing the agreement to submit to arbitration does not affect the applicability of the arbitration clause itself. A contrary ruling would suggest that a partys mere repudiation of the main contract is sufficient to avoid arbitration. That is exactly the situation that the separability doctrine, as well as jurisprudence applying it, seeks to avoid. We add that when it was declared in G.R. No. 161957 that the case should not be brought for arbitration, it should be clarified that the case referred to is the case actually filed by Gonzales before the DENR Panel of Arbitrators, which was for the nullification of the main contract on the ground of fraud, as it had already been determined that the case should have been brought before the regular courts involving as it did judicial issues. The Motion for Reconsideration of Gonzales in G.R. No. 161957 should also be denied. In the motion, Gonzales raises the same question of jurisdiction, more particularly that the complaint for nullification of the Addendum Contract pertained to the DENR Panel of Arbitrators, not the regular courts. He insists that the subject of his complaint is a mining dispute since it involves a dispute concerning rights to mining areas, the Financial and Technical Assistance Agreement (FTAA) between the parties, and it also involves claimowners. He adds that the Court failed to rule on other issues he raised, such as whether he had ceded his claims over the mineral deposits located within the Addendum Area of Influence; whether the complaint filed before the DENR Panel of Arbitrators alleged ultimate facts of fraud; and whether the action to declare the nullity of the Addendum Contract on the ground of fraud has prescribed.

These are the same issues that Gonzales raised in his Rule 45 petition in G.R. No. 161957 which were resolved against him in the Decision of 28 February 2005. Gonzales does not raise any new argument that would sway the Court even a bit to alter its holding that the complaint filed before the DENR Panel of Arbitrators involves judicial issues which should properly be resolved by the regular courts. He alleged fraud or misrepresentation in the execution of the Addendum Contract which is a ground for the annulment of a voidable contract. Clearly, such allegations entail legal questions which are within the jurisdiction of the courts. The question of whether Gonzales had ceded his claims over the mineral deposits in the Addendum Area of Influence is a factual question which is not proper for determination before this Court. At all events, moreover, the question is irrelevant to the issue of jurisdiction of the DENR Panel of Arbitrators. It should be pointed out that the DENR Panel of Arbitrators made a factual finding in its Order dated 18 October 2001, which it reiterated in its Order dated 25 June 2002, that Gonzales had, through the various agreements, assigned his interest over the mineral claims all in favor of [Climax-Arimco] as well as that without the complainant [Gonzales] assigning his interest over the mineral claims in favor of [Climax-Arimco], there would be no FTAA to speak of.[52] This finding was affirmed by the Court of Appeals in its Decision dated 30 July 2003 resolving the petition for certiorari filed by Climax-Arimco in regard to the 18 October 2001 Order of the DENR Panel.[53] The Court of Appeals likewise found that Gonzaless complaint alleged fraud but did not provide any particulars to substantiate it. The complaint repeatedly mentioned fraud, oppression, violation of the Constitution and similar conclusions but nowhere did it give any ultimate facts or particulars relative to the allegations.[54] Sec. 5, Rule 8 of the Rules of Court specifically provides that in all averments of fraud, the circumstances constituting fraud must be stated with particularity. This is to enable the opposing party to controvert the particular facts allegedly constituting the same. Perusal of the complaint indeed shows that it failed to state with particularity the ultimate facts and circumstances constituting the alleged fraud. It does not state what particulars about ClimaxArimcos financial or technical capability were misrepresented, or how the misrepresentation was done. Incorporated in the body of the complaint are verbatim reproductions of the contracts, correspondence and government issuances that reportedly explain the allegations of fraud and misrepresentation, but these are, at best, evidentiary matters that should not be included in the pleading.

As to the issue of prescription, Gonzaless claims of fraud and misrepresentation attending the execution of the Addendum Contract are grounds for the annulment of a voidable contract under the Civil Code.[55] Under Art. 1391 of the Code, an action for annulment shall be brought within four years, in the case of fraud, beginning from the time of the discovery of the same. However, the time of the discovery of the alleged fraud is not clear from the allegations of Gonzaless complaint. That being the situation coupled with the fact that this Court is not a trier of facts, any ruling on the issue of prescription would be uncalled for or even unnecessary. WHEREFORE, the Petition for Certiorari in G.R. No. 167994 is DISMISSED. Such dismissal effectively renders superfluous formal action on the Motion for Partial Reconsideration and/or Clarification filed by Climax Mining Ltd., et al. in G.R. No. 161957. The Motion for Reconsideration filed by Jorge Gonzales in G.R. No. 161957 is DENIED WITH FINALITY. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION

G.R. No. 114323 July 23, 1998 OIL AND NATURAL GAS COMMISSION, petitioner, vs. COURT OF APPEALS and PACIFIC CEMENT COMPANY, INC., respondents.

MARTINEZ, J.: This proceeding involves the enforcement of a foreign judgment rendered by the Civil Judge of Dehra Dun, India in favor of the petitioner, OIL AND NATURAL GAS COMMISSION and against the private respondent, PACIFIC CEMENT COMPANY, INCORPORATED. The petitioner is a foreign corporation owned and controlled by the Government of India while the private respondent is a private corporation duly organized and existing under the laws of the Philippines. The present conflict between the petitioner and the private respondent has its roots in a contract entered into by and between both parties on February 26, 1983 whereby the private respondent undertook to supply the petitioner FOUR THOUSAND THREE HUNDRED (4,300) metric tons of oil well cement. In consideration therefor, the petitioner bound itself to pay the private respondent the amount of FOUR HUNDRED SEVENTYSEVEN THOUSAND THREE HUNDRED U.S. DOLLARS ($477,300.00) by opening an irrevocable, divisible, and confirmed letter of credit in favor of the latter. The oil well cement was loaded on board the ship MV SURUTANA NAVA at the port of Surigao City, Philippines for delivery at Bombay and Calcutta, India. However, due to a dispute between the shipowner and the private respondent, the cargo was held up in Bangkok and did not reach its point destination. Notwithstanding the fact that the private respondent had already received payment and despite several demands made by the petitioner, the private respondent failed to deliver the oil well cement. Thereafter, negotiations ensued between the parties and they agreed that the private respondent will replace the entire 4,300 metric tons of oil well cement with Class "G" cement cost free at the petitioner's designated port. However, upon inspection, the Class "G" cement did not conform to the petitioner's specifications. The petitioner then informed the private respondent that it was referring its claim to an arbitrator pursuant to Clause 16 of their contract which stipulates: Except where otherwise provided in the supply order/contract all questions and disputes, relating to the meaning of the specification designs, drawings and instructions herein before mentioned and as to quality of workmanship of the items ordered or as to any other question, claim, right or thing whatsoever, in any way arising out of or relating to the supply order/contract design, drawing, specification, instruction or these conditions or otherwise concerning the materials or the execution or failure to execute the same during stipulated/extended period or after the completion/abandonment thereof shall be referred to the sole arbitration of the persons appointed by Member of the Commission at the time of dispute. It will be no objection to any such appointment that the arbitrator so appointed is a Commission employer (sic) that he had to deal with the matter to which the supply or contract relates and that in

the course of his duties as Commission's employee he had expressed views on all or any of the matter in dispute or difference. The arbitrator to whom the matter is originally referred being transferred or vacating his office or being unable to act for any reason the Member of the Commission shall appoint another person to act as arbitrator in accordance with the terms of the contract/supply order. Such person shall be entitled to proceed with reference from the stage at which it was left by his predecessor. Subject as aforesaid the provisions of the Arbitration Act, 1940, or any Statutory modification or re-enactment there of and the rules made there under and for the time being in force shall apply to the arbitration proceedings under this clause. The arbitrator may with the consent of parties enlarge the time, from time to time, to make and publish the award.
The venue for arbitration shall be at Dehra dun. *
1

On July 23, 1988, the chosen arbitrator, one Shri N.N. Malhotra, resolved the dispute in petitioner's favor setting forth the arbitral award as follows: NOW THEREFORE after considering all facts of the case, the evidence, oral and documentarys adduced by the claimant and carefully examining the various written statements, submissions, letters, telexes, etc. sent by the respondent, and the oral arguments addressed by the counsel for the claimants, I, N.N. Malhotra, Sole Arbitrator, appointed under clause 16 of the supply order dated 26.2.1983, according to which the parties, i.e. M/S Oil and Natural Gas Commission and the Pacific Cement Co., Inc. can refer the dispute to the sole arbitration under the provision of the Arbitration Act. 1940, do hereby award and direct as follows: The Respondent will pay the following to the claimant: 1. Amount received by the Respondent against the letter of credit No. 11/19 dated 28.2.1983 US $ 477,300.00 2. Re-imbursement of expenditure incurred by the claimant on the inspection team's visit to Philippines in August 1985 US $ 3,881.00 3. L.C. Establishment charges incurred by the claimant US $ 1,252.82 4. Loss of interest suffered by claimant from 21.6.83 to 23.7.88 US $ 417,169.95 Total amount of award US $ 899,603.77 In addition to the above, the respondent would also be liable to pay to the claimant the interest at the rate of 6% on the above amount, with effect from 24.7.1988 up to the actual date of payment by the Respondent in full settlement of the claim as awarded or the date of the decree, whichever is earlier.

I determine the cost at Rs. 70,000/- equivalent to US $5,000 towards the expenses on Arbitration, legal expenses, stamps duly incurred by the claimant. The cost will be shared by the parties in equal proportion.
Pronounced at Dehra Dun to-day, the 23rd of July 1988.
2

To enable the petitioner to execute the above award in its favor, it filed a Petition before the Court of the Civil Judge in Dehra Dun. India (hereinafter referred to as the foreign court for brevity), praying that the decision of the arbitrator be made "the Rule of Court" in India. The foreign court issued notices to the private respondent for filing objections to the petition. The private respondent complied and sent its objections dated January 16, 1989. Subsequently, the said court directed the private respondent to pay the filing fees in order that the latter's objections could be given consideration. Instead of paying the required filing fees, the private respondent sent the following communication addressed to the Civil judge of Dehra Dun: The Civil Judge Dehra Dun (U.P.) India Re: Misc. Case No. 5 of 1989 M/S Pacific Cement Co., Inc. vs. ONGC Case Sir: 1. We received your letter dated 28 April 1989 only last 18 May 1989. 2. Please inform us how much is the court fee to be paid. Your letter did not mention the amount to be paid. 3. Kindly give us 15 days from receipt of your letter advising us how much to pay to comply with the same. Thank you for your kind consideration. Pacific Cement Co., Inc. By: Jose Cortes, Jr.
President
3

Without responding to the above communication, the foreign court refused to admit the private respondent's objections for failure to pay the required filing fees, and thereafter issued an Order on February 7, 1990, to wit: ORDER
Since objections filed by defendant have been rejected through Misc. Suit No. 5 on 7.2.90, therefore, award should be made Rule of the Court.

ORDER
Award dated 23.7.88, Paper No. 3/B-1 is made Rule of the Court. On the basis of conditions of award decree is passed. Award Paper No. 3/B-1 shall be a part of the decree. The plaintiff shall also be entitled

to get from defendant (US$ 899,603.77 (US$ Eight Lakhs ninety nine thousand six hundred and three 4 point seventy seven only) along with 9% interest per annum till the last date of realisation.

Despite notice sent to the private respondent of the foregoing order and several demands by the petitioner for compliance therewith, the private respondent refused to pay the amount adjudged by the foreign court as owing to the petitioner. Accordingly, the petitioner filed a complaint with Branch 30 of the Regional Trial Court (RTC) of Surigao City for the enforcement of the aforementioned judgment of the foreign court. The private respondent moved to dismiss the complaint on the following grounds: (1) plaintiffs lack of legal capacity to sue; (2) lack of cause of action; and (3) plaintiffs claim or demand has been waived, abandoned, or otherwise extinguished. The petitioner filed its opposition to the said motion to dismiss, and the private respondent, its rejoinder thereto. On January 3, 1992, the RTC issued an order upholding the petitioner's legal capacity to sue, albeit dismissing the complaint for lack of a valid cause of action. The RTC held that the rule prohibiting foreign corporations transacting business in the Philippines without a license from maintaining a suit in Philippine courts admits of an exception, that is, when the foreign corporation is suing on an isolated transaction as in this case. 5 Anent the issue of the sufficiency of the petitioner's cause of action, however, the RTC found the referral of the dispute between the parties to the arbitrator under Clause 16 of their contract erroneous. According to the RTC, [a] perusal of the shove-quoted clause (Clause 16) readily shows that the matter covered by its terms is limited to "ALL QUESTIONS AND DISPUTES, RELATING TO THE MEANING OF THE SPECIFICATION, DESIGNS, DRAWINGS AND INSTRUCTIONS HEREIN BEFORE MENTIONED and as to the QUALITY OF WORKMANSHIP OF THE ITEMS ORDERED or as to any other questions, claim, right or thing whatsoever, but qualified to "IN ANY WAY ARISING OR RELATING TO THE SUPPLY ORDER/CONTRACT, DESIGN, DRAWING, SPECIFICATION, etc.," repeating the enumeration in the opening sentence of the clause. The court is inclined to go along with the observation of the defendant that the breach, consisting of the non-delivery of the purchased materials, should have been properly litigated before a court of law, pursuant to Clause No. 15 of the Contract/Supply Order, herein quoted, to wit: "JURISDICTION
All questions, disputes and differences, arising under out of or in connection with this supply order, shall be subject to the EXCLUSIVE JURISDICTION OF THE COURT, within the local limits of whose jurisdiction and the place from which this supply order is 6 situated."

The RTC characterized the erroneous submission of the dispute to the arbitrator as a "mistake of law or fact amounting to want of jurisdiction". Consequently, the proceedings had before the arbitrator were null and void and the foreign court had therefore, adopted no legal award which could be the source of an enforceable right. 7 The petitioner then appealed to the respondent Court of Appeals which affirmed the dismissal of the complaint. In its decision, the appellate court concurred with the RTC's ruling that the arbitrator did not have jurisdiction over the dispute between the parties, thus, the foreign court could not validly adopt the arbitrator's award. In addition, the appellate court observed that the full text of the judgment of the foreign court contains the dispositive portion only and indicates no findings of fact and law as basis for the award. Hence, the said judgment cannot be enforced by any Philippine court as it would violate the constitutional provision that no decision shall be rendered by any court without expressing therein clearly and distinctly the facts and the law on which it is based. 8 The appellate court ruled further that the dismissal of the private respondent's objections for non-payment of the required legal fees, without the foreign court first replying to the private respondent's query as to the amount of legal fees to be paid, constituted want of notice or violation of due process. Lastly, it pointed out that the

arbitration proceeding was defective because the arbitrator was appointed solely by the petitioner, and the fact that the arbitrator was a former employee of the latter gives rise to a presumed bias on his part in favor of the petitioner. 9 A subsequent motion for reconsideration by the petitioner of the appellate court's decision was denied, thus, this petition for review on certiorari citing the following as grounds in support thereof: RESPONDENT COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE LOWER COURT'S ORDER OF DISMISSAL SINCE: A. THE NON-DELIVERY OF THE CARGO WAS A MATTER PROPERLY COGNIZABLE BY THE PROVISIONS OF CLAUSE 16 OF THE CONTRACT; B. THE JUDGMENT OF THE CIVIL COURT OF DEHRADUN, INDIA WAS AN AFFIRMATION OF THE FACTUAL AND LEGAL FINDINGS OF THE ARBITRATOR AND THEREFORE ENFORCEABLE IN THIS JURISDICTION;
C. EVIDENCE MUST BE RECEIVED TO REPEL THE EFFECT OF A PRESUMPTIVE RIGHT UNDER A 10 FOREIGN JUDGMENT.

The threshold issue is whether or not the arbitrator had jurisdiction over the dispute between the petitioner and the private respondent under Clause 16 of the contract. To reiterate, Clause 16 provides as follows:
Except where otherwise provided in the supply order/contract all questions and disputes, relating to the meaning of the specification designs, drawings and instructions herein before mentioned and as to quality of workmanship of the items ordered or as to any other question, claim, right or thing whatsoever, in any way arising out of or relating to the supply order/contract design, drawing, specification, instruction or these conditions or otherwise concerning the materials or the execution or failure to execute the same during stipulated/extended period or after the completion/abandonment thereof shall be referred to the sole arbitration of the persons appointed by Member of the Commission at the time of dispute. It will be no objection to any such appointment that the arbitrator so appointed is a Commission employer (sic) that he had to deal with the matter to which the supply or contract relates and that in the course of his duties 11 as Commission's employee he had expressed views on all or any of the matter in dispute or difference.

The dispute between the parties had its origin in the non-delivery of the 4,300 metric tons of oil well cement to the petitioner. The primary question that may be posed, therefore, is whether or not the non-delivery of the said cargo is a proper subject for arbitration under the above-quoted Clause 16. The petitioner contends that the same was a matter within the purview of Clause 16, particularly the phrase, ". . . or as to any other questions, claim, right or thing whatsoever, in any way arising or relating to the supply order/contract, design, drawing, specification, instruction . . .". 12 It is argued that the foregoing phrase allows considerable latitude so as to include non-delivery of the cargo which was a "claim, right or thing relating to the supply order/contract". The contention is bereft of merit. First of all, the petitioner has misquoted the said phrase, shrewdly inserting a comma between the words "supply order/contract" and "design" where none actually exists. An accurate reproduction of the phrase reads, ". . . or as to any other question, claim, right or thing whatsoever, in any way arising out of or relating to the supply order/contract design, drawing, specification, instruction or these conditions . . .". The absence of a comma between the words "supply order/contract" and "design" indicates that the former cannot be taken separately but should be viewed in conjunction with the words "design, drawing, specification, instruction or these conditions". It is thus clear that to fall within the purview of this phrase, the "claim, right or thing whatsoever" must arise out of or relate to the design, drawing, specification, or instruction of the supply order/contract. The petitioner also insists that the non-delivery of the cargo is not only covered by the foregoing phrase but also by the phrase, ". . . or otherwise concerning the materials or the execution or failure to execute the same during the stipulated/extended period or after completion/abandonment thereof . . .".

The doctrine of noscitur a sociis, although a rule in the construction of statutes, is equally applicable in the ascertainment of the meaning and scope of vague contractual stipulations, such as the aforementioned phrase. According to the maxim noscitur a sociis, where a particular word or phrase is ambiguous in itself or is equally susceptible of various meanings, its correct construction may be made clear and specific by considering the company of the words in which it is found or with which it is associated, or stated differently, its obscurity or doubt may be reviewed by reference to associated words. 13 A close examination of Clause 16 reveals that it covers three matters which may be submitted to arbitration namely, (1) all questions and disputes, relating to the meaning of the specification designs, drawings and instructions herein before mentioned and as to quality of workmanship of the items ordered; or (2) any other question, claim, right or thing whatsoever, in any way arising out of or relating to the supply order/contract design, drawing, specification, instruction or these conditions; or (3) otherwise concerning the materials or the execution or failure to execute the same during stipulated/extended period or after the completion/abandonment thereof. The first and second categories unmistakably refer to questions and disputes relating to the design, drawing, instructions, specifications or quality of the materials of the supply/order contract. In the third category, the clause, "execution or failure to execute the same", may be read as "execution or failure to execute the supply order/contract". But in accordance with the doctrine of noscitur a sociis, this reference to the supply order/contract must be construed in the light of the preceding words with which it is associated, meaning to say, as being limited only to the design, drawing, instructions, specifications or quality of the materials of the supply order/contract. The non-delivery of the oil well cement is definitely not in the nature of a dispute arising from the failure to execute the supply order/contract design, drawing, instructions, specifications or quality of the materials. That Clause 16 should pertain only to matters involving the technical aspects of the contract is but a logical inference considering that the underlying purpose of a referral to arbitration is for such technical matters to be deliberated upon by a person possessed with the required skill and expertise which may be otherwise absent in the regular courts. This Court agrees with the appellate court in its ruling that the non-delivery of the oil well cement is a matter properly cognizable by the regular courts as stipulated by the parties in Clause 15 of their contract:
All questions, disputes and differences, arising under out of or in connection with this supply order, shall be subject to the exclusive jurisdiction of the court, within the local limits of whose jurisdiction and the 14 place from which this supply order is situated.

The following fundamental principles in the interpretation of contracts and other instruments served as our guide in arriving at the foregoing conclusion:
Art. 1373. If some stipulation of any contract should admit of several meanings, it shall be understood as 15 bearing that import which is most adequate to render it effectual. Art. 1374. The various stipulations of a contract shall be interpreted together, attributing the doubtful ones 16 that sense which may result from all of them taken jointly. Sec. 11. Instrument construed so as to give effect to all provisions. In the construction of an instrument, where there are several provisions or particulars, such a construction is, if possible, to be adopted as will 17 give effect to all.

Thus, this Court has held that as in statutes, the provisions of a contract should not be read in isolation from the rest of the instrument but, on the contrary, interpreted in the light of the other related provisions. 18 The whole and every part of a contract must be considered in fixing the meaning of any of its harmonious whole. Equally applicable is the canon of construction that in interpreting a statute (or a contract as in this case), care should be taken

that every part thereof be given effect, on the theory that it was enacted as an integrated measure and not as a hodge-podge of conflicting provisions. The rule is that a construction that would render a provision inoperative should be avoided; instead, apparently inconsistent provisions should be reconciled whenever possible as parts of a coordinated and harmonious whole. 19 The petitioner's interpretation that Clause 16 is of such latitude as to contemplate even the non-delivery of the oil well cement would in effect render Clause 15 a mere superfluity. A perusal of Clause 16 shows that the parties did not intend arbitration to be the sole means of settling disputes. This is manifest from Clause 16 itself which is prefixed with the proviso, "Except where otherwise provided in the supply order/contract . . .", thus indicating that the jurisdiction of the arbitrator is not all encompassing, and admits of exceptions as may be provided elsewhere in the supply order/contract. We believe that the correct interpretation to give effect to both stipulations in the contract is for Clause 16 to be confined to all claims or disputes arising from or relating to the design, drawing, instructions, specifications or quality of the materials of the supply order/contract, and for Clause 15 to cover all other claims or disputes. The petitioner then asseverates that granting, for the sake of argument, that the non-delivery of the oil well cement is not a proper subject for arbitration, the failure of the replacement cement to conform to the specifications of the contract is a matter clearly falling within the ambit of Clause 16. In this contention, we find merit. When the 4,300 metric tons of oil well cement were not delivered to the petitioner, an agreement was forged between the latter and the private respondent that Class "G" cement would be delivered to the petitioner as replacement. Upon inspection, however, the replacement cement was rejected as it did not conform to the specifications of the contract. Only after this latter circumstance was the matter brought before the arbitrator. Undoubtedly, what was referred to arbitration was no longer the mere non-delivery of the cargo at the first instance but also the failure of the replacement cargo to conform to the specifications of the contract, a matter clearly within the coverage of Clause 16. The private respondent posits that it was under no legal obligation to make replacement and that it undertook the latter only "in the spirit of liberality and to foster good business relationship". 20 Hence, the undertaking to deliver the replacement cement and its subsequent failure to conform to specifications are not anymore subject of the supply order/contract or any of the provisions thereof. We disagree. As per Clause 7 of the supply order/contract, the private respondent undertook to deliver the 4,300 metric tons of oil well cement at "BOMBAY (INDIA) 2181 MT and CALCUTTA 2119 MT". 21 The failure of the private respondent to deliver the cargo to the designated places remains undisputed. Likewise, the fact that the petitioner had already paid for the cost of the cement is not contested by the private respondent. The private respondent claims, however, that it never benefited from the transaction as it was not able to recover the cargo that was unloaded at the port of Bangkok. 22 First of all, whether or not the private respondent was able to recover the cargo is immaterial to its subsisting duty to make good its promise to deliver the cargo at the stipulated place of delivery. Secondly, we find it difficult to believe this representation. In its Memorandum filed before this Court, the private respondent asserted that the Civil Court of Bangkok had already ruled that the non-delivery of the cargo was due solely to the fault of the carrier. 23 It is, therefore, but logical to assume that the necessary consequence of this finding is the eventual recovery by the private respondent of the cargo or the value thereof. What inspires credulity is not that the replacement was done in the spirit of liberality but that it was undertaken precisely because of the private respondent's recognition of its duty to do so under the supply order/contract, Clause 16 of which remains in force and effect until the full execution thereof. We now go to the issue of whether or not the judgment of the foreign court is enforceable in this jurisdiction in view of the private respondent's allegation that it is bereft of any statement

of facts and law upon which the award in favor of the petitioner was based. The pertinent portion of the judgment of the foreign court reads: ORDER
Award dated 23.7.88, Paper No. 3/B-1 is made Rule of the Court. On the basis of conditions of award decree is passed. Award Paper No. 3/B-1 shall be a part of the decree. The plaintiff shall also be entitled to get from defendant (US$ 899,603.77 (US$ Eight Lakhs ninety nine thousand six hundred and three 24 point seventy seven only) along with 9% interest per annum till the last date of realisation.

As specified in the order of the Civil Judge of Dehra Dun, "Award Paper No. 3/B-1 shall be a part of the decree". This is a categorical declaration that the foreign court adopted the findings of facts and law of the arbitrator as contained in the latter's Award Paper. Award Paper No. 3/B-1, contains an exhaustive discussion of the respective claims and defenses of the parties, and the arbitrator's evaluation of the same. Inasmuch as the foregoing is deemed to have been incorporated into the foreign court's judgment the appellate court was in error when it described the latter to be a "simplistic decision containing literally, only the dispositive portion". 25 The constitutional mandate that no decision shall be rendered by any court without expressing therein dearly and distinctly the facts and the law on which it is based does not preclude the validity of "memorandum decisions" which adopt by reference the findings of fact and conclusions of law contained in the decisions of inferior tribunals. In Francisco v. Permskul, 26 this Court held that the following memorandum decision of the Regional Trial Court of Makati did not transgress the requirements of Section 14, Article VIII of the Constitution: MEMORANDUM DECISION After a careful perusal, evaluation and study of the records of this case, this Court hereby adopts by reference the findings of fact and conclusions of law contained in the decision of the Metropolitan Trial Court of Makati, Metro Manila, Branch 63 and finds that there is no cogent reason to disturb the same.
WHEREFORE, judgment appealed from is hereby affirmed in toto.
27

(Emphasis supplied.)

This Court had occasion to make a similar pronouncement in the earlier case of Romero v. Court of Appeals, 28 where the assailed decision of the Court of Appeals adopted the findings and disposition of the Court of Agrarian Relations in this wise:
We have, therefore, carefully reviewed the evidence and made a re-assessment of the same, and We are persuaded, nay compelled, to affirm the correctness of the trial court's factual findings and the soundness of its conclusion. For judicial convenience and expediency, therefore, We hereby adopt by way of reference, the findings of facts and conclusions of the court a quo spread in its decision, as integral part 29 of this Our decision. (Emphasis supplied)

Hence, even in this jurisdiction, incorporation by reference is allowed if only to avoid the cumbersome reproduction of the decision of the lower courts, or portions thereof, in the decision of the higher court. 30This is particularly true when the decision sought to be incorporated is a lengthy and thorough discussion of the facts and conclusions arrived at, as in this case, where Award Paper No. 3/B-1 consists of eighteen (18) single spaced pages. Furthermore, the recognition to be accorded a foreign judgment is not necessarily affected by the fact that the procedure in the courts of the country in which such judgment was rendered differs from that of the courts of the country in which the judgment is relied on. 31 This Court has held that matters of remedy and procedure are governed by the lex fori or the internal law of the forum. 32 Thus, if under the procedural rules of the Civil Court of Dehra Dun, India, a valid judgment may be rendered by adopting the arbitrator's findings, then the same must be accorded respect. In the same vein, if the procedure in the foreign court mandates that an

Order of the Court becomes final and executory upon failure to pay the necessary docket fees, then the courts in this jurisdiction cannot invalidate the order of the foreign court simply because our rules provide otherwise. The private respondent claims that its right to due process had been blatantly violated, first by reason of the fact that the foreign court never answered its queries as to the amount of docket fees to be paid then refused to admit its objections for failure to pay the same, and second, because of the presumed bias on the part of the arbitrator who was a former employee of the petitioner. Time and again this Court has held that the essence of due process is to be found in the reasonable opportunity to be heard and submit any evidence one may have in support of one's defense 33 or stated otherwise, what is repugnant to due process is the denial of opportunity to be heard. 34 Thus, there is no violation of due process even if no hearing was conducted, where the party was given a chance to explain his side of the controversy and he waived his right to do so. 35 In the instant case, the private respondent does not deny the fact that it was notified by the foreign court to file its objections to the petition, and subsequently, to pay legal fees in order for its objections to be given consideration. Instead of paying the legal fees, however, the private respondent sent a communication to the foreign court inquiring about the correct amount of fees to be paid. On the pretext that it was yet awaiting the foreign court's reply, almost a year passed without the private respondent paying the legal fees. Thus, on February 2, 1990, the foreign court rejected the objections of the private respondent and proceeded to adjudicate upon the petitioner's claims. We cannot subscribe to the private respondent's claim that the foreign court violated its right to due process when it failed to reply to its queries nor when the latter rejected its objections for a clearly meritorious ground. The private respondent was afforded sufficient opportunity to be heard. It was not incumbent upon the foreign court to reply to the private respondent's written communication. On the contrary, a genuine concern for its cause should have prompted the private respondent to ascertain with all due diligence the correct amount of legal fees to be paid. The private respondent did not act with prudence and diligence thus its plea that they were not accorded the right to procedural due process cannot elicit either approval or sympathy from this Court. 36 The private respondent bewails the presumed bias on the part of the arbitrator who was a former employee of the petitioner. This point deserves scant consideration in view of the following stipulation in the contract:
. . . . It will be no objection any such appointment that the arbitrator so appointed is a Commission employer (sic) that he had to deal with the matter to which the supply or contract relates and that in the course of his duties as Commission's employee he had expressed views on all or any of the matter in 37 dispute or difference. (Emphasis supplied.)

Finally, we reiterate hereunder our pronouncement in the case of Northwest Orient Airlines, Inc. v. Court of Appeals 38 that: A foreign judgment is presumed to be valid and binding in the country from which it comes, until the contrary is shown. It is also proper to presume the regularity of the proceedings and the giving of due notice therein.
Under Section 50, Rule 39 of the Rules of Court, a judgment in an action in personam of a tribunal of a foreign country having jurisdiction to pronounce the same is presumptive evidence of a right as between the parties and their successors-in-interest by a subsequent title. The judgment may, however, be assailed by evidence of want of jurisdiction, want of notice to the party, collusion, fraud, or clear mistake of law or fact. Also, under Section 3 of Rule 131, a court, whether of the Philippines or elsewhere, enjoys the presumption that it was acting in the lawful exercise of jurisdiction and has regularly performed its 39 official duty.

Consequently, the party attacking a foreign judgment, the private respondent herein, had the burden of overcoming the presumption of its validity which it failed to do in the instant case. The foreign judgment being valid, there is nothing else left to be done than to order its enforcement, despite the fact that the petitioner merely prays for the remand of the case to the RTC for further proceedings. As this Court has ruled on the validity and enforceability of the said foreign judgment in this jurisdiction, further proceedings in the RTC for the reception of evidence to prove otherwise are no longer necessary. WHEREFORE, the instant petition is GRANTED, and the assailed decision of the Court of Appeals sustaining the trial court's dismissal of the OIL AND NATURAL GAS COMMISSION's complaint in Civil Case No. 4006 before Branch 30 of the RTC of Surigao City is REVERSED, and another in its stead is hereby rendered ORDERING private respondent PACIFIC CEMENT COMPANY, INC. to pay to petitioner the amounts adjudged in the foreign judgment subject of said case. SO ORDERED.

SECOND DIVISION

[G.R. No. 129916. March 26, 2001]

MAGELLAN CAPITAL MANAGEMENT CORPORATION and MAGELLAN CAPITAL HOLDINGS CORPORATION, petitioners, vs. ROLANDO M. ZOSA and HON. JOSE P. SOBERANO, JR., in his capacity as Presiding Judge of Branch 58 of the Regional Trial Court Of Cebu, 7th Judicial Region, respondents. DECISION
BUENA, J.:

Under a management agreement entered into on March 18, 1994, Magellan Capital Holdings Corporation [MCHC] appointed Magellan Capital Management Corporation [MCMC] as manager for the operation of its business and affairs.[1] Pursuant thereto, on the same month, MCHC, MCMC, and private respondent Rolando M. Zosa entered into an "Employment Agreement" designating Zosa as President and Chief Executive Officer of MCHC. Under the "Employment Agreement", the term of respondent Zosa's employment shall be coterminous with the management agreement, or until March 1996,[2] unless sooner terminated pursuant to the provisions of the Employment Agreement.[3] The grounds for termination of employment are also provided in the Employment Agreement. On May 10, 1995, the majority of MCHCs Board of Directors decided not to re-elect respondent Zosa as President and Chief Executive Officer of MCHC on account of loss of trust and confidence[4] arising from alleged violation of the resolution issued by MCHC's board of directors and of the non-competition clause of the Employment Agreement.[5] Nevertheless, respondent Zosa was elected to a new position as MCHC's Vice-Chairman/Chairman for New Ventures Development.[6] On September 26, 1995, respondent Zosa communicated his resignation for good reason from the position of Vice-Chairman under paragraph 7 of theEmployment Agreement on the ground that said position had less responsibility and scope than President and Chief Executive Officer. He demanded that he be given termination benefits as provided for in Section 8 (c) (i) (ii) and (iii) of the Employment Agreement.[7] In a letter dated October 20, 1995, MCHC communicated its non-acceptance of respondent Zosa's resignation for good reason, but instead informed him that the Employment Agreement is terminated for cause, effective November 19, 1995, in accordance with Section 7 (a) (v) of the said agreement, on account of his breach of Section 12 thereof. Respondent Zosa was further advised that he shall have no further rights under the said Agreement or any claims against the Manager or the Corporation except the right to receive within thirty (30) days from November 19, 1995, the amounts stated in Section 8 (a) (i) (ii) of the Agreement.[8] Disagreeing with the position taken by petitioners, respondent Zosa invoked the Arbitration Clause of the Employment Agreement, to wit: 23. Arbitration. In the event that any dispute, controversy or claim arises out of or under any provisions of this Agreement, then the parties hereto agree to submit such dispute, controversy or claim to arbitration as set forth in this Section and the determination to be made in such arbitration shall be final and binding. Arbitration shall be effected by a panel of three arbitrators. The Manager, Employee and Corporation shall designate one (1) arbitrator who shall, in turn, nominate and elect who among them shall be the chairman of the committee. Any such arbitration, including the rendering of an arbitration award, shall take place in Metro Manila. The arbitrators shall interpret this Agreement in accordance with the substantive laws of the Republic of the

Philippines. The arbitrators shall have no power to add to, subtract from or otherwise modify the terms of Agreement or to grant injunctive relief of any nature. Any judgment upon the award of the arbitrators may be entered in any court having jurisdiction thereof, with costs of the arbitration to be borne equally by the parties, except that each party shall pay the fees and expenses of its own counsel in the arbitration. On November 10, 1995, respondent Zosa designated his brother, Atty. Francis Zosa, as his representative in the arbitration panel[9] while MCHC designated Atty. Inigo S. Fojas[10] and MCMC nominated Atty. Enrique I. Quiason[11] as their respective representatives in the arbitration panel. However, instead of submitting the dispute to arbitration, respondent Zosa, on April 17, 1996, filed an action for damages against petitioners before the Regional Trial Court of Cebu [12] to enforce his benefits under the Employment Agreement. On July 3, 1996, petitioners filed a motion to dismiss [13] arguing that (1) the trial court has no jurisdiction over the instant case since respondent Zosa's claims should be resolved through arbitration pursuant to Section 23 of the Employment Agreement with petitioners; and (2) the venue is improperly laid since respondent Zosa, like the petitioners, is a resident of Pasig City and thus, the venue of this case, granting without admitting that the respondent has a cause of action against the petitioners cognizable by the RTC, should be limited only to RTC-Pasig City.[14] Meanwhile, respondent Zosa filed an amended complaint dated July 5, 1996. On August 1, 1996, the RTC Branch 58 of Cebu City issued an Order denying petitioners motion to dismiss upon the findings that (1) the validity and legality of the arbitration provision can only be determined after trial on the merits; and (2) the amount of damages claimed, which is over P100,000.00, falls within the jurisdiction of the RTC. [15] Petitioners filed a motion for reconsideration which was denied by the RTC in an order dated September 5, 1996.[16] In the interim, on August 22, 1996, in compliance with the earlier order of the court directing petitioners to file responsive pleading to the amended complaint, petitioners filed their Answer Ad Cautelam with counterclaim reiterating their position that the dispute should be settled through arbitration and the court had no jurisdiction over the nature of the action. [17] On October 21, 1996, the trial court issued its pre-trial order declaring the pre-trial stage terminated and setting the case for hearing. The order states: ISSUES: The Court will only resolve one issue in so far as this case is concerned, to wit: Whether or not the Arbitration Clause contained in Sec.23 of the Employment Agreement is void and of no effect: and, if it is void and of no effect, whether or not the plaintiff is entitled to damages in accordance with his complaint and the defendants in accordance with their counterclaim. It is understood, that in the event the arbitration clause is valid and binding between the parties, the parties shall submit their respective claim to the Arbitration Committee in accordance with the said arbitration clause, in which event, this case shall be deemed dismissed.[18] On November 18, 1996, petitioners filed their Motion Ad Cautelam for the Correction, Addition and Clarification of the Pre-trial Order dated November 15 1996,[19] which was denied by the court in an order dated November 28, 1996.[20] Thereafter, petitioners MCMC and MCHC filed a Motion Ad Cautelam for the parties to file their Memoranda to support their respective stand on the issue of the validity of the arbitration clause contained in the Employment Agreement. In an order dated December 13, 1996, the trial court denied the motion of petitioners MCMC and MCHC.

On January 17, 1997, petitioners MCMC and MCHC filed a petition for certiorari and prohibition under Rule 65 of the Rules of Court with the Court of Appeals, questioning the trial court orders dated August 1, 1996, September 5, 1996, and December 13, 1996.[21] On March 21, 1997, the Court of Appeals rendered a decision, giving due course to the petition, the decretal portion of which reads: WHEREFORE, the petition is GIVEN DUE COURSE. The respondent court is directed to resolve the issue on the validity or effectivity of the arbitration clause in the Employment Agreement, and to suspend further proceedings in the trial on the merits until the said issue is resolved. The questioned orders are set aside insofar as they contravene this Courts resolution of the issues raised as herein pronounced. The petitioner is required to remit to this Court the sum of P81.80 for cost within five (5) days from notice. SO ORDERED.[22] Petitioners filed a motion for partial reconsideration of the CA decision praying (1) for the dismissal of the case in the trial court, on the ground of lack of jurisdiction, and (2) that the parties be directed to submit their dispute to arbitration in accordance with the Employment Agreement dated March 1994. The CA, in a resolution promulgated on June 20, 1997, denied the motion for partial reconsideration for lack of merit. In compliance with the CA decision, the trial court, on July 18, 1997, rendered a decision declaring the arbitration clause in the Employment Agreementpartially void and of no effect. The dispositive portion of the decision reads: WHEREFORE, premises considered, judgment is hereby rendered partially declaring the arbitration clause of the Employment Agreement void and of no effect, only insofar as it concerns the composition of the panel of arbitrators, and directing the parties to proceed to arbitration in accordance with the Employment Agreement under the panel of three (3) arbitrators, one for the plaintiff, one for the defendants, and the third to be chosen by both the plaintiff and defendants. The other terms, conditions and stipulations in the arbitration clause remain in force and effect."[23] In view of the trial courts decision, petitioners filed this petition for review on certiorari, under Rule 45 of the Rules of Court, assigning the following errors for the Courts resolution: I. The trial court gravely erred when it ruled that the arbitration clause under the employment agreement is partially void and of no effect, considering that:
A. The arbitration clause in the employment agreement dated March 1994 between respondent Zosa and defendants MCHC and MCMC is valid and binding upon the parties thereto. B. In view of the fact that there are three parties to the employment agreement, it is but proper that each party be represented in the arbitration panel. C. The trial court grievously erred in its conclusion that petitioners MCMC and MCHC represent the same interest. D. Respondent Zosa is estopped from questioning the validity of the arbitration clause, including the right of petitioner MCMC to nominate its own arbitrator, which he himself has invoked.

II. In any event, the trial court acted without jurisdiction in hearing the case below, considering that it has no jurisdiction over the nature of the action or suit since controversies in the election or appointment of officers or managers of a corporation, such as the action brought by respondent Zosa, fall within the original and exclusive jurisdiction of the Securities and Exchange Commission.

III. Contrary to respondent Zosas allegation, the issue of the trial courts jurisdiction over the case below has not yet been resolved with finality considering that petitioners have expressly reserved their right to raise said issue in the instant petition. Moreover, the principle of the law of the case is not applicable in the instant case. IV. Contrary to respondent Zosas allegation, petitioners MCMC and MCHC are not guilty of forum shopping. V. Contrary to respondent Zosas allegation, the instant petition for review involves only questions of law and not of fact.[24] We rule against the petitioners. It is error for the petitioners to claim that the case should fall under the jurisdiction of the Securities and Exchange Commission [SEC, for brevity]. The controversy does not in anyway involve the election/appointment of officers of petitioner MCHC, as claimed by petitioners in their assignment of errors. Respondent Zosas amended complaint focuses heavily on the illegality of the Employment Agreements Arbitration Clause initially invoked by him in seeking his termination benefits under Section 8 of the employment contract. And under Republic Act No. 876, otherwise known as the Arbitration Law, it is the regional trial court which exercises jurisdiction over questions relating to arbitration. We thus advert to the following discussions made by the Court of Appeals, speaking thru Justice Minerva P. Gonzaga-Reyes,[25] in C.A.-G.R. S.P. No. 43059, viz: As regards the fourth assigned error, asserting that jurisdiction lies with the SEC, which is raised for the first time in this petition, suffice it to state that the Amended Complaint squarely put in issue the question whether the Arbitration Clause is valid and effective between the parties. Although the controversy which spawned the action concerns the validity of the termination of the service of a corporate officer, the issue on the validity and effectivity of the arbitration clause is determinable by the regular courts, and do not fall within the exclusive and original jurisdiction of the SEC. The determination and validity of the agreement is not a matter intrinsically connected with the regulation and internal affairs of corporations (see Pereyra vs. IAC, 181 SCRA 244; Sales vs. SEC, 169 SCRA 121); it is rather an ordinary case to be decided in accordance with the general laws, and do not require any particular expertise or training to interpret and apply (Viray vs. CA, 191 SCRA 308).[26] Furthermore, the decision of the Court of Appeals in CA-G.R. SP No. 43059 affirming the trial courts assumption of jurisdiction over the case has become the law of the case which now binds the petitioners. The law of the case doctrine has been defined as a term applied to an established rule that when an appellate court passes on a question and remands the cause to the lower court for further proceedings, the question there settled becomes the law of the case upon subsequent appeal.[27] To note, the CAs decision in CA-G.R. SP No. 43059 has already attained finality as evidenced by a Resolution of this Court ordering entry of judgment of said case, to wit: ENTRY OF JUDGMENT This is to certify that on September 8, 1997 a decision/resolution rendered in the above-entitled case was filed in this Office, the dispositive part of which reads as follows: G.R. No. 129615 (Magellan Capital Management Corporation, et al. vs. Court of Appeals, Rolando Zosa, et al.).- Considering the petitioners manifestation dated August 11, 1997 and withdrawal of intention to file petition for review on certiorari, the Court Resolved to DECLARE THIS CASE TERMINATED and DIRECT the Clerk of Court to INFORM the parties that the judgment sought to be reviewed has become final and executory, no appeal therefore having been timely perfected.

and that the same has, on September 17, 1997, become final and executory and is hereby recorded in the Book of Entries of Judgments. [28] Petitioners, therefore, are barred from challenging anew, through another remedial measure and in any other forum, the authority of the regional trial court to resolve the validity of the arbitration clause, lest they be truly guilty of forum-shopping which the courts consistently consider as a contumacious practice that derails the orderly administration of justice. Equally unavailing for the petitioners is the review by this Court, via the instant petition, of the factual findings made by the trial court that the composition of the panel of arbitrators would, in all probability, work injustice to respondent Zosa. We have repeatedly stressed that the jurisdiction of this Court in a petition for review on certiorari under Rule 45 of the Revised Rules of Court is limited to reviewing only errors of law, not of fact, unless the factual findings complained of are devoid of support by the evidence on record, or the assailed judgment is based on misapprehension of facts.[29] Even if procedural rules are disregarded, and a scrutiny of the merits of the case is undertaken, this Court finds the trial courts observations on why the composition of the panel of arbitrators should be voided, incisively correct so as to merit our approval. Thus, From the memoranda of both sides, the Court is of the view that the defendants [petitioner] MCMC and MCHC represent the same interest. There is no quarrel that both defendants are entirely two different corporations with personalities distinct and separate from each other and that a corporation has a personality distinct and separate from those persons composing the corporation as well as from that of any other legal entity to which it may be related. But as the defendants [herein petitioner] represent the same interest, it could never be expected, in the arbitration proceedings, that they would not protect and preserve their own interest, much less, would both or either favor the interest of the plaintiff. The arbitration law, as all other laws, is intended for the good and welfare of everybody. In fact, what is being challenged by the plaintiff herein is not the law itself but the provision of the Employment Agreement based on the said law, which is the arbitration clause but only as regards the composition of the panel of arbitrators. The arbitration clause in question provides, thus: In the event that any dispute, controversy or claim arise out of or under any provisions of this Agreement, then the parties hereto agree to submit such dispute, controversy or claim to arbitration as set forth in this Section and the determination to be made in such arbitration shall be final and binding. Arbitration shall be effected by a panel of three arbitrators. The Manager, Employee, and Corporation shall designate one (1) arbitrator who shall, in turn, nominate and elect as who among them shall be the chairman of the committee. Any such arbitration, including the rendering of an arbitration award, shall take place in Metro Manila. The arbitrators shall interpret this Agreement in accordance with the substantive laws of the Republic of the Philippines. The arbitrators shall have no power to add to, subtract from or otherwise modify the terms of this Agreement or to grant injunctive relief of any nature. Any judgment upon the award of the arbitrators may be entered in any court having jurisdiction thereof, with costs of the arbitration to be borne equally by the parties, except that each party shall pay the fees and expenses of its own counsel in the arbitration. (Emphasis supplied). From the foregoing arbitration clause, it appears that the two (2) defendants [petitioners] (MCMC and MCHC) have one (1) arbitrator each to compose the panel of three (3) arbitrators. As the defendant MCMC is the Manager of defendant MCHC, its decision or vote in the arbitration proceeding would naturally and certainly be in favor of its employer and the defendant MCHC would have to protect and preserve its own interest; hence, the two (2) votes of both defendants (MCMC and MCHC) would certainly be against the lone arbitrator for the plaintiff [herein defendant]. Hence, apparently, plaintiff [defendant] would never get or receive justice and fairness in the arbitration proceedings from the panel of arbitrators as provided in the aforequoted arbitration clause. In fairness and justice to the plaintiff [defendant], the two defendants (MCMC

and MCHC)[herein petitioners] which represent the same interest should be considered as one and should be entitled to only one arbitrator to represent them in the arbitration proceedings. Accordingly, the arbitration clause, insofar as the composition of the panel of arbitrators is concerned should be declared void and of no effect, because the law says, Any clause giving one of the parties power to choose more arbitrators than the other is void and of no effect (Article 2045, Civil Code). The dispute or controversy between the defendants (MCMC and MCHC) [herein petitioners] and the plaintiff [herein defendant] should be settled in the arbitration proceeding in accordance with the Employment Agreement, but under the panel of three (3) arbitrators, one (1) arbitrator to represent the plaintiff, one (1) arbitrator to represent both defendants (MCMC and MCHC)[herein petitioners] and the third arbitrator to be chosen by the plaintiff [defendant Zosa] and defendants [petitioners]. x x x xxx x x x[30]

In this connection, petitioners attempt to put respondent in estoppel in assailing the arbitration clause must be struck down. For one, this issue of estoppel, as likewise noted by the Court of Appeals, found its way for the first time only on appeal. Well-settled is the rule that issues not raised below cannot be resolved on review in higher courts. [31] Secondly, employment agreements such as the one at bar are usually contracts of adhesion. Any ambiguity in its provisions is generally resolved against the party who drafted the document. Thus, in the relatively recent case of Phil. Federation of Credit Cooperatives, Inc. (PFCCI) and Fr. Benedicto Jayoma vs. NLRC and Victoria Abril,[32] we had the occasion to stress that where a contract of employment, being a contract of adhesion, is ambiguous, any ambiguity therein should be construed strictly against the party who prepared it. And, finally, respondent Zosa never submitted himself to arbitration proceedings (as there was none yet) before bewailing the composition of the panel of arbitrators. He in fact, lost no time in assailing the arbitration clause upon realizing the inequities that may mar the arbitration proceedings if the existing line-up of arbitrators remained unchecked. We need only to emphasize in closing that arbitration proceedings are designed to level the playing field among the parties in pursuit of a mutually acceptable solution to their conflicting claims. Any arrangement or scheme that would give undue advantage to a party in the negotiating table is anathema to the very purpose of arbitration and should, therefore, be resisted. WHEREFORE, premises considered, the petition is hereby DISMISSED and the decision of the trial court dated July 18, 1997 is AFFIRMED. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

G.R. No. 120105 March 27, 1998 BF CORPORATION, petitioner, vs. COURT OF APPEALS, SHANGRI-LA PROPERTIES, INC., RUFO B. COLAYCO, ALFREDO C. RAMOS, MAXIMO G. LICAUCO III and BENJAMIN C. RAMOS, respondents.

ROMERO, J.: The basic issue in this petition for review on certiorari is whether or not the contract for the construction of the EDSA Plaza between petitioner BF Corporation and respondent Shangri-la Properties, Inc. embodies an arbitration clause in case of disagreement between the parties in the implementation of contractual provisions. Petitioner and respondent Shangri-la Properties, Inc. (SPI) entered into an agreement whereby the latter engaged the former to construct the main structure of the "EDSA Plaza Project," a shopping mall complex in the City of Mandaluyong. The construction work was in progress when SPI decided to expand the project by engaging the services of petitioner again. Thus, the parties entered into an agreement for the main contract works after which construction work began. However, petitioner incurred delay in the construction work that SPI considered as "serious and substantial." 1 On the other hand, according to petitioner, the construction works "progressed in faithful compliance with the First Agreement until a fire broke out on November 30, 1990 damaging Phase I" of the Project. 2 Hence, SPI proposed the re-negotiation of the agreement between them. Consequently, on May 30, 1991, petitioner and SPI entered into a written agreement denominated as "Agreement for the Execution of Builder's Work for the EDSA Plaza Project." Said agreement would cover the construction work on said project as of May 1, 1991 until its eventual completion. According to SPI, petitioner "failed to complete the construction works and abandoned the project." 3 This resulted in disagreements between the parties as regards their respective liabilities under the contract. On July 12, 1993, upon SPI's initiative, the parties' respective representatives met in conference but they failed to come to an agreement. 4 Barely two days later or on July 14, 1993, petitioner filed with the Regional Trial Court of Pasig a complaint for collection of the balance due under the construction agreement. Named defendants therein were SPI and members of its board of directors namely, Alfredo C. Ramos, Rufo B. Calayco, Antonio B. Olbes, Gerardo O. Lanuza, Jr., Maximo G. Licauco III and Benjamin C. Ramos. On August 3, 1993, SPI and its co-defendants filed a motion to suspend proceedings instead of filing an answer. The motion was anchored on defendants' allegation that the formal trade contract for the construction of the project provided for a clause requiring prior resort to arbitration before judicial intervention could be invoked in any dispute arising from the

contract. The following day, SPI submitted a copy of the conditions of the contract containing the arbitration clause that it failed to append to its motion to suspend proceedings. Petitioner opposed said motion claiming that there was no formal contract between the parties although they entered into an agreement defining their rights and obligations in undertaking the project. It emphasized that the agreement did not provide for arbitration and therefore the court could not be deprived of jurisdiction conferred by law by the mere allegation of the existence of an arbitration clause in the agreement between the parties. In reply to said opposition, SPI insisted that there was such an arbitration clause in the existing contract between petitioner and SPI. It alleged that suspension of proceedings would not necessarily deprive the court of its jurisdiction over the case and that arbitration would expedite rather than delay the settlement of the parties' respective claims against each other. In a rejoinder to SPI's reply, petitioner reiterated that there was no arbitration clause in the contract between the parties. It averred that granting that such a clause indeed formed part of the contract, suspension of the proceedings was no longer proper. It added that defendants should be declared in default for failure to file their answer within the reglementary period. In its sur-rejoinder, SPI pointed out the significance of petitioner's admission of the due execution of the "Articles of Agreement." Thus, on page D/6 thereof, the signatures of Rufo B. Colayco, SPI president, and Bayani Fernando, president of petitioner appear, while page D/7 shows that the agreement is a public document duly notarized on November 15, 1991 by Notary Public Nilberto R. Briones as document No. 345, page 70, book No. LXX, Series of 1991 of his notarial register. 5 Thereafter, upon a finding that an arbitration clause indeed exists, the lower court 6 denied the motion to suspend proceedings, thus: It appears from the said document that in the letter-agreement dated May 30, 1991 (Annex C, Complaint), plaintiff BF and defendant Shangri-La Properties, Inc. agreed upon the terms and conditions of the Builders Work for the EDSA Plaza Project (Phases I, II and Carpark), subject to the execution by the parties of a formal trade contract. Defendants have submitted a copy of the alleged trade contract, which is entitled "Contract Documents For Builder's Work Trade Contractor" dated 01 May 1991, page 2 of which is entitled "Contents of Contract Documents" with a list of the documents therein contained, and Section A thereof consists of the abovementioned Letter-Agreement dated May 30, 1991. Section C of the said Contract Documents is entitled "Articles of Agreement and Conditions of Contract" which, per its Index, consists of Part A (Articles of Agreement) and B (Conditions of Contract). The said Articles of Agreement appears to have been duly signed by President Rufo B. Colayco of Shangri-La Properties, Inc. and President Bayani F. Fernando of BF and their witnesses, and was thereafter acknowledged before Notary Public Nilberto R. Briones of Makati, Metro Manila on November 15, 1991. The said Articles of Agreement also provides that the "Contract Documents" therein listed "shall be deemed an integral part of this Agreement", and one of the said documents is the "Conditions of Contract" which contains the Arbitration Clause relied upon by the defendants in their Motion to Suspend Proceedings. This Court notes, however, that the 'Conditions of Contract' referred to, contains the following provisions: 3. Contract Document. Three copies of the Contract Documents referred to in the Articles of Agreement shall be signed by the parties to the contract and

distributed to the Owner and the Contractor for their safe keeping." (emphasis supplied). And it is significant to note further that the said "Conditions of Contract" is not duly signed by the parties on any page thereof although it bears the initials of BF's representatives (Bayani F. Fernando and Reynaldo M. de la Cruz) without the initials thereon of any representative of Shangri-La Properties, Inc. Considering the insistence of the plaintiff that the said Conditions of Contract was not duly executed or signed by the parties, and the failure of the defendants to submit any signed copy of the said document, this Court entertains serious doubt whether or not the arbitration clause found in the said Conditions of Contract is binding upon the parties to the Articles of Agreement." (Emphasis supplied.) The lower court then ruled that, assuming that the arbitration clause was valid and binding, still, it was "too late in the day for defendants to invoke arbitration." It quoted the following provision of the arbitration clause: Notice of the demand for arbitration of a dispute shall be filed in writing with the other party to the contract and a copy filed with the Project Manager. The demand for arbitration shall be made within a reasonable time after the dispute has arisen and attempts to settle amicably have failed; in no case, however, shall the demand he made be later than the time of final payment except as otherwise expressly stipulated in the contract. Against the above backdrop, the lower court found that per the May 30, 1991 agreement, the project was to be completed by October 31, 1991. Thereafter, the contractor would pay P80,000 for each day of delay counted from November 1, 1991 with "liquified (sic) damages up to a maximum of 5% of the total contract price." The lower court also found that after the project was completed in accordance with the agreement that contained a provision on "progress payment billing," SPI "took possession and started operations thereof by opening the same to the public in November, 1991." SPI, having failed to pay for the works, petitioner billed SPI in the total amount of P110,883,101.52, contained in a demand letter sent by it to SPI on February 17, 1993. Instead of paying the amount demanded, SPI set up its own claim of P220,000,000.00 and scheduled a conference on that claim for July 12, 1993. The conference took place but it proved futile. Upon the above facts, the lower court concluded: Considering the fact that under the supposed Arbitration Clause invoked by defendants, it is required that "Notice of the demand for arbitration of a dispute shall be filed in writing with the other party . . . . in no case . . . . later than the time of final payment . . . "which apparently, had elapsed, not only because defendants had taken possession of the finished works and the plaintiff's billings for the payment thereof had remained pending since November, 1991 up to the filing of this case on July 14, 1993, but also for the reason that defendants have failed to file any written notice of any demand for arbitration during the said long period of one year and eight months, this Court finds that it cannot stay the proceedings in this case as required by Sec. 7 of Republic Act No. 876, because defendants are in default in proceeding with such arbitration. The lower court denied SPI's motion for reconsideration for lack of merit and directed it and the other defendants to file their responsive pleading or answer within fifteen (15) days from notice.

Instead of filing an answer to the complaint, SPI filed a petition for certiorari under Rule 65 of the Rules of Court before the Court of Appeals. Said appellate court granted the petition, annulled and set aside the orders and stayed the proceedings in the lower court. In so ruling, the Court of Appeals held: The reasons given by the respondent Court in denying petitioners' motion to suspend proceedings are untenable. 1. The notarized copy of the articles of agreement attached as Annex A to petitioners' reply dated August 26, 1993, has been submitted by them to the respondent Court (Annex G, petition). It bears the signature of petitioner Rufo B. Colayco, president of petitioner Shangri-La Properties, Inc., and of Bayani Fernando, president of respondent Corporation (Annex G-1, petition). At page D/4 of said articles of agreement it is expressly provided that the conditions of contract are "deemed an integral part" thereof (page 188, rollo). And it is at pages D/42 to D/44 of the conditions of contract that the provisions for arbitration are found (Annexes G-3 to G-5, petition, pp. 227-229). Clause No. 35 on arbitration specifically provides: Provided always that in case any dispute or difference shall arise between the Owner or the Project Manager on his behalf and the Contractor, either during the progress or after the completion or abandonment of the Works as to the construction of this Contract or as to any matter or thing of whatsoever nature arising thereunder or in connection therewith (including any matter or being left by this Contract to the discretion of the Project Manager or the withholding by the Project Manager of any certificate to which the Contractor may claim to be entitled or the measurement and valuation mentioned in clause 30 (5) (a) of these Conditions' or the rights and liabilities of the parties under clauses 25, 26, 32 or 33 of these Conditions), the Owner and the Contractor hereby agree to exert all efforts to settle their differences or dispute amicably. Failing these efforts then such dispute or difference shall be referred to Arbitration in accordance with the rules and procedures of the Philippine Arbitration Law. The fact that said conditions of contract containing the arbitration clause bear only the initials of respondent Corporation's representatives, Bayani Fernando and Reynaldo de la Cruz, without that of the representative of petitioner ShangriLa Properties, Inc. does not militate against its effectivity. Said petitioner having categorically admitted that the document, Annex A to its reply dated August 26, 1993 (Annex G, petition), is the agreement between the parties, the initial or signature of said petitioner's representative to signify conformity to arbitration is no longer necessary. The parties, therefore, should be allowed to submit their dispute to arbitration in accordance with their agreement. 2. The respondent Court held that petitioners "are in default in proceeding with such arbitration." It took note of "the fact that under the supposed Arbitration Clause invoked by defendants, it is required that "Notice of the demand for arbitration of a dispute shall be filed in writing with the other party . . . in no case . . . later than the time of final payment," which apparently, had elapsed, not only because defendants had taken possession of the finished works and the plaintiff's billings for the payment thereof had remained pending since November, 1991 up to the filing of this case on July 14, 1993, but also for the reason that defendants have failed to file any written notice of any demand for arbitration during the said long period of one year and eight months, . . . ."

Respondent Court has overlooked the fact that under the arbitration clause Notice of the demand for arbitration dispute shall be filed in writing with the other party to the contract and a copy filed with the Project Manager. The demand for arbitration shall be made within a reasonable time after the dispute has arisen and attempts to settle amicably had failed; in no case, however, shall the demand be made later than the time of final payment except as otherwise expressly stipulated in the contract (emphasis supplied) quoted in its order (Annex A, petition). As the respondent Court there said, after the final demand to pay the amount of P110,883,101.52, instead of paying, petitioners set up its own claim against respondent Corporation in the amount of P220,000,000.00 and set a conference thereon on July 12, 1993. Said conference proved futile. The next day, July 14, 1993, respondent Corporation filed its complaint against petitioners. On August 13, 1993, petitioners wrote to respondent Corporation requesting arbitration. Under the circumstances, it cannot be said that petitioners' resort to arbitration was made beyond reasonable time. Neither can they be considered in default of their obligation to respondent Corporation. Hence, this petition before this Court. Petitioner assigns the following errors: A THE COURT OF APPEALS ERRED IN ISSUING THE EXTRAORDINARY WRIT OF CERTIORARIALTHOUGH THE REMEDY OF APPEAL WAS AVAILABLE TO RESPONDENTS. B THE COURT OF APPEALS ERRED IN FINDING GRAVE ABUSE OF DISCRETION IN THE FACTUAL FINDINGS OF THE TRIAL COURT THAT: (i) THE PARTIES DID NOT ENTER INTO AN AGREEMENT TO ARBITRATE. (ii) ASSUMING THAT THE PARTIES DID ENTER INTO THE AGREEMENT TO ARBITRATE, RESPONDENTS ARE ALREADY IN DEFAULT IN INVOKING THE AGREEMENT TO ARBITRATE. On the first assigned error, petitioner contends that the Order of the lower court denying the motion to suspend proceedings "is a resolution of an incident on the merits." As such, upon the continuation of the proceedings, the lower court would appreciate the evidence adduced in their totality and thereafter render a decision on the merits that may or may not sustain the existence of an arbitration clause. A decision containing a finding that the contract has no arbitration clause can then be elevated to a higher court "in an ordinary appeal" where an adequate remedy could be obtained. Hence, to petitioner, the Court of Appeals should have dismissed the petition forcertiorari because the remedy of appeal would still be available to private respondents at the proper time. 7 The above contention is without merit. The rule that the special civil action of certiorari may not be invoked as a substitute for the remedy of appeal is succinctly reiterated in Ongsitco v. Court of Appeals 8 as follows:

. . . . Countless times in the past, this Court has held that "where appeal is the proper remedy,certiorari will not lie." The writs of certiorari and prohibition are remedies to correct lack or excess of jurisdiction or grave abuse of discretion equivalent to lack of jurisdiction committed by a lower court. "Where the proper remedy is appeal, the action for certiorari will not be entertained. . . . Certiorari is not a remedy for errors of judgment. Errors of judgment are correctible by appeal, errors of jurisdiction are reviewable by certiorari." Rule 65 is very clear. The extraordinary remedies of certiorari, prohibition and mandamus are available only when "there is no appeal or any plain, speedy and adequate remedy in the ordinary course of law . . . ." That is why they are referred to as "extraordinary." . . . . The Court has likewise ruled that "certiorari will not be issued to cure errors in proceedings or correct erroneous conclusions of law or fact. As long as a court acts within its jurisdiction, any alleged errors committed in the exercise of its jurisdiction will amount to nothing more than errors of judgment which are reviewable by timely appeal and not by a special civil action of certiorari." 9 This is not exactly so in the instant case. While this Court does not deny the eventual jurisdiction of the lower court over the controversy, the issue posed basically is whether the lower court prematurely assumed jurisdiction over it. If the lower court indeed prematurely assumed jurisdiction over the case, then it becomes an error of jurisdiction which is a proper subject of a petition for certiorari before the Court of Appeals. And if the lower court does not have jurisdiction over the controversy, then any decision or order it may render may be annulled and set aside by the appellate court. However, the question of jurisdiction, which is a question of law depends on the determination of the existence of the arbitration clause, which is a question of fact. In the instant case, the lower court found that there exists an arbitration clause. However, it ruled that in contemplation of law, said arbitration clause does not exist. The issue, therefore, posed before the Court of Appeals in a petition for certiorari is whether the Arbitration Clause does not in fact exist. On its face, the the question is one of fact which is not proper in a petition forcertiorari. The Court of Appeals found that an Arbitration Clause does in fact exist. In resolving said question of fact, the Court of Appeals interpreted the construction of the subject contract documents containing the Arbitration Clause in accordance with Republic Act No. 876 (Arbitration Law) and existing jurisprudence which will be extensively discussed hereunder. In effect, the issue posed before the Court of Appeals was likewise a question of law. Being a question of law, the private respondents rightfully invoked the special civil action of certiorari. It is that mode of appeal taken by private respondents before the Court of Appeals that is being questioned by the petitioners before this Court. But at the heart of said issue is the question of whether there exists an Arbitration Clause because if an Arbitration Clause does not exist, then private respondents took the wrong mode of appeal before the Court of Appeals. For this Court to be able to resolve the question of whether private respondents took the proper mode of appeal, which, incidentally, is a question of law, then it has to answer the core issue of whether there exists an Arbitration Clause which, admittedly, is a question of fact. Moreover, where a rigid application of the rule that certiorari cannot be a substitute for appeal will result in a manifest failure or miscarriage of justice, the provisions of the Rules of Court which are technical rules may be relaxed. 10 As we shall show hereunder, had the Court of Appeals dismissed the petition for certiorari, the issue of whether or not an arbitration clause exists in the contract would not have been resolved in accordance with evidence extant in the

record of the case. Consequently, this would have resulted in a judicial rejection of a contractual provision agreed by the parties to the contract. In the same vein, this Court holds that the question of the existence of the arbitration clause in the contract between petitioner and private respondents is a legal issue that must be determined in this petition for review oncertiorari. Petitioner, while not denying that there exists an arbitration clause in the contract in question, asserts that in contemplation of law there could not have been one considering the following points. First, the trial court found that the "conditions of contract" embodying the arbitration clause is not duly signed by the parties. Second, private respondents misrepresented before the Court of Appeals that they produced in the trial court a notarized duplicate original copy of the construction agreement because what were submitted were mere photocopies thereof. The contract(s) introduced in court by private respondents were therefore "of dubious authenticity" because: (a) the Agreement for the Execution of Builder's Work for the EDSA Plaza Project does not contain an arbitration clause, (b) private respondents "surreptitiously attached as Annexes "G-3" to "G-5" to their petition before the Court of Appeals but these documents are not parts of the Agreement of the parties as "there was no formal trade contract executed," (c) if the entire compilation of documents "is indeed a formal trade contract," then it should have been duly notarized, (d) the certification from the Records Management and Archives Office dated August 26, 1993 merely states that "the notarial record of Nilberto Briones . . . is available in the files of (said) office as Notarial Registry Entry only," (e) the same certification attests that the document entered in the notarial registry pertains to the Articles of Agreement only without any other accompanying documents, and therefore, it is not a formal trade contract, and (f) the compilation submitted by respondents are a "mere hodge-podge of documents and do not constitute a single intelligible agreement." In other words, petitioner denies the existence of the arbitration clause primarily on the ground that the representatives of the contracting corporations did not sign the "Conditions of Contract" that contained the said clause. Its other contentions, specifically that insinuating fraud as regards the alleged insertion of the arbitration clause, are questions of fact that should have been threshed out below. This Court may as well proceed to determine whether the arbitration clause does exist in the parties' contract. Republic Act No. 876 provides for the formal requisites of an arbitration agreement as follows: Sec. 4. Form of arbitration agreement. A contract to arbitrate a controversy thereafter arising between the parties, as well as a submission to arbitrate an existing controversy, shall be in writing and subscribed by the party sought to be charged, or by his lawful agent. The making of a contract or submission for arbitration described in section two hereof, providing for arbitration of any controversy, shall be deemed a consent of the parties of the province or city where any of the parties resides, to enforce such contract of submission. (Emphasis supplied.). The formal requirements of an agreement to arbitrate are therefore the following: (a) it must be in writing and (b) it must be subscribed by the parties or their representatives. There is no denying that the parties entered into a written contract that was submitted in evidence before the lower court. To "subscribe" means to write underneath, as one's name; to sign at the end of a document. 11 That word may sometimes be construed to mean to give consent to or to attest. 12 The Court finds that, upon a scrutiny of the records of this case, these requisites were complied with in the contract in question. The Articles of Agreement, which incorporates all the other contracts and agreements between the parties, was signed by representatives of both parties and duly notarized. The failure of the private respondent's representative to initial

the "Conditions of Contract" would therefor not affect compliance with the formal requirements for arbitration agreements because that particular portion of the covenants between the parties was included by reference in the Articles of Agreement. Petitioner's contention that there was no arbitration clause because the contract incorporating said provision is part of a "hodge-podge" document, is therefore untenable. A contract need not be contained in a single writing. It may be collected from several different writings which do not conflict with each other and which, when connected, show the parties, subject matter, terms and consideration, as in contracts entered into by correspondence. 13 A contract may be encompassed in several instruments even though every instrument is not signed by the parties, since it is sufficient if the unsigned instruments are clearly identified or referred to and made part of the signed instrument or instruments. Similarly, a written agreement of which there are two copies, one signed by each of the parties, is binding on both to the same extent as though there had been only one copy of the agreement and both had signed it. 14 The flaw in petitioner's contentions therefore lies in its having segmented the various components of the whole contract between the parties into several parts. This notwithstanding, petitioner ironically admits the execution of the Articles of Agreement. Notably, too, the lower court found that the said Articles of Agreement "also provides that the 'Contract Documents' therein listed 'shall be deemed an integral part of this Agreement,' and one of the said documents is the 'Conditions of Contract' which contains the Arbitration Clause.'" It is this Articles of Agreement that was duly signed by Rufo B. Colayco, president of private respondent SPI, and Bayani F. Fernando, president of petitioner corporation. The same agreement was duly subscribed before notary public Nilberto R. Briones. In other words, the subscription of the principal agreement effectively covered the other documents incorporated by reference therein. This Court likewise does not find that the Court of Appeals erred in ruling that private respondents were not in default in invoking the provisions of the arbitration clause which states that "(t)he demand for arbitration shall be made within a reasonable time after the dispute has arisen and attempts to settle amicably had failed." Under the factual milieu, private respondent SPI should have paid its liabilities tinder the contract in accordance with its terms. However, misunderstandings appeared to have cropped up between the parties ostensibly brought about by either delay in the completion of the construction work or by force majeure or the fire that partially gutted the project. The almost two-year delay in paying its liabilities may not therefore be wholly ascribed to private respondent SPI. Besides, private respondent SPI's initiative in calling for a conference between the parties was a step towards the agreed resort to arbitration. However, petitioner posthaste filed the complaint before the lower court. Thus, while private respondent SPI's request for arbitration on August 13, 1993 might appear an afterthought as it was made after it had filed the motion to suspend proceedings, it was because petitioner also appeared to act hastily in order to resolve the controversy through the courts. The arbitration clause provides for a "reasonable time" within which the parties may avail of the relief under that clause. "Reasonableness" is a relative term and the question of whether the time within which an act has to be done is reasonable depends on attendant circumstances. 15 This Court finds that under the circumstances obtaining in this case, a onemonth period from the time the parties held a conference on July 12, 1993 until private respondent SPI notified petitioner that it was invoking the arbitration clause, is a reasonable time. Indeed, petitioner may not be faulted for resorting to the court to claim what was due it under the contract. However, we find its denial of the existence of the arbitration clause as an attempt to cover up its misstep in hurriedly filing the complaint before the lower court. In this connection, it bears stressing that the lower court has not lost its jurisdiction over the case. Section 7 of Republic Act No. 876 provides that proceedings therein have only been stayed. After the special proceeding of arbitration 16 has been pursued and completed, then the lower court may confirm the award 17 made by the arbitrator.

It should be noted that in this jurisdiction, arbitration has been held valid and constitutional. Even before the approval on June 19, 1953 of Republic Act No. 876, this Court has countenanced the settlement of disputes through arbitration. 18 Republic Act No. 876 was adopted to supplement the New Civil Code's provisions on arbitration. 19 Its potentials as one of the alternative dispute resolution methods that are now rightfully vaunted as "the wave of the future" in international relations, is recognized worldwide. To brush aside a contractual agreement calling for arbitration in case of disagreement between the parties would therefore be a step backward. WHEREFORE, the questioned Decision of the Court of Appeals is hereby AFFIRMED and the petition for certiorariDENIED. This Decision is immediately executory. Costs against petitioner. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 182248 December 18, 2008

EQUITABLE PCI BANKING CORPORATION,1 GEORGE L. GO, PATRICK D. GO, GENEVIEVE W.J. GO, FERDINAND MARTIN G. ROMUALDEZ, OSCAR P. LOPEZ-DEE, RENE J. BUENAVENTURA, GLORIA L. TAN-CLIMACO, ROGELIO S. CHUA, FEDERICO C. PASCUAL, LEOPOLDO S. VEROY, WILFRIDO V. VERGARA, EDILBERTO V. JAVIER, ANTHONY F. CONWAY, ROMULAD U. DY TANG, WALTER C. WESSMER, and ANTONIO N. COTOCO, petitioners, vs. RCBC CAPITAL CORPORATION, respondent. DECISION VELASCO, JR., J.: The Case This Petition for Review on Certiorari under Rule 45 seeks the reversal of the January 8, 20082 and March 17, 20083 Orders of the Regional Trial Court (RTC), Branch 148 in Makati City in SP Proc. Case No. 6046, entitled In the Matter of ICC Arbitration Ref. No. 13290/MS/JB/JEM Between RCBC Capital Corporation, (Claimant), and Equitable PCI Banking Corporation, Inc. et al., (Respondents). The assailed January 8, 2008 Order confirmed the Partial Award dated September 27, 20074 rendered by the International Chamber of Commerce-International Court of Arbitration (ICC-ICA) in Case No. 13290/MS/JB/JEM, entitled RCBC Capital Corporation (Philippines) v. Equitable PCI Bank, Inc. & Others (Philippines). The March 17, 2008 Order denied petitioners motion for reconsideration of the January 8, 2008 Order. The Facts On May 24, 2000, petitioners Equitable PCI Bank, Inc. (EPCIB) and the individual shareholders of Bankard, Inc., as sellers, and respondent RCBC Capital Corporation (RCBC), as buyer, executed a Share Purchase Agreement5(SPA) for the purchase of petitioners interests in Bankard, representing 226,460,000 shares, for the price of PhP 1,786,769,400. To expedite the purchase, RCBC agreed to dispense with the conduct of a due diligence audit on the financial status of Bankard. Under the SPA, RCBC undertakes, on the date of contract execution, to deposit, as downpayment, 20% of the purchase price, or PhP 357,353,880, in an escrow account. The escrowed amount, the SPA stated, should be released to petitioners on an agreed-upon release date and the balance of the purchase price shall be delivered to the share buyers upon the fulfillment of certain conditions agreed upon, in the form of a managers check. The other relevant provisions of the SPA are: Section 5. Sellers Representations and Warranties The SELLERS jointly and severally represent and warrant to the BUYER that: xxxx The Financial Condition of Bankard

g. The audited financial statements of Bankard for the three (3) fiscal years ended December 31, 1997, 1998 and 1999, and the unaudited financial statements for the first quarter ended 31 March 2000, are fair and accurate, and complete in all material respects, and have been prepared in accordance with generally accepted accounting principles consistently followed throughout the period indicated and: i) the balance sheet of Bankard as of 31 December 1999, as prepared and certified by SGV & Co. ("SGV"), and the unaudited balance sheet for the first quarter ended 31 March 2000, present a fair and accurate statement as of those dates, of Bankards financial condition and of all its assets and liabilities, and is complete in all material respects; and ii) the statements of Bankards profit and loss accounts for the fiscal years 1996 to 1999, as prepared and certified by SGV, and the unaudited profit and loss accounts for the first quarter ended 31 March 2000, fairly and accurately present the results of the operations of Bankard for the periods indicated, and are complete in all material respects. h. Except as disclosed in the Disclosures, and except to the extent set forth or reserved in the audited financial statements of Bankard as of 31 December 1999 and its unaudited financial statements as of 31 March 2000, Bankard, as of such dates and up to 31 May 2000, had and shall have no liabilities, omissions or mistakes in its records which will have material adverse effect on the net worth or financial condition of Bankard to the extent of more than One Hundred Million Pesos (P100,000,000.00) in the aggregate. In the event such material adverse effect on the net worth or financial condition of Bankard exceeds One Hundred Million Pesos (P100,000,000.00), the Purchase Price shall be reduced in accordance with the following formula: Reduction in Purchase Price = X multiplied by 226,460,000 where Amount by which negative adjustment exceeds P100 Million X = -------------------------------------------- (1.925) 338,000,000 xxxx Section 7. Remedies for Breach of Warranties a. If any of the representations and warranties of any or all of the SELLERS or the BUYER (the "Defaulting Party") contained in Sections 5 and 6 shall be found to be untrue when made and/or as of the Closing Date, the other party, i.e., the BUYER if the Defaulting Party is any or all of the SELLERS and the SELLERS if the Defaulting Party is the BUYER (hereinafter referred to as the "Non-Defaulting Party") shall have the right to require the Defaulting Party, at the latters expense, to cure such breach, and/or seek damages, by providing notice or presenting a claim to the Defaulting Party, reasonably specifying therein the particulars of the breach. The foregoing remedies shall be available to the Non-Defaulting Party only if the demand therefor is presented in writing to the Defaulting Party within three (3) years from the Closing Date except that the remedy for a breach of the SELLERS representation and warrant in Section 5 (h) shall be available only if the demand therefor is presented to the Defaulting Party in writing together with schedules and to substantiate such demand, within six (6) months from the Closing Date.6

On June 2, 2000, RCBC deposited the stipulated downpayment amount in an escrow account after which it was given full management and operational control of Bankard. June 2, 2000 is also considered by the parties as theClosing Date referred to in the SPA. Thereafter, the parties executed an Amendment to Share Purchase Agreement (ASPA) dated September 19, 2000.7 Its paragraph 2(e) provided that: 2. Notwithstanding any provisions to the contrary in the Share Purchase Agreement and/or any agreement, instrument or document entered into or executed by the Parties in relation thereto (the "Related Agreements"), the Parties hereby agree that: xxxx e) Notwithstanding the provisions of Sec. 7 of the Share Purchase Agreement to the contrary, the remedy for a breach of the SELLERS representation and warranty in Section 5(h) of the Share Purchase Agreement shall be available if the demand therefor is presented to the SELLERS in writing together with schedules and data to substantiate such demand, on or before 31 December 2000. (Emphasis added.) Sometime in September 2000, RCBC had Bankards accounts audited, creating for the purpose an audit team led by a certain Rubio, the Vice-President for Finance of RCBC at the time. Rubios conclusion was that the warranty, as contained in Section 5(h) of the SPA (simply Sec. 5[h] hereinafter), was correct. On December 28, 2000, RCBC paid the balance of the contract price. The corresponding deeds of sale for the shares in question were executed in January 2001. Thereafter, in a letter of May 5, 2003, RCBC informed petitioners of its having overpaid the purchase price of the subject shares, claiming that there was an overstatement of valuation of accounts amounting to PhP 478 million, resulting in the overpayment of over PhP 616 million. Thus, RCBC claimed that petitioners violated their warranty, as sellers, embodied in Sec. 5(g) of the SPA (Sec. 5[g] hereinafter). Following unsuccessful attempts at settlement, RCBC, in accordance with Sec. 10 of the SPA, filed a Request for Arbitration dated May 12, 20048 with the ICC-ICA. In the request, RCBC charged Bankard with deviating from, contravening and not following generally accepted accounting principles and practices in maintaining their books. Due to these improper accounting practices, RCBC alleged that both the audited and unaudited financial statements of Bankard prior to the stock purchase were far from fair and accurate and, hence, violated the representations and warranties of petitioners in the SPA. Per RCBC, its overpayment amounted to PhP 556 million. It thus prayed for the rescission of the SPA, restitution of the purchase price, payment of actual damages in the amount of PhP 573,132,110, legal interest on the purchase price until actual restitution, moral damages, and litigation and attorneys fees. As alternative to rescission and restitution, RCBC prayed for damages in the amount of at least PhP 809,796,092 plus legal interest. To the Request for Arbitration, petitioners filed an Answer dated July 28, 2004,9 denying RCBCs inculpatory averments and setting up the following affirmative allegations: the period for filing of the asserted claim had already lapsed by force of Sec. 7 of the SPA; RCBC is not entitled to rescission having had ample opportunity and reasonable time to file a claim against petitioners; RCBC is not entitled to its alternative prayer of damages, being guilty of laches and failing to set out the details of the breach as required under Sec. 7. Arbitration in the ICC-ICA proceeded after the formation of the arbitration tribunal consisting of retired Justice Santiago M. Kapunan, nominated by petitioners; Neil Kaplan, RCBCs nominee; and Sir Ian Barker, appointed by the ICC-ICA.

After drawn out proceedings with each party alleging deviation and non-compliance by the other with arbitration rules, the tribunal, with Justice Kapunan dissenting, rendered a Partial Award dated September 27, 2007,10 the dispositive portion of which states: 15 AWARD AND DIRECTIONS 15.1 The Tribunal makes the following declarations by way of Partial Award: (a) The Claimants claim is not time-barred under the provisions of this SPA. (b) The Claimant is not estopped by its conduct or the equitable doctrine of laches from pursuing its claim. (c) As detailed in the Partial Award, the Claimant has established the following breaches by the Respondents of clause 5(g) of the SPA: i) the assets, revenue and net worth of Bankard were overstated by reason of its policy on and recognition of Late Payment Fees; ii) reported receivables were higher than their realizable values by reason of the bucketing method, thus overstating Bankards assets; and iii) the relevant Bankard statements were inadequate and misleading in that their disclosures caused readers to be misinformed about Bankards accounting policies on revenue and receivables. (d) Subject to proof of loss the Claimant is entitled to damages for the foregoing breaches. (e) The Claimant is not entitled to rescission of the SPA. (f) All other issues, including any issue relating to costs, will be dealt with in a further or final award. 15.2 A further Procedural Order will be necessary subsequent to the delivery of this Partial Award to deal with the determination of quantum and in particular, whether there should be an Expert appointed by the Tribunal under Article 20(4) of the ICC Rules to assist the Tribunal in this regard. 15.3 This Award is delivered by a majority of the Tribunal (Sir Ian Barker and Mr. Kaplan). Justice Kapunan is unable to agree with the majoritys conclusion on the claim of estoppel brought by the respondents. On the matter of prescription, the tribunal held that RCBCs claim is not time-barred, the claim properly falling under the contemplation of Sec. 5(g) and not Sec. 5(h). As such, the tribunal concluded, RCBCs claim was filed within the three (3)-year period under Sec. 5(g) and that the six (6)-month period under Sec. 5(h) did not apply. The tribunal also exonerated RCBC from laches, the latter having sought relief within the three (3)-year period prescribed in the SPA. On the matter of estoppel suggested in petitioners answer, the tribunal stated in par. 10.27 of the Partial Award the following: 10.27 Clearly, there has to be both an admission or representation by (in this case) the Claimant [RCBC], plus reliance upon it by (in this case) the Respondents [herein petitioners]. The Tribunal cannot find as proved any admission/representation that the Claimant was abandoning a 5(g) claim, any reliance by the Respondents on an admission, and any detriment to the Respondents such as would entitle them to have

the Claimant deprived of the benefit of clause 5(g). These aspects of the claim for estoppels are rejected.11 Notably, the tribunal considered the rescission of the SPA and ASPA as impracticable and "totally out of the question."12 In his Dissenting Opinion13 which he submitted to and which was received on September 24, 2007 by the ICC-ICA, Justice Kapunan stated the observation that RCBCs claim is timebarred, falling as such claim did under Sec. 5(h), which prescribes a comparatively shorter prescriptive period, not 5(g) as held by the majority of the tribunal, to wit: Claimant admits that the Claim is for recovery of P431 million on account of alleged "overvaluation of the net worth of Bankard," allegedly for "improper accounting practices" resulting in "its book value per share as of 31 December 1999 [being] overstated." Claimants witness, Dean Echanis asserts that "the inadequate provisioning for Bankards doubtful accounts result[ed] in an overstatement of its December 31, 1999 total assets and net worth of by [sic] least P418.2 million." In addition, Claimants demand letter addressed to the Respondents alleged that "we overpaid for the Shares to the extent of the impact of the said overstatement on the Book Value per share". These circumstances establish beyond dispute that the Claim is based on the alleged overstatement of the 1999 net worth of Bankard, which the parties relied on in setting the purchase price of the shares. Moreover, it is clear that there was an overstatement because of "improper accounting practices" which led Claimant to overpay for the shares. Ultimately, the Claim is one for recovery of overpayment in the purchase price of the shares. x x x As to the issue of estoppel, Justice Kapunan stated: Moreover, Mr. Rubios findings merely corroborated the disclosures made in the Information Memorandum that Claimant received from the Respondents prior to the execution of the SPA. In this connection, I note that Bankards policy on provisioning and setting of allowances using the Bucketed Method and income recognition from AR/Principal, AR/Interest and AR/LPFs were disclosed in the Information Memorandum. Thus, these alleged improper accounting practices were known to the Claimant even prior to the execution of the SPA. Thus, when Claimant paid the balance of the purchase price, it did so with full knowledge of these accounting practices of Bankard that it now assails. By paying the balance of the purchase price without taking exception or objecting to the accounting practices disclosed through Mr. Rubio s review and the Information Memorandum, Claimant is deemed to have accepted such practices as correctly reporting the 1999 net worth. x x x xxxx As last point, I note that my colleagues invoke a principle that for estoppels to apply there must be positive indication that the right to sue was waived. I am of the view that there is no such principle under Philippine law. What is applicable is the holding in Knecht and in Coca- Cola that prior knowledge of an unfavorable fact is binding on the party who has such knowledge; "when the purchaser proceeds to make investigations by himself, and the vendor does nothing to prevent such investigation from being as complete as the former might wish, the purchaser cannot later allege that

the vendor made false representations to him" (Cf. Songco v. Sellner, 37 Phil 254 citations omitted). Applied to this case, the Claimant cannot seek relief on the basis that when it paid the purchase price in December 2000, it was unaware that the accounting practices that went into the reporting of the 1999 net worth as amounting to P1,387,275,847 were not in conformity with GAAP [generally accepted accounting principles]. (Emphasis added.) On October 26, 2007, RCBC filed with the RTC a Motion to Confirm Partial Award. On the same day, petitioners countered with a Motion to Vacate the Partial Award. On November 9, 2007, petitioners again filed a Motion to Suspend and Inhibit Barker and Kaplan. On January 8, 2008, the RTC issued the first assailed order confirming the Partial Award and denying the adverted separate motions to vacate and to suspend and inhibit. From this order, petitioners sought reconsideration, but their motion was denied by the RTC in the equally assailed second order of March 17, 2008. From the assailed orders, petitioners came directly to this Court through this petition for review. The Issues This petition seeks the review, reversal and setting aside of the orders Annexes A and B and, in lieu of them, it seeks judgment vacating the arbitrators liability award, Annex C, on these grounds: (a) The trial court acted contrary to law and judicial authority in refusing to vacate the arbitral award, notwithstanding it was rendered in plain disregard of the parties contract and applicable Philippine law, under which the claim in arbitration was indubitably timebarred. (b) The trial court acted contrary to law and judicial authority in refusing to vacate and in confirming the arbitral award, notwithstanding that the arbitrators had plainly and admittedly failed to accord petitioners due process by denying them a hearing on the basic factual matter upon which their liability is predicated. (c) The trial court committed grave error in confirming the arbitrators award, which held petitioners-sellers liable for an alleged improper recording of accounts, allegedly affecting the value of the shares they sold, notwithstanding that the respondent-buyer knew before contracting that the accounts were kept in the manner complained of, and in fact ratified and adopted the questioned accounting practice and policies.14 The Courts Ruling The petition must be denied. On Procedural Misstep of Direct Appeal to This Court As earlier recited, the ICC-ICAs Partial Award dated September 27, 2007 was confirmed by the RTC in its first assailed order of January 8, 2008. Thereafter, the RTC, by order of March 17, 2008, denied petitioners motion for reconsideration. Therefrom, petitioners came directly to this Court on a petition for review under Rule 45 of the Rules of Court. This is a procedural miscue for petitioners who erroneously bypassed the Court of Appeals (CA) in pursuit of its appeal. While this procedural gaffe has not been raised by RCBC, still we would be remiss in not pointing out the proper mode of appeal from a decision of the RTC confirming, vacating, setting aside, modifying, or correcting an arbitral award.

Rule 45 is not the remedy available to petitioners as the proper mode of appeal assailing the decision of the RTC confirming as arbitral award is an appeal before the CA pursuant to Sec. 46 of Republic Act No. (RA) 9285, otherwise known as the Alternative Dispute Resolution Act of 2004, or completely, An Act to Institutionalize the Use of an Alternative Dispute Resolution System in the Philippines and to Establish the Office for Alternative Dispute Resolution, and for other Purposes, promulgated on April 2, 2004 and became effective on April 28, 2004 after its publication on April 13, 2004. In Korea Technologies Co., Ltd v. Lerma, we explained, inter alia, that the RTC decision of an assailed arbitral award is appealable to the CA and may further be appealed to this Court, thus: Sec. 46 of RA 9285 provides for an appeal before the CA as the remedy of an aggrieved party in cases where the RTC sets aside, rejects, vacates, modifies, or corrects an arbitral award, thus: SEC. 46. Appeal from Court Decision or Arbitral Awards.A decision of the Regional Trial Court confirming, vacating, setting aside, modifying or correcting an arbitral award may be appealed to the Court of Appeals in accordance with the rules and procedure to be promulgated by the Supreme Court. The losing party who appeals from the judgment of the court confirming an arbitral award shall be required by the appellate court to post a counterbond executed in favor of the prevailing party equal to the amount of the award in accordance with the rules to be promulgated by the Supreme Court. Thereafter, the CA decision may further be appealed or reviewed before this Court through a petition for review under Rule 45 of the Rules of Court.15 It is clear from the factual antecedents that RA 9285 applies to the instant case. This law was already effective at the time the arbitral proceedings were commenced by RCBC through a request for arbitration filed before the ICC-ICA on May 12, 2004. Besides, the assailed confirmation order of the RTC was issued on March 17, 2008. Thus, petitioners clearly took the wrong mode of appeal and the instant petition can be outright rejected and dismissed. Even if we entertain the petition, the outcome will be the same. The Court Will Not Overturn an Arbitral Award Unless It Was Made in Manifest Disregard of the Law In Asset Privatization Trust v. Court of Appeals,16 the Court passed on similar issues as the ones tendered in the instant petition. In that case, the arbitration committee issued an arbitral award which the trial court, upon due proceedings, confirmed despite the opposition of the losing party. Motions for reconsideration by the losing party were denied. An appeal interposed by the losing party to the CA was denied due course. On appeal to this Court, we established the parameters by which an arbitral award may be set aside, to wit: As a rule, the award of an arbitrator cannot be set aside for mere errors of judgment either as to the law or as to the facts. Courts are without power to amend or overrule merely because of disagreement with matters of law or facts determined by the arbitrators. They will not review the findings of law and fact contained in an award, and will not undertake to substitute their judgment for that of the arbitrators, since any other rule would make an award the commencement, not the end, of litigation. Errors of law and fact, or an erroneous decision of matters submitted to the judgment of the arbitrators, are insufficient to invalidate an award fairly and honestly made. Judicial review of an arbitration is, thus, more limited than judicial review of a trial.

Nonetheless, the arbitrators awards is not absolute and without exceptions. The arbitrators cannot resolve issues beyond the scope of the submission agreement. The parties to such an agreement are bound by the arbitrators award only to the extent and in the manner prescribed by the contract and only if the award is rendered in conformity thereto. Thus, Sections 24 and 25 of the Arbitration Law provide grounds for vacating, rescinding or modifying an arbitration award. Where the conditions described in Articles 2038, 2039 and 2040 of the Civil Code applicable to compromises and arbitration are attendant, the arbitration award may also be annulled. xxxx Finally, it should be stressed that while a court is precluded from overturning an award for errors in determination of factual issues, nevertheless, if an examination of the record reveals no support whatever for the arbitrators determinations, their award must be vacated. In the same manner, an award must be vacated if it was made in "manifest disregard of the law."17 (Emphasis supplied.) Following Asset Privatization Trust, errors in law and fact would not generally justify the reversal of an arbitral award. A party asking for the vacation of an arbitral award must show that any of the grounds for vacating, rescinding, or modifying an award are present or that the arbitral award was made in manifest disregard of the law. Otherwise, the Court is duty-bound to uphold an arbitral award. The instant petition dwells on the alleged manifest disregard of the law by the ICC-ICA. The US case of Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Jaros18 expounded on the phrase "manifest disregard of the law" in the following wise: This court has emphasized that manifest disregard of the law is a very narrow standard of review. Anaconda Co. v. District Lodge No. 27, 693 F.2d 35 (6th Cir.1982). A mere error in interpretation or application of the law is insufficient. Anaconda, 693 F.2d at 3738. Rather, the decision must fly in the face of clearly established legal precedent. When faced with questions of law, an arbitration panel does not act in manifest disregard of the law unless (1) the applicable legal principle is clearly defined and not subject to reasonable debate; and (2) the arbitrators refused to heed that legal principle. Thus, to justify the vacation of an arbitral award on account of "manifest disregard of the law," the arbiters findings must clearly and unequivocally violate an established legal precedent. Anything less would not suffice. In the present case, petitioners, in a bid to establish that the arbitral award was issued in manifest disregard of the law, allege that the Partial Award violated the principles of prescription, due process, and estoppel. A review of petitioners arguments would, however, show that their arguments are bereft of merit. Thus, the Partial Award dated September 27, 2007 cannot be vacated. RCBCs Claim Is Not Time-Barred Petitioners argue that RCBCs claim under Sec. 5(g) is based on overvaluation of Bankards revenues, assets, and net worth, hence, for price reduction falling under Sec. 5(h), in which case it was belatedly filed, for RCBC presented the claim to petitioners on May 5, 2003, when the period for presenting it under Sec. 5(h) expired on December 31, 2000. As a counterpoint, RCBC asserts that its claim clearly comes under Sec. 5(g) in relation to Sec. 7 which thus gave it three (3) years from the closing date of June 2, 2000, or until June 1, 2003, within which to make its claim. RCBC contends having acted within the required period, having presented its claim-demand on May 5, 2003.

To make clear the issue at hand, we highlight the pertinent portions of Secs. 5(g), 5(h), and 7 bearing on what petitioners warranted relative to the financial condition of Bankard and the remedies available to RCBC in case of breach of warranty: g. The audited financial statements of Bankard for the three (3) fiscal years ended December 31, 1997, 1998 and 1999, and the unaudited financial statements for the first quarter ended 31 March 2000, are fair and accurate, and complete in all material respects, and have been prepared in accordance with generally accepted accounting principles consistently followed throughout the period indicated and: i) the balance sheet of Bankard as of 31 December 1999, as prepared and certified by SGV & Co. ("SGV"), and the unaudited balance sheet for the first quarter ended 31 March 2000, present a fair and accurate statement as of those dates, of Bankards financial condition and of all its assets and liabilities, and is complete in all material respects; and ii) the statements of Bankards profit and loss accounts for the fiscal years 1996 to 1999, as prepared and certified by SGV, and the unaudited profit and loss accounts for the first quarter ended 31 March 2000, fairly and accurately present the results of the operations of Bankard for the periods indicated, and are complete in all material respects. h. Except as disclosed in the Disclosures, and except to the extent set forth or reserved in the audited financial statements of Bankard as of 31 December 1999 and its unaudited financial statements for the first quarter ended 31 March 2000, Bankard, as of such dates and up to 31 May 2000, had and shall have no liabilities, omissions or mistakes in its records which will have a material adverse effect on the net worth or financial condition of Bankard to the extent of more than One Hundred Million Pesos (P 100,000,000.00) in the aggregate. In the event such material adverse effect on the net worth or financial condition of Bankard exceeds One Hundred Million Pesos (P 100,000,000.00), the Purchase Price shall be reduced in accordance with the following formula: xxxx Section 7. Remedies for Breach of Warranties If any of the representations and warranties of any or all of the SELLERS or the BUYER (the "Defaulting Party") contained in Sections 5 and 6 shall be found to be untrue when made and/or as of the Closing Date, the other party, i.e., the BUYER if the Defaulting is any of the SELLERS and the SELLERS if the Defaulting Party is the BUYER (hereinafter referred to as the "Non-Defaulting Party") shall have the right to require the Defaulting Party, at the latters expense, to cure such breach, and/or seek damages, by providing notice or presenting a claim to the Defaulting Party, reasonably specifying therein the particulars of the breach. The foregoing remedies shall be available to the Non-Defaulting Party only if the demand therefor is presented in writing to the Defaulting Party within three (3) years from the Closing Date, except that the remedy for a breach of the SELLERS representation and warranty in Section 5 (h) shall be available only if the demand therefor is presented to the Defaulting Party in writing together with schedules and data to substantiate such demand, within six (6) months from the Closing Date. (Emphasis supplied.) Before we address the issue put forward by petitioners, there is a necessity to determine the nature and application of the reliefs provided under Sec. 5(g) and Sec. 5(h) in conjunction with Sec. 7, thus:

(1) The relief under Sec. 5(h) is specifically for price reduction as said section explicitly states that the "Purchase Price shall be reduced in accordance with the following formula x x x." In addition, Sec. 7 gives the aggrieved party the right to ask damages based on the stipulation that the non-defaulting party "shall have the right to require the Defaulting Party, at the latters expense, to cure such breach and/or seek damages." On the other hand, the remedy under Sec. 5(g) in conjunction with Sec. 7 can include specific performance, damages, and other reliefs excluding price reduction. (2) Sec. 5(g) warranty covers the audited financial statements (AFS) for the three (3) years ending December 31, 1997 to 1999 and the unaudited financial statements (UFS) for the first quarter ending March 31, 2000. On the other hand, the Sec. 5(h) warranty refers only to the AFS for the year ending December 31, 1999 and the UFS up to May 31, 2000. It is undenied that Sec. 5(h) refers to price reduction as it covers "only the most up-to-date audited and unaudited financial statements upon which the price must have been based."19 (3) Under Sec. 5(h), the responsibility of petitioners for its warranty shall exclude the disclosures and reservations made in AFS of Bankard as of December 31, 1999 and its UFS up to May 31, 2000. No such exclusions were made under Sec. 5(g) with respect to the warranty of petitioners in the AFS and UFS of Bankard. (4) Sec. 5(h) gives relief only if there is material adverse effect in the net worth in excess of PhP 100 million and it provides a formula for price reduction.20 On the other hand, Sec. 5(g) can be the basis for remedies like specific performance, damages, and other reliefs, except price reduction, even if the overvaluation is less or above PhP 100 million and there is no formula for computation of damages. (5) Under Sec. 7, the aggrieved party shall present its written demand to the defaulting party within three (3) years from closing date. Under Sec. 5(h), the written demand shall be presented within six (6) months from closing date. In accordance with par. 2(c) of the ASPA, the deadline to file the demand under Sec. 5(h) was extended to December 31, 2000. From the above determination, it becomes clear that the aggrieved party is entitled to two (2) separate alternative remedies under Secs. 5 and 7 of the SPA, thus: 1. A claim for price reduction under Sec. 5(h) and/or damages based on the breach of warranty by Bankard on the absence of liabilities, omissions and mistakes on the financial statements as of 31 December 1999 and the UFS as of 31 May 2000, provided that the material adverse effect on the net worth exceeds PhP 100M and the written demand is presented within six (6) months from closing date (extended to 31 December 2000); and 2. An action to cure the breach like specific performance and/or damages under Sec. 5(g) based on Bankards breach of warranty involving its AFS for the three (3) fiscal years ending 31 December 1997, 1998, and 1999 and the UFS for the first quarter ending 31 March 2000 provided that the written demand shall be presented within three (3) years from closing date. Has RCBC the option to choose between Sec. 5(g) or Sec. 5(h)? The answer is yes. Sec. 5 and Sec. 7 are clear that it is discretionary on the aggrieved parties to avail themselves of any remedy mentioned above. They may choose one and dispense with the other. Of course, the relief for price reduction under Sec. 5(h) will have to conform to the prerequisites and time frame of six (6) months; otherwise, it is waived. Preliminarily, petitioners basic posture that RCBCs claim is for the recovery of overpayment is specious. The records show that in its Request for Arbitration dated May 12, 2004, RCBC prayed for the rescission of the SPA, restitution of the whole purchase price, and damages

not for reduction of price or for the return of any overpayment. Even in its May 5, 2000 letter,21 RCBC did not ask for the recovery of any overpayment or reduction of price, merely stating in it that the accounts of Bankard, as reflected in its AFS for 1999, were overstated which, necessarily, resulted in an overpayment situation. RCBC was emphatic and unequivocal that petitioners violated their warranty covered by Sec. 5(g) of the SPA. It is thus evident that RCBC did not avail itself of the option under Sec. 5(h), i.e., for price reduction or the return of any overpayment arising from the overvaluation of Bankards financial condition. Clearly, RCBC invoked Sec. 5(g) to claim damages from petitioners which is one of the alternative reliefs granted under Sec. 7 in addition to rescission and restitution of purchase price. Petitioners do not deny that RCBC formally filed its claim under Sec. 5(g) which is anchored on the material overstatement or overvaluation of Bankards revenues, assets, and net worth and, hence, the overstatement of the purchase price. They, however, assert that such claim for overpayment is actually a claim under Sec. 5(h) of the SPA for price reduction which it forfeited after December 31, 2000. We cannot sustain petitioners position. It cannot be disputed that an overstatement or overvaluation of Bankards financial condition as of closing date translates into a misrepresentation not only of the accuracy and truthfulness of the financial statements under Sec. 5(g), but also as to Bankards actual net worth mentioned in Sec. 5(h). Overvaluation presupposes mistakes in the entries in the financial statements and amounts to a breach of petitioners representations and warranties under Sec. 5. Consequently, such error in the financial statements would impact on the figure representing the net worth of Bankard as of closing date. An overvaluation means that the financial condition of Bankard as of closing date, i.e., June 2, 2000, is overstated, a situation that will definitely result in a breach of EPCIBs representations and warranties. A scrutiny of Sec. 5(g) and Sec. 5(h) in relation to Sec. 7 of the SPA would indicate the following remedies available to RCBC should it be discovered, as of closing date, that there is overvaluation which will constitute breach of the warranty clause under either Sec. 5(g) or (h), to wit: (1) An overvaluation of Bankards actual financial condition as of closing date taints the veracity and accuracy of the AFS for 1997, 1998, and 1999 and the UFS for the first quarter of 2000 and is an actionable breach of petitioners warranties under Sec. 5(g). (2) An overvaluation of Bankards financial condition as of May 31, 2000, encompassing the warranted financial condition as of December 31, 1999 through the AFS for 1999 and as of March 31, 2000 through the UFS for the first quarter of 2000, is a breach of petitioners representations and warranties under Sec. 5(h). Thus, RCBC has two distinct alternative remedies in case of an overvaluation of Bankards financial condition. It may invoke Sec. 5(h) when the conditions of the threshold aggregate overvaluation and the claim made within the six-month time-bar are present. In the alternative, it may invoke Sec. 5(g) when it finds that a claim for "curing the breach" and/or damages will be more advantageous to its interests provided it is filed within three (3) years from closing date. Since it has two remedies, RCBC may opt to exercise either one. Of course, the exercise of either one will preclude the other. Moreover, the language employed in Sec. 5(g) and Sec. 5(h) is clear and bereft of any ambiguity. The SPAs stipulations reveal that the non-use or waiver of Sec. 5(h) does not preclude RCBC from availing itself of the second relief under Sec. 5(g). Article 1370 of the Civil Code is explicit that "if terms of a contract are clear and leave no doubt upon the intention of the contracting parties the literal meaning of its stipulations shall control." Since the terms of a contract have the force of law between the parties,22 then the parties must

respect and strictly conform to it. Lastly, it is a long held cardinal rule that when the terms of an agreement are reduced to writing, it is deemed to contain all the terms agreed upon and no evidence of such terms can be admitted other than the contents of the agreement itself.23 Since the SPA is unambiguous, and petitioners failed to adduce evidence to the contrary, then they are legally bound to comply with it. Petitioners agreed ultimately to the stipulation that: Each of the representations and warranties of the SELLERS is deemed to be a separate representation and warranty, and the BUYER has placed complete reliance thereon in agreeing to the Purchase Price and in entering into this Agreement. The representations and warranties of the SELLERS shall be correct as of the date of this Agreement and as of the Closing Date with the same force and effect as though such representations and warranties had been made as of the Closing Date.24 (Emphasis supplied.) The Court sustains the finding in the Partial Award that Sec. 5(g) of the SPA is a free standing warranty and not constricted by Sec. 5(h) of the said agreement. Upon the foregoing premises and in the light of the undisputed facts on record, RCBCs claim for rescission of the SPA and damages due to overvaluation of Bankards accounts was properly for a breach of the warranty under Sec. 5(g) and was not time-barred. To repeat, RCBC presented its written claim on May 5, 2003, or a little less than a month before closing date, well within the three (3)-year prescriptive period provided under Sec. 7 for the exercise of the right provided under Sec. 5(g). Petitioners bemoan the fact that "the arbitrators liability award (a) disregarded the 6-month contractual limitation for RCBCs overprice claim, and [b] substituted in its place the 3-year limitation under the contract for other claims,"25 adopting in that regard the interpretation of the SPA made by arbitral tribunal member, retired Justice Kapunan, in his Dissenting Opinion, in which he asserted: Ultimately, the Claim is one for recovery of overpayment in the purchase price of the shares. And it is in this context, that I respectfully submit that Section 5(h) and not Section 5(g), applies to the present controversy.26 xxxx True, without Section 5(h), the Claim for price recovery would fall under Section 5(g). The recovery of the pecuniary loss of the Claimant in the form of the excess price paid would be in the nature of a claim for actual damages by way of compensation. In that situation, all the accounts in the 1999 financial statements would be the subject of the warranty in Section 5(g). However, since the parties explicitly included Section 5(h) in their SPA, which assures the Claimant that there were no "omissions or mistakes in the records" that would misstate the 1999 net worth account, I am left with no other conclusion but that the accuracy of the net worth was the subject of the warranty in Section 5(h), while the accuracy or correctness of the other accounts that did not bear on, or affect Bankards net worth, were guaranteed by Section 5(g). xxxx This manner of reconciling the two provisions is consistent with the principle in Rule 130, Section 12 of the Rules of Court that "when a general and a particular provision are inconsistent, the latter is paramount to the former [so] a particular intent will control a general one that is inconsistent with it." This is also consistent with existing doctrines on statutory construction, the application of which is illustrated in the case of

Commissioner of Customs vs. Court of Tax Appeals, GR No. L-41861, dated March 23, 1987 x x x. xxxx The Claim is for recovery of the excess price by way of actual damages.27 x x x (Emphasis supplied.) Justice Kapunan noted that without Sec. 5(h), RCBCs claim would fall under Sec. 5(g), impliedly admitting that both provisions could very well cover RCBCs claim, except that Sec. 5(h) excludes the situation contemplated in it from the general terms of Sec. 5(g). Such view is incorrect. While it is true that Sec. 5(h), as couched, is a warranty on the accuracy of the Bankards net worth while Sec. 5(g), as also couched, is a warranty on the veracity, accuracy, and completeness of the AFS in all material respects as prepared in accordance with generally accepted accounting principles consistently followed throughout the period audited, yet both warranties boil down to the same thing and stem from the same accounts as summarized in the AFS. Since the net worth is the balance of Bankards assets less its liabilities, it necessarily includes all the accounts under the AFS. In short, there are no accounts in the AFS that do not bear on the net worth of Bankard. Moreover, as earlier elucidated, any overvaluation of Bankards net worth is necessarily a misrepresentation of the veracity, accuracy, and completeness of the AFS and also a breach of the warranty under Sec. 5(g). Thus, the subject of the warranty in Sec. 5(h) is also covered by the warranty in Sec. 5(g), and Sec. 5(h) cannot exclude such breach from the ambit of Sec. 5(g). There is no need to rely on Sec. 12, Rule 130 of the Rules of Court for both Sec. 5(g) and Sec. 5(h) as alternative remedies are of equal footing and one need not categorize one section as a general provision and the other a particular provision. More importantly, a scrutiny of the four corners of the SPA does not explicitly reveal any stipulation nor even impliedly that the parties intended to limit the scope of the warranty in Sec. 5(g) or gave priority to Sec. 5(h) over Sec. 5(g). The arbitral tribunal did not find any legal basis in the SPA that Sec. 5(h) "somehow cuts down" the scope of Sec. 5(g), thus: 9.10 In the opinion of the Tribunal, there is nothing in the wording used in the SPA to give priority to one warranty over the other. There is nothing in the wording used to indicate that the parties intended to limit the scope of the warranty in 5(g). If it be contended that, on a true construction of the two warranties, 5(h) somehow cuts down the scope of 5(g), the Tribunal can find no justification for such conclusion on the wording used. Furthermore, the Tribunal is of the view that very clear words would be needed to cut down the scope of the 5(g) warranty.28 The Court upholds the conclusion of the tribunal and rules that the claim of RCBC under Sec. 5(g) is not time-barred. Petitioners Were Not Denied Due Process Petitioners impute on RCBC the act of creating summaries of the accounts of Bankard which "in turn were used by its experts to conclude that Bankard improperly recorded its receivables and committed material deviations from GAAP requirements."29 Later, petitioners would assert that "the arbitrators partial award admitted and used the Summaries as evidence, and held on the basis of the information contained in them that petitioners were in breach of their warranty in GAAP compliance."

To petitioners, the ICC-ICAs use of such summaries but without presenting the source documents violates their right to due process. Pressing the point, petitioners had moved, but to no avail, for the exclusion of the said summaries. Petitioners allege that they had reserved the right to cross-examine the witnesses of RCBC who testified on the summaries, pending the resolution of their motion to exclude. But, according to them, they were effectively denied the right to cross-examine RCBCs witnesses when the ICC-ICA admitted the summaries of RCBC as evidence. Petitioners position is bereft of merit. Anent the use but non-presentation of the source documents as the jumping board for a claim of denial of due process, petitioners cite Compania Maritima v. Allied Free Workers Union.30 It may be stated, however, that such case is not on all fours with the instant case and, therefore, cannot be applied here considering that it does not involve an administrative body exercising quasi-judicial function but rather the regular court. In a catena of cases, we have ruled that "[t]he essence of due process is the opportunity to be heard. What the law prohibits is not the absence of previous notice but the absolute absence thereof and the lack of opportunity to be heard."31 We also explained in Lastimoso v. Asayo that "[d]ue process in an administrative context does not require trial type proceedings similar to those in courts of justice. Where an opportunity to be heard either through oral arguments or through pleadings is accorded, there is no denial of procedural due process."32 Were petitioners afforded the opportunity to refute the summaries and pieces of evidence submitted by RCBC which became the bases of the experts opinion? The answer is in the affirmative. We recall the events that culminated in the issuance of the challenged Partial Award, thus: On May 17, 2004, the ICC-ICA received the Request for Arbitration dated May 12, 2004 from RCBC seeking rescission of the SPA and restitution of all the amounts paid by RCBC to petitioners, with actual and moral damages, interest, and costs of suit. On August 8, 2004, petitioners filed an Answer to the Request for Arbitration dated July 28, 2004, setting up a counterclaim for USD 300,000 for actual and exemplary damages. RCBC filed its Reply33 dated August 31, 2004 to petitioners Answer to the Request for Arbitration. On October 4, 2004, the parties entered into the Terms of Reference.34 At the same time, the chairperson of the arbitral tribunal issued a provisional timetable35 for the arbitration. On October 25, 2004, as previously agreed upon in the meeting on October 4, 2004, petitioners filed a Motion to Dismiss36 while RCBC filed a "Claimants Position Paper (Re: [Petitioners] Assertion that RCBC CAPITAL CORPORATIONs Present Claim Is Time Barred)."37 Then, the tribunal issued Procedural Order No. 1 dated January 12, 2005, 38 denying the motion to dismiss and setting the initial hearing of the case on April 11, 2005. In a letter dated February 9, 2005,39 petitioners requested that the tribunal direct RCBC to produce certain documents. At the same time, petitioners sought the postponement of the hearing on April 11, 2005 to March 21, 2005, in light of their own request.

On February 11, 2005, petitioners received RCBCs brief of evidence and supporting documentation in accordance with the provisional timetable.40 In the brief of evidence, RCBC provided summaries of the accounts of Bankard, which petitioners now question. Later, in a letter dated February 14, 2005,41 petitioners complained to the tribunal with regard to their lack of access to RCBCs external auditor. Petitioners sought an audit by an accounting firm of the records of Bankard with respect to the claims of RCBC. By virtue of such requests, petitioners also sought a rescheduling of the provisional timetable, despite their earlier assurance to the tribunal that if they received the documents that they requested on February 9, 2005 on or before February 21, 2005, they would abide by the provisional timetable. Thereafter, the tribunal issued Procedural Order No. 2 dated February 18, 2005, 42 in which it allowed the discovery and inspection of the documents requested by petitioners that were also scheduled on February 18, 2005. The request for an audit of Bankards accounts was denied without prejudice to the conduct of such audit during the course of the hearings. Consequently, the tribunal amended the provisional timetable, extending the deadline for petitioners to file their brief of evidence and documents to March 21, 2005. The date of the initial hearing, however, remained on April 11, 2005. On February 18, 2005, petitioners were furnished the documents that they requested RCBC.43 The parties also agreed to meet again on February 23, 2005 to provide petitioners with a "walk-through" of Bankards Statistical Analysis System and to provide petitioners with a soft copy of all of Bankards cardholders.44 During the February 23, 2005 meeting, EPCIBs counsels/representatives were accompanied to the Bankards Credit-MIS Group. There, Bankards representative, Amor Lazaro, described and explained to petitioners representatives the steps involved in procuring and translating raw data on customer transactions. Lazaro explained that Bankard captures cardholder information and transactions through encoding or electronic data capture. Thereafter, such data are transmitted to its main credit card administration system. Such raw data are then sent to Bankards Information Technology Group. Using a proprietary software called SAS, the raw data is then converted into SAS files which may be viewed, handled, and converted into Excel files for reporting purposes. During the walk-through, petitioners representatives asked questions which were answered in detail by Lazaro. At the same time, another Bankard representative, Felix L. Sincoegue, accompanied two auditors/representatives of petitioners to examine the journal vouchers and supporting documents of Bankard consisting of several boxes. The auditors randomly sifted through the boxes which they had earlier requested to be inspected. In addition, petitioners were furnished with an electronic copy of the details of all cardholders, including relevant data for aging of receivables for the years 2000 to 2003, as well as data containing details of written-off accounts from 1999 to March 2000 contained in compact discs.45 On March 4, 2005, petitioners sent a letter46 to the tribunal requesting for a postponement of the April 11, 2005 hearing of the case. Petitioners claim that they could not confirm the summaries prepared by RCBC, considering that RCBC allegedly did not cooperate in providing data that would facilitate their verification. Petitioners specifically mentioned the following data: (1) list of names of cardholders whose accounts are sources of data gathered or calculated in the summaries; (2) references to the basic cardholder documents from which such data were collected; and (3) access to the underlying cardholder documents at a time and under conditions mutually convenient to the parties. As regards the compact discs of information provided to petitioners, it is claimed that such information could not be accessed as the software necessary for the handling of the data could not be made immediately available to them.

In Procedural Order No. 3 dated March 11 2005,47 the initial hearing was moved to June 13 to 16, 2005, considering that petitioners failed to pay the advance on costs of the tribunal. On March 23, 2005, RCBC paid the balance of the advance on costs.48 On April 22, 2005, petitioners sent the tribunal a letter,49 requesting for the postponement of the hearing scheduled on June 13 to 16, 2005 on the ground that they could not submit their witness statements due to the volume of data that they acquired from RCBC. In a letter dated April 25, 2005,50 petitioners demanded from RCBC that they be allowed to examine the journal vouchers earlier made available to them during the February 23, 2005 meeting. This demand was answered by RCBC in a letter dated April 26, 2005,51 stating that such demand was being denied by virtue of Procedural Order No. 2, in which it was ruled that further requests for discovery would not be made except with leave of the chairperson of the tribunal. In Procedural Order No. 4,52 the tribunal granted petitioners request for the postponement of the hearing on June 13, 2005 and rescheduled it to November 21, 2005 in light of the pending motions filed by EPCIB with the RTC in Makati City. On July 29, 2005, the parties held a meeting wherein it was agreed that petitioners would be provided with hard and soft copies of the inventory of the journal vouchers earlier presented to its representatives, while making the journal vouchers available to petitioners for two weeks for examination and photocopying.53 On September 2, 2005, petitioners applied for the postponement of the November 21, 2005 hearing due to the following: (1) petitioners had earlier filed a motion dated August 11, 2005 with the RTC, in which the issue of whether the non-Filipino members of the tribunal were illegally practicing law in the Philippines by hearing their case, which was still pending; and (2) the gathering and processing of the data and documents made available by RCBC would require 26 weeks.54 Such application was denied by the tribunal in Procedural Order No. 5 dated September 16, 2005.55 On October 21, 2005, the tribunal issued Procedural Order No. 6,56 postponing the November 21, 2005 hearing by virtue of an order issued by the RTC in Makati City directing the tribunal to reset the hearing for April 21 and 24, 2006. Thereafter, in a letter dated January 18, 2006,57 petitioners wrote the tribunal requesting that RCBC be directed to: (1) provide petitioners with information identifying the journal vouchers and other supporting documents that RCBC used to arrive at the figures set out in the summaries and other relevant information necessary to enable them to reconstruct and/or otherwise understand the figures or amounts in each summary; and (2) submit to petitioners the requested pieces of information as soon as these are or have become available, or in any case not later than five days. In response to such letter, RCBC addressed a letter dated January 31, 200658 to the tribunal claiming that the pieces of information that petitioners requested are already known to petitioners considering that RCBC merely maintained the systems that they inherited when it bought Bankard from petitioners. RCBC added that the documents that EPCIB originally transmitted to it when RCBC bought Bankard were all being made available to petitioners; thus, any missing supporting documents from these files were never transmitted to them in the first place. Later, petitioners sent to the tribunal a letter dated February 10, 2006,59 asking that it direct RCBC to provide petitioners with the supporting documents that RCBC mentioned in its letter dated January 31, 2006. Petitioners wrote that should RCBC fail to present such documents, RCBCs summaries should be excluded from the records.

In a letter dated March 10, 2006,60 petitioners requested that they be given an additional period of at least 47 days within which to submit their evidence-in-chief with the corresponding request for the cancellation of the hearing on April 24, 2006. Petitioners submit that should such request be denied, RCBCs summaries should be excluded from the records. On April 6, 2006, petitioners filed their arbitration briefs and witness statements. By way of reply, on April 17, 2006, RCBC submitted Volumes IV and V of its exhibits and Volume II of its evidence-in-chief.61 On April 18, 2006, petitioners requested the tribunal that they be allowed to file rejoinder briefs, or otherwise exclude RCBCs reply brief and witness statements.62 In this request, petitioners also requested that the hearing set for April 24, 2006 be moved. These requests were denied. Consequently, on April 24 to 27, 2006, the arbitral tribunal conducted hearings on the case.63 On December 4, 2006, petitioners submitted rejoinder affidavits, raising new issues for the first time, to which RCBC submitted Volume III of its evidence-in-chief by way of a reply. On January 16, 2007, both parties simultaneously submitted their memoranda. On January 26, 2007, both parties simultaneously filed their reply to the others memorandum. 64 Thus, on September 27, 2007, the Partial Award was rendered by the Tribunal. Later, petitioners moved to vacate the said award before the RTC. Such motion was denied by the trial court in the first assailed order dated January 8, 2008. Petitioners then moved for a reconsideration of such order, but their motion was also denied in the second assailed order dated March 17, 2008. The foregoing events unequivocally demonstrate ample opportunity for petitioners to verify and examine RCBCs summaries, accounting records, and reports. The pleadings reveal that RCBC granted petitioners requests for production of documents and accounting records. More so, they had more than three (3) years to prepare for their defense after RCBCs submission of its brief of evidence. Finally, it must be emphasized that petitioners had the opportunity to appeal the Partial Award to the RTC, which they in fact did. Later, petitioners even moved for the reconsideration of the denial of their appeal. Having been able to appeal and move for a reconsideration of the assailed rulings, petitioners cannot claim a denial of due process.65 Petitioners right to due process was not breached. As regards petitioners claim that its right to due process was violated when they were allegedly denied the right to cross-examine RCBCs witnesses, their claim is also bereft of merit. Sec. 15 of RA 876 or the Arbitration Law provides that: Section 15. Hearing by arbitrators. Arbitrators may, at the commencement of the hearing, ask both parties for brief statements of the issues in controversy and/or an agreed statement of facts. Thereafter the parties may offer such evidence as they desire, and shall produce such additional evidence as the arbitrators shall require or deem necessary to an understanding and determination of the dispute. The arbitrators shall be the sole judge of the relevancy and materiality of the evidence offered or produced, and shall not be bound to conform to the Rules of Court pertaining to evidence. Arbitrators shall receive as exhibits in evidence any document which the parties may wish to submit and the exhibits shall be properly identified at the time of submission. All exhibits shall remain in the custody of the Clerk of Court

during the course of the arbitration and shall be returned to the parties at the time the award is made. The arbitrators may make an ocular inspection of any matter or premises which are in dispute, but such inspection shall be made only in the presence of all parties to the arbitration, unless any party who shall have received notice thereof fails to appear, in which event such inspection shall be made in the absence of such party. (Emphasis supplied.) The well-settled rule is that administrative agencies exercising quasi-judicial powers shall not be fettered by the rigid technicalities of procedure, albeit they are, at all times required, to adhere to the basic concepts of fair play. The Court wrote in CMP Federal Security Agency, Inc. v. NLRC: While administrative tribunals exercising quasi-judicial powers, like the NLRC and Labor Arbiters, are free from the rigidity of certain procedural requirements, they are nonetheless bound by law and practice to observe the fundamental and essential requirements of due process. The standard of due process that must be met in administrative tribunals allows a certain degree of latitude as long as fairness is not ignored. Hence, it is not legally objectionable, for being violative of due process, for the Labor Arbiter to resolve a case based solely on the position papers, affidavits or documentary evidence submitted by the parties. The affidavits of witnesses in such case may take the place of their direct testimony.66 Of the same tenor is our holding in Quiambao v. Court of Appeals: In resolving administrative cases, conduct of full-blown trial is not indispensable to dispense justice to the parties. The requirement of notice and hearing does not connote full adversarial proceedings. Submission of position papers may be sufficient for as long as the parties thereto are given the opportunity to be heard.In administrative proceedings, the essence of due process is simply an opportunity to be heard, or an opportunity to explain ones side or opportunity to seek a reconsideration of the action or ruling complained of. This constitutional mandate is deemed satisfied if a person is granted an opportunity to seek reconsideration of an action or a ruling. It does not require trial-type proceedings similar to those in the courts of justice. Where opportunity to be heard either through oral arguments or through pleadings is accorded, there is no denial of procedural due process.67 (Emphasis supplied.) Citing Vertudes v. Buenaflor, petitioners also cry denial of due process when they were allegedly denied the right to cross-examine the witnesses presented by RCBC. It is true that in Vertudes, we stated: "The right of a party to confront and cross-examine opposing witnesses in a judicial litigation, be it criminal or civil in nature, or in proceedings before administrative tribunals with quasi-judicial powers, is a fundamental right which is part of due process."68 It is, however, equally true that: [T]he right is a personal one which may be waived expressly or impliedly by conduct amounting to a renunciation of the right of cross-examination. Thus, where a party has had the opportunity to cross-examine a witness but failed to avail himself of it, he necessarily forfeits the right to cross-examine and the testimony given on direct examination of the witness will be received or allowed to remain in the record.69 (Emphasis supplied.) We also held in one case: However, the right has always been understood as requiring not necessarily an actual cross-examination but merely an opportunity to exercise the right to cross-examine if desired. What is proscribed by statutory norm and

jurisprudential precept is the absence of the opportunity to cross-examine. The right is a personal one and may be waived expressly or impliedly. There is an implied waiver when the party was given the opportunity to confront and cross-examine an opposing witness but failed to take advantage of it for reasons attributable to himself alone. If by his actuations, the accused lost his opportunity to cross-examine wholly or in part the witnesses against him, his right to cross-examine is impliedly waived.70 (Emphasis supplied.) And later in Velez v. De Vera, the Court En Banc expounded on the above rulings, adding that in administrative proceedings, cross-examination is not indispensable, thus: Due process of law in administrative cases is not identical with "judicial process" for a trial in court is not always essential to due process. While a day in court is a matter of right in judicial proceedings, it is otherwise in administrative proceedings since they rest upon different principles. The due process clause guarantees no particular form of procedure and its requirements are not technical. Thus, in certain proceedings of administrative character, the right to a notice or hearing [is] not essential to due process of law. The constitutional requirement of due process is met by a fair hearing before a regularly established administrative agency or tribunal. It is not essential that hearings be had before the making of a determination if thereafter, there is available trial and tribunal before which all objections and defenses to the making of such determination may be raised and considered. One adequate hearing is all that due process requires. What is required for "hearing" may differ as the functions of the administrative bodies differ. The right to cross-examine is not an indispensable aspect of due process.71 x x x (Emphasis supplied.) Clearly, the right to cross-examine a witness, although a fundamental right of a party, may be waived. Petitioners themselves admit having had the opportunity to cross-examine RCBCs witnesses during the hearings before the tribunal, but declined to do so by reserving such right at a later time. Having had the opportunity to cross-examine RCBCs witnesses, petitioners were not denied their right to due process. RCBC Is Not Estopped from Questioning the Financial Condition of Bankard On estoppel, petitioners contend that RCBC already knew the recording of the Bankard accounts before it paid the balance of the purchase price and could no longer challenge the financial statements of Bankard. RCBC, they claim, had full control of the operations of Bankard since June 2, 2000 and RCBCs audit team reviewed the accounts in September 2000. Thus, RCBC is now precluded from denying the fairness and accuracy of said accounts since it did not seek price reduction under Sec. 5(h). Lastly, they asseverate that RCBC continued with Bankards accounting policies and practices and found them to conform to the generally accepted accounting principles, contrary to RCBCs allegations. It also bears stating that in his dissent, retired Justice Kapunan, an arbitral tribunal member, argued that Bankards accounting practices were disclosed in the information memorandum provided to RCBC; hence, RCBC was supposed to know such accounting practices and to have accepted their propriety even before the execution of the SPA. He then argued that when it paid the purchase price on December 29, 2000, RCBC could no longer claim that the accounting practices that went into the reporting of the 1999 AFS of Bankard were not in accord with generally accepted accounting principles. He pointed out that RCBC was bound by the audit conducted by a certain Rubio prior to the full payment of the purchase price of Bankard. Anchored on these statements by Justice Kapunan, petitioners conclude that RCBC is estopped from claiming that the former violated their warranties under the SPA. Petitioners contention is not meritorious.

Art. 1431 of the Civil Code, on the subject of estoppel, provides: "Through estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon." The doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith, and justice; and its purpose is to forbid one to speak against ones own acts, representations, or commitments to the injury of one to whom they were directed and who reasonably relied on them.72 We explained the principle of estoppel in Philippine Savings Bank v. Chowking Food Corporation: x x x The equitable doctrine of estoppel was explained by this Court in Caltex (Philippines), Inc. v. Court of Appeals: Under the doctrine of estoppel, an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon. A party may not go back on his own acts and representations to the prejudice of the other party who relied upon them. In the law of evidence, whenever a party has, by his own declaration, act, or omission, intentionally and deliberately led another to believe a particular thing true, to act upon such belief, he cannot, in any litigation arising out of such declaration, act, or omission, be permitted to falsify it. The principle received further elaboration in Maneclang v. Baun: In estoppel by pais, as related to the party sought to be estopped, it is necessary that there be a concurrence of the following requisites: (a) conduct amounting to false representation or concealment of material facts or at least calculated to convey the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts to assert; (b) intent, or at least expectation that this conduct shall be acted upon, or at least influenced by the other party; and (c) knowledge, actual or constructive of the actual facts. Estoppel may vary somewhat in definition, but all authorities agree that a party invoking the doctrine must have been misled to ones prejudice. That is the final and, in reality, most important of the elements of equitable estoppel. It is this element that is lacking here.73 (Emphasis supplied.) The elements of estoppel pertaining to the party estopped are: (1) conduct which amounts to a false representation or concealment of material facts, or, at least, which calculated to convey the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts to assert; (2) intention, or at least expectation, that such conduct shall be acted upon by the other party; and (3) knowledge, actual or constructive, of the actual facts.74 In the case at bar, the first element of estoppel in relation to the party sought to be estopped is not present. Petitioners claim that RCBC misrepresented itself when RCBC made it appear that they considered petitioners to have sufficiently complied with its warranties under Sec. 5(g) and 5(h), in relation to Sec. 7 of the SPA. Petitioners position is that "RCBC was aware of the manner in which the Bankard accounts were recorded, well before it consummated the SPA by taking delivery of the shares and paying the outstanding 80% balance of the contract price."75 Petitioners, therefore, theorize that in this case, the first element of estoppel in relation to the party sought to be estopped is that RCBC made a false representation that it considered

Bankards accounts to be in order and, thus, RCBC abandoned any claim under Sec. 5(g) and 5(h) by its inaction. Such contention is incorrect. It must be emphasized that it was only after a second audit that RCBC presented its claim to petitioners for violation of Sec. 5(g), within the three (3)-year period prescribed. In other words, RCBC, prior to such second audit, did not have full and thorough knowledge of the correctness of Bankards accounts, in relation to Sec. 5(g). RCBC, therefore, could not have misrepresented itself considering that it was still in the process of verifying the warranties covered under Sec. 5(g). Considering that there must be a concurrence of the elements of estoppel for it to arise, on this ground alone such claim is already negated. As will be shown, however, all the other elements of estoppel are likewise absent in the case at bar. As to the second element, in order to establish estoppel, RCBC must have intended that petitioners would act upon its actions. This element is also missing. RCBC by its actions did not mislead petitioners into believing that it waived any claim for violation of a warranty. The periods under Sec. 5(g) and 5(h) were still available to RCBC. The element that petitioners relied on the acts and conduct of RCBC is absent. The Court finds that there was no reliance on the part of petitioners on the acts of RCBC that would lead them to believe that the RCBC will forego the filing of a claim under Sec. 5(g). The allegation that RCBC knew that the Bankard accounts did not comply with generally accepted accounting principles before payment and, hence, it cannot question the financial statements of Bankard is meritless. Precisely, the SPA explicitly provides that claims for violation of the warranties under Sec. 5(g) can still be filed within three (3) years from the closing date. Petitioners contention that RCBC had full control of Bankard operations after payment of the price and that an audit undertaken by the Rubio team did not find anything wrong with the accounts could not have plausibly misled petitioners into believing that RCBC will waive its right to file a claim under Sec. 5(g). After all, the period to file a claim under Sec. 5(g) is three (3) years under Sec. 7, much longer than the six (6)-month period under Sec. 5(h). Petitioners are fully aware that the warranties under Sec. 5(g) (1997 up to March 2000) are of a wider scope than that of Sec. 5(h) (AFS of 1999 and UFS up to May 31, 2000), necessitating a longer audit period than the six (6)-month period under Sec. 5(h). The third element of estoppel in relation to the party sought to be estopped is also absent considering that, as stated, RCBC was still in the process of verifying the correctness of Bankards accounts prior to presenting its claim of overvaluation to petitioners. RCBC, therefore, had no sufficient knowledge of the correctness of Bankards accounts. On another issue, RCBC could not have immediately changed the Bankard accounting practices until it had conducted a more extensive and thorough audit of Bankards voluminous records and transactions to uncover any irregularities. That would be the only logical explanation why Bankards alleged irregular practices were maintained for more than two (2) years from closing date. The fact that RCBC continued with the audit of Bankards AFS and records after the termination of the Rubio audit can only send the clear message to petitioners that RCBC is still entertaining the possibility of filing a claim under Sec. 5(g). It cannot then be said that petitioners reliance on RCBCs acts after full payment of the price could have misled them into believing that no more claim will be presented by RCBC. The Arbitral Tribunal explained in detail why estoppel is not present in the case at bar, thus: 10.18 The audit exercise conducted by Mr. Legaspi and Mr. Rubio was clearly not one comprehensive enough to have discovered the problems later unearthed by Dr. Laya and Dean Ledesma. x x x 10.19 Although the powers of the TC [Transition Committee] may have been widely expressed in the view of Mr. Rogelio Chua, then in charge of Bankard x x x the TC

conducted meetings only to get updated on the status and progress of Bankards operations. Commercially, one would expect that an unpaid vendor expecting to receive 80% of a large purchase price would not be receptive to a purchaser making vast policy changes in the operation of the business until the purchaser has paid up its money. It is more likely that, until the settlement date, there was a practice of maintaining the status quo at Bankard. 10.20 But neither the Claimant nor the TC did anything, in the Tribunals view, which would have given the Respondents the impression that they were being relieved over the next three years of susceptibility to a claim under clause 5(g). Maybe the TC could have been more proactive in commissioning further or more in-depth audits but it was not. It did not have to be. It is commercially unlikely that it have been done so, with the necessary degree of attention to detail, within the relatively short time between the appointment of the TC and the ultimate settlement date of the purchase a period of some three months. An interim arrangement was obviously sensible to enable the Claimant and its staff to become familiar with the practices and procedures of Bankard. 10.21 The core consideration weighing with the Tribunal in assessing these claims for estoppel is that the SPA allowed two types of claim; one within six months under 5(h) and one within three years under 5(g). The Tribunal has already held the present claim is not barred by clause 5(h). It must therefore have been within the reasonable contemplation of the parties that a 5(g) claim could surface within the three-year period and that it could be somewhat differently assessed than the claim under 5(h). The Tribunal cannot find estoppel by conduct either from the formation of the TC or from the limited auditing exercise done by Mr. Rubio and Mr. Legaspi. The onus proving estoppel is on the Respondents and it has not been discharged. 10.22 If the parties had wished the avenues of relief for misrepresentation afforded to the Claimant to have been restricted to a claim under Clause 5(h), then they could have said so. The special audit may have provided an answer to any claim based on clause 5(h) but it cannot do so in respect of a claim based on Clause 5(g). Clause 5(g) imposed a positive obligation on the Respondents from which they cannot be excused, simply by reason of either the formation and conduct of the TC or of the limited audit. 10.23 The three-year limitation period obviously contemplated that it could take some time to ascertain whether there had been a breach of the GAAP standards, etc. Such was the case. A six-month limitation period under Clause 5(h), in contrast, presaged a somewhat less stringent enquiry of the kind carried out by Mr. Rubio and Mr. Legaspi. 10.24 Clause 2(3) of the Amendment to the SPA strengthens the conclusion that the parties were concerned only with a 5(h) claim during the TCs reign. The focus of the audit however intense it was conducted by Mr. Rubio and Mr. Legaspi, was on establishing possible liability under that section and thus as a possible reduction in the price to be paid on settlement. 10.25 The fact that the purchase price was paid over in full without any deduction in terms of clause 5(h) is not a bar to the Claimant bringing a claim under 5(g) within the three-year period. The fact that payment was made can be, as the Tribunal has held, a barrier to a claim for rescission and restitution ad inegrum. A claim for estoppel needs a finding of representation by words of conduct or a shared presumption that a right would not be relied upon. The party relying on estoppel has to show reliance to its detriment or that, otherwise, it would be unconscionable to resile from the provision. 10.26 Article 1431 of the Civil Code states: "Through estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon."

10.27 Clearly, there has to both an admission or representation by (in this case) the Claimant, plus reliance upon it by (in this case) the Respondents. The Tribunal cannot find as proved any admission/representation that the Claimant was abandoning a 5(g) claim, any reliance by Respondents on an admission, and any detriment to the Respondents such as would entitle them to have the Claimant deprived of the benefit of clause 5(g). These aspects of the claim of estoppel are rejected. xxxx 10.42 The Tribunal is not the appropriate forum for deciding whether there have been any regulatory or ethical infractions by Bankard and/or the Claimant in setting the buyback price. It has no bearing on whether the Claimant must be considered as having waived its right to claim against the Respondents. 10.43 In the Tribunals view, neither any infraction by Bankard in failing to advise the Central Bank of the experts findings, nor a failure to put a tag on the accounts nor to have said something to the shareholders in the buy-back exercise operates as a "technical knock-out" of Claimants claim. 10.44 The Tribunal notes that the conciliation process mandated by the SPA took most of 2003 and this may explain a part of the delay in commencing arbitral proceedings. 10.45 Whatever the status of Mr. Rubios and Mr. Legaspis enquiries in late 2000, the Claimant was quite entitled to commission subsequent reports from Dr. Laya and Dr. Echanis and, on the basis of those reports, make a timeous claim under clause 5(g) of the SPA. 10.46 In the Tribunals view, therefore, there is no merit in Respondents various submissions that the Claimant is debarred from prosecuting its claims on the grounds of estoppel. There is just no proof of the necessary representation to the Respondent, nor any detriment to the Respondent proved. The grounds of delay and laches are not substantiated. In summary, the tribunal properly ruled that petitioners failed to prove that the formation of the Transition Committee and the conduct of the audit by Rubio and Legaspi were admissions or representations by RCBC that it would not pursue a claim under Sec. 5(g) and that petitioners relied on such representation to their detriment. We agree with the findings of the tribunal that estoppel is not present in the situation at bar. Additionally, petitioners claim that in Knecht v. Court of Appeals76 and Coca-Cola Bottlers Philippines, Inc. v. Court of Appeals (Coca-Cola),77 this Court ruled that the absence of the element of reliance by a party on the representation of another does not negate the principle of estoppel. Those cases are, however, not on all fours with and cannot be applied to this case. In Knecht, the buyer had the opportunity of knowing the conditions of the land he was buying early on in the transaction, but proceeded with the sale anyway. According to the Court, the buyer was estopped from claiming that the vendor made a false representation as to the condition of the land. This is not true in the instant case. RCBC did not conduct a due diligence audit in relation to Sec.5(g) prior to the sale due to petitioners express representations and warranties. The examination conducted by RCBC, through Rubio, after the execution of the SPA on June 2, 2000, was confined to finding any breach under Sec. 5(h) for a possible reduction of the purchase price prior to the payment of its balance on December 31, 2000. Further, the parties clearly agreed under Sec. 7 of the SPA to a three (3)-year period from closing date within which to present a claim for damages for violation of the warranties under the SPA. Hence, Knecht is not a precedent to the case at bar.

So is Coca-Cola. As lessee, Coca-Cola Bottlers was well aware of the nature and situation of the land relative to its intended use prior to the signing of the contract. Its subsequent assertion that the land was not suited for the purpose it was leased was, therefore, cast aside for being unmeritorious. Such circumstance does not obtain in the instant case. There was no prior due diligence audit conducted by RCBC, it having relied, as earlier stated, on the warranties of petitioners with regard to the financial condition of Bankard under Sec. 5(g). As such, Sec. 5(g) guaranteed RCBC that it could file a claim for damages for any mistakes in the AFS and UFS of Bankard. Clearly,Coca-Cola also cannot be applied to the instant case. It becomes evident from all of the foregoing findings that the ICC-ICA is not guilty of any manifest disregard of the law on estoppel. As shown above, the findings of the ICC-ICA in the Partial Award are well-supported in law and grounded on facts. The Partial Award must be upheld. We close this disposition with the observation that a member of the three-person arbitration panel was selected by petitioners, while another was respondents choice. The respective interests of the parties, therefore, are very much safeguarded in the arbitration proceedings. Any suggestion, therefore, on the partiality of the arbitration tribunal has to be dismissed. WHEREFORE, the instant petition is hereby DENIED. The assailed January 8, 2008 and March 17, 2008 Orders of the RTC, Branch 148 in Makati City are hereby AFFIRMED. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. 120319 October 6, 1995 LUZON DEVELOPMENT BANK, petitioner, vs. ASSOCIATION OF LUZON DEVELOPMENT BANK EMPLOYEES and ATTY. ESTER S. GARCIA in her capacity as VOLUNTARY ARBITRATOR, respondents.

ROMERO, J.: From a submission agreement of the Luzon Development Bank (LDB) and the Association of Luzon Development Bank Employees (ALDBE) arose an arbitration case to resolve the following issue: Whether or not the company has violated the Collective Bargaining Agreement provision and the Memorandum of Agreement dated April 1994, on promotion. At a conference, the parties agreed on the submission of their respective Position Papers on December 1-15, 1994. Atty. Ester S. Garcia, in her capacity as Voluntary Arbitrator, received ALDBE's Position Paper on January 18, 1995. LDB, on the other hand, failed to submit its Position Paper despite a letter from the Voluntary Arbitrator reminding them to do so. As of May 23, 1995 no Position Paper had been filed by LDB. On May 24, 1995, without LDB's Position Paper, the Voluntary Arbitrator rendered a decision disposing as follows: WHEREFORE, finding is hereby made that the Bank has not adhered to the Collective Bargaining Agreement provision nor the Memorandum of Agreement on promotion. Hence, this petition for certiorari and prohibition seeking to set aside the decision of the Voluntary Arbitrator and to prohibit her from enforcing the same. In labor law context, arbitration is the reference of a labor dispute to an impartial third person for determination on the basis of evidence and arguments presented by such parties who have bound themselves to accept the decision of the arbitrator as final and binding. Arbitration may be classified, on the basis of the obligation on which it is based, as either compulsory or voluntary. Compulsory arbitration is a system whereby the parties to a dispute are compelled by the government to forego their right to strike and are compelled to accept the resolution of their dispute through arbitration by a third party. 1The essence of arbitration remains since a resolution of a dispute is arrived at by resort to a disinterested third party whose decision is final and binding on the parties, but in compulsory arbitration, such a third party is normally appointed by the government. Under voluntary arbitration, on the other hand, referral of a dispute by the parties is made, pursuant to a voluntary arbitration clause in their collective agreement, to an impartial third

person for a final and binding resolution. 2Ideally, arbitration awards are supposed to be complied with by both parties without delay, such that once an award has been rendered by an arbitrator, nothing is left to be done by both parties but to comply with the same. After all, they are presumed to have freely chosen arbitration as the mode of settlement for that particular dispute. Pursuant thereto, they have chosen a mutually acceptable arbitrator who shall hear and decide their case. Above all, they have mutually agreed to de bound by said arbitrator's decision. In the Philippine context, the parties to a Collective Bargaining Agreement (CBA) are required to include therein provisions for a machinery for the resolution of grievances arising from the interpretation or implementation of the CBA or company personnel policies. 3 For this purpose, parties to a CBA shall name and designate therein a voluntary arbitrator or a panel of arbitrators, or include a procedure for their selection, preferably from those accredited by the National Conciliation and Mediation Board (NCMB). Article 261 of the Labor Code accordingly provides for exclusive original jurisdiction of such voluntary arbitrator or panel of arbitrators over (1) the interpretation or implementation of the CBA and (2) the interpretation or enforcement of company personnel policies. Article 262 authorizes them, but only upon agreement of the parties, to exercise jurisdiction over other labor disputes. On the other hand, a labor arbiter under Article 217 of the Labor Code has jurisdiction over the following enumerated cases: . . . (a) Except as otherwise provided under this Code the Labor Arbiters shall have original and exclusive jurisdiction to hear and decide, within thirty (30) calendar days after the submission of the case by the parties for decision without extension, even in the absence of stenographic notes, the following cases involving all workers, whether agricultural or non-agricultural: 1. Unfair labor practice cases; 2. Termination disputes; 3. If accompanied with a claim for reinstatement, those cases that workers may file involving wages, rates of pay, hours of work and other terms and conditions of employment; 4. Claims for actual, moral, exemplary and other forms of damages arising from the employer-employee relations; 5. Cases arising from any violation of Article 264 of this Code, including questions involving the legality of strikes and lockouts; 6. Except claims for Employees Compensation, Social Security, Medicare and maternity benefits, all other claims, arising from employer-employee relations, including those of persons in domestic or household service, involving an amount exceeding five thousand pesos (P5,000.00) regardless of whether accompanied with a claim for reinstatement. xxx xxx xxx It will thus be noted that the jurisdiction conferred by law on a voluntary arbitrator or a panel of such arbitrators is quite limited compared to the original jurisdiction of the labor arbiter and the appellate jurisdiction of the National Labor Relations Commission (NLRC) for that matter. 4 The state of our present law relating to voluntary arbitration provides that "(t)he award or decision of the Voluntary Arbitrator . . . shall be final and executory after ten (10) calendar days from receipt of the copy of the award or decision by the parties," 5 while the "(d)ecision, awards, or orders of the Labor Arbiter are final and executory unless appealed to the Commission by any or both parties within ten (10) calendar days from receipt of such

decisions, awards, or orders." 6 Hence, while there is an express mode of appeal from the decision of a labor arbiter, Republic Act No. 6715 is silent with respect to an appeal from the decision of a voluntary arbitrator. Yet, past practice shows that a decision or award of a voluntary arbitrator is, more often than not, elevated to the Supreme Court itself on a petition for certiorari, 7 in effect equating the voluntary arbitrator with the NLRC or the Court of Appeals. In the view of the Court, this is illogical and imposes an unnecessary burden upon it. In Volkschel Labor Union, et al. v. NLRC, et al., 8 on the settled premise that the judgments of courts and awards of quasi-judicial agencies must become final at some definite time, this Court ruled that the awards of voluntary arbitrators determine the rights of parties; hence, their decisions have the same legal effect as judgments of a court. In Oceanic Bic Division (FFW), et al. v. Romero, et al., 9 this Court ruled that "a voluntary arbitrator by the nature of her functions acts in a quasi-judicial capacity." Under these rulings, it follows that the voluntary arbitrator, whether acting solely or in a panel, enjoys in law the status of a quasijudicial agency but independent of, and apart from, the NLRC since his decisions are not appealable to the latter. 10 Section 9 of B.P. Blg. 129, as amended by Republic Act No. 7902, provides that the Court of Appeals shall exercise: xxx xxx xxx (B) Exclusive appellate jurisdiction over all final judgments, decisions, resolutions, orders or awards of Regional Trial Courts and quasi-judicial agencies, instrumentalities, boards or commissions, including the Securities and Exchange Commission, the Employees Compensation Commission and the Civil Service Commission, except those falling within the appellate jurisdiction of the Supreme Court in accordance with the Constitution, the Labor Code of the Philippines under Presidential Decree No. 442, as amended, the provisions of this Act, and of subparagraph (1) of the third paragraph and subparagraph (4) of the fourth paragraph of Section 17 of the Judiciary Act of 1948. xxx xxx xxx Assuming arguendo that the voluntary arbitrator or the panel of voluntary arbitrators may not strictly be considered as a quasi-judicial agency, board or commission, still both he and the panel are comprehended within the concept of a "quasi-judicial instrumentality." It may even be stated that it was to meet the very situation presented by the quasi-judicial functions of the voluntary arbitrators here, as well as the subsequent arbitrator/arbitral tribunal operating under the Construction Industry Arbitration Commission, 11 that the broader term "instrumentalities" was purposely included in the above-quoted provision. An "instrumentality" is anything used as a means or agency. 12 Thus, the terms governmental "agency" or "instrumentality" are synonymous in the sense that either of them is a means by which a government acts, or by which a certain government act or function is performed. 13 The word "instrumentality," with respect to a state, contemplates an authority to which the state delegates governmental power for the performance of a state function. 14 An individual person, like an administrator or executor, is a judicial instrumentality in the settling of an estate, 15 in the same manner that a sub-agent appointed by a bankruptcy court is an instrumentality of the court,16 and a trustee in bankruptcy of a defunct corporation is an instrumentality of the state. 17 The voluntary arbitrator no less performs a state function pursuant to a governmental power delegated to him under the provisions therefor in the Labor Code and he falls, therefore, within the contemplation of the term "instrumentality" in the aforequoted Sec. 9 of B.P. 129. The fact that his functions and powers are provided for in the Labor Code does not place him

within the exceptions to said Sec. 9 since he is a quasi-judicial instrumentality as contemplated therein. It will be noted that, although the Employees Compensation Commission is also provided for in the Labor Code, Circular No. 1-91, which is the forerunner of the present Revised Administrative Circular No. 1-95, laid down the procedure for the appealability of its decisions to the Court of Appeals under the foregoing rationalization, and this was later adopted by Republic Act No. 7902 in amending Sec. 9 of B.P. 129. A fortiori, the decision or award of the voluntary arbitrator or panel of arbitrators should likewise be appealable to the Court of Appeals, in line with the procedure outlined in Revised Administrative Circular No. 1-95, just like those of the quasi-judicial agencies, boards and commissions enumerated therein. This would be in furtherance of, and consistent with, the original purpose of Circular No. 1-91 to provide a uniform procedure for the appellate review of adjudications of all quasi-judicial entities 18 not expressly excepted from the coverage of Sec. 9 of B.P. 129 by either the Constitution or another statute. Nor will it run counter to the legislative intendment that decisions of the NLRC be reviewable directly by the Supreme Court since, precisely, the cases within the adjudicative competence of the voluntary arbitrator are excluded from the jurisdiction of the NLRC or the labor arbiter. In the same vein, it is worth mentioning that under Section 22 of Republic Act No. 876, also known as the Arbitration Law, arbitration is deemed a special proceeding of which the court specified in the contract or submission, or if none be specified, the Regional Trial Court for the province or city in which one of the parties resides or is doing business, or in which the arbitration is held, shall have jurisdiction. A party to the controversy may, at any time within one (1) month after an award is made, apply to the court having jurisdiction for an order confirming the award and the court must grant such order unless the award is vacated, modified or corrected. 19 In effect, this equates the award or decision of the voluntary arbitrator with that of the regional trial court. Consequently, in a petition for certiorari from that award or decision, the Court of Appeals must be deemed to have concurrent jurisdiction with the Supreme Court. As a matter of policy, this Court shall henceforth remand to the Court of Appeals petitions of this nature for proper disposition. ACCORDINGLY, the Court resolved to REFER this case to the Court of Appeals. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 102881 December 7, 1992 TOYOTA MOTOR PHILIPPINES CORPORATION, petitioner, vs. THE COURT OF APPEALS, HON. FERNANDO V. GOROSPE, JR. and SUN VALLEY MANUFACTURING & DEVELOPMENT CORPORATION, respondents.

GUTIERREZ, JR., J.: This case involves a boundary dispute between Toyota Motor Phil. Corporation (Toyota) and Sun Valley Manufacturing and Development Corporation (Sun Valley). Both Toyota and Sun Valley are the registered owners of two (2) adjoining parcels of land situated in La Huerta, Paraaque, Metro Manila which they purchased from the Asset Privatization Trust (APT). The properties in question formerly belonged to Delta Motors Corporation (DMC). They were foreclosed by the Philippine National Bank (PNB) and later transferred to the national government through the APT for disposition. APT then proceeded to classify the DMC properties according to the existing improvements, i.e., buildings, driveways, parking areas, perimeter fence, walls and gates and the land on which the improvements stood. The entire DMC property is called GC III-Delta Motors Corporation, divided into Delta I, Delta II, and Delta III. Further subdivisions for the separate catalogues were made for each division e.g. Delta I into Lots 1, 2 and 3. After this classification, APT parcelled out and catalogued the properties for bidding and sale. Part of the duly parcelled Delta I property (Lot 2) was sold to Toyota through public bidding on May 12, 1988 for the amount of P95,385,000.00. After its purchase, Toyota constructed a concrete hollow block (CHB) perimeter fence around its alleged property. On October 5, 1990, another part of the parcelled Delta I (Lot 1) covering an area of 55,236 square meters was purchased by Sun Valley from APT for the bid price of P124,349,767.00. Relying upon the title description of its property and the surveys it had commissioned, Sun Valley claimed that Toyota's perimeter fence overlaps Sun Valley's property along corners 11 to 15 by 322 square meters and corners 19 to 1 by 401 square meters for a total of 723 square meters. (Rollo, p. 841) Negotiations between the two (2) corporations for a possible settlement of the dispute bogged down. Court battles ensued, grounded on purely procedural issues. In pursuing the resolution of the dispute, both Toyota and Sun Valley opted to file separate actions. Much of the complications that arose and are now before us can be traced to the two separate cases pursued by both parties. There are other cases arising from the same dispute but which are not before us. Culled from the records, these are the antecedents of the two cases which transpired below.

TOYOTA CASE (Civil Case No. 91-2504)

On September 11, 1991, Toyota filed a case against APT and Sun Valley docketed as Civil Case No. 91-2504 with the Regional Trial Court of Makati, Branch 146 presided by Judge Salvador Tensuan. The complaint was for the reformation of the Deed of Sale executed between Toyota and APT. Toyota alleges that the instrument failed to reflect the true intention of the parties, as evidenced by the failure of the title to include the 723 square meters strip of land. Toyota alleges that the discrepancy came about because of the serious flaw in the classification/cataloguing of properties bidded out for sale by APT. Toyota was made to understand that included in its perimeter fence is the disputed strip of land. Thus, Toyota sought the resurvey of the property to correct this error in the title. Sun Valley was impleaded considering that it purchased the adjoining land whose title allegedly included the 723 square meters property. On September 11, 1991, upon Toyota's application, Judge Tensuan issued a temporary restraining order (TRO) enjoining Sun Valley and APT from any act of destruction and removal of Toyota's walls and structures. Sun Valley and APT were respectively served summons on the following day. On September 16, 1991, Sun Valley filed a motion to dismiss, on the ground that the Toyota complaint failed to state a cause of action against it (1) since it was not a party to the contract of the deed of sale between Toyota and APT, and (2) the complaint was in effect a collateral attack on its title. On September 27, 1991, Judge Tensuan initially denied Toyota's application for preliminary injunction on the finding that there was no evidence of any threatened destruction, removal or dispossession of Toyota's property. On October 10, 1991, Judge Tensuan denied Sun Valley's motion to dismiss. Both Toyota and Sun Valley filed their respective motions for reconsideration. Toyota moved to reconsider the denial of its injunctive application while Sun Valley moved to reconsider the denial of its motion to dismiss. On October 30, 1991, APT filed its answer with affirmative defenses alleging that the complaint must be dismissed on the ground that Toyota and APT should first have resorted to arbitration as provided in Toyota's deed of sale with APT. On December 4, 1991, Toyota filed a motion alleging that Sun Valley's long threatened destruction and removal of Toyota's walls and structures were actually being implemented to which Judge Tensuan issued another TRO enjoining acts of destruction and removal of the perimeter walls and structures on the contested area. Consequently, on December 17, 1991, Judge Tensuan reconsidered his earlier denial of Toyota's application for injunction and granted a writ of preliminary injunction enjoining Sun Valley from proceeding with its threatened destruction and removal of Toyota's walls and directed Sun Valley to restore the premises to the status quo ante. On December 11, 1991, Judge Tensuan denied Sun Valley's motion for reconsideration of its motion to dismiss. Sun Valley elevated this denial to the Court of Appeals. The case was docketed as CA-G.R. Sp. No. 26942 and raffled to the Eleventh (11th) Division. Judge Tensuan's jurisdiction to act considering the defense of prematurity of action for failure to arbitrate the validity of the TRO issued on December 4, 1991 and the order granting injunctive reliefs were challenged in a petition for certiorari filed with the Court of Appeals and docketed as CA-G.R. No. 26813, assigned to the Second (2nd) Division.

SUN VALLEY CASE (Civil Case No. 91-2550) On September 16, 1991, Sun Valley, on the other hand, filed a case for recovery of possession of the disputed 723 square meters boundary with the Regional Trial Court (RTC) Makati, Branch 61 presided by Judge Fernando Gorospe, Jr. On the same day, Judge Gorospe issued a TRO enjoining Toyota from committing further acts of dispossession against Sun Valley. On September 19, 1991, Toyota moved to lift the TRO and opposed Sun Valley's application for injunction. On September 23, 1991, Toyota filed a motion to dismiss on the ground that the RTC has no jurisdiction over the case since the complaint was a simple ejectment case cognizable by the Metropolitan Trial Court (MTC). The motion to dismiss was set for hearing on September 27, 1991. On September 27, 1991, Sun Valley filed an amended complaint to incorporate an allegation that Toyota's possession of the alleged disputed area began in September, 1988 when Toyota purchased the property. Ruling that the amendment was a matter of right, Judge Gorospe admitted the amended complaint. Toyota adopted its motion to dismiss the original complaint as its motion to dismiss the amended complaint. After the arguments to Toyota's motion to dismiss, the same was submitted for resolution. Sun Valley's application for prohibitory and mandatory injunction contained in its complaint was set for hearing on October 1, 1991. Protesting the admission of the amended complaint, Toyota went to the Court of Appeals, on certiorari on October 1, 1991. This petition was docketed as CA-G.R. No. 26152 raffled to the Tenth (10th) Division. Toyota was later prompted to file two supplemental petitions, before the Court of Appeals as a result of Judge Gorospe's alleged hasty issuance of four (4) Orders, all dated October 1, 1992. These are: (1) First supplemental petition dated October 4, 1991 which sought to nullify the Order denying Toyota's motion to dismiss the amended complaint. (2) Second supplemental petition dated October 23, 1991 which sought the nullification of the orders granting Sun Valley's application for preliminary prohibitory and mandatory injunction and denying Toyota's motion to cross-examine Sun Valley's witnesses on the latter's injunction application. On November 27, 1991, respondent Court of Appeals' Tenth Division promulgated its questioned decision which is primarily the subject matter of the present petition before us. The respondent court denied due course to the Toyota petition on the finding that the amendment of Sun Valley's complaint was a valid one as Sun Valley's action was not for unlawful detainer but an accion publiciana. Furthermore, the supplemental petitions filed by Toyota assailing the prohibitory and mandatory injunctive writ were not ruled upon as they were expunged from the records because of Toyota's failure to attach a motion to admit these supplemental petitions. Consequently, Toyota filed the present petition for certiorari on December 9, 1991. Earlier, upon an ex-parte motion to clarify filed by Sun Valley on October 25, 1991, Judge Gorospe issued another order dated December 2, 1991 which followed Sun Valley to break

open and demolish a portion of the Toyota perimeter walls, and eventually to secure possession of the disputed area. Toyota was constrained to come to this Court for relief. On December 11, 1991, we issued a TRO enjoining the implementation of Judge Gorospe's injunction and break-open orders dated October 1, 1991 and December 2, 1991 respectively as well as further proceedings in Civil Case No. 91-2550. Meanwhile, the Court of Appeals' Second Division issued a TRO ordering respondent Judge Tensuan and all other persons acting in his behalf to cease and desist from further proceeding with Civil Case No. 91-2504 and from enforcing the Order dated December 17, 1991 and the writ of preliminary mandatory injunction dated December 19, 1991. This prompted Toyota to file a motion to quash the TRO and file a supplemental petition with this Court impleading the Court of Appeals' Second Division. On January 13, 1992, we admitted the supplemental petition. On January 10, 1992, the Court of Appeals' Second Division issued the Resolution granting Sun Valley's application for preliminary injunction which enjoined Judge Tensuan in the Toyota case from implementing his injunction Order and from proceeding with the case before him (Civil Case No. 91-2504). Thus, Toyota filed its Second Supplemental Petition with this Court challenging the validity of the injunction writ issued by the Court of Appeals' Second Division. This Second Supplemental Petition was admitted on February 10, 1992. On February 10, 1992, we gave due course to Toyota's petition. Subsequently, through a manifestation dated April 29, 1992, Toyota informed the Court that on April 15, 1992, the Court of Appeals' 11th Division (Sun Valley case) rendered a decision dismissing the case before it for lack of merit. The Court of Appeals ruled that the Toyota complaint was not a collateral attack on Sun Valley's title and that misjoinder of parties is not a ground for dismissal. A subsequent motion for reconsideration was denied in a resolution dated August 10, 1992. In the instant petition Toyota raises the following issues, to wit: 1. The Court of Appeals' 10th Division gravely abused its discretion when it ignored or pretended to ignore Toyota's protests against Judge Gorospe's injunction orders. 2. Sun Valley is guilty of forum-shopping and Judge Gorospe of case-grabbing. Sun Valley, on the other hand raises the following: 1. Whether or not the petitioner availed of the proper mode of elevating the case to this Court. 2. Whether or not the Court of Appeals committed grave abuse of discretion in refusing to act upon petitioner's supplemental petitions for certiorari. 3. Whether or not the complaint filed in the court below is an accion publiciana which is within the jurisdiction of the RTC. 4. Whether or not Judge Salvador S. Tensuan had jurisdiction to take cognizance of Civil Case No. 2504 for reformation of instrument.

5. Whether or not respondent Judge Gorospe, Jr. committed grave abuse of discretion in granting private respondent's application for a writ of preliminary prohibitory/mandatory injunction. 6. Whether or not Judge Tensuan committed grave abuse of discretion in issuing the writ of mandatory injunction dated December 19, 1991. This case is far from settlement on the merits. Through legal maneuverings, the parties have succeeded in muddling up the vital issues of the case and getting the lower courts embroiled in numerous appeals over technicalities. As it is now, there are three appellate decisions/resolutions before us for review and conflicting orders issued by lower courts as a result of the separate cases filed by the parties. As in the case of Consolidated Bank and Trust Corp. v. Court of Appeal,s 193 SCRA 158 [1991], the Court is explicit in stating that: xxx xxx xxx Where there are conflicting but inextricably interconnected issues in one and the same complicated case, it is best that these be resolved in one integrated proceeding where an overall picture of the entirety of the case can be presented and examined. Piecemeal determinations by several trial courts on segments of the basic issue and disconnected appeals to different Divisions of the Court of Appeals resulting in separate decisions each dealing with only part of the problem are discouraged. Needless multiplicity of suits is something which is frowned upon. xxx xxx xxx Amid the clutter of extraneous materials which have certainly bloated the records of this case, we find only two (2) issues vital to the disposition of the petition: first, is the matter of jurisdiction, who as between Judge Tensuan or Judge Gorospe has jurisdiction over the dispute; and second, who as between the parties has the rightful possession of the land. Anent the issue on jurisdiction, we examine the two actions filed by the parties. Toyota filed an action for reformation on September 11, 1991, before Judge Tensuan alleging that the true intentions of the parties were not expressed in the instrument (Art. 1359 Civil Code). The instrument sought to be reformed is the deed of sale executed by APT in favor of Toyota. Toyota alleges that there was a mistake in the designation of the real properties subject matter of the contract. Sun Valley was impleaded in order to obtain complete relief since it was the owner of the adjacent lot. Sun Valley, however, argues that the complaint for reformation states no cause of action against it since an action for reformation is basically one strictly between the parties to the contract itself. Third persons who are not parties to the contract cannot and should not be involved. Thus, Sun Valley contends that it should not have been impleaded as a defendant. The Court of Appeals' 11th Division, in its decision promulgated on April 15, 1992 where the denial of Sun Valley's motion to dismiss was sustained, correctly ruled that misjoinder of parties is not a ground for dismissal. American jurisprudence from where provisions on reformation of instruments were taken discloses that suits to reform written instruments are subject to the general rule in equity that all persons interested in the subject matter of the litigation, whether it is a legal or an equitable interest should be made parties, so that the court may settle all their rights at once and thus prevent the necessity of a multiplicity of suits (Bevis Construction Co. v. Grace [Fla App] 115 So 2d 84; Green v. Stone, 54 N.J.E. 387, 34 A 1099). As a general rule, therefore, all persons to be affected by the proposed reformation must be made parties (American Fidelity & Casualty Co. v. Elder, 189 Ga 229, 5 SE 2d 668; Kemp v. Funderburk, 224 NC 353, 30 SE 2d

155). In an action to reform a deed, all parties claiming an interest in the land or any part thereof purportedly conveyed by the instrument sought to be reformed, and whose interests will be affected by the reformation of the instrument are necessary parties to the action (Kemp v. Funderburk, 224 NC 353, 30 SE 2d 155). From the foregoing jurisprudence, it would appear that Toyota was correct in impleading Sun Valley as party defendant. However, these principles are not applicable under the particular circumstances of this case. Under the facts of the present case, Toyota's action for reformation is dismissible as against Sun Valley. Attention must first be brought to the fact that the contract of sale executed between APT and Toyota provides an arbitration clause which states that: xxx xxx xxx 5. In case of disagreement or conflict arising out of this Contract, the parties hereby undertake to submit the matter for determination by a committee of experts, acting as arbitrators, the composition of which shall be as follows: a) One member to be appointed by the VENDOR; b) One member to be appointed by the VENDEE; c) One member, who shall be a lawyer, to be appointed by both of the aforesaid parties; The members of the Arbitration Committee shall be appointed not later than three (3) working days from receipt of a written notice from either or both parties. The Arbitration Committee shall convene not later than three (3) weeks after all its members have been appointed and proceed with the arbitration of the dispute within three (3) calendar months counted therefrom. By written mutual agreement by the parties hereto, such time limit for the arbitration may be extended for another calendar month. The decision of the Arbitration Committee by majority vote of at least two (2) members shall be final and binding upon both the VENDOR and the VENDEE; (Rollo, pp. 816-817) xxx xxx xxx The contention that the arbitration clause has become disfunctional because of the presence of third parties is untenable. Contracts are respected as the law between the contracting parties (Mercantile Ins. Co. Inc. v. Felipe Ysmael, Jr. & Co., Inc., 169 SCRA 66 [1989]). As such, the parties are thereby expected to abide with good faith in their contractual commitments (Quillan v. CA, 169 SCRA 279 [1989]). Toyota is therefore bound to respect the provisions of the contract it entered into with APT. Toyota filed an action for reformation of its contract with APT, the purpose of which is to look into the real intentions/agreement of the parties to the contract and to determine if there was really a mistake in the designation of the boundaries of the property as alleged by Toyota. Such questions can only be answered by the parties to the contract themselves. This is a controversy which clearly arose from the contract entered into by APT and Toyota. Inasmuch as this concerns more importantly the parties APT and Toyota themselves, the arbitration committee is therefore the proper and convenient forum to settle the matter as clearly provided in the deed of sale. Having been apprised of the presence of the arbitration clause in the motion to dismiss filed by APT, Judge Tensuan should have at least suspended the proceedings and directed the

parties to settle their dispute by arbitration (Bengson v. Chan, 78 SCRA 113 [1977], Sec. 7, RA 876). Judge Tensuan should have not taken cognizance of the case. But the more apparent reason which warrants the dismissal of the action as against Sun Valley is the fact that the complaint for reformation amounts to a collateral attack on Sun Valley's title, contrary to the finding of the Court of Appeals' 11th Division. It is disputed that Sun Valley has a Torrens title registered in its name by virtue of its purchase of the land from APT. Toyota contends that the 723 square meters strip of land which it understood to be included in its purchase from APT was erroneously included in Sun Valley's title. This is the reason why reformation was sought to correct the mistake. Well-settled is the rule that a certificate of title can not be altered, modified, or cancelled except in a direct proceeding in accordance with law (Section 48, P.D. No. 1529). In the case of Domingo v. Santos Ongsiako, Lim y Sia (55 Phil. 361 [1930]), the Court held that: . . . The fact should not be overlooked that we are here confronted with what is really a collateral attack upon a Torrens title. The circumstance that the action was directly brought to recover a parcel of land does not alter the truth that the proceeding involves a collateral attack upon a Torrens title, because as we have found, the land in controversy lies within the boundaries determined by that title. The Land Registration Law defines the methods under which a wrongful adjudication of title to land under the Torrens system may be corrected . . . While reformation may often be had to correct mistakes in defining the boundary of lands conveyed so as to identify the lands, it may not be used to pass other lands from those intended to be bought and sold, notwithstanding a mistake in pointing out the lines, since reformation under these circumstances would be inequitable and unjust. (McCay v. Jenkins, 244 Ala 650, 15 So 2d 409, 149 ALR 746) Assuming that Toyota is afforded the relief prayed for in the Tensuan court, the latter can not validly order the contested portion to be taken out from the Sun Valley's TCT and award it in favor of Toyota. An action for reformation is in personam, not in rem (Cohen v. Hellman Commercial Trust & Savings Bank, 133 Cal App 758, 24 P2d 960; Edwards v. New York Life Ins. Co. 173 Tenn 102, 114 SW 2d 808) even when real estate is involved (Agurs v. Holt, 232 La 1026, 95 So 2d 644; Vallee v. Vallee (La App) 180 So 2d 570). It is merely an equitable relief granted to the parties where through mistake or fraud, the instrument failed to express the real agreement or intention of the parties. While it is a recognized remedy afforded by courts of equity it may not be applied if it is contrary to well-settled principles or rules. It is a long standing principle that equity follows the law. It is applied in the abscence of and never against statutory law (Zabat v. Court of Appeals, 142 SCRA 587 [1986]). Courts are bound by rules of law and have no arbitrary discretion to disregard them. (See Arsenal v. Intermediate Appellate Court, 143 SCRA 40 [1986].) Courts of equity must proceed with utmost caution especially when rights of third parties may intervene. Thus in the instant case, vis-a-vis well-settled principles or rules in land registration, the equitable relief of reformation may not come into play in order to transfer or appropriate a piece of land that one claims to own but which is titled in the name of a third party. On the other hand, Sun Valley filed an action for reconveyance against Toyota to recover possession of the strip of land encroached upon and occupied by the latter. What Sun Valley seeks in its complaint is the recovery of possession de jure and not merely possession de

facto. Toyota moved to dismiss on the assumption that the complaint was one for unlawful detainer cognizable by the MTC. We do not find any reversible error in the decision of the Court of Appeals' 10th Division where it upheld Judge Gorospe's order denying Toyota's motion to dismiss. An amendment to a complaint before a responsive pleading is filed, is a matter of right (Rule 10, Sec. 2). Whether or not the complaint was amended, Sun Valley's complaint was one for accion publiciana cognizable by the RTC. Its right over the land is premised on the certificate of title registered in its name after it had purchased said land from APT. As the registered owner it had the right of possession of said land illegally occupied by another (Ybaez v. IAC, 194 SCRA 743 [1991]). The case ofBanayos v. Susana Realty, Inc. (71 SCRA 557 [1976]) is quite instructive: xxx xxx xxx We deem it advisable, at this point, to reiterate the essential differences between three kinds of actions for the recovery of possession of real property, namely: (1) the summary action for forcible entry and unlawful detainer; (2) the accion publiciana; and (3) the accion de reivindicacion. The action for forcible entry may be brought where dispossession of real property had taken place by any of the means provided for in Section 1 of Rule 70 of the Revised Rules of Court, and in the case of unlawful detainer, where the possession is withheld after the expiration or termination of the right to hold possession, by virtue of any contract express or implied. These two actions must be filed within one (1) year after such unlawful deprivation or withholding of possession with the municipal or city court. These actions in their essence are mere quieting processes by virtue of which a party in possession of land may not be, by force, dispossessed of that land, the law restoring to him such possession in a summary manner, until the right of ownership can be tried in due course of law. They are, therefore, intended to provide an expeditious means of protecting actual possession or right to possession of property. The aforesaid Rule 70 does not, however, cover all of the cases of dispossession of lands. Thus, "whenever the owner is dispossessed by any other means than those mentioned he may maintain his action in the Court of First Instance, and it is not necessary for him to wait until the expiration of twelve months before commencing an action to be repossessed or declared to be owner of land." (Gumiran v. Gumiran, 21 Phil. 174, 179. Cf. Medina, et al. v. Valdellon, 63 SCRA 278) Courts of First Instance have jurisdiction over actions to recover possession of real property illegally detained, together with rents due and damages, even though one (1) year has not expired from the beginning of such illegal detention, provided the question of ownership of such property is also involved. In other words, if the party illegal dispossessed desires to raise the question of illegal dispossession as well as that of the ownership over the property, he may commence such action in the Court of First Instance immediately or at any time after such illegal dispossession. If he decides to raise the question of illegal dispossession only, and the action is filed more than one (1) year after such deprivation or withholding of possession, then the Court of First Instance will have original jurisdiction over the case. (Bishop of Cebu v. Mangoron, 6 Phil. 286; Catholic Church v. Tarlac and Victoria, 9 Phil. 450; Ledesma v. Marcos, 9 Phil. 618; Medina, et al. v. Valdellon, supra) The former is an accion de reivindicacion which seeks the recovery of ownership as well as possession, while the latter refers to an accion publiciana, which is the recovery of the right to possess and is a plenary action in an ordinary proceeding in the Court of First Instance. (Sec. 88, Rep. Act No. 296; Rule 70, Rules of Court; Manila Railroad Co. v. Attorney General, 20 Phil. 523; Lim Cay v. Del, 55 Phil. 692; Central Azucarera de Tarlac v. De Leon, 56 Phil. 169; Navarro v. Aguila, 66 Phil. 604; Luna v. Carandang, 26 SCRA 306; Medina, et al. v. Valdellon, supra; Pasaqui, et al. v. Villablanca, et al.,supra).

With the finding that Toyota's action for reformation is dismissable as it is in effect a collateral attack on Sun Valley's title, Sun Valley's action for recovery of possession filed before Judge Gorospe now stands to be the proper forum where the following dispute may be tried or heard. We now come to the issue as to which of the parties has a legal right over the property to warrant the issuance of the preliminary mandatory/prohibitory injunction. In actions involving realty, preliminary injunction will lie only after the plaintiff has fully established his title or right thereto by a proper action for the purpose. To authorize a temporary injunction, the complainant must make out at least a prima facie showing of a right to the final relief. Preliminary injunction will not issue to protect a right not in esse (Buayan Cattle Co. Inc. v. Quintillan, 128 SCRA 286-287 [1984]; Ortigas & Company, Limited Partnership v. Ruiz, 148 SCRA 326 [1987]). Two requisites are necessary if a preliminary injunction is to issue, namely, the existence of the right to be protected, and the facts against which the injunction is to be directed, are violative of said right. In particular, for a writ of preliminary injunction to issue, the existence of the right and the violation must appear in the allegations of the complaint and an injunction is proper also when the plaintiff appears to be entitled to the relief demanded in his complaint. Furthermore, the complaint for injunctive relief must be construed strictly against the pleader (Ortigas & Company, Limited Partnership v. Ruiz, supra). In the instant case the existence of a "clear positive right" especially calling for judicial protection has been shown by Sun Valley. Toyota's claim over the disputed property is anchored on the fact of its purchase of the property from APT, that from the circumstances of the purchase and the intention of the parties, the property including the disputed area was sold to it. Sun Valley, on the other hand has TCT No. 49019 of the Registry of Deeds of Paraaque embracing the aforesaid property in its name, having been validly acquired also from APT by virtue of a Deed of Sale executed in its favor on December 5, 1990 (Rollo, pp. 823-825; 826827). There are other circumstances in the case which militate against Toyota's claim for legal possession over the disputed area. The fact that Toyota has filed a suit for reformation seeking the inclusion of the 723 square meters strip of land is sufficient to deduce that it is not entitled to take over the piece of property it now attempts to appropriate for itself. As early as September, 1988 prior to the construction of the perimeter fence, Toyota was already aware of the discrepancies in the property's description in the title and the actual survey. The letter of its surveyor company, Summa Kumagai thus reveals: 09 September, 1988 TOYOTA MOTOR PHILIPPINES CORPORATION 10th Floor, Metrobank Plaza Sen. Gil J. Puyat Ave. Makati, Metro Manila ATTENTION: MR. FLORENCIO JURADO Finance Officer

SUBJECT: PHASE I RENOVATION WORK PERIMETER FENCE GENTLEMEN: This is in connection with the construction of the Perimeter Fence for the Toyota Motor Plant Facilities which to this date we have not started yet due to the following reasons: 1. Lack of fencing permit which can only be applied to and issued by the Paraaque Building Official upon receipt of the transfer certificate to title and tax declaration. 2. Although the Building Official has verbally instructed us to proceed with the renovation work and construction of fence, we could not execute the fencing work due to discrepancies on the consolidation plan and the existing property monuments. These discrepancies was (sic) confirmed with the representatives of the Geodetic Engineer. Kindly expedite the immediate confirmation with the Geodetic Engineer on the final descriptions of the property lines. We would appreciate your usual prompt attention regarding this matter. Very truly yours, CESAR D. ELE Project Manager (Emphasis supplied, Rollo, p. 811) Despite such notification, Toyota continued to build the perimeter fence. It is highly doubtful whether Toyota may be considered a builder in good faith to be entitled to protection under Article 448 of the Civil Code. The records also reveal that Toyota's own surveyor, the Certeza Surveying & Acrophoto Systems, Inc. confirmed in its reports dated April 1 and April 5, 1991 that Toyota's perimeter fence overlaps the boundaries of Sun Valley's lot (Rollo, pp. 833-383). Even communication exchanges between and among APT, Toyota & Sun Valley show that the parties are certainly aware that the ownership of the disputed property more properly pertains to Sun Valley. Among these are the following: May 28, 1991 MR. JOSE CH. ALVAREZ President Sun Valley Manufacturing & Development Corp. (SVMDC) Cor. Aurora Blvd. and Andrews Ave. Pasay City, Metro Manila Dear Mr. Alvarez: Thank you for honoring our invitation to a luncheon meeting held at noon time today at Sugi Restaurant. As per our understanding, we would like to propose as a package the settlement of differences between your property and ours as follows:

1. Boundary Issue between TMP Main Office & Factory and the recently acquired property of SVMDC. The boundary lines to our property lines bidded early 1988 were determined after making full payment in August 1988 jointly by representatives of TMP/Metrobank Messrs. Mitake, Pedrosa, Alonzo and Jurado, APT Mr. Bince together with representatives of Geo-Resources who installed the monuments and prepared the technical description of the property. The construction of the fence utilized existing fence marked yellow on Exhibit 1 and made sure that the new fence to set boundaries were on top of the monuments set by Geo-Resources. The replacement of existing wire fence were affected by setting concrete walls on exactly the same position. This is the reason why we are surprised top be informed that our fence goes beyond the boundary lines set forth in the Technical Description on the Transfer Certificate of Title (TCT) to our property. This occurs even on fence already existing and should have been maintained in the TCT. Since we have manifested our intention when we set boundaries to our property, we propose the following in relation to the excess area occupied by TMP. 1. We offer to give way to an access road 5 m. wide more or less from point 15 to 16 of Lot 2 (14.65 m. in length) at the back of our Paint Storage Building (Exhibit 2). 2. We propose to pay for the balance of excess land inside TMP fence (contested areas) at a price mutually agreed upon. II. Question of ownership of certain permanent improvements (underground water reservoir and perimeter walls/fences) located at Lot 6 which we won by bidding from APT on October 5, 1990. We have made our position to APT that these permanent improvements are part of Lot 6 on "as is where is" bid basis (See explanatory map Exhibit 3). However, since you have relayed to us that the underground water reservoir is of no use to you, as part of the total package we are proposing to pay for the underground water reservoir, the applicable perimeter walls/fences and the water pump/pipings at a price mutually agreed upon. We hope that through this proposal we would settle our differences and look forward to a more cooperative relationship between good neighbors. We will appreciate your favorable consideration and immediate attention on the matter. Very truly yours, MASAO MITAKE President

July 4, 1991

TOYOTA MOTOR PHILIPPINES CORPORATION Rm. 15, South Superhighway Paraaque, Metro Manila ATTENTION: MR. MASAO MITAKE President Gentlemen: This refers to our several meetings regarding the property problems at "Lot 6" and your encroachment of SVMD LOT I. We wish to thank you for finally acknowledging the legitimacy of our demands on both properties. In order to start a good business relationship, we propose that the property problem at "LOT 6" which consists of the perimeter fence, water reservoir, water pump and systems be settled first, in the amount of P3,500,000.00 payable to CMANC. We also would like to request you to allow us to continue usage of the MERALCO posts and lines connecting to SVMD power station which passes thru your property and allow entry of MERALCO linemen from time to time. Upon acceptance of these requests, I will confer which our Japanese partners to consider the selling of the 723 sq. m. of land adjacent to your Assembly Plant which you continue to use even after said property has been legally transferred to us from last quarter of 1990. In view of your present good behavior, we are hoping that this first problem be settled not later than July 15, 1991, otherwise, we will consider the whole matter as unacceptable to you and we, therefore, proceed as earlier demanded to immediately demolish the CHB fence that prevents us from using our property. We hope for your immediate action to start the resolution of these unwanted problems. Very truly yours, JOSE CH. ALVAREZ President (Rollo, p. 832; Emphasis supplied) Moreover, Sun Valley puts forth evidence that Toyota has altered the boundaries of its own property by moving the monuments erected thereon by APT's surveyor Geo-Resources and Consultancy, Inc. when Lot 2 was initially surveyed in August 1988: The Asset Privitalization Trust 10th Floor, BA-Lepanto Building 9847 Paseo de Roxas Building Metro Manila Attention: Mr. Felipe B. Bince, Jr. Associate Executive Trustee Dear Sirs: This has reference to our letter to your office dated April 8, 1991, a copy of which is attached, regarding the check survey of Delta I. After asking some of the field men who participated in the various surveys of Delta I from the consolidation to

subdivision surveys, we found out that some more of the present corner points are not the same points shown to them during the surveys. We shall show this during a meeting with the representatives of the owners of Lots 1 and 2. We hope this will clarify the discrepancies. Very truly yours, NORBERTO S. VILA Exec. Vice Pres. & Gen. Manager (Emphasis supplied; Rollo, p. 839) There is therefore sufficient and convincing proof that Sun Valley has a clear legal right to possession in its favor to warrant the issuance of a writ of preliminary/mandatory injunction. Sun Valley's TCT gives it that right to possession. On the other hand, Toyota has not established its right over the said property except for the assertion that there was a mistake in an instrument which purportedly should have included the questioned strip of land. As between the two (2) parties, Sun Valley has a better right. Under the circumstances, therefore, and considering that the clear legal right of Toyota to possession of the disputed area has not been established sufficient to grant the prayed for relief, a writ of preliminary mandatory injunction may be issued pendente lite. (See Mara, Inc. v. Estrella, 65 SCRA 471 [1975]; De Gracia v. Santos, 79 Phil. 365 [1947]; Rodulfa v. Alfonso, 76 Phil. 225 [1946] and Torre v. Querubin, 101 Phil. 53 [1957]) In view of all the foregoing, the petition is hereby DISMISS

SECOND DIVISION

[G.R. NO. 135362. December 13, 1999]

HEIRS OF AUGUSTO L. SALAS, JR., namely: TERESITA D. SALAS for herself and as legal guardian of the minor FABRICE CYRILL D. SALAS, MA. CRISTINA S. LESACA, and KARINA TERESA D. SALAS, petitioners, vs.LAPERAL REALTY CORPORATION, ROCKWAY REAL ESTATE CORPORATION, SOUTH RIDGE VILLAGE, INC., MAHARAMI DEVELOPMENT CORPORATION, Spouses THELMA D. ABRAJANO and GREGORIO ABRAJANO, OSCAR DACILLO, Spouses VIRGINIA D. LAVA and RODEL LAVA, EDUARDO A. VACUNA, FLORANTE DE LA CRUZ, JESUS VICENTE B. CAPELLAN, and the REGISTER OF DEEDS FOR LIPA CITY, respondents. DECISION
DE LEON, JR., J.:

Before us is a petition for review on certiorari of the Order[1] of Branch 85 of the Regional Trial Court of Lipa City[2] dismissing petitioners complaint[3]for rescission of several sale transactions involving land owned by Augusto L. Salas, Jr., their predecessor-in-interest, on the ground that they failed to first resort to arbitration. Salas, Jr. was the registered owner of a vast tract of land in Lipa City, Batangas spanning 1,484,354 square meters. On May 15, 1987, he entered into an Owner-Contractor Agreement[4] (hereinafter referred to as the Agreement) with respondent Laperal Realty Corporation (hereinafter referred to as Laperal Realty) to render and provide complete (horizontal) construction services on his land. On September 23, 1988, Salas, Jr. executed a Special Power of Attorney in favor of respondent Laperal Realty to exercise general control, supervision and management of the sale of his land, for cash or on installment basis. On June 10, 1989, Salas, Jr. left his home in the morning for a business trip to Nueva Ecija. He never returned. On August 6, 1996, Teresita Diaz Salas filed with the Regional Trial Court of Makati City a verified petition for the declaration of presumptive death of her husband, Salas, Jr., who had then been missing for more than seven (7) years. It was granted on December 12, 1996.[5] Meantime, respondent Laperal Realty subdivided the land of Salas, Jr. and sold subdivided portions thereof to respondents Rockway Real Estate Corporation and South Ridge Village, Inc. on February 22, 1990; to respondent spouses Abrajano and Lava and Oscar Dacillo on June 27, 1991; and to respondents Eduardo Vacuna, Florante de la Cruz and Jesus Vicente Capalan on June 4, 1996 (all of whom are hereinafter referred to as respondent lot buyers). On February 3, 1998, petitioners as heirs of Salas, Jr. filed in the Regional Trial Court of Lipa City a Complaint[6] for declaration of nullity of sale, reconveyance, cancellation of contract, accounting and damages against herein respondents which was docketed as Civil Case No. 980047. On April 24, 1998, respondent Laperal Realty filed a Motion to Dismiss [7]on the ground that petitioners failed to submit their grievance to arbitration as required under Article VI of the Agreement which provides: ARTICLE VI. ARBITRATION.

All cases of dispute between CONTRACTOR and OWNERS representative shall be referred to the committee represented by:
a. One representative of the OWNER; b. One representative of the CONTRACTOR; c. One representative acceptable to both OWNER and CONTRACTOR.[8]

On May 5, 1998, respondent spouses Abrajano and Lava and respondent Dacillo filed a Joint Answer with Counterclaim and Crossclaim[9] praying for dismissal of petitioners Complaint for the same reason. On August 9, 1998, the trial court issued the herein assailed Order dismissing petitioners Complaint for non-compliance with the foregoing arbitration clause. Hence this petition. Petitioners argue, thus: The petitioners causes of action did not emanate from the Owner-Contractor Agreement. The petitioners causes of action for cancellation of contract and accounting are covered by the exception under the Arbitration Law. Failure to arbitrate is not a ground for dismissal.[10] In a catena of cases[11] inspired by Justice Malcolms provocative dissent in Vega v. San Carlos Milling Co.[12], this Court has recognized arbitration agreements as valid, binding, enforceable and not contrary to public policy so much so that when there obtains a written provision for arbitration which is not complied with, the trial court should suspend the proceedings and order the parties to proceed to arbitration in accordance with the terms of their agreement[13]Arbitration is the wave of the future in dispute resolution.[14] To brush aside a contractual agreement calling for arbitration in case of disagreement between parties would be a step backward.[15] Nonetheless, we grant the petition. A submission to arbitration is a contract.[16] As such, the Agreement, containing the stipulation on arbitration, binds the parties thereto, as well as their assigns and heirs. [17] But only they. Petitioners, as heirs of Salas, Jr., and respondent Laperal Realty are certainly bound by the Agreement. If respondent Laperal Realty, had assigned its rights under the Agreement to a third party, making the former, the assignor, and the latter, the assignee, such assignee would also be bound by the arbitration provision since assignment involves such transfer of rights as to vest in the assignee the power to enforce them to the same extent as the assignor could have enforced them against the debtor[18] or in this case, against the heirs of the original party to the Agreement. However, respondents Rockway Real Estate Corporation, South Ridge Village, Inc., Maharami Development Corporation, spouses Abrajano, spouses Lava, Oscar Dacillo, Eduardo Vacuna, Florante de la Cruz and Jesus Vicente Capellan are not assignees of the rights of respondent Laperal Realty under the Agreement to develop Salas, Jr.s land and sell the same. They are, rather, buyers of the land that respondent Laperal Realty was given the authority to develop and sell under the Agreement. As such, they are not assigns contemplated in Art. 1311 of the New Civil Code which provides that contracts take effect only between the parties, their assigns and heirs. Petitioners claim that they suffered lesion of more than one-fourth (1/4) of the value of Salas, Jr.s land when respondent Laperal Realty subdivided it and sold portions thereof to respondent lot buyers. Thus, they instituted action[19]against both respondent Laperal Realty and respondent lot buyers for rescission of the sale transactions and reconveyance to them of the subdivided lots. They argue that rescission, being their cause of action, falls under the exception clause in Sec. 2 of Republic Act No. 876 which provides that such submission [to] or contract [of arbitration]

shall be valid, enforceable and irrevocable, save upon such grounds as exist at law for the revocation of any contract. The petitioners contention is without merit. For while rescission, as a general rule, is an arbitrable issue,[20] they impleaded in the suit for rescission the respondent lot buyers who are neither parties to the Agreement nor the latters assigns or heirs. Consequently, the right to arbitrate as provided in Article VI of the Agreement was never vested in respondent lot buyers. Respondent Laperal Realty, as a contracting party to the Agreement, has the right to compel petitioners to first arbitrate before seeking judicial relief. However, to split the proceedings into arbitration for respondent Laperal Realty and trial for the respondent lot buyers, or to hold trial in abeyance pending arbitration between petitioners and respondent Laperal Realty, would in effect result in multiplicity of suits, duplicitous procedure and unnecessary delay. On the other hand, it would be in the interest of justice if the trial court hears the complaint against all herein respondents and adjudicates petitioners rights as against theirs in a single and complete proceeding. WHEREFORE, the instant petition is hereby GRANTED. The Order dated August 19, 1998 of Branch 85 of the Regional Trial Court of Lipa City is hereby NULLIFIED and SET ASIDE. Said court is hereby ordered to proceed with the hearing of Civil Case No. 98-0047. Costs against private respondents. SO ORDERED.

SECOND DIVISION

[G.R. No. 136154. February 7, 2001]

DEL MONTE CORPORATION-USA, PAUL E. DERBY, JR., DANIEL COLLINS and LUIS HIDALGO, petitioners, vs. COURT OF APPEALS, JUDGE BIENVENIDO L. REYES in his capacity as Presiding Judge, RTC-Br. 74, Malabon, Metro Manila, MONTEBUENO MARKETING, INC., LIONG LIONG C. SY and SABROSA FOODS, INC., respondents. DECISION
BELLOSILLO, J.:

This Petition for Review on certiorari assails the 17 July 1998 Decision[1] of the Court of Appeals affirming the 11 November 1997 Order[2] of the Regional Trial Court which denied petitioners Motion to Suspend Proceedings in Civil Case No. 2637-MN. It also questions the appellate courtsResolution[3] of 30 October 1998 which denied petitioners Motion for Reconsideration. On 1 July 1994, in a Distributorship Agreement, petitioner Del Monte Corporation-USA (DMC-USA) appointed private respondent Montebueno Marketing, Inc. (MMI) as the sole and exclusive distributor of its Del Monte products in the Philippines for a period of five (5) years, renewable for two (2) consecutive five (5) year periods with the consent of the parties. The Agreement provided, among others, for an arbitration clause which states 12. GOVERNING LAW AND ARBITRATION[4] This Agreement shall be governed by the laws of the State of California and/or, if applicable, the United States of America. All disputes arising out of or relating to this Agreement or the parties relationship, including the termination thereof, shall be resolved by arbitration in the City of San Francisco, State of California, under the Rules of the American Arbitration Association. The arbitration panel shall consist of three members, one of whom shall be selected by DMC-USA, one of whom shall be selected by MMI, and third of whom shall be selected by the other two members and shall have relevant experience in the industry x x x x In October 1994 the appointment of private respondent MMI as the sole and exclusive distributor of Del Monte products in the Philippines was published in several newspapers in the country. Immediately after its appointment, private respondent MMI appointed Sabrosa Foods, Inc. (SFI), with the approval of petitioner DMC-USA, as MMIs marketing arm to concentrate on its marketing and selling function as well as to manage its critical relationship with the trade. On 3 October 1996 private respondents MMI, SFI and MMIs Managing Director Liong Liong C. Sy (LILY SY) filed a Complaint[5] against petitioners DMC-USA, Paul E. Derby, Jr.,[6] Daniel Collins[7] and Luis Hidalgo,[8] and Dewey Ltd.[9] before the Regional Trial Court of Malabon, Metro Manila. Private respondents predicated their complaint on the alleged violations by petitioners of Arts. 20,[10] 21[11] and 23[12] of the Civil Code. According to private respondents, DMC-USA products continued to be brought into the country by parallel importers despite the appointment of private respondent MMI as the sole and exclusive distributor of Del Monte products thereby causing them great embarrassment and substantial damage. They alleged that the products brought into the country by these importers were aged, damaged, fake or counterfeit, so that in March 1995 they had to cause, after prior consultation with Antonio Ongpin, Market Director for Special Markets of Del Monte Philippines, Inc., the publication of a "warning to the trade" paid advertisement in leading newspapers. Petitioners DMC-USA and Paul E. Derby, Jr., apparently

upset with the publication, instructed private respondent MMI to stop coordinating with Antonio Ongpin and to communicate directly instead with petitioner DMC-USA through Paul E. Derby, Jr. Private respondents further averred that petitioners knowingly and surreptitiously continued to deal with the former in bad faith by involving disinterested third parties and by proposing solutions which were entirely out of their control. Private respondents claimed that they had exhausted all possible avenues for an amicable resolution and settlement of their grievances; that as a result of the fraud, bad faith, malice and wanton attitude of petitioners, they should be held responsible for all the actual expenses incurred by private respondents in the delayed shipment of orders which resulted in the extra handling thereof, the actual expenses and cost of money for the unused Letters of Credit (LCs) and the substantial opportunity losses due to created out-of-stock situations and unauthorized shipments of Del Monte-USA products to the Philippine Duty Free Area and Economic Zone; that the bad faith, fraudulent acts and willful negligence of petitioners, motivated by their determination to squeeze private respondents out of the outstanding and ongoing Distributorship Agreement in favor of another party, had placed private respondent LILY SY on tenterhooks since then; and, that the shrewd and subtle manner with which petitioners concocted imaginary violations by private respondent MMI of the Distributorship Agreement in order to justify the untimely termination thereof was a subterfuge. For the foregoing, private respondents claimed, among other reliefs, the payment of actual damages, exemplary damages, attorneys fees and litigation expenses. On 21 October 1996 petitioners filed a Motion to Suspend Proceedings[13] invoking the arbitration clause in their Agreement with private respondents. In a Resolution[14] dated 23 December 1996 the trial court deferred consideration of petitioners Motion to Suspend Proceedings as the grounds alleged therein did not constitute the suspension of the proceedings considering that the action was for damages with prayer for the issuance of Writ of Preliminary Attachment and not on the Distributorship Agreement. On 15 January 1997 petitioners filed a Motion for Reconsideration to which private respondents filed their Comment/Opposition. On 31 January 1997 petitioners filed their Reply. Subsequently, private respondents filed an Urgent Motion for Leave to Admit Supplemental Pleading dated 2 April 1997. This Motion was admitted, over petitioners opposition, in an Order of the trial court dated 27 June 1997. As a result of the admission of the Supplemental Complaint, petitioners filed on 22 July 1997 a Manifestation adopting their Motion to Suspend Proceedings of 17 October 1996 and Motion for Reconsideration of 14 January 1997. On 11 November 1997 the Motion to Suspend Proceedings was denied by the trial court on the ground that it "will not serve the ends of justice and to allow said suspension will only delay the determination of the issues, frustrate the quest of the parties for a judicious determination of their respective claims, and/or deprive and delay their rights to seek redress."[15] On appeal, the Court of Appeals affirmed the decision of the trial court. It held that the alleged damaging acts recited in the Complaint, constituting petitioners causes of action, required the interpretation of Art. 21 of the Civil Code[16] and that in determining whether petitioners had violated it "would require a full blown trial" making arbitration "out of the question."[17] Petitioners Motion for Reconsideration of the affirmation was denied. Hence, this Petition for Review. The crux of the controversy boils down to whether the dispute between the parties warrants an order compelling them to submit to arbitration. Petitioners contend that the subject matter of private respondents causes of action arises out of or relates to the Agreement between petitioners and private respondents. Thus, considering that the arbitration clause of the Agreement provides that all disputes arising out of or relating to the Agreement or the parties relationship, including the termination thereof, shall be resolved by arbitration, they insist on the suspension of the proceedings in Civil Case No. 2637-MN as mandated by Sec. 7 of RA 876[18] -

Sec. 7. Stay of Civil Action. If any suit or proceeding be brought upon an issue arising out of an agreement providing for arbitration thereof, the court in which such suit or proceeding is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration, shall stay the action or proceeding until an arbitration has been had in accordance with the terms of the agreement. Provided, That the applicant for the stay is not in default in proceeding with such arbitration. Private respondents claim, on the other hand, that their causes of action are rooted in Arts. 20, 21 and 23 of the Civil Code,[19] the determination of which demands a full blown trial, as correctly held by the Court of Appeals. Moreover, they claim that the issues before the trial court were not joined so that the Honorable Judge was not given the opportunity to satisfy himself that the issue involved in the case was referable to arbitration. They submit that, apparently, petitioners filed a motion to suspend proceedings instead of sending a written demand to private respondents to arbitrate because petitioners were not sure whether the case could be a subject of arbitration. They maintain that had petitioners done so and private respondents failed to answer the demand, petitioners could have filed with the trial court their demand for arbitration that would warrant a determination by the judge whether to refer the case to arbitration. Accordingly, private respondents assert that arbitration is out of the question. Private respondents further contend that the arbitration clause centers more on venue rather than on arbitration. They finally allege that petitioners filed their motion for extension of time to file this petition on the same date[20] petitioner DMC-USA filed a petition to compel private respondent MMI to arbitrate before the United States District Court in Northern California, docketed as Case No. C-98-4446. They insist that the filing of the petition to compel arbitration in the United States made the petition filed before this Court an alternative remedy and, in a way, an abandonment of the cause they are fighting for here in the Philippines, thus warranting the dismissal of the present petition before this Court. There is no doubt that arbitration is valid and constitutional in our jurisdiction.[21] Even before the enactment of RA 876, this Court has countenanced the settlement of disputes through arbitration. Unless the agreement is such as absolutely to close the doors of the courts against the parties, which agreement would be void, the courts will look with favor upon such amicable arrangement and will only interfere with great reluctance to anticipate or nullify the action of the arbitrator.[22] Moreover, as RA 876 expressly authorizes arbitration of domestic disputes, foreign arbitration as a system of settling commercial disputes was likewise recognized when the Philippines adhered to the United Nations "Convention on the Recognition and the Enforcement of Foreign Arbitral Awards of 1958" under the 10 May 1965 Resolution No. 71 of the Philippine Senate, giving reciprocal recognition and allowing enforcement of international arbitration agreements between parties of different nationalities within a contracting state.[23] A careful examination of the instant case shows that the arbitration clause in the Distributorship Agreement between petitioner DMC-USA and private respondent MMI is valid and the dispute between the parties is arbitrable. However, this Court must deny the petition. The Agreement between petitioner DMC-USA and private respondent MMI is a contract. The provision to submit to arbitration any dispute arising therefrom and the relationship of the parties is part of that contract and is itself a contract. As a rule, contracts are respected as the law between the contracting parties and produce effect as between them, their assigns and heirs. [24] Clearly, only parties to the Agreement, i.e., petitioners DMC-USA and its Managing Director for Export Sales Paul E. Derby, Jr., and private respondents MMI and its Managing Director LILY SY are bound by the Agreement and its arbitration clause as they are the only signatories thereto. Petitioners Daniel Collins and Luis Hidalgo, and private respondent SFI, not parties to the Agreement and cannot even be considered assigns or heirs of the parties, are not bound by the Agreement and the arbitration clause therein. Consequently, referral to arbitration in the State of California pursuant to the arbitration clause and the suspension of the proceedings in Civil Case No. 2637-MN pending the return of the arbitral award could be called for [25] but only as to petitioners DMC-USA and Paul E. Derby, Jr., and private respondents MMI and LILY SY, and not as to the other parties in this

case, in accordance with the recent case of Heirs of Augusto L. Salas, Jr. v. Laperal Realty Corporation,[26] which superseded that of Toyota Motor Philippines Corp. v. Court of Appeals.[27] In Toyota, the Court ruled that "[t]he contention that the arbitration clause has become dysfunctional because of the presence of third parties is untenable ratiocinating that "[c]ontracts are respected as the law between the contracting parties"[28] and that "[a]s such, the parties are thereby expected to abide with good faith in their contractual commitments." [29] However, in Salas, Jr., only parties to the Agreement, their assigns or heirs have the right to arbitrate or could be compelled to arbitrate. The Court went further by declaring that in recognizing the right of the contracting parties to arbitrate or to compel arbitration, the splitting of the proceedings to arbitration as to some of the parties on one hand and trial for the others on the other hand, or the suspension of trial pending arbitration between some of the parties, should not be allowed as it would, in effect, result in multiplicity of suits, duplicitous procedure and unnecessary delay.[30] The object of arbitration is to allow the expeditious determination of a dispute. [31] Clearly, the issue before us could not be speedily and efficiently resolved in its entirety if we allow simultaneous arbitration proceedings and trial, or suspension of trial pending arbitration. Accordingly, the interest of justice would only be served if the trial court hears and adjudicates the case in a single and complete proceeding.[32] WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals affirming the Order of the Regional Trial Court of Malabon, Metro Manila, in Civil Case No. 2637-MN, which denied petitioners Motion to Suspend Proceedings, is AFFIRMED. The Regional Trial Court concerned is directed to proceed with the hearing of Civil Case No. 2637-MN with dispatch. No costs. SO ORDERED.

SECOND DIVISION

[G.R. No. 115412. November 19, 1999]

HOME BANKERS SAVINGS AND TRUST COMPANY, petitioner vs. COURT OF APPEALS and FAR EAST BANK & TRUST COMPANY, respondents. DECISION
BUENA , J.:

This appeal by certiorari under Rule 45 of the Rules of Court seeks to annul and set aside the decision[1] of the Court of Appeals[2] dated January 21, 1994 in CA-G.R. SP No. 29725, dismissing the petition for certiorari filed by petitioner to annul the two (2) orders issued by the Regional Trial Court of Makati[3] in Civil Case No. 92-145, the first, dated April 30, 1992, denying petitioner's motion to dismiss and the second, dated October 1, 1992 denying petitioner's motion for reconsideration thereof. The pertinent facts may be briefly stated as follows: Victor Tancuan, one of the defendants in Civil Case No. 92-145, 0issued Home Bankers Savings and Trust Company (HBSTC) check No. 193498 for P25,250,000.00 while Eugene Arriesgado issued Far East Bank and Trust Company (FEBTC) check Nos. 464264, 464272 and 464271 for P8,600,000.00, P8,500,000.00 and P8,100,000.00, respectively, the three checks amounting to P25,200,000.00. Tancuan and Arriesgado exchanged each other's checks and deposited them with their respective banks for collection. When FEBTC presented Tancuan's HBSTC check for clearing, HBSTC dishonored it for being "Drawn Against Insufficient Funds." On October 15, 1991, HBSTC sent Arriesgado's three (3) FEBTC checks through the Philippine Clearing House Corporation (PCHC) to FEBTC but was returned on October 18, 1991 as "Drawn Against Insufficient Funds." HBSTC received the notice of dishonor on October 21, 1991 but refused to accept the checks and on October 22, 1991, returned them to FEBTC through the PCHC for the reason "Beyond Reglementary Period," implying that HBSTC already treated the three (3) FEBTC checks as cleared and allowed the proceeds thereof to be withdrawn.[4] FEBTC demanded reimbursement for the returned checks and inquired from HBSTC whether it had permitted any withdrawal of funds against the unfunded checks and if so, on what date. HBSTC, however, refused to make any reimbursement and to provide FEBTC with the needed information. Thus, on December 12, 1991, FEBTC submitted the dispute for arbitration before the PCHC Arbitration Committee,[5] under the PCHC's Supplementary Rules on Regional Clearing to which FEBTC and HBSTC are bound as participants in the regional clearing operations administered by the PCHC.[6] On January 17, 1992, while the arbitration proceedings was still pending, FEBTC filed an action for sum of money and damages with preliminary attachment[7] against HBSTC, Robert Young, Victor
Tancuan and Eugene Arriesgado with the Regional Trial Court of Makati, Branch 133. A motion to dismiss was filed by HBSTC claiming that the complaint stated no cause of action and accordingly should be dismissed because it seeks to enforce an arbitral award which as yet does not exist.[8] The trial court issued an omnibus order dated April 30, 1992 denying the motion to dismiss and an order dated October 1, 1992 denying the motion for reconsideration.

On December 16, 1992, HBSTC filed a petition for certiorari with the respondent Court of Appeals contending that the trial court acted with grave abuse of discretion amounting to lack of jurisdiction in denying the motion to dismiss filed by HBSTC. In a Decision[9] dated January 21, 1994, the respondent court dismissed the petition for lack of merit and held that "FEBTC can reiterate its cause of action before the courts which it had already raised in the arbitration case"[10] after finding that the complaint filed by FEBTC "seeks to collect a sum of money from HBT [HBSTC] and not to enforce or confirm an arbitral award."[11] The respondent court observed that "[i]n the Complaint, FEBTC applied for the issuance of a writ of

preliminary attachment over HBT's [HBSTC] property"[12] and citing section 14 of Republic Act No. 876, otherwise known as the Arbitration Law, maintained that "[n]ecessarily, it has to reiterate its main cause of action for sum of money against HBT [HBSTC],"[13] and that "[t]his prayer for conservatory relief [writ of preliminary attachment] satisfies the requirement of a cause of action which FEBTC may pursue in the courts."[14] Furthermore, the respondent court ruled that based on section 7 of the Arbitration Law and the cases of National Union Fire Insurance Company of Pittsburg vs. Slolt-Nielsen Philippines, Inc.,[15] and Bengson vs. Chan,[16] "when there is a condition requiring prior submission to arbitration before the institution of a court action, the complaint is not to be dismissed but should be suspended for arbitration."[17] Finding no merit in HBSTC's contention that section 7 of the Arbitration Law "contemplates a situation in which a party to an arbitration agreement has filed a court action without first resorting to arbitration, while in the case at bar, FEBTC has initiated arbitration proceedings before filing a court action," the respondent court held that "if the absence of a prior arbitration may stay court action, so too and with more reason, should an arbitration already pending as obtains in this case stay the court action. A party to a pending arbitral proceeding may go to court to obtain conservatory reliefs in connection with his cause of action although the disposal of that action on the merits cannot as yet be obtained." [18] The respondent court discarded Puromines, Inc. vs. Court of Appeals,[19] stating that "perhaps Puromines may have been decided on a different factual basis."[20] In the instant petition,[21] petitioner contends that first, "no party litigant can file a non-existent complaint,"[22] arguing that "one cannot file a complaint in court over a subject that is undergoing arbitration."[23] Second, petitioner submits that "[s]ince arbitration is a special proceeding by a clear provision of law,[24] the civil suit filed below is, without a shadow of doubt, barred by litis pendencia and should be dismissed de plano insofar as HBSTC is concerned."[25]Third, petitioner insists that "[w]hen arbitration is agreed upon and suit is filed without arbitration having been held and terminated, the case that is filed should be dismissed,"[26] citing Associated Bank vs. Court of Appeals,[27] Puromines, Inc. vs. Court of Appeals,[28] and Ledesma vs. Court of Appeals.[29] Petitioner demurs that the Puromines ruling was deliberately not followed by the respondent court which claimed that: "xxx xxx. It would really be much easier for Us to rule to dismiss the complainant as the petitioners here seeks to do, following Puromines. But with utmost deference to the Honorable Supreme Court, perhaps Puromines may have been decided on a different factual basis. xxx xxx."[30] Petitioner takes exception to FEBTC's contention that Puromines cannot modify or reverse the rulings in National Union Fire Insurance Company of Pittsburg vs. Stolt-Nielsen Philippines, Inc.,[31] and Bengson vs. Chan,[32] where this Court suspended the action filed pending arbitration, and argues that "[s]ound policy
requires that the conclusion of whether a Supreme Court decision has or has not reversed or modified [a] previous doctrine, should be left to the Supreme Court itself; until then, the latest pronouncement should prevail." [33] Fourth, petitioner alleges that the writ of preliminary attachment issued by the trial court is void considering that the case filed before it "is a separate action which cannot exist,"[34] and "there is even no need for the attachment as far as HBSTC is concerned because such automatic debit/credit procedure[35] may be regarded as a security for the transactions involved and, as jurisprudence confirms, one requirement in the issuance of an attachment [writ of preliminary attachment] is that the debtor has no sufficient security." [36] Petitioner asserts further that a writ of preliminary attachment is unwarranted because no ground exists for its issuance. According to petitioner, "the only allegations against it [HBSTC] are that it refused to refund the amounts of the checks of FEBTC and that it knew about the fraud perpetrated by the other defendants," [37] which, at best, constitute only "incidental fraud" and not causal fraud which justifies the issuance of the writ of preliminary attachment.

Private respondent FEBTC, on the other hand, contends that "the cause of action for collection [of a sum of money] can coexist in the civil suit and the arbitration [proceeding]"[38] citing section 7 of the Arbitration Law which provides for the stay of the civil action until an arbitration has been had in accordance with the terms of the agreement providing for arbitration. Private respondent further asserts that following section 4(3), article VIII [39]of the 1987 Constitution, the subsequent case of Puromines does not overturn the ruling in the earlier cases of National Union

Fire Insurance Company of Pittsburg vs. Stolt-Nielsen Philippines, Inc.[40] and Bengson vs. Chan,[41] hence, private respondents concludes that the prevailing doctrine is that the civil action must be stayed rather than dismissed pending arbitration. In this petition, the lone issue presented for the consideration of this Court is: WHETHER OR NOT PRIVATE RESPONDENT WHICH COMMENCED AN ARBITRATION PROCEEDING UNDER THE AUSPICES OF THE PHILIPPINE CLEARING HOUSE CORPORATION (PCHC) MAY SUBSEQUENTLY FILE A SEPARATE CASE IN COURT OVER THE SAME SUBJECT MATTER OF ARBITRATION DESPITE THE PENDENCY OF THAT ARBITRATION, SIMPLY TO OBTAIN THE PROVISIONAL REMEDY OF ATTACHMENT AGAINST THE BANK, THE ADVERSE PARTY IN THE ARBITRATION PROCEEDINGS."[42] We find no merit in the petition. Section 14 of Republic Act 876, otherwise known as the Arbitration Law, allows any party to the arbitration proceeding to petition the court to take measures to safeguard and/or conserve any matter which is the subject of the dispute in arbitration, thus: Section 14. Subpoena and subpoena duces tecum. - Arbitrators shall have the power to require any person to attend a hearing as a witness. They shall have the power to subpoena witnesses and documents when the relevancy of the testimony and the materiality thereof has been demonstrated to the arbitrators. Arbitrators may also require the retirement of any witness during the testimony of any other witness. All of the arbitrators appointed in any controversy must attend all the hearings in that matter and hear all the allegations and proofs of the parties; but an award by the majority of them is valid unless the concurrence of all of them is expressly required in the submission or contract to arbitrate. The arbitrator or arbitrators shall have the power at any time, before rendering the award, without prejudice to the rights of any party to petition the court to take measures to safeguard and/or conserve any matter which is the subject of the dispute in arbitration. (emphasis supplied) Petitioner's exposition of the foregoing provision deserves scant consideration. Section 14 simply grants an arbitrator the power to issue subpoena and subpoena duces tecum at any time before rendering the award. The exercise of such power is without prejudice to the right of a party to file a petition in court to safeguard any matter which is the subject of the dispute in arbitration. In the case at bar, private respondent filed an action for a sum of money with prayer for a writ of preliminary attachment. Undoubtedly, such action involved the same subject matter as that in arbitration, i.e., the sum of P25,200,000.00 which was allegedly deprived from private respondent in what is known in banking as a "kiting scheme." However, the civil action was not a simple case of a money claim since private respondent has included a prayer for a writ of preliminary attachment, which is sanctioned by section 14 of the Arbitration Law. Petitioner cites the cases of Associated Bank vs. Court of Appeals,[43] Puromines, Inc. vs. Court of Appeals,[44] and Ledesma vs. Court of Appeals[45] in contending that "[w]hen arbitration is agreed upon and suit is filed without arbitration having been held and terminated, the case that is filed should be dismissed."[46] However, the said cases are not in point. In Associated Bank, we affirmed the dismissal of the third-party complaint filed by Associated Bank against Philippine Commercial International Bank, Far East Bank & Trust Company, Security Bank and Trust Company and Citytrust Banking Corporation for lack of jurisdiction, it being shown that the said parties were bound by the Clearing House Rules and Regulations on Arbitration of the Philippine Clearing House Corporation. In Associated Bank, we declared that: "xxx xxx. Under the rules and regulations of the Philippine Clearing House Corporation (PCHC), the mere act of participation of the parties concerned in its operations in effect amounts to a manifestation of agreement by the parties to abide by its rules and regulations. As a consequence of such participation, a party cannot invoke the jurisdiction of the courts over disputes and controversies which fall under the PCHC

Rules and Regulations without first going through the arbitration processes laid out by the body."[47] (emphasis supplied) And thus we concluded: "Clearly therefore, petitioner Associated Bank, by its voluntary participation and its consent to the arbitration rules cannot go directly to the Regional Trial Court when it finds it convenient to do so. The jurisdiction of the PCHC under the rules and regulations is clear, undeniable and is particularly applicable to all the parties in the third party complaint under their obligation to first seek redress of their disputes and grievances with the PCHC before going to the trial court."[48] (emphasis supplied) Simply put, participants in the regional clearing operations of the Philippine Clearing House Corporation cannot bypass the arbitration process laid out by the body and seek relief directly from the courts. In the case at bar, undeniably, private respondent has initiated arbitration proceedings as required by the PCHC rules and regulations, and pending arbitration has sought relief from the trial court for measures to safeguard and/or conserve the subject of the dispute under arbitration, as sanctioned by section 14 of the Arbitration Law, and otherwise not shown to be contrary to the PCHC rules and regulations. Likewise, in the case of Puromines, Inc. vs. Court of Appeals,[49] we have ruled that: "In any case, whether the liability of respondent should be based on the sales contract or that of the bill of lading, the parties are nevertheless obligated to respect the arbitration provisions on the sales contract and/or bill of lading. Petitioner being a signatory and party to the sales contract cannot escape from his obligation under the arbitration clause as stated therein." In Puromines, we found the arbitration clause stated in the sales contract to be valid and applicable, thus, we ruled that the parties, being signatories to the sales contract, are obligated to respect the arbitration provisions on the contract and cannot escape from such obligation by filing an action for breach of contract in court without resorting first to arbitration, as agreed upon by the parties. At this point, we emphasize that arbitration, as an alternative method of dispute resolution, is encouraged by this Court. Aside from unclogging judicial dockets, it also hastens solutions especially of commercial disputes.[50] The Court looks with favor upon such amicable arrangement and will only interfere with great reluctance to anticipate or nullify the action of the arbitrator. [51] WHEREFORE, premises considered, the petition is hereby DISMISSED and the decision of the court a quo is AFFIRMED. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

G.R. No. 96283 February 25, 1992 CHUNG FU INDUSTRIES (PHILIPPINES) INC., its Directors and Officers namely: HUANG KUO-CHANG, HUANG AN-CHUNG, JAMES J.R. CHEN, TRISTAN A. CATINDIG, VICENTE B. AMADOR, ROCK A.C. HUANG, JEM S.C. HUANG, MARIA TERESA SOLIVEN and VIRGILIO M. DEL ROSARIO, petitioners, vs. COURT OF APPEALS, HON. FRANCISCO X. VELEZ (Presiding Judge, Regional Trail Court of Makati [Branch 57]) and ROBLECOR PHILIPPINES, INC., respondents.

ROMERO, J.: This is a special civil action for certiorari seeking to annul the Resolutions of the Court of Appeals* dated October 22, 1990 and December 3, 1990 upholding the Orders of July 31, 1990 and August 23, 1990 of the Regional Trial Court of Makati, Branch 57, in Civil Case No. 90-1335. Respondent Court of Appeals affirmed the ruling of the trial court that herein petitioners, after submitting themselves for arbitration and agreeing to the terms and conditions thereof, providing that the arbitration award shall be final and unappealable, are precluded from seeking judicial review of subject arbitration award. It appears that on May 17, 1989, petitioner Chung Fu Industries (Philippines) (Chung Fu for brevity) and private respondent Roblecor Philippines, Inc. (Roblecor for short) forged a construction agreement 1 whereby respondent contractor committed to construct and finish on December 31, 1989, petitioner corporation's industrial/factory complex in Tanawan, Tanza, Cavite for and in consideration of P42,000,000.00. In the event of disputes arising from the performance of subject contract, it was stipulated therein that the issue(s) shall be submitted for resolution before a single arbitrator chosen by both parties. Apart from the aforesaid construction agreement, Chung Fu and Roblecor entered into two (2) other ancillary contracts, to wit: one dated June 23, 1989, for the construction of a dormitory and support facilities with a contract price of P3,875,285.00, to be completed on or before October 31, 1989; 2 and the other dated August 12, 1989, for the installation of electrical, water and hydrant systems at the plant site, commanding a price of P12.1 million and requiring completion thereof one month after civil works have been finished. 3 However, respondent Roblecor failed to complete the work despite the extension of time allowed it by Chung Fu. Subsequently, the latter had to take over the construction when it had become evident that Roblecor was not in a position to fulfill its obligation. Claiming an unsatisfied account of P10,500,000.00 and unpaid progress billings of P2,370,179.23, Roblecor on May 18, 1990, filed a petition for Compulsory Arbitration with prayer for Temporary Restraining Order before respondent Regional Trial Court, pursuant to the arbitration clause in the construction agreement. Chung Fu moved to dismiss the petition and further prayed for the quashing of the restraining order.

Subsequent negotiations between the parties eventually led to the formulation of an arbitration agreement which, among others, provides: 2. The parties mutually agree that the arbitration shall proceed in accordance with the following terms and conditions: xxx xxx xxx d. The parties mutually agree that they will abide by the decision of the arbitrator including any amount that may be awarded to either party as compensation, consequential damage and/or interest thereon; e. The parties mutually agree that the decision of the arbitrator shall be final and unappealable. Therefore, there shall be no further judicial recourse if either party disagrees with the whole or any part of the arbitrator's award. f. As an exception to sub-paragraph (e) above, the parties mutually agree that either party is entitled to seek judicial assistance for purposes of enforcing the arbitrator's award;
xxx xxx xxx
4

(Emphasis supplied) Respondent Regional Trial Court approved the arbitration agreement thru its Order of May 30, 1990. Thereafter, Engr. Willardo Asuncion was appointed as the sole arbitrator. On June 30, 1990, Arbitrator Asuncion ordered petitioners to immediately pay respondent contractor, the sum of P16,108,801.00. He further declared the award as final and unappealable, pursuant to the Arbitration Agreement precluding judicial review of the award. Consequently, Roblecor moved for the confirmation of said award. On the other hand, Chung Fu moved to remand the case for further hearing and asked for a reconsideration of the judgment award claiming that Arbitrator Asuncion committed twelve (12) instances of grave error by disregarding the provisions of the parties' contract. Respondent lower court denied Chung Fu's Motion to Remand thus compelling it to seek reconsideration therefrom but to no avail. The trial court granted Roblecor's Motion for Confirmation of Award and accordingly, entered judgment in conformity therewith. Moreover, it granted the motion for the issuance of a writ of execution filed by respondent. Chung Fu elevated the case via a petition for certiorari to respondent Court of Appeals. On October 22,1990 the assailed resolution was issued. The respondent appellate court concurred with the findings and conclusions of respondent trial court resolving that Chung Fu and its officers, as signatories to the Arbitration Agreement are bound to observe the stipulations thereof providing for the finality of the award and precluding any appeal therefrom. A motion for reconsideration of said resolution was filed by petitioner, but it was similarly denied by respondent Court of Appeals thru its questioned resolution of December 3, 1990. Hence, the instant petition anchored on the following grounds: First

Respondents Court of Appeals and trial Judge gravely abused their discretion and/or exceeded their jurisdiction, as well as denied due process and substantial justice to petitioners, (a) by refusing to exercise their judicial authority and legal duty to review the arbitration award, and (b) by declaring that petitioners are estopped from questioning the arbitration award allegedly in view of the stipulations in the parties' arbitration agreement that "the decision of the arbitrator shall be final and unappealable" and that "there shall be no further judicial recourse if either party disagrees with the whole or any part of the arbitrator's award." Second Respondent Court of Appeals and trial Judge gravely abused their discretion and/or exceeded their jurisdiction, as well as denied due process and substantial justice to petitioner, by not vacating and annulling the award dated 30 June 1990 of the Arbitrator, on the ground that the Arbitrator grossly departed from the terms of the parties' contracts and misapplied the law, and thereby exceeded the authority and power delegated to him. (Rollo, p. 17) Allow us to take a leaf from history and briefly trace the evolution of arbitration as a mode of dispute settlement. Because conflict is inherent in human society, much effort has been expended by men and institutions in devising ways of resolving the same. With the progress of civilization, physical combat has been ruled out and instead, more specific means have been evolved, such as recourse to the good offices of a disinterested third party, whether this be a court or a private individual or individuals. Legal history discloses that "the early judges called upon to solve private conflicts were primarily the arbiters, persons not specially trained but in whose morality, probity and good sense the parties in conflict reposed full trust. Thus, in Republican Rome, arbiter and judge (judex) were synonymous. The magistrate or praetor, after noting down the conflicting claims of litigants, and clarifying the issues, referred them for decision to a private person designated by the parties, by common agreement, or selected by them from an apposite listing (the album judicium) or else by having the arbiter chosen by lot. The judges proper, as specially trained state officials endowed with own power and jurisdiction, and taking cognizance of litigations from beginning to end, only appeared under the Empire, by the so-called cognitio extra ordinem." 5 Such means of referring a dispute to a third party has also long been an accepted alternative to litigation at common law. 6 Sparse though the law and jurisprudence may be on the subject of arbitration in the Philippines, it was nonetheless recognized in the Spanish Civil Code; specifically, the provisions on compromises made applicable to arbitrations under Articles 1820 and 1821. 7 Although said provisions were repealed by implication with the repeal of the Spanish Law of Civil Procedure, 8 these and additional ones were reinstated in the present Civil Code. 9 Arbitration found a fertile field in the resolution of labor-management disputes in the Philippines. Although early on, Commonwealth Act 103 (1936) provided for compulsory arbitration as the state policy to be administered by the Court of Industrial Relations, in time such a modality gave way to voluntary arbitration. While not completely supplanting compulsory arbitration which until today is practiced by government officials, the Industrial Peace Act which was passed in 1953 as Republic Act No. 875, favored the policy of free collective bargaining, in general, and resort to grievance procedure, in particular, as the preferred mode of settling disputes in industry. It was accepted and enunciated more explicitly

in the Labor Code, which was passed on November 1, 1974 as Presidential Decree No. 442, with the amendments later introduced by Republic Act No. 6715 (1989). Whether utilized in business transactions or in employer-employee relations, arbitration was gaining wide acceptance. A consensual process, it was preferred to orders imposed by government upon the disputants. Moreover, court litigations tended to be time-consuming, costly, and inflexible due to their scrupulous observance of the due process of law doctrine and their strict adherence to rules of evidence. As early as the 1920's, this Court declared:
In the Philippines fortunately, the attitude of the courts toward arbitration agreements is slowly crystallizing into definite and workable form. . . . The rule now is that unless the agreement is such as absolutely to close the doors of the courts against the parties, which agreement would be void, the courts will look with favor upon such amicable arrangements and will only with great reluctance interfere to 10 anticipate or nullify the action of the arbitrator.

That there was a growing need for a law regulating arbitration in general was acknowledged when Republic Act No. 876 (1953), otherwise known as the Arbitration Law, was passed. "Said Act was obviously adopted to supplement not to supplant the New Civil Code on arbitration. It expressly declares that "the provisions of chapters one and two, Title XIV, Book IV of the Civil Code shall remain in force." 11 In recognition of the pressing need for an arbitral machinery for the early and expeditious settlement of disputes in the construction industry, a Construction Industry Arbitration Commission (CIAC) was created by Executive Order No. 1008, enacted on February 4, 1985. In practice nowadays, absent an agreement of the parties to resolve their disputes via a particular mode, it is the regular courts that remain the fora to resolve such matters. However, the parties may opt for recourse to third parties, exercising their basic freedom to "establish such stipulation, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy." 12 In such a case, resort to the arbitration process may be spelled out by them in a contract in anticipation of disputes that may arise between them. Or this may be stipulated in a submission agreement when they are actually confronted by a dispute. Whatever be the case, such recourse to an extrajudicial means of settlement is not intended to completely deprive the courts of jurisdiction. In fact, the early cases on arbitration carefully spelled out the prevailing doctrine at the time, thus: ". . . a clause in a contract providing that all matters in dispute between the parties shall be referred to arbitrators and to them alone is contrary to public policy and cannot oust the courts of Jurisdiction." 13 But certainly, the stipulation to refer all future disputes to an arbitrator or to submit an ongoing dispute to one is valid. Being part of a contract between the parties, it is binding and enforceable in court in case one of them neglects, fails or refuses to arbitrate. Going a step further, in the event that they declare their intention to refer their differences to arbitration first before taking court action, this constitutes a condition precedent, such that where a suit has been instituted prematurely, the court shall suspend the same and the parties shall be directed forthwith to proceed to arbitration. 14 A court action may likewise be proven where the arbitrator has not been selected by the parties. 15 Under present law, may the parties who agree to submit their disputes to arbitration further provide that the arbitrators' award shall be final, unappealable and executory? Article 2044 of the Civil Code recognizes the validity of such stipulation, thus:

Any stipulation that the arbitrators' award or decision shall be final is valid, without prejudice to Articles 2038, 2039 and 2040. Similarly, the Construction Industry Arbitration Law provides that the arbitral award "shall be final and inappealable except on questions of law which shall be appealable to the Supreme Court." 16 Under the original Labor Code, voluntary arbitration awards or decisions were final, unappealable and executory. "However, voluntary arbitration awards or decisions on money claims, involving an amount exceeding One Hundred Thousand Pesos (P100,000.00) or fortypercent (40%) of the paid-up capital of the respondent employer, whichever is lower, maybe appealed to the National Labor Relations Commission on any of the following grounds: (a) abuse of discretion; and (b) gross incompetence." 17 It is to be noted that the appeal in the instances cited were to be made to the National Labor Relations Commission and not to the courts. With the subsequent deletion of the above-cited provision from the Labor Code, the voluntary arbitrator is now mandated to render an award or decision within twenty (20) calendar days from the date of submission of the dispute and such decision shall be final and executory after ten (10) calendar days from receipt of the copy of the award or decision by the parties. 18 Where the parties agree that the decision of the arbitrator shall be final and unappealable as in the instant case, the pivotal inquiry is whether subject arbitration award is indeed beyond the ambit of the court's power of judicial review. We rule in the negative. It is stated explicitly under Art. 2044 of the Civil Code that the finality of the arbitrators' award is not absolute and without exceptions. Where the conditions described in Articles 2038, 2039 and 2040 applicable to both compromises and arbitrations are obtaining, the arbitrators' award may be annulled or rescinded. 19 Additionally, under Sections 24 and 25 of the Arbitration Law, there are grounds for vacating, modifying or rescinding an arbitrator's award. 20 Thus, if and when the factual circumstances referred to in the above-cited provisions are present, judicial review of the award is properly warranted. What if courts refuse or neglect to inquire into the factual milieu of an arbitrator's award to determine whether it is in accordance with law or within the scope of his authority? How may the power of judicial review be invoked? This is where the proper remedy is certiorari under Rule 65 of the Revised Rules of Court. It is to be borne in mind, however, that this action will lie only where a grave abuse of discretion or an act without or in excess of jurisdiction on the part of the voluntary arbitrator is clearly shown. For "the writ of certiorari is an extra-ordinary remedy and that certiorari jurisdiction is not to be equated with appellate jurisdiction. In a special civil action ofcertiorari, the Court will not engage in a review of the facts found nor even of the law as interpreted or applied by the arbitrator unless the supposed errors of fact or of law are so patent and gross and prejudicial as to amount to a grave abuse of discretion or an exces de pouvoir on the part of the arbitrator." 21 Even decisions of administrative agencies which are declared "final" by law are not exempt from judicial review when so warranted. Thus, in the case of Oceanic Bic Division (FFW), et al. v. Flerida Ruth P. Romero, et al., 22this Court had occasion to rule that:
. . . Inspite of statutory provisions making "final" the decisions of certain administrative agencies, we have taken cognizance of petitions questioning these decisions where want of jurisdiction, grave abuse of discretion, violation of due process, denial of substantial justice or erroneous interpretation of the 23 law were brought to our attention . . . (Emphasis ours).

It should be stressed, too, that voluntary arbitrators, by the nature of their functions, act in a quasi-judicial capacity. 24 It stands to reason, therefore, that their decisions should not be beyond the scope of the power of judicial review of this Court.

In the case at bar, petitioners assailed the arbitral award on the following grounds, most of which allege error on the part of the arbitrator in granting compensation for various items which apparently are disputed by said petitioners: 1. The Honorable Arbitrator committed grave error in failing to apply the terms and conditions of the Construction Agreement, Dormitory Contract and Electrical Contract, and in using instead the "practices" in the construction industry; 2. The Honorable Arbitrator committed grave error in granting extra compensation to Roblecor for loss of productivity due to adverse weather conditions; 3. The Honorable Arbitrator committed grave error in granting extra compensation to Roblecor for loss due to delayed payment of progress billings; 4. The Honorable Arbitrator committed grave error in granting extra compensation to Roblecor for loss of productivity due to the cement crisis; 5. The Honorable Arbitrator committed grave error in granting extra compensation to Roblecor for losses allegedly sustained on account of the failed coup d'tat; 6. The Honorable Arbitrator committed grave error in granting to Roblecor the amount representing the alleged unpaid billings of Chung Fu; 7. The Honorable Arbitrator committed grave error in granting to Roblecor the amount representing the alleged extended overhead expenses; 8. The Honorable Arbitrator committed grave error in granting to Roblecor the amount representing expenses for change order for site development outside the area of responsibility of Roblecor; 9. The Honorable Arbitrator committed grave error in granting to Roblecor the cost of warehouse No. 2; 10. The Honorable Arbitrator committed grave error in granting to Roblecor extra compensation for airduct change in dimension; 11. The Honorable Arbitrator committed grave error in granting to Roblecor extra compensation for airduct plastering; and 12. The Honorable Arbitrator committed grave error in awarding to Roblecor attorney's fees. After closely studying the list of errors, as well as petitioners' discussion of the same in their Motion to Remand Case For Further Hearing and Reconsideration and Opposition to Motion for Confirmation of Award, we find that petitioners have amply made out a case where the voluntary arbitrator failed to apply the terms and provisions of the Construction Agreement which forms part of the law applicable as between the parties, thus committing a grave abuse of discretion. Furthermore, in granting unjustified extra compensation to respondent for several items, he exceeded his powers all of which would have constituted ground for vacating the award under Section 24 (d) of the Arbitration Law. But the respondent trial court's refusal to look into the merits of the case, despite prima facie showing of the existence of grounds warranting judicial review, effectively deprived petitioners of their opportunity to prove or substantiate their allegations. In so doing, the trial court itself committed grave abuse of discretion. Likewise, the appellate court, in not giving due course to the petition, committed grave abuse of discretion. Respondent courts should

not shirk from exercising their power to review, where under the applicable laws and jurisprudence, such power may be rightfully exercised; more so where the objections raised against an arbitration award may properly constitute grounds for annulling, vacating or modifying said award under the laws on arbitration. WHEREFORE, the petition is GRANTED. The Resolutions of the Court of Appeals dated October 22, 1990 and December 3, 1990 as well as the Orders of respondent Regional Trial Court dated July 31, 1990 and August 23, 1990, including the writ of execution issued pursuant thereto, are hereby SET ASIDE. Accordingly, this case is REMANDED to the court of origin for further hearing on this matter. All incidents arising therefrom are reverted to the status quo ante until such time as the trial court shall have passed upon the merits of this case. No costs. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

G.R. No. 106879 May 27, 1994 DR. LUCAS G. ADAMSON and ADAMSON MANAGEMENT CORPORATION, petitioners, vs. HON. COURT OF APPEALS and APAC HOLDINGS LIMITED, respondents. Benjamin J. Yap for petitioners. Bautista, Picazo, Buyco, Tan & Fider for private respondent.

ROMERO, J.: Before us is a petition for review on certiorari of a decision of the Court of Appeals, the dispositive portion of which is quoted hereunder: WHEREFORE, judgment is hereby rendered setting aside respondent judge's questioned order dated 23 August 1991 and confirming the subject arbitration award. Costs against private respondents. SO ORDERED. The antecedents of this case are as follows: On June 15, 1990, the parties, Adamson Management Corporation and Lucas Adamson on the one hand, and APAC Holdings Limited on the other, entered into a contract whereby the former sold 99.97% of outstanding common shares of stocks of Adamson and Adamson, Inc. to the latter for P24,384,600.00 plus the Net Asset Value (NAV) of Adamson and Adamson, Inc. as of June 19, 1990. But the parties failed to agree on a reasonable Net Asset Value. This prompted them to submit the case for arbitration in accordance with Republic Act No. 876, otherwise known as the Arbitration Law. On May 15, 1991, the Arbitration Committee rendered a decision finding the Net Asset Value of the Company to be P167,118.00 which was computed on the basis of a pro-forma balance sheet submitted by SGV and which was the difference between the total assets of the Company amounting to P65,554,258.00 (the sum of the balance sheet asset amounting to P65,413,978.00 and the increase in Cuevo appraisal amounting to P140,280.00) and total liabilities amounting to P65,387,140.00 (the difference between current liabilities and long term debt amounting to P68,356,132.00 and Tax Savings for 1987 amounting to P2,968,992). In so holding that NAV equals P167,118.00, the Arbitration Committee disregarded petitioners' argument that there was a fixed NAV amounting to P5,146,000.00 as of February 28, 1990 to which should be added the value of intangible assets (P19,116,000.00), the increment of tangible assets excluding land (P17,003,976.00), the 1987 tax savings (P2,968,992.00), and estimated net income from February 28, 1990 to June 19, 1990 (P1,500,000.00, later increased to P3,949,772.00). According to the Committee, however, the amount of P5,146,000.00 which was claimed as initial NAV by petitioners, was merely an estimate of the Company's NAV as of February 28, 1990 which was still subject to financial developments until June 19, 1990, the cut-off date. The basis for this ruling was Clause 3(B)

of the Agreement which fixed the said amount; Clause 1(A) which defined NAV and provided that it should be computed in accordance with Clause 7(A); Clause 7(A) which directed the auditors to prepare in accordance with good accounting principles a balance sheet as of cutoff date which would include the goodwill and intangible assets (P19,116,000.00), the value of tangible assets excluding the land as per Cuervo appraisal, the adjustment agreed upon by the parties, and the cost of redeeming preferred shares; and Clause 5(E). Furthermore, the Committee held that the parties used the figures in the pro-forma balance sheet to arrive at the said amount of P5,146,000.00; that the same had already included the value of the intangible assets and of the Cuervo appraisal of the tangible assets so that the latter items could not be added again to what Vendor claimed to be the initial NAV; and that apart from being an estimate, the amount of P5,146,000.00 was tentative as it was still subject to the adjustments to be made thereto to reflect subsequent financial events up to the cut-off date. In the computation of the NAV, the Committee deemed it proper to appreciate in favor of petitioners the 1987 tax savings because as of the date of the proceedings, no assessment was ever made by the BIR and the three-year prescriptive period had already expired. However, it did not consider the estimated net income for the period beginning February 28, 1990 to June 19, 1990 as part of the NAV because it found that as of June 1990, the books of the company carried a net loss of P4,678,627.00 which increased to P8,547,868.00 after the proposed adjustments were included in the computation of the NAV. The Committee pointed out that although petitioners herein contested the adjustments, they were, however, not able to prove that these were not valid, except with respect to the tax savings. Aside from deciding the amount of NAV, the Committee also held that any ambiguity in the contract should not necessarily be interpreted against herein private respondents because the parties themselves had stipulated that the draft of the agreement was submitted to petitioners for approval and that the latter even proposed changes which were eventually incorporated in the final form of the Agreement. Thereafter, APAC Holdings Ltd. filed a petition for confirmation of the arbitration award before the Regional Trial Court of Makati. Herein petitioners opposed the petition and prayed for the nullification, modification and/or correction of the same, alleging that the arbitrators committed evident partiality and grave abuse of discretion as shown by the following errors: a. In creating an entirely new contract for the parties that contradicts the essence of their agreement and results in the absurd situation where a seller incurs enormous expense to sell his property; b. In treating the provisions in the Agreement independently of one another and thereby nullifying the simple, clear and express stipulations therein; c. In interpreting the Agreement although it is couched in plain, simple and clear language, contrary to the well established principle that if the terms of a contract are clear, the literal meaning of its stipulations shall control; d. In accepting SGV's proposed adjustments, contrary to the parties' stipulation that the final adjustment items shall pertain to a specific period and subject to their agreement; and in giving full reliance on SGV report despite SGV's disclosure of its lack of independence because it acted solely to assist petitioner and its report was intended solely for petitioner's information; e. In not applying the "suppressed evidence" rule against petitioner inspite of its refusal to present the Company's income statement or any other similar report for the adjustment period; and in disregarding respondent's estimate of the net income for the period as "Adjustment" using SGV's figures and ratios;
f. In not awarding damages and attorney's fee to respondents despite petitioner's bad faith in violating the 1 contract.

The Regional Trial Court rendered a decision vacating the arbitration award. The dispositive portion of the decision reads as follows: WHEREFORE, the Decision/Arbitration Award in question is hereby VACATED, and APAC (herein petitioner) is hereby ordered to pay ADAMSON (herein respondents) the final NAV of Forty-seven Million One Hundred Twenty-One Thousand Four Hundred Sixty-Eight Pesos (P47,121,468.00), Philippine Currency, in accordance with the pertinent stipulations expressed in the Agreement as discussed above, plus twelve (12) percent interest on the above amount which ADAMSON should have earned had the balance of the final NAV been paid to the Escrow Agent after offset on August 2, 1990. ADAMSON's claim for moral and exemplary damages and attorney's fees are (sic) dismissed for lack of sufficient merit.
SO ORDERED.
2

On appeal, the above decision was reversed and a petition for review was filed in this Court. Petitioners allege that the Court of Appeals erred and acted in excess of jurisdiction or with grave abuse of discretion in holding that: (a) the trial judge reversed the arbitration award solely on the basis of the pleadings submitted by the parties; (b) petitioners failed to substantiate with proofs their imputation of partiality to the members of the arbitration committee; (c) the nullification by the trial court of the award was not based on any of the grounds provided by law; (d) to allow the trial judge to substitute his own findings in lieu of the arbitrators' would defeat the object of arbitration which is to avoid litigation; and (e) if there really was a ground for vacating the award, it was improper for trial judge to reverse the decision because it contravened Section 25 of R.A. No. 876. Did the Court of Appeals err in affirming the arbitration award and in reversing the decision of the trial court? The Court of Appeals, in reversing the trial court's decision held that the nullification of the decision of the Arbitration Committee was not based on the grounds provided by the Arbitration Law and that ". . . private respondents [petitioners herein] have failed to substantiate with any evidence their claim of partiality. Significantly, even as respondent judge ruled against the arbitrators' award, he could not find fault with their impartiality and integrity. Evidently, the nullification of the award rendered at the case at bar was made not on the basis of any of the grounds provided by law." 3 Assailing the above conclusion, petitioners argue that ". . . evident partiality is a state of mind that need not be proved by direct evidence but may be inferred from the circumstances of the case (citations omitted). It is related to intention which is a mental process, an internal state of mind that must be judged by the person's conduct and acts which are the best index of his intention (citations omitted)." 4 They pointed out that from the following circumstances may be inferred the arbitrators' evident partiality: 1. the material difference between the results of the arbitrators' computation of the NAV and that of petitioners; 2. the alleged piecemeal interpretation by the arbitrators of the Agreement which went beyond the clear provisions of the contract and negated the obvious intention of the parties; 3. reliance by the arbitrators on the financial statements and reports submitted by SGV which, according to petitioners, acted solely for the interests of private respondents; and
4. the finding of the trial court that "the arbitration committee has advanced no valid justification to warrant a departure from the well-settled rule in contract interpretation that if the terms of the contract are clear

and leave no doubt upon the intention of the contracting parties the literal meaning of its interpretation 5 shall control."

We find no reason to depart from the Court of Appeal's conclusion. Section 24 of the Arbitration Law provides as follows: Sec. 24. Grounds for vacating award. In any one of the following cases, the court must make an order vacating the award upon the petition of any party to the controversy when such party proves affirmatively that in the arbitration proceedings: (a) The award was procured by corruption, fraud or other undue means; or (b) That there was evident partiality or corruption in the arbitrators or any of them; or (c) That the arbitrators were guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; that one or more of the arbitrators was disqualified to act as such under section nine hereof, and willfully refrained from disclosing such disqualifications or any other misbehavior by which the rights of any party have been materially prejudiced; or (d) That the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual, final and definite award upon the subject matter submitted to them was not made. . . . Petitioners herein failed to prove their allegation of partiality on the part of the arbitrators. Proofs other than mere inferences are needed to establish evident partiality. That they were disadvantaged by the decision of the Arbitration Committee does not prove evident partiality. Too much reliance has been accorded by petitioners on the decision of the trial court. However, we find that the same is but an adaptation of the arguments of petitioners to defeat the petition for confirmation of the arbitral award in the trial court by herein private respondent. The trial court itself stated as follows: In resolving the issues in favor of respondents, the Court has no alternative but to agree with the contention of said party, as supported by their exhaustive and very convincing arguments contained in more than twenty-one (21) pages, doubledspaced, which are adopted and reproduced herein by reference. Said arguments may be CAPSULIZED as follows: The penultimate paragraph of its decision reads, thus:
To allay any fear of petitioner that its reply and opposition, dated 11 June 1991, has not been taken into account in resolving this case, it will be well to state that the court has carefully read the same and, what is more, it has also read respondents' comment, dated 19 June 1991, wherein they made convincing arguments which are likewise adopted and 6 incorporated herein by reference.

The justifications advanced by the trial court for vacating the arbitration award are the following: (a) ". . . that the arbitration committee had advanced no valid justification to warrant a departure from the well-settled rule in contract interpretation that if the terms of the contract are clear and leave no doubt upon the intention of the contracting parties the literal meaning of its interpretation shall control; (b) that the final NAV of P47,121,468.00 as computed by

herein petitioners was well within APAC's normal investment level which was at least US$1 million and to say that the NAV was merely P167,118.00 would negate Clause 6 of the Agreement which provided that the purchaser would deposit in escrow P5,146,000.00 to be held for two (2) years and to be used to satisfy any actual or contingent liability of the vendor under the Agreement; (c) that the provision for an escrow account negated any idea of the NAV being less than P5,146,000.00; and (d) that herein private respondent, being the drafter of the Agreement could not avoid performance of its obligations by raising ambiguity of the contract, or its failure to express the intention of the parties, or the difficulty of performing the same. It is clear therefore, that the award was vacated not because of evident partiality of the arbitrators but because the latter interpreted the contract in a way which was not favorable to herein petitioners and because it considered that herein private respondents, by submitting the controversy to arbitration, was seeking to renege on its obligations under the contract. That the award was unfavorable to petitioners herein did not prove evident partiality. That the arbitrators resorted to contract interpretation neither constituted a ground for vacating the award because under the circumstances, the same was necessary to settle the controversy between the parties regarding the amount of the NAV. In any case, this Court finds that the interpretation made by the arbitrators did not create a new contract, as alleged by herein petitioners but was a faithful application of the provisions of the Agreement. Neither was the award arbitrary for it was based on the statements prepared by the SGV which was chosen by both parties to be the "auditors." The trial court held that herein private respondent could not shirk from performing its obligations on account of the difficulty of complying with the terms of the contract. It said further that the contract may be harsh but private respondent could not excuse itself from performing its obligations on account of the ambiguity of the contract because as its drafter, private respondent was well aware of the implications of the Agreement. We note herein that during the arbitration proceedings, the parties agreed that the contract as prepared by private respondent, was submitted to petitioners for approval. Petitioners, therefore, are presumed to have studied the provisions of the Agreement and agreed to its import when they approved and signed the same. When it was submitted to arbitration to settle the issue regarding the computation of the NAV, petitioners agreed to be bound by the judgment of the arbitration committee, except in cases where the grounds for vacating the award existed. Petitioners cannot now refuse to perform its obligation after realizing that it had erred in its understanding of the Agreement. Petitioners also assailed the arbitrator's reliance upon the financial statements submitted by SGV as they allegedly served the interests of private respondents and did not reflect the true intention of the parties. We agree with the observation made by the arbitrators that SGV, being a reputable firm, it should be presumed to have prepared the statements in accordance with sound accounting principles. Petitioners have presented no proof to establish that SGV's computation was erroneous and biased. Petitioners likewise pointed out that the computation of the arbitrators leads to the absurd result of petitioners incurring great expense just to sell its properties. In arguing that the NAV could not be less than P5,146,000, petitioners quote Clause (B) of the Agreement as follows: CLAUSE 3(B) The consideration for the purchase of the Sale Shares by the Purchaser shall be equivalent to the Net Asset Value of the Company, . . . which the parties HAVE FIXED at P5,146,000.00 prior to Adjustments . . . However, such quotation is incomplete and, therefore, misleading. The full text of the above provision as quoted by the arbitration committee reads as follows:

(B) The consideration for the purchase of the Sale Shares by the purchaser shall be equivalent to the Net Asset Value of the Company, without the Property, which the parties have fixed at P5,146,000 prior to Adjustments plus P24,384,600. The consideration for the sale of the Sale Shares by the Vendor, is the acquisition of the property by the Vendor, through Aloha, from the Company at historical cost plus all Taxes due on said transfer of Property, and the release of all collaterals of the Vendor securing the RSBS Credit Facility. However, in the implementation of this Agreement, the parties shall designate the amounts specified in Clause 5 as the purchaser prices in the pro-forma deeds of sale and other documents required to effect the transfers contemplated in this Agreement. Thus, petitioner cannot claim that the consideration for private respondent's acquisition of the outstanding common shares of stock was grossly inadequate. If the NAV as computed was small, the result was not due to error in the computations made by the arbitrators but due to the extent of the liabilities being borne by petitioners. During the arbitration proceedings, the committee found that petitioner has been suffering losses since 1983, a fact which was not denied by petitioner. We cannot sustain the argument of petitioners that the amount of P5,146,000.00 was an initial NAV as of February 28, 1990 to which should still be added the value of tangible assets (excluding the land) and of intangible assets. If indeed the P5,146,000.00 was the initial NAV as of February 28, 1990, then as of said date, the total assets and liabilities of the company have already been set off against each other. NET ASSET VALUE is arrived at only after deducting TOTAL LIABILITIES from TOTAL ASSETS. "TOTAL ASSETS" includes those that are tangible and intangible. If the amount of the tangible and intangible assets would still be added to the "initial NAV," this would constitute double counting. Unless the company acquired new assets from February 28, 1990 up to June 19, 1990, no value corresponding to tangible and intangible assets may be added to the NAV. We also note that the computation by petitioners of the NAV did not reflect the liabilities of the company. The term "net asset value" indicates the amount of assets exceeding the liabilities as differentiated from total assets which include the liabilities. If petitioners were not satisfied, they could have presented their own financial statements to rebut SGV's report but this, they did not do. Lastly, in assailing the decision of the Court of Appeals, petitioners would have this Court believe that the respondent court held that the decision of the arbitrators was not subject to review by the courts. This was not the position taken by the respondent court. The Court of Appeals, in its decision stated, thus: It is settled that arbitration awards are subject to judicial review. In the recent case of Chung Fu Industries (Philippines), Inc., et. al. v. Court of Appeals, Hon Francisco X. Velez, et. al., G. R. No. 96283, February 25, 1992, the Supreme Court categorically ruled that: It is stated expressly under Art. 2044 of the Civil Code that the finality of the arbitrators' award is not absolute and without exceptions. Where the conditions described in Articles 2038, 2039 and 2040 applicable to both compromises and arbitrations are obtaining, the arbitrators' award may be annulled or rescinded. Additionally, under Sections 24 and 25 of the Arbitration Law, there are grounds for vacating, modifying or rescinding anarbitrators' award. Thus, if and when the factual circumstances referred to in the above-cited provisions are present, judicial review of the award is properly warranted.

Clearly, though recourse to the courts may be availed of by parties aggrieved by decisions or awards 7 rendered by arbitrator/s, the extent of such is neither absolute nor all encompassing. . . .

It is clear then that the Court of Appeals reversed the trial court not because the latter reviewed the arbitration award involved herein, but because the respondent appellate court found that the trial court had no legal basis for vacating the award. WHEREFORE, in view of the foregoing, this petition is hereby DISMISSED and the decision of the Court of Appeals AFFIRMED. SO ORDERED.

THIRD DIVISION

[G.R. No. 127004. March 11, 1999]

NATIONAL STEEL CORPORATION, petitioner, vs. THE REGIONAL TRIAL COURT OF LANAO DEL NORTE, BRANCH 2, ILIGAN CITY and E. WILLKOM ENTERPRISES, INC., respondents. DECISION
PURISIMA, J.: Before the Court is a Petition for Certiorari with Prayer for Preliminary Injunction & Temporary Restraining Order under Rule 65 of the Revised Rules of Court assailing the decision of the Regional Trial Court of Lanao del Norte, Branch 2, Iligan City, on the following consolidated cases : (a) Special Proceeding Case No. 2206 entitled National Steel Corporation vs E. Willkom Enterprise Inc to Vacate Arbitrators Award; and; (b) Civil Case No. 2198 entitled to E. Willkom Enterprises Inc. vs National Steel Corporation for Sum of Money with application for Confirmation of Arbitrators Award. The facts as found below are, as follows:

"xxx On Nov. 18, 1992, petitioner-defendant Edward Wilkom Enterprises Inc. (EWEI for brevity) together with one Ramiro Construction and respondent-petitioner National Steel Corporation (NSC for short) executed a contract whereby the former jointly undertook the Contract for Site Development (Exhs. "3" & "D") for the latter's Integrated Iron and Steel Mills Complex to be established at Iligan City. Sometime in the year 1983, the services of Ramiro Construction was terminated and on March 7, 1983, petitioner-defendant EWEI took over Ramiro's contractual obligation. Due to this and to other causes deemed sufficient by EWEI, extensions of time for the termination of the project, initially agreed to be finished on July 17, 1983, were granted by NSC. Differences later arose, Plaintiff-defendant EWEI filed Civil Case No. 1615 before the Regional Trial Court of Lanao del Norte, Branch 06, (Exhs. "A" and "1") praying essentially for the payments of P458,381.001 with interest from the time of delay; the price adjustment as provided by PD 1594; and exemplary damages in the amount of P50,000.00 and attorney's fees. Defendant-petitioner NSC filed an answer with counterclaim to plaintiff's complaints on May 18, 1990. On August 21, 1990, the Honorable Court through Presiding Judge Valario M. Salazar upon joint motion of both parties had issued an order (Exhs. "C" and "3") dismissing the said complaint and counterclaim x x x in view of the desire of both parties to implement Sec. 19 of the contract, providing for a resolution of any conflict by arbitration x x x . ( underscoring supplied). In accordance with the aforesaid order, and pursuant to Sec. 19 of the Contract for Site Development (id) the herein parties constituted an Arbitration Board composed of the following: (a) Engr. Pafnucio M. Mejia as Chairman, who was nominated by the two arbitrators earlier nominated by EWEI and NSC with an Oath of Office (Exh. "E"); (b) Engr. Eutaquio 0. Lagapa, Jr., member, who was nominated by EWEI with an oath office (Exh. "F")

(c) Engr. Gil A. Aberilia, a member who was nominated by NSC, with an Oath of Office (Exh. "G"). After series of hearings, the Arbitrators rendered the decision (Exh. "H" & "4") which is the subject matter of these present causes of action, both initiated separately by the herein contending parties, substantial portion of which directs NSC to pay EWEI, as follows: (a) P458,381.00 representing EWEI's last billing No. 16 with interest thereon at the rate of 1-1/4% per month from January 1, 1985 to actual date of payment; (b) P1,335,514.20 representing price escalation adjustment under PD No. 1594, with interest thereon at the rate of 1-1/4 % per month from January 1, 1985 to actual date of payment; (c) (d) (e) P50,000 as and for exemplary damages; P350,000 as and for attorney's fees.; and P35,000.00 as and for cost of arbitration."[1]

The Regional Trial Court of Lanao del Norte Branch 2, Iligan City through Judge Maximo B. Ratunil, rendered judgment as follows:
(1) In Civil Case No. 11-2198, declaring the award of the Board of Arbitrators, dated April 21, 1992 to be duly AFFIRMED and CONFIRMED "en toto"; that an entry of judgment be entered therewith pursuant to Republic Act No. 876 (the Arbitration Law); and costs against respondent National Steel Corporation. (2) In Special Proceeding No. 11-2206, ordering the petition to vacate the aforesaid award be DISMISSED.

SO ORDERED.[2] "
With the denial on October 18, 1996 of its Motion for Reconsideration, the National Steel Corporation (NSC) has come to this court via the present petition. After deliberating on the petition as well as the comment and reply thereon, the court gave due course to the petition and considered the case ripe for decision. The pivot of inquiry here is whether or not the lower court acted with grave abuse of discretion in not vacating the arbitrator's award. A stipulation to refer all future disputes or to submit an ongoing dispute to an arbitrator is valid. Republic Act 876, otherwise known as the Arbitration Law, was enacted by Congress since there was a growing need for a law regulating arbitration in general. The parties in the present case, upon entering into a Contract for Site Development, mutually agreed that any dispute arising from the said contract shall be submitted for arbitration. Explicit is Paragraph 19 of subject contract, which reads:

"Paragraph 19. ARBITRATION. All disputes questions or differences which may at any time arise between the parties hereto in connection with or relating to this Agreement or the subject matter hereof, including questions of interpretation or construction, shall be referred to an Arbitration Board composed of three (3) arbitrators, one to be appointed by each party, and the third, to be appointed by the two (2) arbitrators. The appointment of arbitrators and procedure for arbitration shall be governed by the provisions of the Arbitration Law (Republic Act No. 876). The Board shall apply Philippine Law in adjudicating the dispute. The decision of a majority of the members of the Arbitration Board shall be valid, binding, final and conclusive upon the parties, and from which there will be no appeal, subject to the provisions on vacating, modifying, or correcting an award under the said Republic Act No. 876.[3]
Thereunder, if a dispute should arise from the contract, the Arbitration Board shall assume jurisdiction and conduct hearings. After the Board comes up with a decision, the parties may immediately implement the same by treating it as an amicable settlement. However, if one of the parties refuses to comply or is dissatisfied with

the decision, he may file a Petition to Vacate the Arbitrator's decision before the trial court. On the other hand, the winning party may ask the trial court's confirmation to have such decision enforced. It should be stressed that voluntary arbitrators, by the nature of their functions, act in a quasi-judicial capacity.[4] As a rule, findings of facts by quasi-judicial bodies, which have acquired expertise because their jurisdiction is confined to specific matters, are accorded not only respect but even finality if they are supported by substantial evidence,[5] even if not overwhelming or preponderant.[6] As the petitioner has availed of Rule 65, the Court will not review the facts found nor even of the law as interpreted or applied by the arbitrator unless the supposed errors of facts or of law are so patent and gross and prejudicial as to amount to a grave abuse of discretion or an excess de pouvoir on the part of the arbitrators.[7] Thus, in a Petition to Vacate Arbitrator's Decision before the trial court, regularity in the performance of official functions is presumed and the complaining party has the burden of proving the existence of any of the grounds for vacating the award, as provided for by Sections 24 of the Arbitration Law, to wit:

"Sec. 24 GROUNDS FOR VACATING THE AWARD - In any one of the following cases, the court must make an order vacating the award upon the petition of any party to the controversy when such party proves affirmatively that in the arbitration proceedings: (a) (b) The award was procured by corruption, fraud or other undue means; That there was evident partiality or corruption in the arbitrators of any of them; or

(c) That the arbitrators were guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; that one or more of the arbitrators was disqualified to act as such under section nine hereof, and wilfully refrained from disclosing such disqualification or of any other misbehavior by which the rights of any party have been materially prejudiced; or (d) That the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual, final and definite award upon the subject matter submitted to them was not made. xxx"
The grounds relied upon by the petitioner were the following (a) That there was evident partiality in the assailed decision of the Arbitrators in favor of the respondent; and (b) That there was mistaken appreciation of the facts and application of the law by the Arbitrators. These were the very same grounds alleged by NSC before the trial court in their Petition to Vacate the Arbitration Award and which petitioner is reiterating in this petition under scrutiny. Petitioner's allegation that there was evident partiality is untenable. It is anemic of evidentiary support. In the case of Adamson vs. Court of Appeals, 232 SCRA 602, in upholding the decision of the Board of Arbitrators, this Court ruled that the fact that a party was disadvantaged by the decision of the Arbitration Committee does not prove evident partiality. Proofs other than mere inference are needed to establish evident partiality. Here, petitioner merely averred evident partiality without any proof to back it up. Petitioner was never deprived of the right to present evidence nor was there any showing that the Board showed signs of any bias in favor of EWEI. As correctly found by the trial court:

"Thirdly, this Court cannot find its way to support NSC's contention that there was evident partiality in the assailed Award of the Arbitrator in favor of the respondent because the conclusion of the Board, which the Court found to be well-founded, is fully supported by substantial evidence, as follows: "xxx The testimonies of witnesses from both parties were heard to clarify facts and to threash (sic) out the dispute in the hearings. Upon motion by NSC counsel, the hearing of testimony from witnesses was terminated on 22 January 1992. To end the testimonies in the hearing both litigant parties upon query by Arbitrator-Chairman freely declared that there has been no partiality in the manner the Arbitrators conducted the hearing, that there has been no instance, where Arbitrators refused to postpone requested or to hear/accept evidence pertinent and material to the dispute. xxx (underscoring supplied)

Parentethically, and in the light of the record above-mentioned, this Court hereby holds that the Board of Arbitrators did not commit any 'evident partiality' imputed by petitioner NSC. Above all, this Court must sustain the said decision for it is a well settled rule that the actual findings of an administrative body should be affirmed if there is substantial evidence to support them and the conclusions stated in the decision are not clearly against the law and jurisprudence similar to the instant case. Henceforth, every reasonable intendment will be indulged to give effect such proceedings and in favor of the regulatory and integrity of the arbitrators act. (Corpus Juris, Vol. 5, p. 20)"[8]
Indeed, the allegation of evident partiality is not well-taken because the petitioner failed to substantiate the same. Anent the issue of mistaken appreciation of facts and law of the case, the petitioner theorizes that the awards made by the Board were unsubstantiated and the same were a plain misapplication of the law and even contrary to jurisprudence. To have a clearer understanding of the petition, this Court will try to discuss individually the awards made by the Board, and determine if there was grave abuse of discretion on the part of the trial court when it adopted such awards in toto.
I. P458,381.00 representing EWEI's last billing No. 16 with interest thereon at the rate of 1 1/4% per month from January 1, 1985 to actual date of payment;

Petitioner seeks to bar payment of the said amount to EWEI. Since the latter failed to complete the works as agreed upon, NSC had the right to withhold such amount. The same will be used to cover the cost differential paid to another contractor who finished the work allegedly left uncompleted by EWEI. Said work cost NSC P1,225,000, and should be made chargeable to EWEI's receivables on Final Billing No. 16 issued to NSC. The query here therefore is whether there was failure on the part of EWEI to complete the work agreed upon. This will determine whether Final Billing No. 16 can be made chargeable to the cost differential paid by NSC to another contractor. After a series of hearings, the Board of Arbitrators concluded that the work was completed by EWEI. As correctly stated:

"To authenticate the extent of unfinished work, quantity, unit cost differential and amount, NSC was required to submit copies of payment vouchers and/or job awards extended to the other contractor engaged to complete the works. The best efforts by NSC despite the multiplicity of accounting/auditing/engineering records required in a corporate complex failed to produce documentary proofs from their Iligan or Makati office despite repeated requests. NSC failed to substantiate such allusion of completion by another contractor three unfinished items of works, actual quantities accomplished and unit cost differential paid chargeable against EWEI.
xxx xxx xxx

The latest evaluation on record of the items of work completed by EWEI under the contract is drawn from the NSC report (Exhibit "11-d") dated 12 November 1985 submitted with the EWEI Billing No. 16-Final in the course of processing claim on items of work accomplished. There is no such report or mention of unfinished work of 90,000 MT of dumped riprap, 100,000 cu. m. of site grading and 300,000 cu. m. of spreading common excavated materials in the EWEI contract alluded to by the NSC as unfinished work otherwise EWEI Billing No. 16-Final would not have passed processing for payment unless there is really no such unfinished work NSC evaluation report with no adverse findings of unfinished work consider the contract as completed. To affirm the work items, quantity, unit cost differential and amount of unfinished work left behind by EWEI, NSC in serving notice of contract termination to EWEI should have instead specifically cited these obligations in detail for EWEI to perform/comply within 30 days, such failure to perform/comply should have constituted as an event in default that would have justified termination of contract of NSC with EWEI. If at all, this unfinished work may be additional/extra work awarded in 1984 to another contractor at prices higher than the unit price tendered by EWEI in

1982 and/or the discrepancy between actual quantities of work accomplished per plans versus estimated quantities of work covered by separate contract as expansion of the original project."
xxx xxx xxx

IN VIEW OF THE FOREGOING, THE SO-CALLED UNFINISHED WORKS IN THE CONTRACT BY EWEI ALLUDED TO BY NSC IS NOT CONSIDERED AN OBLIGATION TO PERFORM/COMPLY THUS ABSOLVING EWEI OF ANY FAILURE TO PERFORM/COMPLY AND THEREFORE CANNOT BE AVAILED OF AS A RIGHT OR REMEDY BY NSC TO RECOVER UNIT DIFFERENTIAL COST FROM EWEI FOR THE SAME UNSUBSTANTIATED WORK DONE BY ANOTHER CONTRACTOR." (ANNEX "C" ARBITRATION, page 86-88 of Rollo.)
Furthermore, under the contract sued upon, it is clear that should the Owner feel that the work agreed upon was not completed by the contractor, it is incumbent upon the OWNER to send to CONTRACTOR a letter within seven (7) days after completion of the inspection to specify the objections thereto [9]NSC failed to comply with such requirement, and therefore it would be unfair to refuse payment to EWEI, considering that the latter had faithfully submitted Final Billing No.16 believing that its work had been completed because NSC did not call its attention to any objectionable aspect of their project. But, what cannot be upheld is the Board's imposition of a 1-1/4% interest per month from January 1, 1985 to actual date of payment. There is nothing in the said contract to justify or authorize such an award. The trial court should have therefore disregarded the same and instead, applied the legal rate of 6% per annum, from Jan. 1, 1985 until this decision becomes final and executory. This is so because the legal rate of interest on monetary obligations not arising from loans or forebearance of credits or goods is 6%[10] per annum in the absence of any stipulation to the contrary.
(II) Price escalation with the interest rate of 1-1/4% per month from 1 January 1985 to actual date of payment.

Petitioner contends that EWEI is not entitled to price escalation absent any stipulation to that effect in the contract under which, the contract price is fixed, citing Paragraph 2 thereof, which stipulates:
2. CONTRACT PRICE -

xxx xxx

The applicable unit prices above fixed are based on the assumption that the disposal areas for cleared, grubbed materials, debris, excess filling materials and other matters that are to be disposed of or are within the boundary limits of the site, as designated in Annex A hereof. In the event that disposal areas fixed and designated in Annex A are diverted and transferred to such other areas as would be outside the limits of the site as would require additional costs to the contractor, then Owner shall be liable for such additional hauling costs of P1.45/km/m3." (Annex "A", Contract for Site Development, page 55 of Rollo)
The phrase "prices above fixed" means that the contract price of the work shall be that agreed upon by the parties at the time of the execution of the contract, which is the law between them provided it is not contrary to law, morals, good customs, public order, or public policy. (Article 1306, New Civil Code). It cannot be inferred therefrom, however, that the parties are prohibited from imposing future increases or price escalation. It is a cardinal rule in the interpretation of contracts that "if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control."[11] But price escalation is expressly allowed under Presidential Decree 1594, which law allows price escalation in all contracts involving government projects including contracts entered into by government entities and instrumentalities and Government Owned or Controlled Corporations (GOCCs). It is a basic rule in contracts that the law is deemed written into the contract between the parties. And when there is no prohibitory clause on price escalation, the Court will allow payment therefor. Thus, petitioner cannot rely on the case of Llama Development Corporation vs. Court of Appeals and National Steel Corporation, GR 88093, Resolution, Third Division, 20 Sept 1989. It is not applicable here since in that case, the contract explicitly provided that the contract price stipulated was fixed, inclusive of all costs and not subject to escalation, (emphasis

supplied). This, in effect, waived the provisions of PD 1594. The case under scrutiny is different as the disputed contract does not contain a similar provision. In a vain attempt to evade said law's application, they would like the Court to believe that it is an acquired asset corporation and not a government owned or controlled corporation so that they are not within the coverage of PD 1594. Whether NSC is an asset-acquired corporation or a government owned or controlled corporation is of no moment. It is not determinative of the pivot of inquiry. It bears emphasizing that during the hearings conducted by the Board of Arbitrators, there was presented documentary evidence to show that NSC, despite its being allegedly an asset acquired corporation, allowed price escalation to another contractor, Geo Transport and Construction, Inc. (GTCI). As said in the decision of the Board of Arbitrators:

"On the other hand, there was documentary evidence presented that NSC granted Geo Transport and Construction, Inc. (GTCI), the other favored contractor working side by side with EWEI on the site development project during the same period the GTCE was granted upon request and paid by NSC an actual sum of P6.9 million as price adjustment compensation even without the benefit of escalation provision in the contract but allowed in accordance with PD NO. 1594 enforceable among government controlled or owned corporation. The statement is embodied in an affidavit (Exhibit "111-h") submitted by affiant Jose M. Mesina, Asst. to the President and Legal Counsel of GTCI, submitted to the Arbitrators upon solicitation of EWEI, copy to NSC, on 3 October 1991. NSC did not assail the affidavit upon receipt of such document as evidence until the hearing of 19 December 1991 when the affidavit was branded by NSC counsel as incorrect and hearsay. Within 7 days reglamentary period after receipt of affidavit in 3 October 1991, the NSC had the recourse to contest the affidavit even preferably charge the affiant for slander if NSC could disprove the statements as untrue."[12]
If Petitioner seeks to refute such evidence, it should have done so before the Board of Arbitrators, during the hearings. To raise the issue now is futile. However, the same line of reasoning with respect to the first award should be used in disregarding the interest rate of 1-1/4%. The legal rate of 6% per annum should be similarly applied to the price escalation to be computed from Jan. 1, 1985 until this decision becomes final and executory.
(III) The award of P50,000 as exemplary damages and P350,000 as attorney's fees;

The exemplary damages and attorneys fees awarded by the Board of Arbitrators should be deleted in light of the circumstances surrounding the case. The requirements for an award of exemplary damages, are: (1) they may be imposed by way of example in addition to compensatory damages, and only after the claimants right to them has been established; (2) that they cannot be recovered as a matter of right, their determination depending upon the amount of compensatory damages that may be awarded to the claimant; (3) the act must be accompanied by bad faith or done in a wanton, fraudulent, oppressive or malevolent manner.[13] EWEI cannot claim that NSC acted in bad faith or in a wanton manner when it refused payment of the Final Billing No. 16. The belief that the work was never completed by EWEI and that it (NSC) had the right to make it chargeable to the cost differential paid by the latter to another contractor was neither wanton nor done in evident bad faith. The payment of legal rate of interest will suffice to compensate EWEI of whatever prejudice it suffered by reason of the delay caused by NSC. As regards the award of attorney's fees, award for attorney's fees without justification is a "conclusion without a premise, its basis being improperly left to speculation and conjencture.[14] The "fixed counsel's fee" of P350,000 should be disallowed. The trial court acted with grave abuse of discretion when it adopted the same in toto. WHEREFORE, the awards made by the Board of Arbitrators which the trial court adopted in its decision of July 31,1996, are modified, thus:
(1) The award of P474,780.23 for Billing No. 16-Final and P1,335,514.20 for price adjustment shall be paid with legal interest of six (6 %) percent per annum, from January 1, 1985 until this decision shall have become final and executory; (2) The award of P50,000 for exemplary damages and attorney's fees of P350,000 are deleted; and (3) The cost of arbitration of P35,000 to supplement arbitration agreement has to be paid.

No pronouncement as to costs. SO ORDERED.

THIRD DIVISION

[G.R. No. 121171. December 29, 1998]

ASSET PRIVATIZATION TRUST, petitioner, vs., COURT OF APPEALS, JESUS S. CABARRUS, SR., JESUS S. CABARRUS, JR., JAIME T. CABARRUS, JOSE MIGUEL CABARRUS, ALEJANDRO S. PASTOR, JR., ANTONIO U. MIRANDA, and MIGUEL M. ANTONIO, as Minority Stock Holders of Marinduque Mining and Industrial Corporation, respondents. DECISION
KAPUNAN, J.:

The petition for review on certiorari before us seeks us to reverse and set aside the decision of the Court of Appeals which denied due course to the petition for certiorari filed by the Asset Privatization Trust (APT) assailing the order of the Regional Trial Court (RTC) Branch 62, Makati City. The Makati RTCs order upheld and confirmed the award made by the Arbitration Committee in favor of Marinduque Mining and Industrial Corporation (MMIC) and against the Government, represented by herein petitioner APT for damages in the amount of P2.5 BILLION (or approximately P4.5 BILLION, including interest). Ironically, the staggering amount of damages was imposed on the Government for exercising its legitimate right of foreclosure as creditor against the debtor MMIC as a consequence of the latters failure to pay its overdue and unpaid obligation of P22 billion to the Philippine National Bank (PNB) and the Development Bank of the Philippines (DBP).
The antecedent facts of the case

The development, exploration and utilization of the mineral deposits in the Surigao Mineral Reservation have been authorized by Republic Act No. 1828, as amended by Republic Acts No. 2077 and 4167, by virtue of which laws, a Memorandum of Agreement was drawn on July 3, 1968, whereby the Republic of the Philippines thru the Surigao Mineral Reservation Board, granted MMIC the exclusive right to explore, develop and exploit nickel, cobalt and other minerals in the Surigao mineral reservation.[1] MMIC is a domestic corporation engaged in mining with respondents Jesus S. Cabarrus, Sr. as President and among its original stockholders. The Philippine Government undertook to support the financing of MMIC by purchase of MMIC debenture and extension of guarantees. Further, the Philippine Government obtained a firm, commitment from the DBP and/or other government financing institutions to subscribed in MMIC and issue guarantee/s for foreign loans or deferred payment arrangements secured from the US Eximbank, Asian Development Bank, Kobe Steel, of amount not exceeding US$100 Million.[2] DBP approved guarantees in favor of MMIC and subsequent requests for guarantees were based on the unutilized portion of the Government commitment. Thereafter, the Government extended accommodations to MMIC in various amounts. On July 13, 1981, MMIC, PNB and DBP executed a Mortgage Trust Agreement[3] whereby MMIC, as mortgagor, agreed to constitute a mortgage in favor of PNB and DBP as mortgagees, over all MMICs assets, subject of real estate and chattel mortgage executed by the mortgagor, and additional assets described and identified, including assets of whatever kind, nature or description, which the mortgagor may acquire whether in substitution of, in replenishment, or in addition thereto. Article IV of the Mortgage Trust Agreement provides for Events of Default, which expressly includes the event that the MORTGAGOR shall fail to pay any amount secured by this Mortgage Trust Agreement when due.[4] Article V of the Mortgage Trust Agreement prescribes in detail, and in addition to the enumerated events of defaults, circumstances by which the mortgagor may be declared in default, the procedure therefor, waiver of period to foreclose, authority of Trustee before, during and after foreclosure, including taking possession of the mortgaged properties.[5]

In various request for advances/remittances of loans of huge amounts, Deeds of Undertakings, Promissory Notes, Loans Documents, Deeds of Real Estate Mortgages, MMIC invariably committed to pay either on demand or under certain terms the loans and accommodations secured from or guaranteed by both DBP and PNB. By 1984, DBP and PNBs financial exposure both in loans and in equity in MMIC had reached tremendous proportions, and MMIC was having a difficult time meeting its financial obligations. MMIC had an outstanding loan with DBP in the amount of P13,792,607,565.92 as of August 31, 1984 and in the amount of P8,789,028,249.38 as of July 15, 1984 or a total Government exposure of Twenty Two Billion Six Hundred Sixty-Eight Million Five Hundred Thirty-Seven Thousand Seven Hundred Seventy and 05/100 (P22,668,537,770.05), Philippine Currency.[6] Thus, a financial restructuring plan (FRP) designed to reduce MMIC' interest expense through debt conversion to equity was drafted by the Sycip Gorres Velayo accounting firm.[7] On April 30, 1984, the FRP was approved by the Board of Directors of the MMIC. [8] However, the proposed FRP had never been formally adopted, approved or ratified by either PNB or DBP.[9] In August and September 1984, as the various loans and advances made by DBP and PNB to MMIC had become overdue and since any restructuring program relative to the loans was no longer feasible, and in compliance with the directive of Presidential Decree No. 385, DBP and PNB as mortgagees of MMIC assets, decided to exercise their right to extrajudicially foreclose the mortgages in accordance with the Mortgage Trust Agreement.[10] The foreclosed assets were sold to PNB as the lone bidder and were assigned to three newly formed corporations, namely, Nonoc Mining Corporation, Maricalum Mining and Industrial Corporation, and Island Cement Corporation. In 1986, these assets were transferred to the Asset Privatization Trust (APT).[11] On February 28, 1985, Jesus S. Cabarrus, Sr., together with the other stockholders of MMIC, filed a derivative suit against DBP and PNB before the RTC of Makati, Branch 62, for Annulment of Foreclosures, Specific Performance and Damages.[12] The suit, docketed as Civil Case No. 9900, prayed that the court: (1) annul the foreclosure, restore the foreclosed assets to MMIC, and require the banks to account for their use and operation in the interim; (2) direct the banks to honor and perform their commitments under the alleged FRP; and (3) pay moral and exemplary damages, attorneys fees, litigation expenses and costs. In the course of the trial, private respondents and petitioner APT, as successor of the DBP and PNBs interest in MMIC, mutually agreed to submit the case to arbitration by entering into a Compromise and Arbitration Agreement, stipulating, inter alia:

NOW, THEREFORE, for and in consideration of the foregoing premises and the mutual covenants contain herein, the parties agreed as follows: 1. Withdrawal and Compromise. The parties have agreed to withdraw their respective claims from the Trial Court and to resolve their dispute through arbitration by praying to the Trial Court to issue a Compromise Judgment based on this Compromise and Arbitration Agreement. In withdrawing their dispute form the court and in choosing to resolve it through arbitration, the parties have agreed that: (a) their respective money claims shall be reduced to purely money claims; and (b) as successor and assignee of the PNB and DBP interest in MMIC and the MMIC accounts, APT shall likewise succeed to the rights and obligations of PNB and DBP in respect of the controversy subject of Civil Case No. 9900 to be transferred to arbitration and any arbitral award/order against either PNB and/or DBP shall be the responsibility of, be discharged by and be enforceable against APT, the partied having agreed to drop PNB and DBP from the arbitration.
2. Submission. The parties hereby agree that (a) the controversy in Civil Case No. 9900 shall be submitted instead to arbitration under RA 876 and (b) the reliefs prayed for in Civil Case No. 9900 shall, with the approval of the Trial Court of this Compromise and Arbitration Agreement, be transferred and reduced to pure pecuniary/money claims with the parties waiving and foregoing all other forms of reliefs which they prayed for or should have payed for in Civil Case No. 9900.[13] The Compromise and Arbitration Agreement limited the issues to the following:

5. Issues. The issues to be submitted for the Committees resolution shall be: (a) Whether PLAINTIFFS have the capacity or the personality to institute this derivative suit in behalf of the MMIC or its directors; (b) Whether or not the actions leading to, and including, the PNB-DBP foreclosure of the MMIC assets were proper, valid and in good faith.[14] This agreement was presented for approval to the trial court. On October 14, 1992, the Makati RTC, Branch 62, issued an order, to wit:

WHEREFORE, this Court orders: 1. 2. 3.


4.

Substituting PNB and DBP with the Asset Privatization Trust as party defendant. Approving the Compromise and Arbitration Agreement dated October 6, 1992, attached as Annex C of the Omnibus Motion. Approving the Transformation of the reliefs prayed for [by] the plaintiffs in this case into pure money claims; and
The Complaint is hereby DISMISSED.[15]

The Arbitration Committee was composed of retired Supreme Court Justice Abraham Sarmiento as Chairman, Atty. Jose C. Sison and former Court of Appeals Justice Magdangal Elma as Members. On November 24, 1993, after conducting several hearings, the Arbitration Committee rendered a majority decision in favor of MMIC, the pertinent portions of which read as follows:

Since, as this Committee finds, there is no foreclosure at all was not legally and validly done, the Committee holds and so declares that the loans of PNB and DBP to MMIC, for the payment and recovery of which the void foreclosure sales were undertaken, continue to remain outstanding and unpaid. Defendant APT as the successor-in-interest of PNB and DBP to the said loans is therefore entitled and retains the right, to collect the same from MMIC pursuant to and based on the loan documents signed by MMIC, subject to the legal and valid defenses that the latter may duly and seasonably interpose. Such loans shall, however, be reduced by the amount which APT may have realized from the sale of the seized assets of MMIC which by agreement should no longer be returned even if the foreclosure were found to be null and void. The documentary evidence submitted and adopted by both parties (Exhibits 3, 3-B; Exhibits 100; and also Exhibit ZZZ) as their exhibits would show that the total outstanding obligation due to DBP and PNB as of the date of foreclosure is P22,668,537,770.05, more or less. Therefore, defendant APT can, and is still entitled to, collect the outstanding obligations of MMIC to PNB and DBP amounting to P22,668.537,770.05, more or less, with interest thereon as stipulated in the loan documents from the date of foreclosure up to the time they are fully paid less the proportionate liability of DBP as owner of 87% of the total capitalization of MMIC under the FRP. Simply put, DBP shall share in the award of damages to, and in obligations of MMIC in proportion to its 87% equity in the total capital stock of MMIC.
x x x.

As this Committee holds that the FRP is valid, DBPs equity in MMIC is raised to 87%. So pursuant to the above provision of the Compromise and Arbitration Agreement, the 87% equity of DBP is hereby deducted from the actual damages of P19,486,118,654.00 resulting in the net actual damages ofP2,531,635,425.02 plus interest. DISPOSITION WHEREFORE, premises considered, judgment is hereby rendered:

1. Ordering the defendant to pay to the Marinduque Mining and Industrial Corporation, except the DBP, the sum of P2,531,635,425.02 with interest thereon at the legal rate of six per cent (6%) per annum reckoned from August 3, 9, and 24, 1984, pari passu, as and for actual damages. Payment of these actual damages shall be offset by APT from the outstanding and unpaid loans of the MMIC with DBP and PNB, which have not been converted into equity. Should there be any balance due to the MMIC after the offsetting, the same shall be satisfied from the funds representing the purchase price of the sale of the shares of Island Cement Corporation in the amount of P503,000,000.00 held under escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such subsequent escrow agreement that would supercede [sic] it pursuant to paragraph (9) of the Compromise and Arbitration Agreement; 2. Ordering the defendant to pay to the Marinduque Mining and Industrial Corporation, except the DBP, the sum of P13,000,000.00 as and for moral and exemplary damages. Payment of these moral and exemplary damages shall be offset by APT from the outstanding and unpaid loans of MMIC with DBP and PNB, which have not been converted into equity. Should there be any balance due to MMIC after the offsetting, the same shall be satisfied from the funds representing the purchase price of the sale of the shares of Island Cement Corporation in the of P503,000,000.00 held under escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such subsequent escrow agreement that would supercede [sic] it pursuant to paragraph (9) of the Compromise and Arbitration Agreement; 3. Ordering the defendant to pay to the plaintiff, Jesus Cabarrus, Sr., the sum of P10,000,000.00, to be satisfied likewise from the funds held under escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such subsequent escrow agreement that would supercede it, pursuant to paragraph (9) of the Compromise and Arbitration Agreement, as and for moral damages; and 4. Ordering the defendant to pay arbitration costs. This Decision is FINAL and EXECUTORY.
IT IS SO ORDERED.[16] Motions for reconsiderations were filed by both parties, but the same were denied. On October 17, 1994, private respondents filed in the same Civil Case No. 9900 an Application/Motion for Confirmation of Arbitration Award. Petitioner countered with an Opposition and Motion to Vacate Judgment raising the following grounds:

1. The plaintiffs Application/Motion is improperly filed with this branch of the Court, considering that the said motion is neither a part nor the continuation of the proceedings in Civil Case No. 9900 which was dismissed upon motion of the parties. In fact, the defendants in the said Civil Case No. 9900 were the Development Bank of the Philippines and the Philippine National Bank (PNB); 2. Under Section 22 of Rep. Act 876, an arbitration under a contract or submission shall be deemed a special proceedings and a party to the controversy which was arbitrated may apply to the court having jurisdiction, (not necessarily with this Honorable Court) for an order confirming the award; 3. The issues submitted for arbitration have been limited to two: (1) propriety of the plaintiffs filing the derivative suit and (2) the regularity of the foreclosure proceedings. The arbitration award sought to be confirmed herein far exceeded the issues submitted and even granted moral damages to one of the herein plaintiffs; 4. Under Section 24 of Rep. Act 876, the Court must make an order vacating the award where the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual final and definite award upon the subject matter submitted to them was not made.[17]
Private respondents filed a REPLY AND OPPOSITION dated November 10, 1984, arguing that a dismissal of Civil case No. 9900 was merely a qualified dismissal to pave the way for the submission of the

controversy to arbitration, and operated simply as a mere suspension of the proceedings. They denied that the Arbitration Committee had exceeded its powers. In an Order dated November 28, 1994, the trial court confirmed the award of the Arbitration Committee. The dispositive portion of said order reads:

WHEREFORE, premises considered, and in the light of the parties [sic] Compromise and Arbitration Agreement dated October 6, 1992, the Decision of the Arbitration Committee promulgated on November 24, 1993, as affirmed in a Resolution dated July 26, 1994, and finally settled and clarified in the Separate Opinion dated September 2, 1994 of Committee Member Elma, and the pertinent provisions of RA 876,also known as the Arbitration Law, this Court GRANTS PLAINTIFFS APPLICATION AND THUS CONFIRMS THE ARBITRATION AWARD, AND JUDGMENT IS HEREBY RENDERED: (a) Ordering the defendant APT to the Marinduque Mining and Industrial Corporation (MMIC, except the DBP, the sum of P3,811,757,425.00, as and for actual damages, which shall be partially satisfied from the funds held under escrow in the amount of P503,000,000.00 pursuant to the Escrow Agreement dated April 22, 1988. The Balance of the award, after the escrow funds are fully applied, shall be executed against the APT; (b) Ordering the defendant to pay to the MMIC, except the DBP, the sum of P13,000,000.00 as and moral and exemplary damages; (c) Ordering the defendant to pay to Jesus S. Cabarrus, Sr., the sum of P10,000,000.00 as and for moral damages; and (d) Ordering the defendant to pay the herein plaintiffs/applicants/movants the sum of P1,705,410.22 as arbitration costs. In reiteration of the mandates of Stipulation No. 10 and Stipulation No. 8 paragraph 2 of the Compromise and Arbitration Agreement, and the final edict of the Arbitration Committees decision, and with this Courts Confirmation, the issuance of the Arbitration Committees Award shall henceforth be final and executory.
SO ORDERED.[18] On December 27, 1994, petitioner filed its motion for reconsideration of the Order dated November 28, 1994. Private respondents, in turn, submitted their reply and opposition thereto. On January 18, 1995, the trial court handed down its order denying APTs motion for reconsideration for lack of merit and for having been filed out of time. The trial court declared that considering that the defendant APT through counsel, officially and actually received a copy of the Order of this Court dated November 28, 1994 on December 6, 1994, the Motion for Reconsideration thereof filed by the defendant APT on December 27, 1994, or after the lapse of 21 days, was clearly filed beyond the 15-day reglementary period prescribed or provided for by law for the filing of an appeal from final orders, resolutions, awards, judgments or decisions of any court in all cases, and by necessary implication for the filling of a motion for reconsideration thereof. On February 7, 1995, petitioner received private respondents motion for Execution and Appointment of Custodian of Proceeds of Execution dated February 6, 1995. Petitioner thereafter filed with the Court of Appeals a special civil action for certiorari with temporary restraining order and/or preliminary injunction dated February 13, 1996 to annul and declare as void the Orders of the RTC-Makati dated November 28, 1994 and January 18, 1995 for having been issued without or in excess of jurisdiction and/or with grave abuse of discretion.[19] As ground therefor, petitioner alleged that:
I

THE RESPONDENT JUDGE HAS NOT VALIDLY ACQUIRED JURISDICTION MUCH LESS, HAS THE COURT AUTHORITY, TO CONFIRM THE ARBITRAL AWARD CONSIDERING THAT THE ORIGINAL CASE, CIVIL CASE NO. 9900, HAD PREVIOUSLY BEEN DISMISSED.

II

THE RESPONDENT JUDGE COMMITTED GRAVE ABUSE OF DISCRETION AND ACTED WITHOUT OR IN EXCESS OF JURISDICTION, IN ISSUING THE QUESTIONED ORDERS CONFIRMING THE ARBITRAL AWARD AND DENYING THE MOTION FOR RECONSIDERATION OF ORDER OF AWARD.
III

THE RESPONDENT JUDGE GROSSLY ABUSED HIS DISCRETION AND ACTED WITHOUT OR IN EXCESS OF AND WITHOUT JURISDICTION IN RECKONING THE COUNTING OF THE PERIOD TO FILE MOTION FOR RECONSIDERATION, NOT FROM THE DATE OF SERVICE OF THE COURTS COPY CONFIRMING THE AWARD, BUT FROM RECEIPT OF A XEROX COPY OF WHAT PRESUMABLY IS THE OPPOSING COUNSELS COPY THEREOF.[20] On July 12, 1995, the Court of Appeals, through its fifth Division denied due course and dismissed the petition for certiorari. Hence, the instant petition for review on certiorari imputing to the Court of Appeals the following errors.

ASSIGNMENT OF ERRORS
I

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE MAKATI REGIONAL TRIAL COURT, BRANCH 62 WHICH HAS PREVIOULSY DISMISSED CIVIL CASE NO. 9900 HAD LOST JURISDICTION TO CONFIRM THE ARBITRAL AWARD UNDER THE SAME CIVIL CASE AND IN NOT RULING THAT THE APPLICATION FOR CONFIRMATION SHOULD HAVE BEEN FILED AS A NEW CASE TO BE RAFFLED OFF AMONG THE DIFFERENT BRANCHES OF THE RTC.
II

THE COURT OF APPEALS LIKEWISE ERRED IN HOLDING THAT PETITIONER WAS ESTOPPED FROM QUESTIONING THE ARBITRATION AWARD, WHEN PETITIONER QUESTIONED THE JURISDICTION OF THE RTC-MAKATI, BRANCH 62 AND AT THE SAME TIME MOVED TO VACATE THE ARBITRAL AWARD.
III

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE RESPONDENT TRIAL COURT SHOULD HAVE EITHER DISMISSED/DENIED PRIVATE RESPONDENTS MOTION/PETITION FOR CONFIRMATION OF ARBITRATION AWARD AND/OR SHOULD HAVE CONSIDERED THE MERITS OF THE MOTION TO VACATE ARBITRAL AWARD.
IV

THE COURT OF APPEALS ERRED IN NOT TREATING PETITIONER APTS PETITION FOR CERTIORARI AS AN APPEAL TAKEN FROM THE ORDER CONFIRMING THE AWARD
V

THE COURT OF APPEALS ERRED IN NOT RULING ON THE LEGAL ISSUE OF WHEN TO RECKON THE COUNTING OF THE PERIOD TO FILE A MOTION FOR RECONSIDERATION.[21] The petition is impressed with merit.
I

The RTC of Makati, Branch 62, did not have jurisdiction to confirm the arbitral award

The use of the term dismissed is not a mere semantic imperfection. The dispositive portion of the Order of the trial court dated October 14, 1992 stated in no uncertain terms: 4. The Complaint is hereby DISMISSED.[22] The term dismiss has a precise definition in law. To dispose of an action suit, or motion without trial on the issues involved. Conclude, discontinue, terminate, quash.[23] Admittedly the correct procedure was for the parties to go back to the court where the case was pending to have the award confirmed by said court. However, Branch 62 made the fatal mistake of issuing a final order dismissing the case. While Branch 62 should have merely suspended the case and not dismissed it,[24] neither of the parties questioned said dismissal. Thus, both parties as well as said court are bound by such error. It is erroneous then to argue, as private respondents do, that petitioner APT was charged with the knowledge that the case was merely stayed until arbitration finished, as again, the order of Branch 62 in very clear terms stated that the complaint was dismissed. By its own action, Branch 62 had lost jurisdiction over the vase. It could not have validly reacquired jurisdiction over the said case on mere motion of one of the parties. The Rules of Court is specific on how a new case may be initiated and such is not done by mere motion in a particular branch of the RTC. Consequently, as there was no pending action to speak of, the petition to confirm the arbitral award should have been filed as a new case and raffled accordingly to one of the branches of the Regional Trial Court.
II

Petitioner was not estopped from questioning the jurisdiction of Branch 62 of the RTC of Makati.

The Court of Appeals ruled that APT was already estopped to question the jurisdiction of the RTC to confirm the arbitral award because it sought affirmative relief in said court by asking that the arbitral award be vacated. The rule is that Where the court itself clearly has no jurisdiction over the subject matter or the nature of the action, the invocation of this defense may de done at any time. It is neither for the courts nor for the parties to violate or disregard that rule, let alone to confer that jurisdiction, this matter being legislative in character.[25] As a rule the, neither waiver nor estoppel shall apply to confer jurisdiction upon a court barring highly meritorious and exceptional circumstances.[26] One such exception was enunciated in Tijam vs. Sibonghanoy,[27] where it was held that after voluntarily submitting a cause and encountering an adverse decision on the merits, it is too late for the loser to question the jurisdiction or power of the court." Petitioners situation is different because from the outset, it has consistently held the position that the RTC, Branch 62 had no jurisdiction to confirm the arbitral award; consequently, it cannot be said that it was estopped from questioning the RTCs jurisdiction. Petitioners prayer for the setting aside of the arbitral award was not inconsistent with its disavowal of the courts jurisdiction.
III

Appeal of petitioner to the Court of Appeals thru certiorari under Rule 65 was proper.

The Court of Appeals in dismissing APTs petition for certiorari upheld the trial courts denial of APTs motion for reconsideration of the trial courts order confirming the arbitral award, on the ground that said motion was filed beyond the 15-day reglementary period; consequently, the petition for certiorari could not be resorted to as substitute to the lost right of appeal. We do not agree. Section 29 of Republic Act No. 876,[28] provides that:

x x x An appeal may be taken from an order made in a proceeding under this Act, or from a judgment entered upon an award through certiorariproceedings, but such appeals shall be limited to question of law. x x x.

The aforequoted provision, however, does not preclude a party aggrieved by the arbitral award from resorting to the extraordinary remedy of certiorariunder Rule 65 of the Rules of Court where, as in this case, the Regional Trial Court to which the award was submitted for confirmation has acted without jurisdiction, or with grave abuse of discretion and there is no appeal, nor any plain, speedy remedy in the course of law. Thus, Section 1 of Rule 65 provides:

SEC 1. Petition for Certiorari: - When any tribunal, board or officer exercising judicial functions, has acted without or in excess of its or his jurisdiction, or with grave abuse of discretion and there is no appeal, nor any plain, speedy, and adequate remedy in the ordinary course of law, a person aggrieved thereby may file a verified petition in the proper court alleging the facts with certainty and praying that judgment be rendered annulling or modifying the proceedings, as the law requires, of such tribunal, board or officer.
In the instant case, the respondent court erred in dismissing the special civil action for certiorari, it being from the pleadings and the evidence that the trial court lacked jurisdiction and/or committed grave abuse of discretion in taking cognizance of private respondent motion to confirm the arbitral award and, worse, in confirming said award which is grossly and patently not in accord with the arbitration agreement, as will be hereinafter demonstrated.
IV

The nature and limits of the Arbitrators powers.

As a rule, the award of an arbitrator cannot be set aside for mere errors of judgment either as to the law or as to the facts.[29] Courts are without power to amend or overrule merely because of disagreement with matters of law or facts determined by the arbitrators.[30] They will not review the findings of law and fact contained in an award, and will not undertake to substitute their judgment for that of the arbitrators, since any other rule would make an award the commencement, not the end, of litigation.[31] Errors of law and fact, or an erroneous decision of matters submitted to the judgment of the arbitrators, are insufficient to invalidate an award fairly and honestly made.[32] Judicial review of an arbitration is, thus, more limited than judicial review of a trial.[33] Nonetheless, the arbitrators awards is not absolute and without exceptions. The arbitrators cannot resolve issues beyond the scope of the submission agreement.[34] The parties to such an agreement are bound by the arbitrators award only to the extent and in the manner prescribed by the contract and only if the award is rendered in conformity thereto.[35] Thus, Sections 24 and 25 of the Arbitration Law provide grounds for vacating, rescinding or modifying an arbitration award. Where the conditions described in Articles 2038,[36] 2039[37] and 2040[38] of the Civil Code applicable to compromises and arbitration are attendant, the arbitration award may also be annulled. In Chung Fu Industries (Phils.) vs. Court of Appeals,[39] we held:

x x x. It is stated explicitly under Art. 2044 of the Civil Code that the finality of the arbitrators awards is not absolute and without exceptions. Where the conditions described in Articles 2038, 2039, and 2040 applicable to both compromises and arbitration are obtaining, the arbitrators' award may be annulled or rescinded. Additionally, under Sections 24 and 25, of the Arbitration Law, there are grounds for vacating, modifying or rescinding an arbitrators award. Thus, if and when the factual circumstances referred to in the above-cited provisions are present, judicial review of the award is properly warranted.
Accordingly, Section 20 of R.A. 876 provides:

SEC. 20. Form and contents of award. The award must be made in writing and signed and acknowledged by a majority of the arbitrators, if more than one; and by the sole arbitrator, if there is only one. Each party shall be furnished with a copy of the award. The arbitrators in their award may grant any remedy or relief which they deem just and equitable and within the scope of the agreement of the parties, which shall include, but not be limited to, the specific performance of a contract.
xxx

The arbitrators shall have the power to decide only those matters which have been submitted to them. The terms of the award shall be confined to such disputes. (Underscoring ours).
xxx. Section 24 of the same law enumerating the grounds for vacating an award states:

SEC. 24. Grounds for vacating award. In any one of the following cases, the court must make an order vacating the award upon the petition of any party to the controversy when such party proves affirmatively that in the arbitration proceedings: (a) The award was procured by corruption, fraud, or other undue means; or (b) That there was evident partiality or corruption in arbitrators or any of them; or (c) That the arbitrators were guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; that one or more of the arbitrators was disqualified to act as such under section nine hereof, and willfully refrained from disclosing such disqualifications or any other misbehavior by which the rights of any party have been materially prejudiced; or (d) That the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual, final and definite award upon the subject matter submitted to them was not made. (Underscoring ours).
xxx. Section 25 which enumerates the grounds for modifying the award provides:

SEC. 25. Grounds for modifying or correcting award In anyone of the following cases, the court must make an order modifying or correcting the award, upon the application of any party to the controversy which was arbitrated: (a) Where there was an evident miscalculation of figures, or an evident mistake in the description of any person, thing or property referred to in the award; or (b) Where the arbitrators have awarded upon a matter not submitted to them, not affecting the merits of the decision upon the matter submitted; or (c) Where the award is imperfect in a matter of form not affecting the merits of the controversy, and if it had been a commissioners report, the defect could have been amended or disregarded by the court.
x x x. Finally, it should be stressed that while a court is precluded from overturning an award for errors in determination of factual issues, nevertheless, if an examination of the record reveals no support whatever for the arbitrators determinations, their award must be vacated.[40] In the same manner, an award must be vacated if it was made in manifest disregard of the law.[41] Against the backdrop of the foregoing provisions and principles, we find that the arbitrators came out with an award in excess of their powers and palpably devoid of factual and legal basis.
V

There was no financial structuring program; foreclosure of mortgage was fully justified.

The point need not be belabored that PNB and DBP had the legitimate right to foreclose of the mortgages of MMIC whose obligations were past due. The foreclosure was not a wrongful act of the banks and, therefore, could not be the basis of any award of damages. There was no financial restructuring agreement to speak of that could have constituted an impediment to the exercise of the banks right to foreclose.

As correctly stated by Mr. Jose C. Sison, a member of the Arbitration Committee who wrote a separate opinion:

1. The various loans and advances made by DBP and PNB to MMIC have become overdue and remain unpaid. The fact that a FRP was drawn up is enough to establish that MMIC has not been complying with the terms of the loan agreement. Restructuring simply connotes that the obligations are past due that is why it is restructurable; 2. When MMIC thru its board and the stockholders agreed and adopted the FRP, it only means that MMIC had been informed or notified that its obligations were past due and that foreclosure is forthcoming; 3. At that stage, MMIC also knew that PNB-DBP had the option of either approving the FRP or proceeding with the foreclosure. Cabarrus, who filed this case supposedly in behalf of MMIC should have insisted on the FRP. Yet Cabarrus himself opposed the FRP; 4. So when PNB-DBP proceeded with the foreclosure, it was done without bad faith but with honest and sincere belief that foreclosure was the only alternative; a decision further explained by Dr. Placido Mapa who testified that foreclosure was, in the judgment of PNB, the best move to save MMIC itself.
Q : Now in this portion of Exh. L which was marked as Exh. L-1, and we adopted as Exh. 37-A for the respondent, may I know from you, Dr. Mapa what you meant by that the decision to foreclose was neither precipitate nor arbitrary? A : Well, it is not a whimsical decision but rather decision arrived at after weighty considerations of the information that we have received, and listening to the prospects which reported to us that we had assumed would be the premises of the financial rehabilitation plan was not materialized nor expected to materialized. : And this statement that it was premised upon the known fact that means, it was referring to the decision to foreclose, was premised upon the known fact that the rehabilitation plan earlier approved by the stockholders was no longer feasible, just what is meant by no longer feasible? : Because the revenue that they were counting on to make the rehabilitation plan possible, was not anymore expected to be forthcoming because it will result in a short fall compared to the prices that were actually taking place in the market. : And I supposed that was you were referring to when you stated that the production targets and assumed prices of MMICs products, among other projections, used in the financial reorganization program that will make it viable were not met nor expected to be met? : Yes.

xxx

Which brings me to my last point in this separate opinion. Was PNB and DBP absolutely unjustified in foreclosing the mortgages? In this connection, it can readily be seen and it cannot quite be denied that MMIC accounts in PNBDBP were past due. The drawing up of the FRP is the best proof of this. When MMIC adopted a restructuring program for its loan, it only meant that these loans were already due and unpaid. If these loans were restructurable because they were already due and unpaid, they are likewise forecloseable. The option is with the PNB-DBP on what steps to take.
The mere fact that MMIC adopted the FRP does not mean that DBP-PNB lost the option to foreclose. Neither does it mean that the FRP is legally binding and implementable. It must be pointed that said FRP will, in effect, supersede the existing and past due loans of MMIC with PNB-DBP. It will become the new loan agreement between the lenders and the borrowers. As in all other contracts, there must therefore be a meeting of minds of the parties; the PNB and DBP must have to validly adopt and ratify such FRP before they can be bound by it; before it can be implemented. In this case, not an iota of proof has been presented by the PLAINTIFFS showing that PNB and DBP ratified and adopted the FRP. PLAINTIFFS simply relied on a legal doctrine of promissory estoppel to support its allegation in this regard.[42]

Moreover, PNB and DBP had to initiate foreclosure proceedings as mandated by P.D. No. 385, which took effect on January 31, 1974. The decree requires government financial institutions to foreclose collaterals for loans where the arrearages amount to 20% of the total outstanding obligations. The pertinent provisions of said decree read as follows:

SEC. 1. It shall be mandatory for government financial institutions, after the lapse of sixty (60) days from the issuance of this Decree to foreclose the collaterals and/or securities for any loan, credit, accommodations, and/or guarantees granted by them whenever the arrearages on such account, including accrued interest and other charges, amount to at least twenty percent (20%) of the total outstanding obligations, including interest and other charges, as appearing in the books of account and/or related records of the financial institutions concerned. This shall be without prejudice to the exercise by the government financial institutions of such rights and/or remedies available to them under their respective contracts with their debtor, including the right to foreclosure on loans, credits, accommodations and/or guarantees on which the arrearages are less than twenty percent (20%). SEC. 2. No restraining order, temporary or permanent injunction shall be issued by the court against any government financial institution in any action taken by such institution in compliance with the mandatory foreclosure provided in Section 1 hereof, whether such restraining order, temporary or permanent injunction is sought by the borrower(s) or any third party or parties, except after due hearing in which it is established by the borrower and admitted by the government financial institution concerned that twenty percent (20%) of the outstanding arrearages has been paid after the filing of foreclosure proceedings. (Underscoring supplied.)
Private respondents thesis that the foreclosure proceedings were null and void because of lack of publication in the newspaper is nothing more than a mere unsubstantiated allegation not borne out by the evidence. In any case, a disputable presumption exists in favor of petitioner that official duty has been regularly performed and ordinary course of business has been followed.[43]
VI

Not only was the foreclosure rightfully exercised by the PNB and DBP, but also, from the facts of the case, the arbitrators in making the award went beyond the arbitration agreement. In their complaint filed before the trial court, private respondent Cabarrus, et al. prayed for judgment in their favor:

1. Declaring the foreclosure effected by the defendants DBP and PNB on the assets of MMIC null and void and directing said defendants to restore the foreclosed assets to the possession of MMIC, to render an accounting of their use and/or operation of said assets and to indemnify MMIC for the loss occasioned by its dispossession or the deterioration thereof; 2. Directing the defendants DBP and PNB to honor and perform their commitments under the financial reorganization plan which was approved at the annual stockholders meeting of MMIC on 30 April 1984; 3. Condemning the defendants DBP and PNB, jointly and severally to pay the plaintiffs actual damages consisting of the loss of value of their investment amounting to not less than P80,000,000.00, the damnum emerges and lucrum cessans in such amount as may be establish during the trial, moral damages in such amount as this Honorable Court may deem just and equitable in the premises, exemplary damages in such amount as this Honorable Court may consider appropriate for the purpose of setting an example for the public good, attorneys fees and litigation expenses in such amounts as may be proven during the trial, and the costs legally taxable in this litigation. Further, Plaintiffs pray for such other reliefs as may be just and equitable in the premises.[44]
Upon submission for arbitration, the Compromise and Arbitration Agreement of the parties clearly and explicitly defined and limited the issues to the following:

(a) whether PLAINTIFFS have the capacity or the personality to institute this derivative suit in behalf of the MMIC or its directors;

(b) whether or not the actions leading to, and including, the PNB-DBP foreclosure of the MMIC assets were proper, valid and in good faith.[45] Item No. 8 of the Agreement provides for the period by which the Committee was to render its decision, as well as the nature thereof:
8. Decision. The committee shall issue a decision on the controversy not later than six (6) months from the date of its constitution.

In the event the committee finds that PLAINTIFFS have the personality to file this suit and extrajudicial foreclosure of the MMIC assets wrongful, it shall make an award in favor of the PLAINTIFFS (excluding DBP), in an amount as may be established or warranted by the evidence which shall be payable in Philippine Pesos at the time of the award. Such award shall be paid by the APT or its successor-in-interest within sixty (60) days from the date of the award in accordance with the provisions of par. 9 hereunder. x x x. The PLAINTIFFS remedies under this Section shall be in addition to other remedies that may be available to the PLAINTIFFS, all such remedies being cumulative and not exclusive of each other.
On the other hand, in case the arbitration committee finds that PLAINTIFFS have no capacity to sue and/or that the extra-judicial foreclosure is valid and legal, it shall also make an award in favor of APT based on the counterclaims of DBP and PNB in an amount as may be established or warranted by the evidence. This decision of the arbitration committee in favor of APT shall likewise finally settle all issues regarding the foreclosure of the MMIC assets so that the funds held in escrow mentioned in par. 9 hereunder will thus be released in full in favor of APT.[46] The clear and explicit terms of the submission notwithstanding, the Arbitration Committee clearly exceeded its powers or so imperfectly executed them: (a) in ruling on and declaring valid the FRP; (b) in awarding damages to MMIC which was not a party to the derivative suit; and (c) in awarding moral damages to Jesus S. Cabarrus, Sr.
The arbiters overstepped their powers by declaring as valid proposed Financial Restructuring Program.

The Arbitration Committee went beyond its mandate and thus acted in excess of its powers when it ruled on the validity of, and gave effect to, the proposed FRP. In submitting the case to arbitration, the parties had mutually agreed to limit the issue to the validity of the foreclosure and to transform the reliefs prayed for therein into pure money claims. There is absolutely no evidence that the DBP and PNB agreed, expressly or impliedly, to the proposed FRP. It cannot be overemphasized that a FRP, as a contract, requires the consent of the parties thereto.[47] The contract must bind both contracting parties.[48] Private respondents even by their own admission recognized that the FRP had yet not been carried out and that the loans of MMIC had not yet been converted into equity.[49] However, the arbitration Committee not only declared the FRP valid and effective, but also converted the loans of MMIC into equity raising the equity of DBP to 87%.[50] The Arbitration Committee ruled that there was a commitment to carry out the FRP[51] on the ground of promissory estoppel.

Similarly, the principle of promissory estoppel applies in the present case considering as we observed, the fact that the government (that is Alfredo Velayo) was the FRPs proponent. Although the plaintiffs are agreed that the government executed no formal agreement, the fact remains that the DBP itself which made representations that the FRP constituted a way out for MMIC. The Committee believes that although the DBP did not formally agree (assuming that the board and stockholders approvals were not formal enough), it is bound nonetheless if only for its conspicuous representations.

Although the DBP sat in the board in a dual capacity-as holder of 36% of MMICs equity (at that time) and as MMICs creditor-the DBP can not validly renege on its commitments simply because at the same time, it held interest against the MMIC. The fact, of course, is that as APT itself asserted, the FRP was being carried out although apparently, it would supposedly fall short of its targets. Assuming that the FRP would fail to meet its targets, the DBP-and so this Committee holds-can not, in any event, brook any denial that it was bound to begin with, and the fact is that adequate or not (the FRP), the government is still bound by virtue of its acts.
The FRP, of course, did not itself promise a resounding success, although it raised DBPs equity in MMIC to 87%. It is not excuse, however, for the government to deny its commitments.[52] Atty. Sison, however, did not agree and correctly observed that: But the doctrine of promissory estoppel can hardly find application here. The nearest that there can be said of any estoppel being present in this case is the fact that the board of MMIC was, at the time the FRP was adopted, mostly composed of PNB and DBP representatives. But those representatives, singly or collectively, are not themselves PNB or DBP. They are individuals with personalities separate and distinct from the banks they represent. PNB and DBP have different boards with different members who may have different decisions. It is unfair to impose upon them the decision of the board of another company and thus pin them down on the equitable principle of estoppel. Estoppel is a principle based on equity and it is certainly not equitable to apply it in this particular situation. Otherwise the rights of entirely separate, distinct and autonomous legal entities like PNB and DBP with thousands of stockholders will be suppressed and rendered nugatory.[53] As a rule, a corporation exercises its powers, including the power to enter into contracts, through its board of directors. While a corporation may appoint agents to enter into a contract in its behalf, the agent, should not exceed his authority.[54] In the case at bar, there was no showing that the representatives of PNB and DBP in MMIC even had the requisite authority to enter into a debt-for-equity swap. And if they had such authority, there was no showing that the banks, through their board of directors, had ratified the FRP. Further, how could the MMIC be entitled to a big amount of moral damages when its credit reputation was not exactly something to be considered sound and wholesome. Under Article 2217 of the Civil Code, moral damages include besmirched reputation which a corporation may possibly suffer. A corporation whose overdue and unpaid debts to the Government alone reached a tremendous amount of P22 Billion Pesos cannot certainly have a solid business reputation to brag about. As Atty. Sison in his separate opinion persuasively put it: Besides, it is not yet a well settled jurisprudence that corporations are entitled to moral damages. While the Supreme Court may have awarded moral damages to a corporation for besmirched reputation in Mambulao vs. PNB 22 SCRA 359, such ruling cannot find application in this case. It must be pointed out that when the supposed wrongful act of foreclosure was done, MMICs credit reputation was no longer a desirable one. The company then was already suffering from serious financial crisis which definitely projects an image not compatible with good and wholesome reputation. So it could not be said that there was a reputation besmirches by the act of foreclosure.[55]
The arbiters exceeded their authority in awarding damages to MMIC, which is not impleaded as a party to the derivative suit.

Civil Code No. 9900 filed before the RTC being a derivative suit, MMIC should have been impleaded as a party. It was not joined as a party plaintiff or party defendant at any stage of the proceedings. As it is, the award of damages to MMIC, which was not a party before the Arbitration Committee, is a complete nullity. Settled is the doctrine that in a derivative suit, the corporation is the real party in interest while the stockholder filing suit for the corporations behalf is only nominal party. The corporation should be included as a party in the suit. An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds stock in order to protect or vindicate corporate rights, whenever the officials of the corporation refuse to sue, or are the ones to be sued or hold the control of the corporation. In such actions, the suing stockholder is regarded as a nominal party, with the corporation as the real party in interest. x x x.[56]

It is a condition sine qua non that the corporation be impleaded as a party becausex x x. Not only is the corporation an indispensible party, but it is also the present rule that it must be served with process. The reason given is that the judgment must be made binding upon the corporation and in order that the corporation may get the benefit of the suit and may not bring a subsequent suit against the same defendants for the same cause of action. In other words the corporations must be joined as party because it is its cause of action that is being litigated and because judgment must be a res ajudicata against it.[57] The reasons given for not allowing direct individual suit are:

(1) x x x the universally recognized doctrine that a stockholder in a corporation has no title legal or equitable to the corporate property; that both of these are in the corporation itself for the benefit of the stockholders. In other words, to allow shareholders to sue separately would conflict with the separate corporate entity principle; (2) x x x that the prior rights of the creditors may be prejudiced. Thus, our Supreme Court held in the case of Evangelista v. Santos, that the stockholders may not directly claim those damages for themselves for that would result in the appropriation by, and the distribution among them of part of the corporate assets before the dissolution of the corporation and the liquidation of its debts and liabilities, something which cannot be legally done in view of section 16 of the Corporation Law xxx; (3) the filing of such suits would conflict with the duty of the management to sue for the protection of all concerned; (4) it would produce wasteful multiplicity of suits; and
(5) it would involve confusion in a ascertaining the effect of partial recovery by an individual on the damages recoverable by the corporation for the same act.[58] If at all an award was due MMIC, which it was not, the same should have been given sans deduction, regardless of whether or not the party liable had equity in the corporation, in view of the doctrine that a corporation has a personality separate and distinct from its individual stockholders or members. DBPs alleged equity, even if it were indeed 87%, did not give it ownership over any corporate property, including the monetary award, its right over said corporate property being a mere expectancy or inchoate right.[59]Notably, the stipulation even had the effect of prejudicing the other creditors of MMIC.
The arbiters, likewise, exceeded their authority in awarding moral damages to Jesus Cabarrus, Sr.

It is perplexing how the Arbitration Committee can in one breath rule that the case before it is a derivative suit, in which the aggrieved party or the real party in interest is supposedly the MMIC, and at the same time award moral damages to an individual stockholder, to wit:

WHEREFORE, premises considered, judgment is hereby rendered:


xxx.

3. Ordering the defendant to pay to the plaintiff, Jesus S. Cabarrus, Sr., the sum of P10,000,000.00, to be satisfied likewise from the funds held under escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such subsequent escrow agreement that would supersede it, pursuant to paragraph (9), Compromise and Arbitration Agreement, as and for moral damages; x x x [60]
The majority decision of the Arbitration Committee sought to justify its award of moral damages to Jesus S. Cabarrus, Sr. by pointing to the fact that among the assets seized by the government were assets belonging to Industrial Enterprise Inc. (IEI), of which Cabarrus is the majority stockholder. It then acknowledge that Cabarrus had already recovered said assets in the RTC, but that he won no more than actual damages. While the Committee cannot possibly speak for the RTC, there is no doubt that Jesus S. Cabarrus, Sr., suffered moral

damages on account of that specific foreclosure, damages the Committee believes and so holds, he Jesus S. Cabarrus, Sr., may be awarded in this proceeding.[61] Cabarrus cause of action for the seizure of the assets belonging to IEI, of which he is the majority stockholder, having been ventilated in a complaint he previously filed with the RTC, from which he obtained actual damages, he was barred res judicata from filing a similar case in another court, this time asking for moral damages which he failed to get from the earlier case.[62] Worse, private respondents violated the rule against non-forum shopping. It is a basic postulate that s corporation has a personality separate and distinct from its stockholders. [63] The properties foreclosed belonged to MMIC, not to its stockholders. Hence, if wrong was committed in the foreclosure, it was done against the corporation. Another reason is that Jesus S. Cabarrus, Sr. cannot directly claim those damages for himself that would result in the appropriation by, and the distribution to, him part of the corporations assets before the dissolution of the corporation and the liquidation of its debts and liabilities. The Arbitration Committee, therefore, passed upon matters not submitted to it. Moreover, said cause of action had already been decided in a separate case. It is thus quite patent that the arbitration committee exceeded the authority granted to it by the parties Compromise and Arbitration Agreement by awarding moral damages to Jesus S. Cabarrus, Sr. Atty. Sison, in his separate opinion, likewise expressed befuddlement to the award of moral damages to Jesus S. Cabarrus, Sr.:

It is clear and it cannot be disputed therefore that based on these stipulated issues, the parties themselves have agreed that the basic ingredient of the causes of action in this case is the wrong committed on the corporation (MMIC) for the alleged illegal foreclosure of its assets. By agreeing to this stipulation,PLAINTIFFS themselves (Cabarrus, et al.) admit that the cause of action pertains only to the corporation (MMIC) and that they are filing this for and in behalf of MMIC. Perforce this has to be so because it is the basic rule in Corporation Law that the shareholders have no title, legal or equitable to the property which is owned by the corporation (13 Am. Jur. 165; Pascual vs. Oresco, 14 Phil. 83). In Ganzon & Sons vs. Register of Deeds, 6 SCRA 373, the rule has been reiterated that a stockholder is not the co-owner of corporate property. Since the property or assets foreclosed belongs [sic] to MMIC, the wrong committed, if any, is done against the corporation. There is therefore no direct injury or direct violation of the rights of Cabarrus et al. There is no way, legal or equitable, by which Cabarrus et al. could recover damages in their personal capacities even assuming or just because the foreclosure is improper or invalid. The Compromise and Arbitration Agreement itself and the elementary principles of Corporation Law say so. Therefore, I am constrained to dissent from the award of moral damages to Cabarrus.[64]
From the foregoing discussions, it is evident that, not only did the arbitration committee exceed its powers or so imperfectly execute them, but also, its findings and conclusions are palpably devoid of any factual basis and in manifest disregard of the law. We do not find it necessary to remand this case to the RTC for appropriate action. The pleadings and memoranda filed with this Court, as well as in the Court of Appeals, raised and extensively discussed the issues on the merits. Such being the case, there is sufficient basis for us to resolve the controversy between the parties anchored on the records and the pleadings before us.[65] WHEREFORE, the Decision of the Court of Appeals dated July 17, 1995, as well as the Orders of the Regional Trial Court of Makati, Branch 62, dated November 28, 1994 and January 19, 1995, is hereby REVERSED and SET ASIDE, and the decision of the Arbitration Committee is hereby VACATED. SO ORDERED

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

G.R. No. 110434 December 13, 1993 HI-PRECISION STEEL CENTER, INC., petitioner, vs. LIM KIM STEEL BUILDERS, INC., and CONSTRUCTION INDUSTRY ARBITRATION COMMISSION,respondents. Felix Q. Vinluan and Siguion Reyna, Montecillo & Ongsiako for petitioner. De Castro & Cagampang Law Offices for Lim Kim teel Builders, Inc. RESOLUTION

FELICIANO, J.: On 18 June 1993, a "Petition for Extension to File Petition for Review" 1 was filed before the Court, petitioner Hi-Precision Steel Center, Inc. ("Hi-Precision") stating that it intended to file a Petition for Review on Certiorari in respect of the 13 November 1992 Award 2 and 13 May 1993 Order 3 of public respondent Construction Industry Arbitration Commission ("CIAC") in Arbitration Case No. 13-90. The Petition (really a Motion) prayed for an extension of thirty (30) days or until 21 July 1993 within which to file a Petition for Review. An opposition 4 to the Motion was filed by private respondent Lim Kim Steel Builders, Inc. ("Steel Builders") on 5 July 1993. On the same day, however, the Court issued a Resolution 5 granting the Motion with a warning that no further extension would be given. The Opposition, the subsequent Reply 6 of petitioner filed on 20 July 1993 and the Petition for Review 7 dated 21 July 1993, were noted by the Court in its Resolution 8 of 28 July 1993. The Court also required private respondent Steel Builders to file a Comment on the Petition for Review and Steel Builders complied. The Petition prays for issuance of a temporary restraining order 9 to stay the execution of the assailed Order and Award in favor of Steel Builders, which application the Court merely noted, as it did subsequent Urgent Motions for a temporary restraining order. 10 Petitioner Hi-Precision entered into a contract with private respondent Steel Builders under which the latter as Contractor was to complete a P21 Million construction project owned by the former within a period of 153 days, i.e.from 8 May 1990 to 8 October 1990. The project completion date was first moved to 4 November 1990. On that date, however, only 75.8674% of the project was actually completed. Petitioner attributed this non-completion to Steel Builders which allegedly had frequently incurred delays during the original contract period and the extension period. Upon the other hand, Steel Builders insisted that the delays in the project were either excusable or due to Hi-Precision's own fault and issuance of change orders. The project was taken over on 7 November 1990, and eventually completed on February 1991, by Hi-Precision. Steel Builders filed a "Request for Adjudication" with public respondent CIAC. In its Complaint filed with the CIAC, Steel Builders sought payment of its unpaid progress buildings, alleged

unearned profits and other receivables. Hi-Precision, upon the other hand, in its Answer and Amended Answer, claimed actual and liquidated damages, reimbursement of alleged additional costs it had incurred in order to complete the project and attorney's fees. The CIAC formed an Arbitral Tribunal with three (3) members, two (2) being appointed upon nomination of Hi-Precision and Steel Builders, respectively; the third member (the Chairman) was appointed by the CIAC as a common nominee of the two (2) parties. On the Chairman was a lawyer. After the arbitration proceeding, the Arbitral Tribunal rendered a unanimous Award dated 13 November 1992, the dispositive portion of which reads as follows: WHEREFORE, premises considered, the Owner [petitioner Hi-Precision] is ordered to pay the Contractor [private respondent Steel Builders] the amount of P6,400,717.83 and all other claims of the parties against each other are deemed compensated and offset. No pronouncement as to costs.
The Parties are enjoined to abide by the award.
11

Upon motions for reconsideration filed, respectively, by Hi-Precision and Steel Builders, the Arbitral Tribunal issued an Order dated 13 May 1993 which reduced the net amount due to contractor Steel Builders to P6,115,285.83. 12 In its Award, the Arbitral Tribunal stated that it was guided by Articles 1169, 1192 and 2215 of the Civil Code. With such guidance, the arbitrators concluded that (a) both parties were at fault, though the Tribunal could not point out which of the parties was the first infractor; and (b) the breaches by one party affected the discharge of the reciprocal obligations of the other party. With mutual fault as a principal premise, the Arbitral Tribunal denied (a) petitioner's claims for the additional costs allegedly incurred to complete the project; and (b) private respondent's claim for profit it had failed to earn because of petitioner's take over of the project. The Tribunal then proceeded to resolve the remaining specific claims of the parties. In disposing of these multiple, detailed claims the Arbitral Tribunal, in respect of one or more of the respective claims of the parties: (a) averaged out the conflicting amounts and percentages claimed by the parties; 13 (b) found neither basis nor justification for a particular claim; 14 (c) found the evidence submitted in support of particular claims either weak or non-existent;15 (d) took account of the admissions of liability in respect of particular claims; 16 (e) relied on its own expertise in resolving particular claims; 17 and (f) applied a "principle of equity" in requiring each party to bear its own loss resulting or arising from mutual fault or delay (compensation morae). 18 Petitioner Hi-Precision now asks this Court to set aside the Award, contending basically that it was the contractor Steel Builders who had defaulted on its contractual undertakings and so could not be the injured party and should not be allowed to recover any losses it may have incurred in the project. Petitioner Hi-Precision insists it is still entitled to damages, and claims that the Arbitral Tribunal committed grave abuse of discretion when it allowed certain claims by Steel Builders and offset them against claims of Hi-Precision. A preliminary point needs to be made. We note that the Arbitral Tribunal has not been impleaded as a respondent in the Petition at bar. The CIAC has indeed been impleaded; however, the Arbitral Award was not rendered by the CIAC, but rather by the Arbitral Tribunal. Moreover, under Section 20 of Executive Order No. 1008, dated 4 February 1985, as amended, it is the Arbitral Tribunal, or the single Arbitrator, with the concurrence of the CIAC, which issues the writ of execution requiring any sheriff or other proper officer to execute the award. We consider that the Arbitral Tribunal which rendered the Award sought to be reviewed and set aside, should be impleaded even though the defense of its Award would presumably have to be carried by the prevailing party.

Petitioner Hi-Precision apparently seeks review of both under Rule 45 and Rule 65 of the Rules of Court. 19 We do not find it necessary to rule which of the two: a petition for review under Rule 45 or a petition for certiorari under Rule 65 is necessary under Executive Order No. 1008, as amended; this issue was, in any case, not squarely raised by either party and has not been properly and adequately litigated. In its Petition, Hi-Precision purports to raise "legal issues," and in presenting these issues, prefaced each with a creative formula: (1) The public respondent [should be the "Arbitral Tribunal'] committed serious error in law, if not grave abuse of discretion, when it failed to strictly apply Article 1191, New Civil Code, against the contractor . . .; (2) The public respondent committee serious error in law, if not grave abuse of discretion, when it failed to rule in favor of the owner, now petitioner herein, all the awards it claimed on arbitration, and when it nonetheless persisted in its awards of damages in favor of the respondent. . . .; (3) The public respondent committed serious error in law, if not grave abuse of discretion, for its abject failure to apply the doctrine of waiver, estoppel against the contractor, the private respondent herein, when it agreed on November 16, 1990 to award termination of the contract and the owner's takeover of the project . . .; (4) The public respondent committed serious error in law, if not grave abuse of discretion, when it did not enforce the law between the parties, the "technical specification[s]" which is one of the contract documents, particularly to par. (a), sub-part 3.01, part 3, Sec. 2b, which expressly requires that major site work activities like stripping, removal and stockpiling of top soil shall be done "prior to the start of regular excavation or backfiling work", the principal issue in arbitration being non-compliance with the contract documents; (5) The public respondent committed serious error in law, if not grave abuse of discretion, when it found, in the May 13, 1993 Order, the petitioner "guilty of estoppel" although it is claimed that the legal doctrine of estoppel does not apply with respect to the required written formalities in the issuance of change order . . .; (6)
The exceptional circumstances in Remalante vs. Tibe, 158 SCRA 138, where the Honorable Supreme Court may review findings of facts, are present in the instant case, namely; (a) when the inference made is manifestly absurd, mistaken or impossible (Luna vs. Linatoc, 74 Phil. 15); (2) when there is grave abuse of discretion in the appreciation of facts (Buyco vs. People, 95 Phil. 253); (3) when the judgment is premised on a misapprehension of facts (De la Cruz v. Sosing, 94 Phil. 26 and Castillo vs. CA, 124 SCRA 808); (4) when the findings of fact are conflicting (Casica v. Villaseca, 101 Phil. 1205); (5) when the findings are contrary to the admissions of the parties (Evangelista v. Alto Surety, 103 Phil. 401), and

therefore, the findings of facts of the public respondent in the instant case may be reviewed by the 20 Honorable Supreme Court. (Emphasis partly applied and partly in the original)

From the foregoing, petitioner Hi-Precision may be seen to be making two (2) basic arguments: (a) Petitioner asks this Court to correct legal errors committed by the Arbitral Tribunal, which at the same time constitute grave abuse of discretion amounting to lack of jurisdiction on the part of the Arbitral Tribunal; and (b) Should the supposed errors petitioner asks us to correct be characterized as errors of fact, such factual errors should nonetheless be reviewed because there was "grave abuse of discretion" in the misapprehension of facts on the part of the Arbitral Tribunal. Executive Order No. 1008, as amended, provides, in its Section 19, as follows: Sec. 19. Finality of Awards. The arbitral award shall be binding upon the parties. It shall be final and inappealable except on questions of law which shall be appealable to the Supreme Court. Section 19 makes it crystal clear that questions of fact cannot be raised in proceedings before the Supreme Court which is not a trier of facts in respect of an arbitral award rendered under the aegis of the CIAC. Consideration of the animating purpose of voluntary arbitration in general, and arbitration under the aegis of the CIAC in particular, requires us to apply rigorously the above principle embodied in Section 19 that the Arbitral Tribunal's findings of fact shall be final and inappealable. Voluntary arbitration involves the reference of a dispute to an impartial body, the members of which are chosen by the parties themselves, which parties freely consent in advance to abide by the arbitral award issued after proceedings where both parties had the opportunity to be heard. The basic objective is to provide a speedy and inexpensive method of settling disputes by allowing the parties to avoid the formalities, delay, expense and aggravation which commonly accompany ordinary litigation, especially litigation which goes through the entire hierarchy of courts. Executive Order No. 1008 created an arbitration facility to which the construction industry in the Philippines can have recourse. The Executive Order was enacted to encourage the early and expeditious settlement of disputes in the construction industry, a public policy the implementation of which is necessary and important for the realization of national development goals. 21 Aware of the objective of voluntary arbitration in the labor field, in the construction industry, and in any other area for that matter, the Court will not assist one or the other or even both parties in any effort to subvert or defeat that objective for their private purposes. The Court will not review the factual findings of an arbitral tribunal upon the artful allegation that such body had "misapprehended the facts" and will not pass upon issues which are, at bottom, issues of fact, no matter how cleverly disguised they might be as "legal questions." The parties here had recourse to arbitration and chose the arbitrators themselves; they must have had confidence in such arbitrators. The Court will not, therefore, permit the parties to relitigate before it the issues of facts previously presented and argued before the Arbitral Tribunal, save only where a very clear showing is made that, in reaching its factual conclusions, the Arbitral Tribunal committed an error so egregious and hurtful to one party as to constitute a grave abuse of discretion resulting in lack or loss of jurisdiction. 22 Prototypical examples would be factual conclusions of the Tribunal which resulted in deprivation of one or the other party of a fair opportunity to present its position before the Arbitral Tribunal, and an award obtained through fraud or the corruption of arbitrators. 23 Any other, more relaxed, rule would result in setting at naught the basic objective of a voluntary arbitration and would reduce arbitration to a largely inutile institution.

Examination of the Petition at bar reveals that it is essentially an attempt to re-assert and relitigate before this Court the detailed or itemized factual claims made before the Arbitral Tribunal under a general averment that the Arbitral Tribunal had "misapprehended the facts" submitted to it. In the present Petition, too, Hi-Precision claims that the Arbitral Tribunal had committed grave abuse of discretion amounting to lack of jurisdiction in reaching its factual and legal conclusions. The first "legal issue" submitted by the Petition is the claimed misapplication by the Arbitral Tribunal of the first and second paragraphs of Article 1911 of the Civil Code. 24 Article 1191 reads: Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law. Hi-Precision contends energetically that it is the injured party and that Steel Builders was the obligor who did not comply with what was incumbent upon it, such that Steel Builders was the party in default and the entity guilty of negligence and delay. As the injured party, Hi-Precision maintains that it may choose between the fulfillment or rescission of the obligation in accordance with Article 1191, and is entitled to damages in either case. Thus, Hi-Precision continues, when the contractor Steel Builders defaulted on the 153rd day of the original contract period, Hi-Precision opted for specific performance and gave Steel Builders a 30-day extension period with which to complete the project. What petitioner Hi-Precision, in its above argument, disregards is that the determination of whether Hi-Precision or Steel Builders was the "injured party" is not to be resolved by an application of Article 1191. That determination is eminently a question of fact, for it requires ascertainment and identification of which the two (2) contending parties had first failed to comply with what is incumbent upon it. In other words, the supposed misapplication of Article 1191, while ostensibly a "legal issue," is ultimately a question of fact, i.e., the determination of the existence or non-existence of a fact or set of facts in respect of which Article 1191 may be properly applied. Thus, to ask this Court to correct a claimed misapplication or non-application of Article 1191 is to compel this Court to determine which of the two (2) contending parties was the "injured party" or the "first infractor." As noted earlier, the Arbitral Tribunal after the prolonged arbitration proceeding, was unable to make that factual determination and instead concluded that both parties had committed breaches of their respective obligations. We will not review, and much less reverse, that basic factual finding of the Arbitral Tribunal. A second "legal issue" sought to be raised by petitioner Hi-Precision relates to the supposed failure of the Arbitral Tribunal to apply the doctrines of estoppel and waiver as against Steel Builders. 25 The Arbitral Tribunal, after declaring that the parties were mutually at fault, proceeded to enumerate the faults of each of the parties. One of the faults attributed to petitioner Hi-Precision is that it had failed to give the contractor Steel Builders the required 15day notice for termination of the contract. 26 This was clearly a finding of fact on the part of the Tribunal, supported by the circumstance that per the record, petitioner had offered no proof that it had complied with such 15-day notice required under Article 28.01 of the General Conditions of Contract forming part of the Contract Documents. Petitioner Hi-Precision's

argument is that a written Agreement dated 16 November 1990 with Steel Builders concerning the take over of the project by Hi-Precision, constituted waiver on the part of the latter of its right to a 15-day notice of contract termination. Whether or not that Agreement dated 16 November 1990 (a document not submitted to this Court) is properly characterized as constituting waiver on the part of Steel Builders, may be conceded to be prima facie a question of law; but, if it is, and assuming arguendo that the Arbitral Tribunal had erred in resolving it, that error clearly did not constitute a grave abuse of discretion resulting in lack or loss of jurisdiction on the part of the Tribunal. A third "legal issue" posed by Hi-Precision relates to the supposed failure on the part of the Arbitral Tribunal "to uphold the supremacy of 'the law between the parties' and enforce it against private respondent [Steel Builders]." 27 The "law between that parties" here involved is the "Technical Specifications" forming part of the Contract Documents. Hi-Precision asserts that the Arbitral Tribunal did not uphold the "law between the parties," but instead substituted the same with "its [own] absurd inference and 'opinion' on mud." Here again, petitioner is merely disguising a factual question as a "legal issue," since petitioner is in reality asking this Court to review the physical operations relating, e.g., to site preparation carried out by the contractor Steel Builders and to determine whether such operations were in accordance with the Technical Specifications of the project. The Arbitral Tribunal resolved Hi-Precision's claim by finding that Steel Builders had complied substantially with the Technical Specifications. This Court will not pretend that it has the technical and engineering capability to review the resolution of that factual issue by the Arbitral Tribunal. Finally, the Petition asks this Court to "review serious errors in the findings of fact of the [Arbitral Tribunal]." 28 In this section of its Petition, Hi-Precision asks us to examine each item of its own claims which the Arbitral Tribunal had rejected in its Award, and each claim of the contractor Steel Builders which the Tribunal had granted. In respect of each item of the owner's claims and each item of the contractor's claims, Hi-Precision sets out its arguments, to all appearances the same arguments it had raised before the Tribunal. As summarized in the Arbitral Award, Contractor's Claims were as follows: 12.1. Unpaid Progress Billing 1,812,706.95 12.2. Change Order 1 0.00 12.3. -do- 2 10,014.00 12.4. -do- 3 320,000.00 12.5. -do- 4 112,300.70 12.6. -do- 5 398,398.00 12.7. -do- 6 353,050.38 12.8. -do- 7 503,836.53 12.9. -do- 8 216,138.75 12.10. -do- 9 101,621.40 12.11. -do- 10 7,200.00 12.12. -do- 11 0.00 12.13. -do- 12 7,800.00 12.14. -do- 13 49,250.00 12.15. -do- 14 167,952.00 12.16. -do- 15 445,600.00 12.17. -do- 16 92,457.30 12.18. -do- 17 1,500.00 12.19. 20,240.00 12.20. 63,518.00 12.21. 0.00 12.22. 0.00 12.23. 0.00 12.24. 0.00

12.25. 0.00 12.26. 730,201.57 12.27. 1,130,722.70 12.28. 0.00 12.29. 273,991.00 12.30. 0.00
12.31. 7,318,499.28
29

============= Upon the other hand, the petitioner's claims we are asked to review and grant are summarized as follows: 1. Actual Damages Advance Downpayment [at] signing of Contract which is subject to 40% deduction every progress billing (40% of Contract Price) P8,406,000.00 Progress Billings 5,582,585.55 Advances made to Lim Kim a) prior to take-over 392,781.45 b) after the take-over Civil Works 1,158,513.88 Materials 4,213,318.72 Labor 2,155,774.79 Equipment Rental 1,448,208.90 P8,974,816.45 Total Amount Paid for Construction 23,650,183.00 Less: Contract Price (21,000,000.00) IA Excess of amount paid over contract price 2,650,163.29 IB Other items due from Lim Kim Steel Builders a. Amount not yet deducted from Downpayment due to non-completion of Project (P24.1326%) 2,027,138.40 b. Due to Huey Commercial used for HSCI Project 51,110.40 IC Additional construction expenses

a. Increases in prices since Oct. 5,272,096.81 b. Cost of money of (a) 873,535.49 ID Installation of machinery a. Foreign exchange loss 11,565,048.37 b. Cost of money (a) 2,871,987.01 I[E] Raw Materials a. Foreign exchange loss 4,155,982.18 b. Cost of money (a) 821,242.72 c. Additional import levy of 5% 886,513.33 d. Cost of money (c) 170,284.44 e. Cost of money on marginal deposit on Letter of Credit 561,195.25 IF Cost of money on holding to CRC INTY 3,319,609.63 Total Actual Damages 35,295,927.32 2. Liquidated Damages 2,436,000.00 3. Attorney's Fees 500,000.00
P38,231,927.32
30

=============

We consider that in asking this Court to go over each individual claim submitted by it and each individual countering claim submitted by Steel Builders to the Arbitral Tribunal, petitioner Hi-Precision is asking this Court to pass upon claims which are either clearly and directly factual in nature or require previous determination of factual issues. This upon the one hand. Upon the other hand, the Court considers that petitioner Hi-Precision has failed to show any serious errors of law amounting to grave abuse of discretion resulting in lack of jurisdiction on the part of the Arbitral Tribunal, in either the methods employed or the results reached by the Arbitral Tribunal, in disposing of the detailed claims of the respective parties. WHEREFORE, for all the foregoing, the Petition is hereby DISMISSED for lack of merit. Costs against petitioner. SO ORDERED.

IRST DIVISION [G.R. No. 169332, February 11, 2008] ABS-CBN BROADCASTING CORPORATION, Petitioner, vs. WORLD INTERACTIVE NETWORK SYSTEMS (WINS) JAPAN CO., LTD., Respondent. DECISION
CORONA, J.: This petition for review on certiorari under Rule 45 of the Rules of Court seeks to set aside the February 16, 2005 decision[1] and August 16, 2005 resolution[2] of the Court of Appeals (CA) in CAG.R. SP No. 81940. On September 27, 1999, petitioner ABS-CBN Broadcasting Corporation entered into a licensing agreement with respondent World Interactive Network Systems (WINS) Japan Co., Ltd., a foreign corporation licensed under the laws of Japan. Under the agreement, respondent was granted the exclusive license to distribute and sublicense the distribution of the television service known as The Filipino Channel (TFC) in Japan. By virtue thereof, petitioner undertook to transmit the TFC programming signals to respondent which the latter received through its decoders and distributed to its subscribers. A dispute arose between the parties when petitioner accused respondent of inserting nine episodes of WINS WEEKLY, a weekly 35-minute community news program for Filipinos in Japan, into the TFC programming from March to May 2002.[3] Petitioner claimed that these were unauthorized insertions constituting a material breach of their agreement. Consequently, on May 9, 2002,[4] petitioner notified respondent of its intention to terminate the agreement effective June 10, 2002. Thereafter, respondent filed an arbitration suit pursuant to the arbitration clause of its agreement with petitioner. It contended that the airing of WINS WEEKLY was made with petitioner's prior approval. It also alleged that petitioner only threatened to terminate their agreement because it wanted to renegotiate the terms thereof to allow it to demand higher fees. Respondent also prayed for damages for petitioner's alleged grant of an exclusive distribution license to another entity, NHK (Japan Broadcasting Corporation).[5] The parties appointed Professor Alfredo F. Tadiar to act as sole arbitrator. They stipulated on the following issues in their terms of reference (TOR)[6]: 1. Was the broadcast of WINS WEEKLY by the claimant duly authorized by the respondent [herein petitioner]? 2. Did such broadcast constitute a material breach of the agreement that is a ground for termination of the agreement in accordance with Section 13 (a) thereof? 3. If so, was the breach seasonably cured under the same contractual provision of Section 13 (a)? 4. Which party is entitled to the payment of damages they claim and to the other reliefs prayed for? xxx xxx xxx

The arbitrator found in favor of respondent.[7] He held that petitioner gave its approval to respondent for the airing of WINS WEEKLY as shown by a series of written exchanges between the parties. He also ruled that, had there really been a material breach of the agreement, petitioner should have terminated the same instead of sending a mere notice to terminate said agreement. The arbitrator found that petitioner threatened to terminate the agreement due to its desire to compel respondent

to re-negotiate the terms thereof for higher fees. He further stated that even if respondent committed a breach of the agreement, the same was seasonably cured. He then allowed respondent to recover temperate damages, attorney's fees and one-half of the amount it paid as arbitrator's fee. Petitioner filed in the CA a petition for review under Rule 43 of the Rules of Court or, in the alternative, a petition for certiorari under Rule 65 of the same Rules, with application for temporary restraining order and writ of preliminary injunction. It was docketed as CA-G.R. SP No. 81940. It alleged serious errors of fact and law and/or grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the arbitrator. Respondent, on the other hand, filed a petition for confirmation of arbitral award before the Regional Trial Court (RTC) of Quezon City, Branch 93, docketed as Civil Case No. Q-04-51822. Consequently, petitioner filed a supplemental petition in the CA seeking to enjoin the RTC of Quezon City from further proceeding with the hearing of respondent's petition for confirmation of arbitral award. After the petition was admitted by the appellate court, the RTC of Quezon City issued an order holding in abeyance any further action on respondent's petition as the assailed decision of the arbitrator had already become the subject of an appeal in the CA. Respondent filed a motion for reconsideration but no resolution has been issued by the lower court to date.[8] On February 16, 2005, the CA rendered the assailed decision dismissing ABS-CBNs petition for lack of jurisdiction. It stated that as the TOR itself provided that the arbitrator's decision shall be final and unappealable and that no motion for reconsideration shall be filed, then the petition for review must fail. It ruled that it is the RTC which has jurisdiction over questions relating to arbitration. It held that the only instance it can exercise jurisdiction over an arbitral award is an appeal from the trial court's decision confirming, vacating or modifying the arbitral award. It further stated that a petition for certiorari under Rule 65 of the Rules of Court is proper in arbitration cases only if the courts refuse or neglect to inquire into the facts of an arbitrator's award. The dispositive portion of the CA decision read: WHEREFORE, the instant petition is hereby DISMISSED for lack of jurisdiction. The application for a writ of injunction and temporary restraining order is likewise DENIED. The Regional Trial Court of Quezon City Branch 93 is directed to proceed with the trial for the Petition for Confirmation of Arbitral Award. SO ORDERED. Petitioner moved for reconsideration. The same was denied. Hence, this petition. Petitioner contends that the CA, in effect, ruled that: (a) it should have first filed a petition to vacate the award in the RTC and only in case of denial could it elevate the matter to the CA via a petition for review under Rule 43 and (b) the assailed decision implied that an aggrieved party to an arbitral award does not have the option of directly filing a petition for review under Rule 43 or a petition for certiorari under Rule 65 with the CA even if the issues raised pertain to errors of fact and law or grave abuse of discretion, as the case may be, and not dependent upon such grounds as enumerated under Section 24 (petition to vacate an arbitral award) of RA 876 (the Arbitration Law). Petitioner alleged serious error on the part of the CA. The issue before us is whether or not an aggrieved party in a voluntary arbitration dispute may avail of, directly in the CA, a petition for review under Rule 43 or a petition for certiorari under Rule 65 of the Rules of Court, instead of filing a petition to vacate the award in the RTC when the grounds invoked to overturn the arbitrators decision are other than those for a petition to vacate an arbitral award enumerated under RA 876. RA 876 itself mandates that it is the Court of First Instance, now the RTC, which has jurisdiction over questions relating to arbitration,[9] such as a petition to vacate an arbitral award. Section 24 of RA 876 provides for the specific grounds for a petition to vacate an award made by an arbitrator:

Sec. 24. Grounds for vacating award. - In any one of the following cases, the court must make an order vacating the award upon the petition of any party to the controversy when such party proves affirmatively that in the arbitration proceedings: (a) The award was procured by corruption, fraud, or other undue means; or (b) That there was evident partiality or corruption in the arbitrators or any of them; or (c) That the arbitrators were guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; that one or more of the arbitrators was disqualified to act as such under section nine hereof, and willfully refrained from disclosing such disqualifications or of any other misbehavior by which the rights of any party have been materially prejudiced; or (d) That the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual, final and definite award upon the subject matter submitted to them was not made. Based on the foregoing provisions, the law itself clearly provides that the RTC must issue an order vacating an arbitral award only in any one of the . . . cases enumerated therein. Under the legal maxim in statutory construction expressio unius est exclusio alterius, the explicit mention of one thing in a statute means the elimination of others not specifically mentioned. As RA 876 did not expressly provide for errors of fact and/or law and grave abuse of discretion (proper grounds for a petition for review under Rule 43 and a petition for certiorari under Rule 65, respectively) as grounds for maintaining a petition to vacate an arbitral award in the RTC, it necessarily follows that a party may not avail of the latter remedy on the grounds of errors of fact and/or law or grave abuse of discretion to overturn an arbitral award. Adamson v. Court of Appeals[10] gave ample warning that a petition to vacate filed in the RTC which is not based on the grounds enumerated in Section 24 of RA 876 should be dismissed. In that case, the trial court vacated the arbitral award seemingly based on grounds included in Section 24 of RA 876 but a closer reading thereof revealed otherwise. On appeal, the CA reversed the decision of the trial court and affirmed the arbitral award. In affirming the CA, we held: The Court of Appeals, in reversing the trial court's decision held that the nullification of the decision of the Arbitration Committee was not based on the grounds provided by the Arbitration Law and that xxx private respondents (petitioners herein) have failed to substantiate with any evidence their claim of partiality. Significantly, even as respondent judge ruled against the arbitrator's award, he could not find fault with their impartiality and integrity. Evidently, the nullification of the award rendered at the case at bar was not made on the basis of any of the grounds provided by law. xxx xxx xxx

It is clear, therefore, that the award was vacated not because of evident partiality of the arbitrators but because the latter interpreted the contract in a way which was not favorable to herein petitioners and because it considered that herein private respondents, by submitting the controversy to arbitration, was seeking to renege on its obligations under the contract. xxx xxx xxx

It is clear then that the Court of Appeals reversed the trial courtnot because the latter reviewed the arbitration award involved herein, but because the respondent appellate court found that the trial court had no legal basis for vacating the award. (Emphasis supplied). In cases not falling under any of the aforementioned grounds to vacate an award, the Court has already made several pronouncements that a petition for review under Rule 43 or a petition for certiorari under Rule 65 may be availed of in the CA. Which one would depend on the grounds relied upon by petitioner. In Luzon Development Bank v. Association of Luzon Development Bank Employees,[11] the Court held that a voluntary arbitrator is properly classified as a quasi-judicial instrumentality and is, thus,

within the ambit of Section 9 (3) of the Judiciary Reorganization Act, as amended. Under this section, the Court of Appeals shall exercise: xxx xxx xxx (3) Exclusive appellate jurisdiction over all final judgments, decisions, resolutions, orders or awards of Regional Trial Courts and quasi-judicial agencies, instrumentalities, boards or commissions, including the Securities and Exchange Commission, the Employees Compensation Commission and the Civil Service Commission, except those falling within the appellate jurisdiction of the Supreme Court in accordance with the Constitution, the Labor Code of the Philippines under Presidential Decree No. 442, as amended, the provisions of this Act and of subparagraph (1) of the third paragraph and subparagraph (4) of the fourth paragraph of Section 17 of the Judiciary Act of 1948. (Emphasis supplied) As such, decisions handed down by voluntary arbitrators fall within the exclusive appellate jurisdiction of the CA. This decision was taken into consideration in approving Section 1 of Rule 43 of the Rules of Court.[12] Thus: SECTION 1. Scope. - This Rule shall apply to appeals from judgments or final orders of the Court of Tax Appeals and from awards, judgments, final orders or resolutions of or authorized by any quasijudicial agency in the exercise of its quasi-judicial functions. Among these agencies are the Civil Service Commission, Central Board of Assessment Appeals, Securities and Exchange Commission, Office of the President, Land Registration Authority, Social Security Commission, Civil Aeronautics Board, Bureau of Patents, Trademarks and Technology Transfer, National Electrification Administration, Energy Regulatory Board, National Telecommunications Commission, Department of Agrarian Reform under Republic Act Number 6657, Government Service Insurance System, Employees Compensation Commission, Agricultural Inventions Board, Insurance Commission, Philippine Atomic Energy Commission, Board of Investments, Construction Industry Arbitration Commission, and voluntary arbitrators authorized by law. (Emphasis supplied) This rule was cited in Sevilla Trading Company v. Semana,[13] Manila Midtown Hotel v. Borromeo,[14] and Nippon Paint Employees Union-Olalia v. Court of Appeals.[15]These cases held that the proper remedy from the adverse decision of a voluntary arbitrator, if errors of fact and/or law are raised, is a petition for review under Rule 43 of the Rules of Court. Thus, petitioner's contention that it may avail of a petition for review under Rule 43 under the circumstances of this case is correct. As to petitioner's arguments that a petition for certiorari under Rule 65 may also be resorted to, we hold the same to be in accordance with the Constitution and jurisprudence. Section 1 of Article VIII of the 1987 Constitution provides that: SECTION 1. The judicial power shall be vested in one Supreme Court and in such lower courts as may be established by law. Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government. (Emphasis supplied) As may be gleaned from the above stated provision, it is well within the power and jurisdiction of the Court to inquire whether any instrumentality of the Government, such as a voluntary arbitrator, has gravely abused its discretion in the exercise of its functions and prerogatives. Any agreement stipulating that the decision of the arbitrator shall be final and unappealable and that no further judicial recourse if either party disagrees with the whole or any part of the arbitrator's award may be availed of cannot be held to preclude in proper cases the power of judicial review which is inherent in courts.[16] We will not hesitate to review a voluntary arbitrator's award where there is a showing of grave abuse of authority or discretion and such is properly raised in a petition for certiorari[17] and there is no appeal, nor any plain, speedy remedy in the course of law.[18] Significantly, Insular Savings Bank v. Far East Bank and Trust Company[19]definitively outlined several judicial remedies an aggrieved party to an arbitral award may undertake:
(1) (2) a petition in the proper RTC to issue an order to vacate the award on the grounds provided for in Section 24 of RA 876; a petition for review in the CA under Rule 43 of the Rules of Court on questions of fact, of law, or mixed

questions of fact and law; and (3) a petition for certiorari under Rule 65 of the Rules of Court should the arbitrator have acted without or in excess of his jurisdiction or with grave abuse of discretion amounting to lack or excess of jurisdiction.

Nevertheless, although petitioners position on the judicial remedies available to it was correct, we sustain the dismissal of its petition by the CA. The remedy petitioner availed of, entitled alternative petition for review under Rule 43 or petition for certiorari under Rule 65, was wrong. Time and again, we have ruled that the remedies of appeal and certiorari are mutually exclusive and not alternative or successive.[20] Proper issues that may be raised in a petition for review under Rule 43 pertain to errors of fact, law or mixed questions of fact and law.[21] While a petition for certiorari under Rule 65 should only limit itself to errors of jurisdiction, that is, grave abuse of discretion amounting to a lack or excess of jurisdiction.[22] Moreover, it cannot be availed of where appeal is the proper remedy or as a substitute for a lapsed appeal.[23] In the case at bar, the questions raised by petitioner in its alternative petition before the CA were the following: A. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY ABUSED HIS DISCRETION IN RULING THAT THE BROADCAST OF WINS WEEKLY WAS DULY AUTHORIZED BY ABS-CBN. B. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY ABUSED HIS DISCRETION IN RULING THAT THE UNAUTHORIZED BROADCAST DID NOT CONSTITUTE MATERIAL BREACH OF THE AGREEMENT. C. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY ABUSED HIS DISCRETION IN RULING THAT WINS SEASONABLY CURED THE BREACH. D. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY ABUSED HIS DISCRETION IN RULING THAT TEMPERATE DAMAGES IN THE AMOUNT OF P1,166,955.00 MAY BE AWARDED TO WINS. E. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY ABUSED HIS DISCRETION IN AWARDING ATTORNEY'S FEES IN THE UNREASONABLE AMOUNT AND UNCONSCIONABLE AMOUNT OF P850,000.00. F. THE ERROR COMMITTED BY THE SOLE ARBITRATOR IS NOT A SIMPLE ERROR OF JUDGMENT OR ABUSE OF DISCRETION. IT IS GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OR EXCESS OF JURISDICTION. A careful reading of the assigned errors reveals that the real issues calling for the CA's resolution were less the alleged grave abuse of discretion exercised by the arbitrator and more about the arbitrators appreciation of the issues and evidence presented by the parties. Therefore, the issues clearly fall under the classification of errors of fact and law questions which may be passed upon by the CA via a petition for review under Rule 43. Petitioner cleverly crafted its assignment of errors in such a way as to straddle both judicial remedies, that is, by alleging serious errors of fact and law (in which case a petition for review under Rule 43 would be proper) and grave abuse of discretion (because of which a petition for certiorari under Rule 65 would be permissible). It must be emphasized that every lawyer should be familiar with the distinctions between the two remedies for it is not the duty of the courts to determine under which rule the petition should fall.[24] Petitioner's ploy was fatal to its cause. An appeal taken either to this Court or the CA by the wrong or inappropriate mode shall be dismissed.[25] Thus, the alternative petition filed in the CA, being an inappropriate mode of appeal, should have been dismissed outright by the CA. WHEREFORE, the petition is hereby DENIED. The February 16, 2005 decision and August 16, 2005 resolution of the Court of Appeals in CA-G.R. SP No. 81940 directing the Regional Trial Court of Quezon City, Branch 93 to proceed with the trial of the petition for confirmation of arbitral award

is AFFIRMED. Costs against petitioner. SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 91228 March 22, 1993 PUROMINES, INC., petitioner, vs. COURT OF APPEALS and PHILIPP BROTHERS OCEANIC, INC., respondents. Fajardo Law Offices for petitioner. Del Rosario & Del Rosario for private respondent.

NOCON, J.: This is a special civil action for certiorari and prohibition to annul and set aside the Decision of the respondent Court of Appeals dated November 16, 1989 1 reversing the order of the trial court and dismissing petitioner's complaint in Civil Case No. 89-47403, entitled Puromines, Inc. v. Maritime Factors, Inc. and Philipp Brothers Oceanic, Inc. Culled from the records of this case, the facts show that petitioner, Puromines, Inc. (Puromines for brevity) and Makati Agro Trading, Inc. (not a party in this case) entered into a contract with private respondent Philipp Brothers Oceanic, Inc. for the sale of prilled Urea in bulk. The Sales Contract No. S151.8.01018 provided, among others an arbitration clause which states, thus: 9. Arbitration
Any disputes arising under this contract shall be settled by arbitration in London in accordance with the Arbitration Act 1950 and any statutory amendment or modification thereof. Each party is to appoint an Arbitrator, and should they be unable to agree, the decision of an Umpire appointed by them to be final. The Arbitrators and Umpire are all to be commercial men and resident in London. This submission may 2 be made a rule of the High Court of Justice in England by either party.

On or about May 22, 1988, the vessel M/V "Liliana Dimitrova" loaded on board at Yuzhny, USSR a shipment of 15,500 metric tons prilled Urea in bulk complete and in good order and condition for transport to Iloilo and Manila, to be delivered to petitioner. Three bills of lading were issued by the ship-agent in the Philippines, Maritime Factors Inc., namely: Bill of Lading No. 1 dated May 12, 1988 covering 10,000 metric tons for discharge in Manila; Bill of Lading No. 2 of even date covering 4,000 metric tons for unloading in Iloilo City; and Bill of Lading No. 3, also dated May 12, 1988, covering 1,500 metric tons likewise for discharge in Manila. The shipment covered by Bill of Lading No. 2 was discharged in Iloilo City complete and in good order and condition. However, the shipments covered by Bill of Lading Nos. 1 and 3 were discharged in Manila in bad order and condition, caked, hardened and lumpy, discolored and contaminated with rust and dirt. Damages were valued at P683,056.29 including additional discharging expenses. Consequently, petitioner filed a complaint 3 with the trial court 4 for breach of contract of carriage against Maritime Factors, Inc. (which was not included as respondent in this petition) as ship-agent in the Philippines for the owners of the vessel MV "Liliana Dimitrova," while private respondent, Philipp Brothers Oceanic, Inc., was impleaded as charterer of the said vessel and proper party to accord petitioner complete relief. Maritime Factors, Inc. filed its Answer 5 to the complaint, while private respondent filed a motion to dismiss, dated February 9, 1989, on the grounds that the complaint states no cause of action; that it was prematurely filed; and that petitioner should comply with the arbitration clause in the sales contract. 6 The motion to dismiss was opposed by petitioner contending the inapplicability of the arbitration clause inasmuch as the cause of action did not arise from a violation of the terms of the sales contract but rather for claims of cargo damages where there is no arbitration agreement. On April 26, 1989, the trial court denied respondent's motion to dismiss in this wise: The sales contract in question states in part:

Any disputes arising under this contract shall be settled by arbitration . . . (emphasis supplied) A perusal of the facts alleged in the complaint upon which the question of sufficiency of the cause of action is to be determined shows quite clearly that the cause of action of the complaint arose from a breach of contract of carriage by the vessel chartered by the defendant Philipp Brothers Oceanic, Inc. Thus, the aforementioned arbitration clause cannot apply to the dispute in the present action which concerns plaintiff's claim for cargo loss/damage arising from breach of contract of carriage.
That the defendant is not the ship owner or common carrier and therefore plaintiff does not have a legal right against it since every action must be brought against the real party in interest has no merit either for by the allegations in the complaint the defendant herein has been impleaded as charterer of the vessel, 7 hence, a proper party.

Elevating the matter to the Court of Appeals, petitioner's complaint was dismissed. The appellate court found that the arbitration provision in the sales contract and/or the bills of lading is applicable in the present case. Said the court: An examination of the sales contract No. S151.8.01018 shows that it is broad enough to include the claim for damages arising from the carriage and delivery of the goods subject-matter thereof. It is also noted that the bills of lading attached as Annexes "A", "B" and "C" to the complaint state, in part, "any dispute arising under this Bill of Lading shall be referred to arbitration of the Maritime Arbitration Commission at the USSR Chamber of Commerce and Industry, 6 Kuibyshevskaia Str., Moscow, USSR, in accordance with the rules of procedure of said commission." Considering that the private respondent was one of the signatories to the sales contract . . . all parties are obliged to respect the terms and conditions of the said sales contract, including the provision thereof on "arbitration." Hence, this petition. The issue raised is: Whether the phrase "any dispute arising under this contract" in the arbitration clause of the sales contract covers a cargo claim against the vessel (owners and/or charterers) for breach of contract of carriage. Petitioner states in its complaint that Philipp Brothers "was the charterer of the vessel MV "Liliana Dimitrova" which transported the shipment from Yuzhny USSR to Manila." Petitioner further alleged that the caking and hardening, wetting and melting, and contamination by rust and dirt of the damaged portions of the shipment were due to the improper ventilation and inadequate storage facilities of the vessel; that the wetting of the cargo was attributable to the failure of the crew to close the hatches before and when it rained while the shipment was being unloaded in the Port of Manila; and that as a direct and natural consequence of the unseaworthiness and negligence of the vessel (sic), petitioner suffered damages in the total amount of P683,056.29 Philippine currency." 8 (emphasis supplied). Moreover, in its Opposition to the Motion to Dismiss, petitioner said that "[t]he cause of action of the complaint arose from breach of contract of carriage by the vessel that was chartered by defendant Philipp Brothers." 9 In the present petition, petitioner argues that the sales contract does not include the contract of carriage which is a different contract entered into by the carrier with the cargo owners. That it was an error for the respondent court to touch upon the arbitration provision of the bills of lading in its decision inasmuch as the same was not raised as an issue by private respondent who was not a party in the bills of lading (emphasis Ours). Petitioner contradicts itself. We agree with the court a quo that the sales contract is comprehensive enough to include claims for damages arising from carriage and delivery of the goods. As a general rule, the seller has the obligation to transmit the goods to the buyer, and concomitant thereto, the contracting of a carrier to deliver the same. Art. 1523 of the Civil Code provides: Art. 1523. Where in pursuance of a contract of sale, the seller is authorized or required to send the goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for the purpose of transmission to the buyer is deemed to be a delivery of the goods to the buyer, except in the cases provided for in article 1503, first, second and third paragraphs, or unless a contrary intent appears.

Unless otherwise authorized by the buyer, the seller must make such contract with the carrier on behalf of the buyer as may be reasonable, having regard to the nature of the goods and the other circumstances of the case. If the seller omit so to do, and the goods are lost or damaged in course of transit, the buyer may decline to treat the delivery to the carrier as a delivery to himself, or may hold the seller responsible in damages. xxx xxx xxx The disputed sales contract provides for conditions relative to the delivery of goods, such as date of shipment, demurrage, weight as determined by the bill of lading at load port and more particularly the following provisions: 3. Intention is to ship in one bottom, approximately 5,000 metric tons to Puromines and approximately 15,000 metric tons to Makati Agro. However, Sellers to have right to ship material as partial shipment or co-shipment in addition to above. In the event of co-shipment to a third party within Philippines same to be discussed with and acceptable to both Puromines and Makati Agro. 4. Sellers to appoint neutral survey for Seller's account to conduct initial draft survey at first discharge port and final survey at last discharge port. Surveyors results to be binding and final. In the event draft survey results show a quantity less than the combined Bills of Lading quantity for both Puromines and Makati Agro, Sellers to refund the difference. In the event that draft survey results show a quantity in excess of combined Bills of Lading quantity of both Puromines and Makati Agro then Buyers to refund the difference. 5. It is expressly and mutually agreed that neither Sellers nor vessel's Owners have any liability to separate cargo or to deliver cargo separately or to deliver minimum/maximum quantities stated on individual Bills of Lading. At each port vessel is to discharge in accordance with Buyers local requirements and it is Buyer's responsibility to separate individual quantities required by each of them at each port during or after discharge. As argued by respondent on its motion to dismiss, "the (petitioner) derives his right to the cargo from the bill of lading which is the contract of affreightment together with the sales contract. Consequently, the (petitioner) is bound by the provisions and terms of said bill of lading and of the arbitration clause incorporated in the sales contract." Assuming arguendo that the liability of respondent is not based on the sales contract, but rather on the contract of carriage, being the charterer of the vessel MV "Liliana Dimitrova," it would, therefore, be material to show what kind of charter party the respondent had with the shipowner to determine respondent's liability. American jurisprudence defines charter party as a contract by which an entire ship or some principal part thereof is let by the owner to another person for a specified time or use.10 Charter or charter parties are of two kinds. Charter of demise or bareboat and contracts of affreightment. Under the demise or bareboat charter of the vessel, the charterer will generally be considered as owner for the voyage or service stipulated. The charterer mans the vessel with his own people and becomes, in effect, the owner pro hac vice, subject to liability to others for damages caused by negligence. 11 To create a demise the owner of a vessel must completely and exclusively relinquish possession, command and navigation thereof to the charterer; anything short of such a complete transfer is a contract of affreightment (time or voyage charter party) or not a charter party at all. On the other hand, a contract of affreightment is one in which the owner of the vessel leases part or all of its space to haul goods for others. It is a contract for a special service to be rendered by the owner of the vessel 12 and under such contract the general owner retains the possession, command and navigation of the ship, the charterer or freighter merely having use of the space in the vessel in return for his payment of the charter hire. 13 If the charter is a contract of affreightment, which leaves the general owner in possession of the ship as owner for the voyage, the rights, responsibilities of ownership rest on the owner and the charterer is usually free from liability to third persons in respect of the ship. 14 Responsibility to third persons for goods shipped on board a vessel follows the vessel's possession and employment; and if possession is transferred to the charterer by virtue of a demise, the charterer, and not the owner, is liable as carrier on the contract of affreightment made by himself or by the master with third persons, and is answerable for loss, damage or nondelivery of goods received for transportation. An owner who retains possession of the ship, though the hold is the property of the charterer, remains liable as carrier and must answer for any breach of duty as to the care, loading or unloading of the cargo. 15

Assuming that in the present case, the charter party is a demise or bareboat charter, then Philipp Brothers is liable to Puromines, Inc., subject to the terms and conditions of the sales contract. On the other hand, if the contract between respondent and the owner of the vessel MV "Liliana Dimitrova" was merely that of affreightment, then it cannot be held liable for the damages caused by the breach of contract of carriage, the evidence of which is the bills of lading. In any case, whether the liability of respondent should be based on the sales contract or that of the bill of lading, the parties are nevertheless obligated to respect the arbitration provisions on the sales contract and/or the bill of lading. Petitioner being a signatory and party to the sales contract cannot escape from his obligation under the arbitration clause as stated therein. Neither can petitioner contend that the arbitration provision in the bills of lading should not have been discussed as an issue in the decision of the Court of Appeals since it was not raised as a special or affirmative defense. The three bills of lading were attached to the complaint as Annexes "A," "B," and "C," and are therefore parts thereof and may be considered as evidence although not introduced as such. 16 Hence, it was then proper for the court a quo to discuss the contents of the bills of lading, having been made part of the record. Going back to the main subject of this case, arbitration has been held valid and constitutional. Even before the enactment of Republic Act No. 876, this Court has countenanced the settlement of disputes through arbitration. The rule now is that unless the agreement is such as absolutely to close the doors of the courts against the parties, which agreement would be void, the courts will look with favor upon such amicable arrangements and will only interfere with great reluctance to anticipate or nullify the action of the arbitrator. 17 As pointed out in the case of Mindanao Portland Cement Corp. v. McDonough Construction Company of Florida 18 wherein the plaintiff sued defendant for damages arising from a contract, the Court said:
Since there obtains herein a written provision for arbitration as well as failure on respondent's part to comply therewith, the court a quo rightly ordered the parties to proceed to their arbitration in accordance with the terms of their agreement (Sec. 6 Republic Act 876). Respondent's arguments touching upon the merits of the dispute are improperly raised herein. They should be addressed to the arbitrators. This proceeding is merely a summary remedy to enforce the agreement to arbitrate. The duty of the court in this case is not to resolve the merits of the parties' claims but only to determine if they should proceed to arbitration or not. And although it has been ruled that a frivolous or patently baseless claim should not be ordered to arbitration it is also recognized that the mere fact that a defense exists against a claim does 19 not make it frivolous or baseless.

In the case of Bengson v. Chan, 20 We upheld the provision of a contract which required the parties to submit their disputes to arbitration and We held as follows: The trial court sensibly said that "all the causes of action alleged in the plaintiff's amended complaint are based upon the supposed violations committed by the defendants of the "Contract of Construction of a Building" and that "the provisions of paragraph 15 hereof leave a very little room for doubt that the said causes of action are embraced within the phrase "any and all questions, disputes or differences between the parties hereto relative to the construction of the building," which must be determined by arbitration of two persons and such determination by the arbitrators shall be "final, conclusive and binding upon both parties" unless they go to court, in which the case the determination by arbitration is a condition precedent "for taking any court action." xxx xxx xxx
We hold that the terms of paragraph 15 clearly express the intention of the parties that all disputes 21 between them should first be arbitrated before court action can be taken by the aggrieved party.

Premises considered, We uphold the validity and applicability of the arbitration clause as stated in Sales Contract No. S151.8.01018 to the present dispute. WHEREFORE, petition is hereby DISMISSED and the decision of the court a quo is AFFIRMED. SO ORDERED.

EN BANC

[G.R. No. 155001. January 21, 2004]

DEMOSTHENES P. AGAN, JR., JOSEPH B. CATAHAN, JOSE MARI B. REUNILLA, MANUEL ANTONIO B. BOE, MAMERTO S. CLARA, REUEL E. DIMALANTA, MORY V. DOMALAON, CONRADO G. DIMAANO, LOLITA R. HIZON, REMEDIOS P. ADOLFO, BIENVENIDO C. HILARIO, MIASCOR WORKERS UNION-NATIONAL LABOR UNION (MWU-NLU), and PHILIPPINE AIRLINES EMPLOYEES ASSOCIATION (PALEA), petitioners, vs. PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORT AUTHORITY, DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS and SECRETARY LEANDRO M. MENDOZA, in his capacity as Head of the Department of Transportation and Communications, respondents, MIASCOR GROUNDHANDLING CORPORATION, DNATA-WINGS AVIATION SYSTEMS CORPORATION, MACROASIA-EUREST SERVICES, INC., MACROASIA-MENZIES AIRPORT SERVICES CORPORATION, MIASCOR CATERING SERVICES CORPORATION, MIASCOR AIRCRAFT MAINTENANCE CORPORATION, and MIASCOR LOGISTICS CORPORATION, Petitioners-in-Intervention, FLORESTE ALCONIS, GINA ALNAS, REY AMPOLOQUIO, ROSEMARIE ANG, EUGENE ARADA, NENETTE BARREIRO, NOEL BARTOLOME, ALDRIN BASTADOR, ROLETTE DIVINE BERNARDO, MINETTE BRAVO, KAREN BRECILLA, NIDA CAILAO, ERWIN CALAR, MARIFEL CONSTANTINO, JANETTE CORDERO, ARNOLD FELICITAS, MARISSA GAYAGOY, ALEX GENERILLO, ELIZABETH GRAY, ZOILO HERICO, JACQUELINE IGNACIO, THELMA INFANTE, JOEL JUMAO-AS, MARIETTA LINCHOCO, ROLLY LORICO, FRANCIS AUGUSTO MACATOL, MICHAEL MALIGAT, DENNIS MANALO, RAUL MANGALIMAN, JOEL MANLANGIT, CHARLIE MENDOZA, HAZNAH MENDOZA, NICHOLS MORALES, ALLEN OLAO, CESAR ORTAL, MICHAEL ORTEGA, WAYNE PLAZA, JOSELITO REYES, ROLANDO REYES, AILEEN SAPINA, RAMIL TAMAYO, PHILLIPS TAN, ANDREW UY, WILLIAM VELASCO, EMILIO VELEZ, NOEMI YUPANO, MARY JANE ONG, RICHARD RAMIREZ, CHERYLE MARIE ALFONSO, LYNDON BAUTISTA, MANUEL CABOCAN AND NEDY LAZO, Respondents-in-Intervention, NAGKAISANG MARALITA NG TAONG ASSOCIATION, INC., Respondents-inIntervention,

[G.R. No. 155547. January 21, 2003]

SALACNIB F. BATERINA, CLAVEL A. MARTINEZ and CONSTANTINO G. JARAULA, petitioners, vs. PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORT AUTHORITY, DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS, DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS, SECRETARY LEANDRO M. MENDOZA, in his capacity as Head of the Department of Transportation and

Communications, and SECRETARY SIMEON A. DATUMANONG, in his capacity as Head of the Department of Public Works and Highways, respondents, JACINTO V. PARAS, RAFAEL P. NANTES, EDUARDO C. ZIALCITA, WILLY BUYSON VILLARAMA, PROSPERO C. NOGRALES, PROSPERO A. PICHAY, JR., HARLIN CAST ABAYON, and BENASING O. MACARANBON, Respondents-Intervenors, FLORESTE ALCONIS, GINA ALNAS, REY AMPOLOQUIO, ROSEMARIE ANG, EUGENE ARADA, NENETTE BARREIRO, NOEL BARTOLOME, ALDRIN BASTADOR, ROLETTE DIVINE BERNARDO, MINETTE BRAVO, KAREN BRECILLA, NIDA CAILAO, ERWIN CALAR, MARIFEL CONSTANTINO, JANETTE CORDERO, ARNOLD FELICITAS, MARISSA GAYAGOY, ALEX GENERILLO, ELIZABETH GRAY, ZOILO HERICO, JACQUELINE IGNACIO, THELMA INFANTE, JOEL JUMAO-AS, MARIETTA LINCHOCO, ROLLY LORICO, FRANCIS AUGUSTO MACATOL, MICHAEL MALIGAT, DENNIS MANALO, RAUL MANGALIMAN, JOEL MANLANGIT, CHARLIE MENDOZA, HAZNAH MENDOZA, NICHOLS MORALES, ALLEN OLAO, CESAR ORTAL, MICHAEL ORTEGA, WAYNE PLAZA, JOSELITO REYES, ROLANDO REYES, AILEEN SAPINA, RAMIL TAMAYO, PHILLIPS TAN, ANDREW UY, WILLIAM VELASCO, EMILIO VELEZ, NOEMI YUPANO, MARY JANE ONG, RICHARD RAMIREZ, CHERYLE MARIE ALFONSO, LYNDON BAUTISTA, MANUEL CABOCAN AND NEDY LAZO, Respondents-in-Intervention, NAGKAISANG MARALITA NG TAONG ASSOCIATION, INC., Respondents-inIntervention,

[G.R. No. 155661. January 21, 2003]

CEFERINO C. LOPEZ, RAMON M. SALES, ALFREDO B. VALENCIA, MA. TERESA V. GAERLAN, LEONARDO DE LA ROSA, DINA C. DE LEON, VIRGIE CATAMIN, RONALD SCHLOBOM, ANGELITO SANTOS, MA. LUISA M. PALCON and SAMAHANG MANGGAGAWA SA PALIPARAN NG PILIPINAS (SMPP),petitioners, vs. PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORT AUTHORITY, DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS, SECRETARY LEANDRO M. MENDOZA, in his capacity as Head of the Department of Transportation and Communications, respondents, FLORESTE ALCONIS, GINA ALNAS, REY AMPOLOQUIO, ROSEMARIE ANG, EUGENE ARADA, NENETTE BARREIRO, NOEL BARTOLOME, ALDRIN BASTADOR, ROLETTE DIVINE BERNARDO, MINETTE BRAVO, KAREN BRECILLA, NIDA CAILAO, ERWIN CALAR, MARIFEL CONSTANTINO, JANETTE CORDERO, ARNOLD FELICITAS, MARISSA GAYAGOY, ALEX GENERILLO, ELIZABETH GRAY, ZOILO HERICO, JACQUELINE IGNACIO, THELMA INFANTE, JOEL JUMAO-AS, MARIETTA LINCHOCO, ROLLY LORICO, FRANCIS AUGUSTO MACATOL, MICHAEL MALIGAT, DENNIS MANALO, RAUL MANGALIMAN, JOEL MANLANGIT, CHARLIE MENDOZA, HAZNAH MENDOZA, NICHOLS MORALES, ALLEN OLAO, CESAR ORTAL, MICHAEL ORTEGA, WAYNE PLAZA, JOSELITO REYES, ROLANDO REYES, AILEEN SAPINA, RAMIL TAMAYO, PHILLIPS TAN, ANDREW UY, WILLIAM VELASCO, EMILIO VELEZ, NOEMI YUPANO, MARY JANE ONG, RICHARD

RAMIREZ, CHERYLE MARIE ALFONSO, LYNDON BAUTISTA, MANUEL CABOCAN AND NEDY LAZO, Respondents-in-Intervention, NAGKAISANG MARALITA NG TAONG ASSOCIATION, INC., Respondents-inIntervention. RESOLUTION
Puno, J.:

Before this Court are the separate Motions for Reconsideration filed by respondent Philippine International Air Terminals Co., Inc. (PIATCO), respondents-intervenors Jacinto V. Paras, Rafael P. Nantes, Eduardo C. Zialcita, Willie Buyson Villarama, Prospero C. Nograles, Prospero A. Pichay, Jr., Harlin Cast Abayon and Benasing O. Macaranbon, all members of the House of Representatives (Respondent Congressmen), respondentsintervenors who are employees of PIATCO and other workers of the Ninoy Aquino International Airport International Passenger Terminal III (NAIA IPT III) (PIATCO Employees) and respondents-intervenors Nagkaisang Maralita ng Taong Association, Inc., (NMTAI) of the Decision of this Court dated May 5, 2003 declaring the contracts for the NAIA IPT III project null and void.
[1] [2] [3]

Briefly, the proceedings. On October 5, 1994, Asias Emerging Dragon Corp. (AEDC) submitted an unsolicited proposal to the Philippine Government through the Department of Transportation and Communication (DOTC) and Manila International Airport Authority (MIAA) for the construction and development of the NAIA IPT III under a build-operateand-transfer arrangement pursuant to R.A. No. 6957, as amended by R.A. No. 7718 (BOT Law). In accordance with the BOT Law and its Implementing Rules and Regulations (Implementing Rules), the DOTC/MIAA invited the public for submission of competitive and comparative proposals to the unsolicited proposal of AEDC. On September 20, 1996 a consortium composed of the Peoples Air Cargo and Warehousing Co., Inc. (Paircargo), Phil. Air and Grounds Services, Inc. (PAGS) and Security Bank Corp. (Security Bank) (collectively, Paircargo Consortium), submitted their competitive proposal to the Prequalification Bids and Awards Committee (PBAC).
[4]

After finding that the Paircargo Consortium submitted a bid superior to the unsolicited proposal of AEDC and after failure by AEDC to match the said bid, the DOTC issued the notice of award for the NAIA IPT III project to the Paircargo Consortium, which later organized into herein respondent PIATCO. Hence, on July 12, 1997, the Government, through then DOTC Secretary Arturo T. Enrile, and PIATCO, through its President, Henry T. Go, signed the Concession Agreement for the Build-Operate-and-Transfer Arrangement of the Ninoy Aquino International Airport Passenger Terminal III (1997 Concession Agreement). On November 26, 1998, the 1997 Concession Agreement was superseded by the Amended and Restated Concession Agreement (ARCA) containing certain revisions and modifications from the original contract. A series of supplemental agreements was also entered into by the Government and PIATCO. The First Supplement was signed on August 27, 1999, the Second Supplement on September 4, 2000, and the Third Supplement on June 22, 2001 (collectively, Supplements) (the 1997 Concession Agreement, ARCA and the Supplements collectively referred to as the PIATCO Contracts). On September 17, 2002, various petitions were filed before this Court to annul the 1997 Concession Agreement, the ARCA and the Supplements and to prohibit the public respondents DOTC and MIAA from implementing them. In a decision dated May 5, 2003, this Court granted the said petitions and declared the 1997 Concession Agreement, the ARCA and the Supplements null and void. Respondent PIATCO, respondent-Congressmen and respondents-intervenors now seek the reversal of the May 5, 2003 decision and pray that the petitions be dismissed. In

the alternative, PIATCO prays that the Court should not strike down the entire 1997 Concession Agreement, the ARCA and its supplements in light of their separability clause. Respondent-Congressmen and NMTAI also pray that in the alternative, the cases at bar should be referred to arbitration pursuant to the provisions of the ARCA. PIATCOEmployees pray that the petitions be dismissed and remanded to the trial courts for trial on the merits or in the alternative that the 1997 Concession Agreement, the ARCA and the Supplements be declared valid and binding.
I

Procedural Matters a. Lack of Jurisdiction Private respondents and respondents-intervenors reiterate a number of procedural issues which they insist deprived this Court of jurisdiction to hear and decide the instant cases on its merits. They continue to claim that the cases at bar raise factual questions which this Court is ill-equipped to resolve, hence, they must be remanded to the trial court for reception of evidence. Further, they allege that although designated as petitions for certiorari and prohibition, the cases at bar are actually actions for nullity of contracts over which the trial courts have exclusive jurisdiction. Even assuming that the cases at bar are special civil actions for certiorari and prohibition, they contend that the principle of hierarchy of courts precludes this Court from taking primary jurisdiction over them. We are not persuaded. There is a question of fact when doubt or difference arises as to the truth or falsity of the facts alleged. Even a cursory reading of the cases at bar will show that the Court decided them by interpreting and applying the Constitution, the BOT Law, its Implementing Rules and other relevant legal principles on the basis of clearly undisputed facts. All the operative facts were settled, hence, there is no need for a trial type determination of their truth or falsity by a trial court.
[5]

We reject the unyielding insistence of PIATCO Employees that the following factual issues are critical and beyond the capability of this Court to resolve, viz: (a) whether the National Economic Development Authority- Investment Coordinating Committee (NEDAICC) approved the Supplements; (b) whether the First Supplement created ten (10) new financial obligations on the part of the government; and (c) whether the 1997 Concession Agreement departed from the draft Concession Agreement contained in the Bid Documents.
[6]

The factual issue of whether the NEDA-ICC approved the Supplements is hardly relevant. It is clear in our Decision that the PIATCO contracts were invalidated on other and more substantial grounds. It did not rely on the presence or absence of NEDA-ICC approval of the Supplements. On the other hand, the last two issues do not involve disputed facts. Rather, they involve contractual provisions which areclear and categorical and need only to be interpreted. The interpretation of contracts and the determination of whether their provisions violate our laws or contravene any public policy is a legal issue which this Court may properly pass upon. Respondents corollary contention that this Court violated the hierarchy of courts when it entertained the cases at bar must also fail. The rule on hierarchy of courts in cases falling within the concurrent jurisdiction of the trial courts and appellate courts generally applies to cases involving warring factual allegations. For this reason, litigants are required to repair to the trial courts at the first instance to determine the truth or falsity of these contending allegations on the basis of the evidence of the parties. Cases which

depend on disputed facts for decision cannot be brought immediately before appellate courts as they are not triers of facts. It goes without saying that when cases brought before the appellate courts do not involve factual but legal questions, a strict application of the rule of hierarchy of courts is not necessary. As the cases at bar merely concern the construction of the Constitution, the interpretation of the BOT Law and its Implementing Rules and Regulations on undisputed contractual provisions and government actions, and as the cases concern public interest, this Court resolved to take primary jurisdiction over them. This choice of action follows the consistent stance of this Court to settle any controversy with a high public interest component in a single proceeding and to leave no root or branch that could bear the seeds of future litigation. The suggested remand of the cases at bar to the trial court will stray away from this policy.
[7]

b. Legal Standing Respondent PIATCO stands pat with its argument that petitioners lack legal personality to file the cases at bar as they are not real parties in interest who are bound principally or subsidiarily to the PIATCO Contracts. Further, respondent PIATCO contends that petitioners failed to show any legally demandable or enforceable right to justify their standing to file the cases at bar. These arguments are not difficult to deflect. The determination of whether a person may institute an action or become a party to a suit brings to fore the concepts of real party in interest, capacity to sue and standing to sue. To the legally discerning, these three concepts are different although commonly directed towards ensuring that only certain parties can maintain an action. As defined in the Rules of Court, a real party in interest is the party who stands to be benefited or injured by the judgment in the suit or the party entitled to the avails of the suit. Capacity to sue deals with a situation where a person who may have a cause of action is disqualified from bringing a suit under applicable law or is incompetent to bring a suit or is under some legal disability that would prevent him from maintaining an action unless represented by a guardian ad litem. Legal standing is relevant in the realm of public law. In certain instances, courts have allowed private parties to institute actions challenging the validity of governmental action for violation of private rights or constitutional principles. In these cases, courts apply the doctrine of legal standing by determining whether the party has a direct and personal interest in the controversy and whether such party has sustained or is in imminent danger of sustaining an injury as a result of the act complained of, a standard which is distinct from the concept of real party in interest. Measured by this yardstick, the application of the doctrine on legal standing necessarily involves a preliminary consideration of the merits of the case and is not purely a procedural issue.
[8] [9] [10] [11] [12]

Considering the nature of the controversy and the issues raised in the cases at bar, this Court affirms its ruling that the petitioners have the requisite legal standing. The petitioners in G.R. Nos. 155001 and 155661 are employees of service providers operating at the existing international airports and employees of MIAA while petitioners-intervenors are service providers with existing contracts with MIAA and they will all sustain direct injury upon the implementation of the PIATCO Contracts. The 1997 Concession Agreement and the ARCA both provide that upon the commencement of operations at the NAIA IPT III, NAIA Passenger Terminals I and II will cease to be used as international passenger terminals. Further, the ARCA provides:
[13]

(d) For the purpose of an orderly transition, MIAA shall not renew any expired concession agreement relative to any service or operation currently being undertaken at the Ninoy Aquino International Airport Passenger Terminal I, or extend any concession agreement which may expire

subsequent hereto, except to the extent that the continuation of the existing services and operations shall lapse on or before the In-Service Date.
[14]

Beyond iota of doubt, the implementation of the PIATCO Contracts, which the petitioners and petitioners-intervenors denounce as unconstitutional and illegal, would deprive them of their sources of livelihood. Under settled jurisprudence, one's employment, profession, trade, or calling is a property right and is protected from wrongful interference. It is also self evident that the petitioning service providers stand in imminent danger of losing legitimate business investments in the event the PIATCO Contracts are upheld.
[15]

Over and above all these, constitutional and other legal issues with far-reaching economic and social implications are embedded in the cases at bar, hence, this Court liberally granted legal standing to the petitioning members of the House of Representatives. First, at stake is the build-operate-andtransfer contract of the countrys premier international airport with a projected capacity of 10 million passengers a year. Second, the huge amount of investment to complete the project is estimated to be P13,000,000,000.00. Third, the primary issues posed in the cases at bar demand a discussion and interpretation of the Constitution, the BOT Law and its implementing rules which have not been passed upon by this Court in previous cases. They can chart the future inflow of investment under the BOT Law. Before writing finis to the issue of legal standing, the Court notes the bid of new parties to participate in the cases at bar as respondents-intervenors, namely, (1) the PIATCO Employees and (2) NMTAI (collectively, the New Respondents-Intervenors). After the Courts Decision, the New Respondents-Intervenors filed separate Motions for Reconsideration-In-Intervention alleging prejudice and direct injury. PIATCO employees claim that they have a direct and personal interest [in the controversy]... since they stand to lose their jobs should the governments contract with PIATCO be declared null and void. NMTAI, on the other hand, represents itself as a corporation composed of responsible tax-paying Filipino citizens with the objective of protecting and sustaining the rights of its members to civil liberties, decent livelihood, opportunities for social advancement, and to a good, conscientious and honest government.
[16] [17]

The Rules of Court govern the time of filing a Motion to Intervene. Section 2, Rule 19 provides that a Motion to Intervene should be filed before rendition of judgment.... The New Respondents-Intervenors filed their separate motions after a decision has been promulgated in the present cases. They have not offered any worthy explanation to justify their late intervention. Consequently, their Motions for Reconsideration-In-Intervention are denied for the rules cannot be relaxed to await litigants who sleep on their rights. In any event, a sideglance at these late motions will show that they hoist no novel arguments. c. Failure to Implead an Indispensable Party PIATCO next contends that petitioners should have impleaded the Republic of the Philippines as an indispensable party. It alleges that petitioners sued the DOTC, MIAA and the DPWH in their own capacities or as implementors of the PIATCO Contracts and not as a contract party or as representatives of the Government of the Republic of the Philippines. It then leapfrogs to the conclusion that the absence of an indispensable party renders ineffectual all the proceedings subsequent to the filing of the complaint including the judgment.
[18]

PIATCOs allegations are inaccurate. The petitions clearly bear out that public respondents DOTC and MIAA were impleaded asparties to the PIATCO Contracts and not merely as their implementors. The separate petitions filed by the MIAA employees and members of the House of Representatives alleged that public
[19] [20]

respondents are impleaded herein because they either executed the PIATCO Contracts or are undertaking acts which are related to the PIATCO Contracts. They are interested and indispensable parties to this Petition. Thus, public respondents DOTC and MIAA were impleaded as parties to the case for having executed the contracts.
[21]

More importantly, it is also too late in the day for PIATCO to raise this issue. If PIATCO seriously views the non-inclusion of the Republic of the Philippines as an indispensable party as fatal to the petitions at bar, it should have raised the issue at the onset of the proceedings as a ground to dismiss. PIATCO cannot litigate issues on a piecemeal basis, otherwise, litigations shall be like a shore that knows no end. In any event, the Solicitor General, the legal counsel of the Republic, appeared in the cases at bar in representation of the interest of the government.
II

Pre-qualification of PIATCO The Implementing Rules provide for the unyielding standards the PBAC should apply to determine the financial capability of a bidder for pre-qualification purposes: (i) proof of the ability of the project proponent and/or the consortium to provide a minimum amount of equity to the project and (ii) a letter testimonial from reputable banks attesting that the project proponent and/or members of the consortium are banking with them, that they are in good financial standing, and that they have adequate resources. The evident intent of these standards is to protect the integrity and insure the viability of the project by seeing to it that the proponent has the financial capability to carry it out. As a further measure to achieve this intent, it maintains a certain debt-to-equity ratio for the project.
[22]

At the pre-qualification stage, it is most important for a bidder to show that it has the financial capacity to undertake the project by proving that it can fulfill the requirement on minimum amount of equity. For this purpose, the Bid Documents require in no uncertain terms: The minimum amount of equity to which the proponents financial capability will be based shall be thirty percent (30%) of the project cost instead of the twenty percent (20%) specified in Section 3.6.4 of the Bid Documents. This is to correlate with the required debt-to-equity ratio of 70:30 in Section 2.01a of the draft concession agreement. The debt portion of the project financing should not exceed 70% of the actual project cost.
[23]

In relation thereto, section 2.01 (a) of the ARCA provides: Section 2.01 Project Scope. The scope of the project shall include: (a) Financing the project at an actual Project cost of not less than Three Hundred Fifty Million United States Dollars (US$350,000,000.00) while maintaining a debt-to-equity ratio of 70:30, provided that if the actual Project costs should exceed the aforesaid amount, Concessionaire shall ensure that the debt-to-equity ratio is maintained;
[24]

Under the debt-to-equity restriction, a bidder may only seek financing of the NAIA IPT III Project up to 70% of the project cost. Thirty percent (30%) of the cost must come in the form of equity or investment by the bidder itself. It cannot be overly emphasized that the rules require a minimum amount of equity to ensure that a bidder is not merely an operator or implementor of the project but an investor with a substantial interest in its success. The minimum equity requirement also guarantees the Philippine government and the general public, who are the ultimate beneficiaries of the project, that a bidder will

not be indifferent to the completion of the project. The discontinuance of the project will irreparably damage public interest more than private interest. In the cases at bar, after applying the investment ceilings provided under the General Banking Act and considering the maximum amounts that each member of the consortium may validly invest in the project, it is daylight clear that the Paircargo Consortium, at the time of pre-qualification, had a net worth equivalent to only 6.08% of the total estimated project cost. By any reckoning, a showing by a bidder that at the time of prequalification its maximum funds available for investment amount to only 6.08% of the project cost is insufficient to satisfy the requirement prescribed by the Implementing Rules that the project proponent must have the ability to provide at least 30% of the total estimated project cost. In peso and centavo terms, at the time of pre-qualification, the Paircargo Consortium had maximum funds available for investment to the NAIA IPT III Project only in the amount of P558,384,871.55, when it had to show that it had the ability to provide at least P2,755,095,000.00. The huge disparity cannot be dismissed as of de minimis importance considering the high public interest at stake in the project.
[25]

PIATCO nimbly tries to sidestep its failure by alleging that it submitted not only audited financial statements but also testimonial letters from reputable banks attesting to the good financial standing of the Paircargo Consortium. It contends that in adjudging whether the Paircargo Consortium is a pre-qualified bidder, the PBAC should have considered not only its financial statements but other factors showing its financial capability. Anent this argument, the guidelines provided in the Bid Documents are instructive: 3.3.4 FINANCING AND FINANCIAL PREQUALIFICATIONS REQUIREMENTS Minimum Amount of Equity

Each member of the proponent entity is to provide evidence of networth in cash and assets representing the proportionate share in the proponent entity.Audited financial statements for the past five (5) years as a company for each member are to be provided. Project Loan Financing

Testimonial letters from reputable banks attesting that each of the members of the ownership entity are banking with them, in good financial standing and having adequate resources are to be provided.
[26]

It is beyond refutation that Paircargo Consortium failed to prove its ability to provide the amount of at least P2,755,095,000.00, or 30% of the estimated project cost. Its submission of testimonial letters attesting to its good financial standing will not cure this failure. At best, the said letters merely establish its credit worthiness or its ability to obtain loans to finance the project. They do not, however, prove compliance with the aforesaid requirement of minimum amount of equity in relation to the prescribed debt-to-equity ratio. This equity cannot be satisfied through possible loans. In sum, we again hold that given the glaring gap between the net worth of Paircargo and PAGS combined with the amount of maximum funds that Security Bank may invest by equity in a non-allied undertaking, Paircargo Consortium, at the time of pre-qualification, failed to show that it had the ability to provide 30% of the project cost and necessarily, its financial capability for the project cannot pass muster.
III

1997 Concession Agreement

Again, we brightline the principle that in public bidding, bids are submitted in accord with the prescribed terms, conditions and parameters laid down by government and pursuant to the requirements of the project bidded upon. In light of these parameters, bidders formulate competing proposals which are evaluated to determine the bid most favorable to the government. Once the contract based on the bid most favorable to the government is awarded, all that is left to be done by the parties is to execute the necessary agreements and implement them. There can be no substantial or material change to the parameters of the project, including the essential terms and conditions of the contract bidded upon, after the contract award. If there were changes and the contracts end up unfavorable to government, the public bidding becomes a mockery and the modified contracts must be struck down. Respondents insist that there were no substantial or material amendments in the 1997 Concession Agreement as to the technical aspects of the project, i.e., engineering design, technical soundness, operational and maintenance methods and procedures of the project or the technical proposal of PIATCO. Further, they maintain that there was no modification of the financial features of the project, i.e., minimum project cost, debt-toequity ratio, the operations and maintenance budget, the schedule and amount of annual guaranteed payments, or the financial proposal of PIATCO. A discussion of some of these changes to determine whether they altered the terms and conditions upon which the bids were made is again in order. a. Modification on Fees and Charges to be collected by PIATCO PIATCO clings to the contention that the removal of the groundhandling fees, airline office rentals and porterage fees from the category of fees subject to MIAA regulation in the 1997 Concession Agreement does not constitute a substantial amendment as these fees are not really public utility fees. In other words, PIATCO justifies the re-classification under the 1997 Concession Agreement on the ground that these fees are non-public utility revenues. We disagree. The removal of groundhandling fees, airline office rentals and porterage fees from the category of Public Utility Revenues under the draft Concession Agreement and its re-classification to Non-Public Utility Revenues under the 1997 Concession Agreement is significant and has far reaching consequence. The 1997 Concession Agreement provides that with respect to Non-Public Utility Revenues, which include groundhandling fees, airline office rentals and porterage fees, [PIATCO] may make any adjustments it deems appropriate without need for the consent of GRP or any government agency. In contrast, the draft Concession Agreement specifies these fees as part of Public Utility Revenues and can be adjusted only once every two years and in accordance with the Parametric Formula and the adjustments shall be made effective only after the written express approval of the MIAA. The Bid Documents themselves clearly provide:
[27] [28] [29]

4.2.3 Mechanism for Adjustment of Fees and Charges 4.2.3.1 Periodic Adjustment in Fees and Charges Adjustments in the fees and charges enumerated hereunder, whether or not falling within the purview of public utility revenues, shall be allowed only once every two years in accordance with the parametric formula attached hereto as Annex 4.2f. Provided that the adjustments shall be made effective only after the written express approval of MIAA. Provided, further, that MIAAs approval, shall be contingent only on conformity of the adjustments to the said parametric formula.

The fees and charges to be regulated in the above manner shall consist of the following: .... c) groundhandling fees; d) rentals on airline offices; .... (f) porterage fees; ....
[30]

The plain purpose in re-classifying groundhandling fees, airline office rentals and porterage fees as non-public utility fees is to remove them from regulation by the MIAA. In excluding these fees from government regulation, the danger to public interest cannot be downplayed. We are not impressed by the effort of PIATCO to depress this prejudice to public interest by its contention that in the 1997 Concession Agreement governing Non-Public Utility Revenues, it is provided that [PIATCO] shall at all times be judicious in fixing fees and charges constituting Non-Public Utility Revenues in order to ensure that End Users are not unreasonably deprived of services. PIATCO then peddles the proposition that the said provision confers upon MIAA full regulatory powers to ensure that PIATCO is charging non-public utility revenues at judicious rates. To the trained eye, the argument will not fly for it is obviously non sequitur. Fairly read, it is PIATCO that wields the power to determine the judiciousness of the said fees and charges. In the draft Concession Agreement the power was expressly lodged with the MIAA and any adjustment can only be done once every two years. The changes are not insignificant specks as interpreted by PIATCO.
[31] [32]

PIATCO further argues that there is no substantial change in the 1997 Concession Agreement with respect to fees and charges PIATCO is allowed to impose which are not covered by Administrative Order No. 1, Series of 1993 as the relevant provision of the 1997 Concession Agreement is practically identical with the draft Concession Agreement.
[33] [34]

We are not persuaded. Under the draft Concession Agreement, PIATCO may impose fees and charges other than those fees and charges previously imposed or collected at the Ninoy Aquino International Airport Passenger Terminal I, subject to the written approval of MIAA. Further, the draft Concession Agreement provides that MIAA reserves the right to regulate these new fees and charges if in its judgment the users of the airport shall be deprived of a free option for the services they cover. In contrast, under the 1997 Concession Agreement, the MIAA merely retained the right to approve any imposition of new fees and charges which were not previously collected at the Ninoy Aquino International Airport Passenger Terminal I. The agreement did not contain an equivalent provision allowing MIAA to reserve the right to regulate the adjustments of these new fees and charges. PIATCO justifies the amendment by arguing that MIAA can establish terms before approval of new fees and charges, inclusive of the mode for their adjustment.
[35] [36] [37]

PIATCOs stance is again a strained one. There would have been no need for an amendment if there were no change in the power to regulate on the part of MIAA. The deletion of MIAAs reservation of its right to regulate the price adjustments of new fees and charges can have no other purpose but to dilute the extent of MIAAs regulation in

the collection of these fees. Again, the amendment diminished the authority of MIAA to protect the public interest in case of abuse by PIATCO. b. Assumption by the Government of the liabilities of PIATCO in the event of the latters default PIATCO posits the thesis that the new provisions in the 1997 Concession Agreement in case of default by PIATCO on its loans were merely meant to prescribe and limit the rights of PIATCOs creditors with regard to the NAIA Terminal III. PIATCO alleges that Section 4.04 of the 1997 Concession Agreement simply provides that PIATCOs creditors have no right to foreclose the NAIA Terminal III. We cannot concur. The pertinent provisions of the 1997 Concession Agreement state: Section 4.04 .... (b) In the event Concessionaire should default in the payment of an Attendant Liability, and the default has resulted in the acceleration of the payment due date of the Attendant Liability prior to its stated date of maturity, the Unpaid Creditors and Concessionaire shall immediately inform GRP in writing of such default. GRP shall, within one hundred eighty (180) Days from receipt of the joint written notice of the Unpaid Creditors and Concessionaire, either (i) take over the Development Facility and assume the Attendant Liabilities, or (ii) allow the Unpaid Creditors, if qualified, to be substituted as concessionaire and operator of the Development Facility in accordance with the terms and conditions hereof, or designate a qualified operator acceptable to GRP to operate the Development Facility, likewise under the terms and conditions of this Agreement; Provided that if at the end of the 180-day period GRP shall not have served the Unpaid Creditors and Concessionaire written notice of its choice, GRP shall be deemed to have elected to take over the Development Facility with the concomitant assumption of Attendant Liabilities. (c) If GRP should, by written notice, allow the Unpaid Creditors to be substituted as concessionaire, the latter shall form and organize a concession company qualified to take over the operation of the Development Facility. If the concession company should elect to designate an operator for the Development Facility, the concession company shall in good faith identify and designate a qualified operator acceptable to GRP within one hundred eighty (180) days from receipt of GRPs written notice. If the concession company, acting in good faith and with due diligence, is unable to designate a qualified operator within the aforesaid period, then GRP shall at the end of the 180-day period take over the Development Facility and assume Attendant Liabilities. A plain reading of the above provision shows that it spells out in limpid language the obligation of government in case of default by PIATCO on its loans. There can be no blinking from the fact that in case of PIATCOs default, the government will assume PIATCOs Attendant Liabilities as defined in the 1997 Concession Agreement. This obligation is not found in the draft Concession Agreement and the change runs roughshod to the spirit and policy of the BOT Law which was crafted precisely to prevent government from incurring financial risk.
[38]

Assignment.

In any event, PIATCO pleads that the entire agreement should not be struck down as the 1997 Concession Agreement contains a separability clause. The plea is bereft of merit. The contracts at bar which made a mockery of the bidding process cannot be upheld and must be annulled in their entirety for violating law and public policy. As demonstrated, the contracts were substantially amended after their

award to the successful bidder on terms more beneficial to PIATCO and prejudicial to public interest. If this flawed process would be allowed, public bidding will cease to be competitive and worse, government would not be favored with the best bid. Bidders will no longer bid on the basis of the prescribed terms and conditions in the bid documents but will formulate their bid in anticipation of the execution of a future contract containing new and better terms and conditions that were not previously available at the time of the bidding. Such a public bidding will not inure to the public good. The resulting contracts cannot be given half a life but must be struck down as totally lawless.
IV.

Direct Government Guarantee The respondents further contend that the PIATCO Contracts do not contain direct government guarantee provisions. They assert that section 4.04 of the ARCA, which superseded sections 4.04(b) and (c), Article IV of the 1997 Concession Agreement, is but a clarification and explanation of the securities allowed in the bid documents. They allege that these provisions merely provide for compensation to PIATCO in case of a government buy-out or takeover of NAIA IPT III. The respondents, particularly respondent PIATCO, also maintain that the guarantee contained in the contracts, if any, is an indirect guarantee allowed under the BOT Law, as amended.
[39] [40] [41]

We do not agree. Section 4.04(c), Article IV of the ARCA should be read in conjunction with section 1.06, Article I, in the same manner that sections 4.04(b) and (c), Article IV of the 1997 Concession Agreement should be related to Article 1.06 of the same contract. Section 1.06, Article I of the ARCA and its counterpart provision in the 1997 Concession Agreement define in no uncertain terms the meaning of attendant liabilities. They tell us of the amounts that the Government has to pay in the event respondent PIATCO defaults in its loan payments to its Senior Lenders and no qualified transferee or nominee is chosen by the Senior Lenders or is willing to take over from respondent PIATCO.
[42] [43]

A reasonable reading of all these relevant provisions would reveal that the ARCA made the Government liable to pay all amounts ...from time to time owed or which may become owing by Concessionaire [PIATCO] to Senior Lenders or any other persons or entities who have provided, loaned, or advanced funds or provided financial facilities to Concessionaire [PIATCO] for the Project [NAIA Terminal 3]. These amounts include without limitation, all principal, interest, associated fees, charges, reimbursements, and other related expenses... whether payable at maturity, by acceleration or otherwise. They further include amounts owed by respondent PIATCO to its professional consultants and advisers, suppliers, contractors and sub-contractors as well as fees, charges and expenses of any agents or trustees of the Senior Lenders or any other persons or entities who have provided loans or financial facilities to respondent PIATCO in relation to NAIA IPT III. The counterpart provision in the 1997 Concession Agreement specifying the attendant liabilities that the Government would be obligated to pay should PIATCO default in its loan obligations is equally onerous to the Government as those contained in the ARCA. According to the 1997 Concession Agreement, in the event the Government is forced to prematurely take over NAIA IPT III as a result of respondent PIATCOs default in the payment of its loan obligations to its Senior Lenders, it would be liable to pay the following amounts as attendant liabilities:
[44] [45] [46]

Section 1.06.

Attendant Liabilities

Attendant Liabilities refer to all amounts recorded and from time to time outstanding in the books of the Concessionaire as owing to Unpaid Creditors who have provided, loaned or advanced funds actually used for the Project, including all interests, penalties, associated fees,

charges, surcharges, indemnities, reimbursements and other related expenses, and further including amounts owed by Concessionaire to its suppliers, contractors and sub-contractors.
[47]

These provisions reject respondents contention that what the Government is obligated to pay, in the event that respondent PIATCO defaults in the payment of its loans, is merely termination payment or just compensation for its takeover of NAIA IPT III. It is clear from said section 1.06 that what the Government would pay is the sum total of all the debts, including all interest, fees and charges, that respondent PIATCO incurred in pursuance of the NAIA IPT III Project. This reading is consistent with section 4.04 of the ARCA itself which states that the Government shall make a termination payment to Concessionaire [PIATCO] equal to the Appraised Value (as hereinafter defined) of the Development Facility [NAIA Terminal III] or the sum of the Attendant Liabilities, if greater. For sure, respondent PIATCO will not receive any amount less than sufficient to cover its debts, regardless of whether or not the value of NAIA IPT III, at the time of its turn over to the Government, may actually be less than the amount of PIATCOs debts. The scheme is a form of direct government guarantee for it is undeniable that it leaves the government no option but to pay the attendant liabilities in the event that the Senior Lenders are unable or unwilling to appoint a qualified nominee or transferee as a result of PIATCOs default in the payment of its Senior Loans. As we stressed in our Decision, this Court cannot depart from the legal maxim that those that cannot be done directly cannot be done indirectly. This is not to hold, however, that indirect government guarantee is not allowed under the BOT Law, as amended. The intention to permit indirect government guarantee is evident from the Senate deliberations on the amendments to the BOT Law. The idea is to allow for reasonable government undertakings, such as to authorize the project proponent to undertake related ventures within the project area, in order to encourage private sector participation in development projects. An example cited by then Senator Gloria Macapagal-Arroyo, one of the sponsors of R.A. No. 7718, is the Mandaluyong public market which was built under the Build-and-Transfer (BT) scheme wherein instead of the government paying for the transfer, the project proponent was allowed to operate the upper floors of the structure as a commercial mall in order to recoup their investments. It was repeatedly stressed in the deliberations that in allowing indirect government guarantee, the law seeks to encourage both the government and the private sector to formulate reasonable and innovative government undertakings in pursuance of BOT projects. In no way, however, can the government be made liable for the debts of the project proponent as this would be tantamount to a direct government guarantee which is prohibited by the law. Such liability would defeat the very purpose of the BOT Law which is to encourage the use of private sector resources in the construction, maintenance and/or operation of development projects with no, or at least minimal, capital outlay on the part of the government.
[48] [49]

The respondents again urge that should this Court affirm its ruling that the PIATCO Contracts contain direct government guarantee provisions, the whole contract should not be nullified. They rely on the separability clause in the PIATCO Contracts. We are not persuaded. The BOT Law and its implementing rules provide that there are three (3) essential requisites for an unsolicited proposal to be accepted: (1) the project involves a new concept in technology and/or is not part of the list of priority projects, (2) no direct government guarantee, subsidy or equity is required, and (3) the government agency or local government unit has invited by publication other interested parties to a public bidding and conducted the same. The failure to fulfill any of the requisites will result in the denial of the proposal. Indeed, it is further provided that a direct government guarantee, subsidy or equity provision will necessarily disqualify a proposal from being treated and accepted as an unsolicited proposal. In fine, the mere inclusion of a direct
[50] [51]

government guarantee in an unsolicited proposal is fatal to the proposal. There is more reason to invalidate a contract if a direct government guarantee provision is inserted later in the contract via a backdoor amendment. Such an amendment constitutes a crass circumvention of the BOT Law and renders the entire contract void. Respondent PIATCO likewise claims that in view of the fact that other BOT contracts such as the JANCOM contract, the Manila Water contract and the MRT contract had been considered valid, the PIATCO contracts should be held valid as well. There is no parity in the cited cases. For instance, a reading of Metropolitan Manila Development Authority v. JANCOM Environmental Corporation will show that its issue is different from the issues in the cases at bar. In the JANCOM case, the main issue is whether there is a perfected contract between JANCOM and the Government. The resolution of the issue hinged on the following: (1) whether the conditions precedent to the perfection of the contract were complied with; (2) whether there is a valid notice of award; and (3) whether the signature of the Secretary of the Department of Environment and Natural Resources is sufficient to bind the Government. These issue and sub-issues are clearly distinguishable and different. For one, the issue of direct government guarantee was not considered by this Court when it held the JANCOM contract valid, yet, it is a key reason for invalidating the PIATCO Contracts. It is a basic principle in law that cases with dissimilar facts cannot have similar disposition.
[52] [53]

This Court, however, is not unmindful of the reality that the structures comprising the NAIA IPT III facility are almost complete and that funds have been spent by PIATCO in their construction. For the government to take over the said facility, it has to compensate respondent PIATCO as builder of the said structures. The compensation must be just and in accordance with law and equity for the government can not unjustly enrich itself at the expense of PIATCO and its investors.
II.

Temporary takeover of business affected with public interest in times of national emergency Section 17, Article XII of the 1987 Constitution grants the State in times of national emergency the right to temporarily take over the operation of any business affected with public interest. This right is an exercise of police power which is one of the inherent powers of the State. Police power has been defined as the "state authority to enact legislation that may interfere with personal liberty or property in order to promote the general welfare." It consists of two essential elements. First, it is an imposition of restraint upon liberty or property. Second, the power is exercised for the benefit of the common good. Its definition in elastic terms underscores its all-encompassing and comprehensive embrace. It is and still is the most essential, insistent, and illimitable of the States powers. It is familiar knowledge that unlike the power of eminent domain, police power is exercised without provision for just compensation for its paramount consideration is public welfare.
[54] [55] [56] [57]

It is also settled that public interest on the occasion of a national emergency is the primary consideration when the government decides to temporarily take over or direct the operation of a public utility or a business affected with public interest. The nature and extent of the emergency is the measure of the duration of the takeover as well as the terms thereof. It is the State that prescribes such reasonable terms which will guide the implementation of the temporary takeover as dictated by the exigencies of the time. As we ruled in our Decision, this power of the State can not be negated by any party nor should its exercise be a source of obligation for the State.

Section 5.10(c), Article V of the ARCA provides that respondent PIATCO shall be entitled to reasonable compensation for the duration of the temporary takeover by GRP, which compensation shall take into account the reasonable cost for the use of the Terminal and/or Terminal Complex. It clearly obligates the government in the exercise of its police power to compensate respondent PIATCO and this obligation is offensive to the Constitution. Police power can not be diminished, let alone defeated by any contract for its paramount consideration is public welfare and interest.
[58] [59]

Again, respondent PIATCOs reliance on the case of Heirs of Suguitan v. City of Mandaluyong to justify its claim for reasonable compensation for the Governments temporary takeover of NAIA IPT III in times of national emergency is erroneous. What was involved inHeirs of Suguitan is the exercise of the states power of eminent domain and not of police power, hence, just compensation was awarded. The cases at bar will not involve the exercise of the power of eminent domain.
[60]

III.

Monopoly Section 19, Article XII of the 1987 Constitution mandates that the State prohibit or regulate monopolies when public interest so requires. Monopolies are not per se prohibited. Given its susceptibility to abuse, however, the State has the bounden duty to regulate monopolies to protect public interest. Such regulation may be called for, especially in sensitive areas such as the operation of the countrys premier international airport, considering the public interest at stake. By virtue of the PIATCO contracts, NAIA IPT III would be the only international passenger airport operating in the Island of Luzon, with the exception of those already operating in Subic Bay Freeport Special Economic Zone (SBFSEZ), Clark Special Economic Zone (CSEZ) and in Laoag City. Undeniably, the contracts would create a monopoly in the operation of an international commercial passenger airport at the NAIA in favor of PIATCO. The grant to respondent PIATCO of the exclusive right to operate NAIA IPT III should not exempt it from regulation by the government. The government has the right, indeed the duty, to protect the interest of the public. Part of this duty is to assure that respondent PIATCOs exercise of its right does not violate the legal rights of third parties. We reiterate our ruling that while the service providers presently operating at NAIA Terminals I and II do not have the right to demand for the renewal or extension of their contracts to continue their services in NAIA IPT III, those who have subsisting contracts beyond the InService Date of NAIA IPT III can not be arbitrarily or unreasonably treated. Finally, the Respondent Congressmen assert that at least two (2) committee reports by the House of Representatives found the PIATCO contracts valid and contend that this Court, by taking cognizance of the cases at bar, reviewed an action of a co-equal body. They insist that the Court must respect the findings of the said committees of the House of Representatives. With due respect, we cannot subscribe to their submission. There is a fundamental difference between a case in court and an investigation of a congressional committee. The purpose of a judicial proceeding is to settle the dispute in controversy by adjudicating the legal rights and obligations of the parties to the case. On the other hand, a congressional investigation is conducted in aid of legislation. Its aim is to assist and recommend to the legislature a possible action that the body may take with regard to a particular issue, specifically as to whether or not to enact a new law or amend an existing one. Consequently, this Court cannot treat the findings in a congressional committee report as binding because the facts elicited in congressional hearings are not subject to the rigors of the Rules of Court on admissibility of evidence. The Court in assuming jurisdiction over the petitions at bar simply performed
[61] [62] [63]

its constitutional duty as the arbiter of legal disputes properly brought before it, especially in this instance when public interest requires nothing less. WHEREFORE, the motions for reconsideration filed by the respondent PIATCO, respondent Congressmen and the respondents-in-intervention are DENIED with finality. SO ORDERED.

SECOND DIVISION

FIESTA WORLD MALL CORPORATION, Petitioner,

G.R. NO. 152471 Present: PUNO, J., Chairperson, SANDOVAL-GUTIERREZ, CORONA, * AZCUNA, and GARCIA, JJ.

- versus -

LINBERG PHILIPPINES, INC., Respondent.

Promulgated: August 18, 2006

x---------------------------------------------------------------------------------------------x

DECISION

SANDOVAL-GUTIERREZ, J.:

For our resolution is the instant Petition for Review on Certiorari[1] assailing the Decision[2] dated December 12, 2001 and Resolution[3] dated February 28, 2002 rendered by the Court of Appeals in CA-G.R. SP No. 63671, entitled City, Fiesta World Mall Corporation, petitioner, Inc., respondents. The facts of this case are: versus Hon. Florito S. Macalino, Presiding Judge and Linberg Philippines,

of the Regional Trial Court (RTC), Branch 267,Pasig

Fiesta World Mall Corporation, petitioner, owns and operates Fiesta World Mall located at Barangay Maraouy, Lipa City; while Linberg Philippines, Inc., respondent, is a corporation that builds and operates power plants.

On January 19, 2000, respondent filed with the Regional Trial Court (RTC), Branch 267, Pasig City, a Complaint for Sum of Money against petitioner, docketed as Civil Case No. 67755. The complaint alleges that on November 12, 1997, petitioner and

respondent executed a build-own-operate agreement, entitled Contract Agreement for Power Supply Services, 3.8 MW Base Load Power Plant[4] (the Contract). Under this Contract, respondent will construct, at its own cost, and operate as owner a power plant, and to supply petitioner power/electricity at its shopping mall in Lipa City. Petitioner, on the other hand,will pay respondent energy fees to be computed in accordance with the Seventh Schedule of the Contract, the pertinent portions of which provide:
2.1 E1 E2 Where: E1 & E2 Energy fees in pesos for the billing period. Where E1 is based on the minimum energy off-take of 988,888 kw-hrs. permonth and E2 is based on the actual meter reading less the minimum off-take. Base energy rate at Ps 2.30/Kw-Hr billing rate based on the exchange rate of Ps 26.20 to the US dollar, and with fuel oil to be supplied by LINBERG at its own cost. The base energy rate is subject to exchange rate adjustment accordingly to the formula as follows: 0.6426 + 0.3224 Pn + 1.345 Fn 26.40 4.00 xxx 988,888 kw-hr x BER (ED-988,888) x BER

BER

BER

WHERE: Pn is defined as the average of the Bangko Sentral ng Pilipinas published dealing rates for thirty (30) trading days immediately prior to the new billing rate. Weighted average of fuel price per liter based on the average of the last three (3) purchases made by LINBERG as evidenced by purchase invoices. Energy delivered in kw-hrs per meter reading.

Fn

ED 3.

Minimum Energy Off-Take

The energy fees payable to LINBERG shall be on the basis of actual KWH generated by the plant. However, if the actual KWH generated is less than the minimum energy off-take level, the calculation of the energy fees shall be made as if LINBERG has generated the minimum energy off-take level of 988,888 KW-HR per month.

The complaint further alleges that respondent constructed the power plant in Lipa City at a cost of aboutP130,000,000.00. In November 1997, the power plant became operational and

started supplying power/electricity to petitioners shopping mall in Lipa City. In December 1997, respondent started billing petitioner. As of May 21, 1999, petitioners unpaid obligation amounted to P15,241,747.58, exclusive of interest. However, petitioner questioned the said amount and refused to pay despite respondents repeated demands.

In

its

Answer with Compulsory Counterclaim, petitioner specifically denied

the

allegations in the complaint, claiming that respondent failed to fulfill its obligations under the Contract by failing to supply all its power/fuel needs. From November 10, 1998 until May 21, 1999, petitioner personally shouldered the cost of fuel. Petitioner also disputed the amount of energy feesspecified in the billings made by respondent because the latter failed to monitor, measure, and record the quantities of electricity delivered by taking photographs of the electricity meter reading prior to the issuance of its invoices and billings, also in violation of the Contract.[5] Moreover, in the computation of the electrical billings, the minimum offtake of energy (E2) was based solely on the projected consumption as computed by respondent. However, based on petitionersactual experience, it could not consume the energy pursuant to the minimum off-take even if it kept open all its lights and operated all its machinery and equipment for twenty-four hours a day for a month. This fact was admitted by respondent. While both parties had discussions on the questioned billings, however, there were no earnest efforts to resolve the differences in accordance with the arbitration clause provided for in the Contract.

Finally, as a special affirmative defense in its answer, petitioner alleged that respondents filing of the complaint ispremature and should be dismissed on the ground of non-compliance with paragraph 7.4 of the Contract which provides:
7.4 Disputes If FIESTA WORLD disputes the amount specified by any invoice, it shall pay the undisputed amount on or before such date(s), and the disputed amount shall be resolved by arbitration of three (3) persons, one (1) by mutual choice, while the other two (2) to be each chosen by the parties themselves, within fourteen (14) days after the due date for such invoice and all or any part of the disputed amount paid to LINBERG shall be paid together with interest pursuant to Article XXV from the due date of the invoice. It is agreed, however, that both parties must resolve the disputes within thirty (30) days, otherwise any delay in payment resulting to loss to LINBERG when converted to $US as a result of depreciation of the Pesos shall be for the account of FIESTA WORLD. Corollarily, in case of erroneous billings, however, LINBERG shall be liable to pay FIESTA WORLD for the cost of such deterioration, plus interest computed pursuant to Art. XXV from the date FIESTA WORLD paid for the erroneous billing. (Underscoring supplied)

Thereafter, petitioner filed a Motion to Set Case for Preliminary Hearing on the ground that respondent violated thearbitration clause provided in the Contract, thereby rendering its cause of action premature.

This was opposed by respondent, claiming that paragraph 7.4 of the Contract on arbitration is not the provision applicableto this case; and that since the parties failed to settle their dispute, then respondent may resort to court action pursuant toparagraph 17.2 of the same Contract which provides:
17.2 Amicable Settlement The parties hereto agree that in the event there is any dispute or difference between them arising out of this Agreement or in the interpretation of any of the provisions hereto, they shall endeavor to meet together in an effort to resolve such dispute by discussion between them but failing such resolution the Chief Executives of LINBERG and FIESTA WORLD shall meet to resolve such dispute or difference and the joint decision of such shall be binding upon the parties hereto, and in the event that a settlement of any such dispute or difference is not reached, then the provisions of Article XXI shall apply.

Article XXI, referred to in paragraph 17.2 above, reads:

ARTICLE XXI JURISDICTION The parties hereto submit to the exclusive jurisdiction of the proper courts of Pasig City, Republic of the Philippines for the hearing and determination of any action or proceeding arising out of or in connection with this Agreement.

In its Order dated October 3, 2000, the trial court denied petitioners motion for lack of merit.

Petitioner then filed a Motion for Reconsideration but it was denied in an Order dated January 11, 2001. Dissatisfied, petitioner elevated the matter to the Court of Appeals via a Petition for Certiorari, docketed as CA-G.R. SP No. 63671. On December 12, 2001, the appellate court rendered its Decision dismissing the petition and affirming the challenged Orders of the trial court.

Petitioners Motion for Reconsideration of the above Decision was likewise denied by the appellate court in itsResolution[6] dated February 28, 2002.

Hence, the instant Petition for Review on Certiorari.

The sole issue for our resolution is whether the filing with the trial court of respondents complaint is premature.

Paragraph 7.4 of the Contract, quoted earlier, mandates that should petitioner dispute any amount of energy fees in theinvoice and billings made by respondent, the same shall be resolved by arbitration of three (3) persons, one (1) by mutual choice, while the other two (2) to be each chosen by the parties themselves. The parties, in incorporating such agreement in their Contract, expressly intended that the said matter in dispute must first be resolved by an arbitration panel before it reaches the court. They made such arbitration mandatory.

It is clear from the records that petitioner disputed the amount of energy fees demanded by respondent. However,respondent, without prior recourse to arbitration as required in the Contract, filed directly with the trial court its complaint, thus violating the arbitration clause in the Contract. It bears stressing that such arbitration agreement is the law between the parties. Since that agreement is binding between them, they are expected to abide by it in good faith.[7] And because it covers the dispute between them in the present case, either of them may compel the other to arbitrate.[8] Thus, it is well within petitioners right to demand recourse to arbitration.

We cannot agree with respondent that it can directly seek judicial recourse by filing an action against petitioner simply because both failed to settle their differences amicably. Suffice it to state that there is nothing in the Contract providing that the parties may dispense with the arbitration clause. Article XXI on jurisdiction cited by respondent, i.e., that the parties hereto submit to the exclusive jurisdiction of the proper courts of Pasig City merely provides for the venue of any actionarising out of or in connection with the stipulations of the parties in the Contract.

Moreover, we note that the computation of the energy fees disputed by petitioner also involves technical matters that arebetter left to an arbitration panel who has expertise in those areas. Alternative dispute resolution methods or ADRs like arbitration, mediation, negotiation and conciliation are encouraged by this Court. By enabling the 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. [9] To brush aside such agreement providing for arbitration in case of disputes between the parties would be a step backward. As we held in BF Corporation v. Court of Appeals,[10]
It should be noted that in this jurisdiction, arbitration has been held valid and constitutional. Even before the approval on June 19, 1953of Republic Act No. 876 (The Arbitration Law), this Court has countenanced the settlement of disputes through arbitration (Puromines, Inc. v. Court of Appeals, G.R. No. 91228, March 22, 1993, 220 SCRA 281-290). Republic Act No. 876 was adopted to supplement the New Civil Codes provisions on arbitration (Chung Fu Industries Phils., Inc. v. Court of Appeals, G.R. No. 92683, February 25, 1992, 206 SCRA 545, 551). Its potentials as one of the alternative dispute resolution methods that are now rightfully vaunted as the wave of the future in international relations, is recognized worldwide. To brush aside a contractual agreement calling for arbitration in case of disagreement between the parties would therefore be a step backward.

In this connection, since respondent has already filed a complaint with the trial court without prior recourse to arbitration, the proper procedure to enable an arbitration panel to resolve the parties dispute pursuant to their Contract is for the trial court to stay the proceedings.[11] After the arbitration proceeding has been pursued and completed, then the trial court may confirm the award made by the arbitration panel.[12]

In sum, we hold that the Court of Appeals erred in disregarding the arbitration clause in the parties Contract. WHEREFORE, we GRANT the instant petition. The assailed Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 63671 are REVERSED. The parties are ordered to submit their controversy to the arbitration panel pursuant to paragraph 7.4 of the Contract. The Regional Trial Court, Branch 267, Pasig City is directed to suspend the proceedings in Civil Case No. 67755 until after the Arbitration Panel shall have resolved the controversy and submitted its report to the trial court. Costs against respondent.

SO ORDERED.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-37878 November 25, 1932

MANILA ELECTRIC COMPANY, petitioner, vs. PASAY TRANSPORTATION COMPANY, INC., ET AL., respondents. Ross, Lawrence & Selph for petitioner. Rivera & Francisco for respondent Pasay Transportation Co. P. A. Remigio for respondent E. B. Gutierrez. A. M. Zarate for respondent Raymundo Transportation Co. Vicente Ampil for respondent J. Ampil.

MALCOLM, J.: The preliminary and basic question presented by the petition of the Manila Electric Company, requesting the members of the Supreme Court, sitting as a board of arbitrators, to fix the terms upon which certain transportation companies shall be permitted to use the Pasig bridge of the Manila Electric Company and the compensation to be paid to the Manila Electric Company by such transportation companies, relates to the validity of section 11 of Act No. 1446 and to the legal right of the members of the Supreme Court, sitting as a board of arbitrators, to act on the petition. Act No. 1446 above referred to is entitled. "An Act granting a franchise to Charles M. Swift to construct, maintain, and operate an electric railway, and to construct, maintain, and operate an electric light, heat, and power system from a point in the City of Manila in an easterly direction to the town of Pasig, in the Province of Rizal." Section 11 of the Act provides: "Whenever any franchise or right of way is granted to any other person or corporation, now or hereafter in existence, over portions of the lines and tracks of the grantee herein, the terms on which said other person or corporation shall use such right of way, and the compensation to be paid to the grantee herein by such other person or corporation for said use, shall be fixed by the members of the Supreme Court, sitting as a board of arbitrators, the decision of a majority of whom shall be final." When the petition of the Manila Electric Company was filed in this court, it was ordered that the petitioner be required to serve copies on the Attorney-General and the transportation companies affected by the petition. Thereafter, the Attorney-General disclaimed any interest in the proceedings, and opposition was entered to the petition by a number of public utility operators. On the submission of memoranda after an oral hearing, the petition was made ready for resolution. Examining the statutory provision which is here invoked, it is first noted that power is attempted to be granted to the members of the Supreme Court sitting as a board of arbitrators and to the Supreme Court as an entity. It is next seen that the decision of a majority of the members of the Supreme Court is made final. And it is finally observed that the franchise granted the Manila Electric Company by the Government of the Philippine Islands, although only a contract between the parties to it, is now made to effect the rights of persons not signatories to the covenant. The law calls for arbitration which represents a method of the parties' own choice. A submission to arbitration is a contract. The parties to an arbitration agreement may not oust the courts of jurisdiction of the matters submitted to arbitration. These are familiar rules which find support in articles 1820 and 1821 of the Civil Code. Citation of authority is hardly

necessary, except that it should be recalled that in the Philippines, and in the United States for that matter, it has been held that a clause in a contract, providing that all matters in dispute between the parties shall be referred to arbitrators and to them alone, is contrary to public policy and cannot oust the courts of jurisdiction (Wahl and Wahl vs. Donaldson, Sims & Co. [1903], 2 Phil., 301; Puentebella vs. Negros Coal Co. [1927], 50 Phil., 69; Vega vs. San Carlos Milling Co. [1924], 51 Phil., 908; District of Columbia vs. Bailey [1897], 171 U. S., 161.) We would not be understood as extending the principles governing arbitration and award too far. Unless the arbitration agreement is such as absolutely to close the doors of the courts against the parties, the courts should look with favor upon such amicable arrangements. We can also perceive a distinction between a private contract for submission to arbitration and agreements to arbitrate falling within the terms of a statute enacted for such purpose and affecting others than the parties to a particular franchise. Here, however, whatever else may be said in extenuation, it remains true that the decision of the board of arbitrators is made final, which if literally enforced would leave a public utility, not a party to the contract authorized by Act No. 1446, without recourse to the courts for a judicial determination of the question in dispute. Counsel for the petitioner rely principally on the case of Tallassee Falls Mfg. Co. vs. Commissioner's Court[1908], 158 Ala., 263. It was there held that an Act of a state legislature authorizing the commissioners' court of a certain county to regulate and fix the rate of toll to be charged by the owners of a bridge is not unconstitutional as delegating legislative power to the courts. But that is not the question before us. Here the question is not one of whether or not there has been a delegation of legislative authority to a court. More precisely, the issue concerns the legal right of the members of the Supreme Court, sitting as a board of arbitrators the decision of a majority of whom shall be final, to act in that capacity. We run counter to this dilemma. Either the members of the Supreme Court, sitting as a board of arbitrators, exercise judicial functions, or the members of the Supreme Court, sitting as board of arbitrators, exercise administrative or quasi judicial functions. The first case would appear not to fall within the jurisdiction granted the Supreme Court. Even conceding that it does, it would presuppose the right to bring the matter in dispute before the courts, for any other construction would tend to oust the courts of jurisdiction and render the award a nullity. But if this be the proper construction, we would then have the anomaly of a decision by the members of the Supreme Court, sitting as a board of arbitrators, taken therefrom to the courts and eventually coming before the Supreme Court, where the Supreme Court would review the decision of its members acting as arbitrators. Or in the second case, if the functions performed by the members of the Supreme Court, sitting as a board of arbitrators, be considered as administrative or quasi judicial in nature, that would result in the performance of duties which the members of the Supreme Court could not lawfully take it upon themselves to perform. The present petition also furnishes an apt illustration of another anomaly, for we find the Supreme Court as a court asked to determine if the members of the court may be constituted a board of arbitrators, which is not a court at all.
l awphil.net

The Supreme Court of the Philippine Islands represents one of the three divisions of power in our government. It is judicial power and judicial power only which is exercised by the Supreme Court. Just as the Supreme Court, as the guardian of constitutional rights, should not sanction usurpations by any other department of the government, so should it as strictly confine its own sphere of influence to the powers expressly or by implication conferred on it by the Organic Act. The Supreme Court and its members should not and cannot be required to exercise any power or to perform any trust or to assume any duty not pertaining to or connected with the administering of judicial functions. The Organic Act provides that the Supreme Court of the Philippine Islands shall possess and exercise jurisdiction as heretofore provided and such additional jurisdiction as shall hereafter be prescribed by law (sec. 26). When the Organic Act speaks of the exercise of "jurisdiction" by the Supreme Court, it could not only mean the exercise of "jurisdiction" by the Supreme Court acting as a court, and could hardly mean the exercise of "jurisdiction" by

the members of the Supreme Court, sitting as a board of arbitrators. There is an important distinction between the Supreme Court as an entity and the members of the Supreme Court. A board of arbitrators is not a "court" in any proper sense of the term, and possesses none of the jurisdiction which the Organic Act contemplates shall be exercised by the Supreme Court.
l awph!l.net

In the last judicial paper from the pen of Chief Justice Taney, it was said: The power conferred on this court is exclusively judicial, and it cannot be required or authorized to exercise any other. . . . Its jurisdiction and powers and duties being defined in the organic law of the government, and being all strictly judicial, Congress cannot require or authorize the court to exercise any other jurisdiction or power, or perform any other duty. . . . The award of execution is a part, and an essential part of every judgment passed by a court exercising judicial power. It is no judgment, in the legal sense of the term, without it. Without such an award the judgment would be inoperative and nugatory, leaving the aggrieved party without a remedy. It would be merely an opinion, which would remain a dead letter, and without any operation upon the rights of the parties, unless Congress should at some future time sanction it, and pass a law authorizing the court to carry its opinion into effect. Such is not the judicial power confided to this court, in the exercise of its appellate jurisdiction; yet it is the whole power that the court is allowed to exercise under this act of Congress. . . . And while it executes firmly all the judicial powers entrusted to it, the court will carefully abstain from exercising any power that is not strictly judicial in its character, and which is not clearly confided to it by the Constitution. . . . (Gordon vs. United States [1864], 2 Wall., 561; 117 U. S., 697 Appendix.) Confirming the decision to the basic question at issue, the Supreme Court holds that section 11 of Act No. 1446 contravenes the maxims which guide the operation of a democratic government constitutionally established, and that it would be improper and illegal for the members of the Supreme Court, sitting as a board of arbitrators, the decision of a majority of whom shall be final, to act on the petition of the Manila Electric Company. As a result, the members of the Supreme Court decline to proceed further in the matter.

SECOND DIVISION [G.R. No. 175404, January 31, 2011] CARGILL PHILIPPINES, INC., PETITIONER, VS. SAN FERNANDO REGALA TRADING, INC., RESPONDENT. DECISION
PERALTA, J.: Before us is a petition for review on certiorari seeking to reverse and set aside the Decision[1] dated July 31, 2006 and the Resolution[2] dated November 13, 2006 of the Court of Appeals (CA) in CA G.R. SP No. 50304. The factual antecedents are as follows: On June 18, 1998, respondent San Fernando Regala Trading, Inc. filed with the Regional Trial Court (RTC) of Makati City a Complaint for Rescission of Contract with Damages[3] against petitioner Cargill Philippines, Inc. In its Complaint, respondent alleged that it was engaged in buying and selling of molasses and petitioner was one of its various sources from whom it purchased molasses. Respondent alleged that it entered into a contract dated July 11, 1996 with petitioner, wherein it was agreed upon that respondent would purchase from petitioner 12,000 metric tons of Thailand origin cane blackstrap molasses at the price of US$192 per metric ton; that the delivery of the molasses was to be made in January/February 1997 and payment was to be made by means of an Irrevocable Letter of Credit payable at sight, to be opened by September 15, 1996; that sometime prior to September 15, 1996, the parties agreed that instead of January/February 1997, the delivery would be made in April/May 1997 and that payment would be by an Irrevocable Letter of Credit payable at sight, to be opened upon petitioner's advice. Petitioner, as seller, failed to comply with its obligations under the contract, despite demands from respondent, thus, the latter prayed for rescission of the contract and payment of damages. On July 24, 1998, petitioner filed a Motion to Dismiss/Suspend Proceedings and To Refer Controversy to Voluntary Arbitration,[4] wherein it argued that the alleged contract between the parties, dated July 11, 1996, was never consummated because respondent never returned the proposed agreement bearing its written acceptance or conformity nor did respondent open the Irrevocable Letter of Credit at sight. Petitioner contended that the controversy between the parties was whether or not the alleged contract between the parties was legally in existence and the RTC was not the proper forum to ventilate such issue. It claimed that the contract contained an arbitration clause, to wit: ARBITRATION Any dispute which the Buyer and Seller may not be able to settle by mutual agreement shall be settled by arbitration in the City of New York before the American Arbitration Association. The Arbitration Award shall be final and binding on both parties.[5] that respondent must first comply with the arbitration clause before resorting to court, thus, the RTC must either dismiss the case or suspend the proceedings and direct the parties to proceed with arbitration, pursuant to Sections 6[6] and 7[7] of Republic Act (R.A.) No. 876, or the Arbitration Law. Respondent filed an Opposition, wherein it argued that the RTC has jurisdiction over the action for rescission of contract and could not be changed by the subject arbitration clause. It cited cases wherein arbitration clauses, such as the subject clause in the contract, had been struck down as void for being contrary to public policy since it provided that the arbitration award shall be final and binding on both parties, thus, ousting the courts of jurisdiction. In its Reply, petitioner maintained that the cited decisions were already inapplicable, having been rendered prior to the effectivity of the New Civil Code in 1950 and the Arbitration Law in 1953.

In its Rejoinder, respondent argued that the arbitration clause relied upon by petitioner is invalid and unenforceable, considering that the requirements imposed by the provisions of the Arbitration Law had not been complied with. By way of Sur-Rejoinder, petitioner contended that respondent had even clarified that the issue boiled down to whether the arbitration clause contained in the contract subject of the complaint is valid and enforceable; that the arbitration clause did not violate any of the cited provisions of the Arbitration Law. On September 17, 1998, the RTC rendered an Order,[8] the dispositive portion of which reads: Premises considered, defendant's "Motion To Dismiss/Suspend Proceedings and To Refer Controversy To Voluntary Arbitration" is hereby DENIED. Defendant is directed to file its answer within ten (10) days from receipt of a copy of this order.[9] In denying the motion, the RTC found that there was no clear basis for petitioner's plea to dismiss the case, pursuant to Section 7 of the Arbitration Law. The RTC said that the provision directed the court concerned only to stay the action or proceeding brought upon an issue arising out of an agreement providing for the arbitration thereof, but did not impose the sanction of dismissal. However, the RTC did not find the suspension of the proceedings warranted, since the Arbitration Law contemplates an arbitration proceeding that must be conducted in the Philippines under the jurisdiction and control of the RTC; and before an arbitrator who resides in the country; and that the arbitral award is subject to court approval, disapproval and modification, and that there must be an appeal from the judgment of the RTC. The RTC found that the arbitration clause in question contravened these procedures, i.e., the arbitration clause contemplated an arbitration proceeding in New York before a non-resident arbitrator (American Arbitration Association); that the arbitral award shall be final and binding on both parties. The RTC said that to apply Section 7 of the Arbitration Law to such an agreement would result in disregarding the other sections of the same law and rendered them useless and mere surplusages. Petitioner filed its Motion for Reconsideration, which the RTC denied in an Order[10]dated November 25, 1998. Petitioner filed a petition for certiorari with the CA raising the sole issue that the RTC acted in excess of jurisdiction or with grave abuse of discretion in refusing to dismiss or at least suspend the proceedings a quo, despite the fact that the party's agreement to arbitrate had not been complied with. Respondent filed its Comment and Reply. The parties were then required to file their respective Memoranda. On July 31, 2006, the CA rendered its assailed Decision denying the petition and affirming the RTC Orders. In denying the petition, the CA found that stipulation providing for arbitration in contractual obligation is both valid and constitutional; that arbitration as an alternative mode of dispute resolution has long been accepted in our jurisdiction and expressly provided for in the Civil Code; that R.A. No. 876 (the Arbitration Law) also expressly authorized the arbitration of domestic disputes. The CA found error in the RTC's holding that Section 7 of R.A. No. 876 was inapplicable to arbitration clause simply because the clause failed to comply with the requirements prescribed by the law. The CA found that there was nothing in the Civil Code, or R.A. No. 876, that require that arbitration proceedings must be conducted only in the Philippines and the arbitrators should be Philippine residents. It also found that the RTC ruling effectively invalidated not only the disputed arbitration clause, but all other agreements which provide for foreign arbitration. The CA did not find illegal or against public policy the arbitration clause so as to render it null and void or ineffectual.

Notwithstanding such findings, the CA still held that the case cannot be brought under the Arbitration Law for the purpose of suspending the proceedings before the RTC, since in its Motion to Dismiss/Suspend proceedings, petitioner alleged, as one of the grounds thereof, that the subject contract between the parties did not exist or it was invalid; that the said contract bearing the arbitration clause was never consummated by the parties, thus, it was proper that such issue be first resolved by the court through an appropriate trial; that the issue involved a question of fact that the RTC should first resolve. Arbitration is not proper when one of the parties repudiated the existence or validity of the contract. Petitioner's motion for reconsideration was denied in a Resolution dated November 13, 2006. Hence, this petition. Petitioner alleges that the CA committed an error of law in ruling that arbitration cannot proceed despite the fact that: (a) it had ruled, in its assailed decision, that the arbitration clause is valid, enforceable and binding on the parties; (b) the case ofGonzales v. Climax Mining Ltd.[11] is inapplicable here; (c) parties are generally allowed, under the Rules of Court, to adopt several defenses, alternatively or hypothetically, even if such defenses are inconsistent with each other; and (d) the complaint filed by respondent with the trial court is premature. Petitioner alleges that the CA adopted inconsistent positions when it found the arbitration clause between the parties as valid and enforceable and yet in the same breath decreed that the arbitration cannot proceed because petitioner assailed the existence of the entire agreement containing the arbitration clause. Petitioner claims the inapplicability of the cited Gonzales case decided in 2005, because in the present case, it was respondent who had filed the complaint for rescission and damages with the RTC, which based its cause of action against petitioner on the alleged agreement dated July 11, 2006 between the parties; and that the same agreement contained the arbitration clause sought to be enforced by petitioner in this case. Thus, whether petitioner assails the genuineness and due execution of the agreement, the fact remains that the agreement sued upon provides for an arbitration clause; that respondent cannot use the provisions favorable to him and completely disregard those that are unfavorable, such as the arbitration clause. Petitioner contends that as the defendant in the RTC, it presented two alternative defenses, i.e., the parties had not entered into any agreement upon which respondent as plaintiff can sue upon; and, assuming that such agreement existed, there was an arbitration clause that should be enforced, thus, the dispute must first be submitted to arbitration before an action can be instituted in court. Petitioner argues that under Section 1(j) of Rule 16 of the Rules of Court, included as a ground to dismiss a complaint is when a condition precedent for filing the complaint has not been complied with; and that submission to arbitration when such has been agreed upon is one such condition precedent. Petitioner submits that the proceedings in the RTC must be dismissed, or at least suspended, and the parties be ordered to proceed with arbitration. On March 12, 2007, petitioner filed a Manifestation[12] saying that the CA's rationale in declining to order arbitration based on the 2005 Gonzales ruling had been modified upon a motion for reconsideration decided in 2007; that the CA decision lost its legal basis, because it had been ruled that the arbitration agreement can be implemented notwithstanding that one of the parties thereto repudiated the contract which contained such agreement based on the doctrine of separability. In its Comment, respondent argues that certiorari under Rule 65 is not the remedy against an order denying a Motion to Dismiss/Suspend Proceedings and To Refer Controversy to Voluntary Arbitration. It claims that the Arbitration Law which petitioner invoked as basis for its Motion prescribed, under its Section 29, a remedy,i.e., appeal by a petition for review on certiorari under Rule 45. Respondent contends that the Gonzales case, which was decided in 2007, is inapplicable in this case, especially as to the doctrine of separability enunciated therein. Respondent argues that even if the existence of the contract and the arbitration clause is conceded, the decisions of the RTC and the CA declining referral of the dispute between the parties to arbitration would still be correct. This is so because respondent's complaint filed in Civil Case No. 98-1376 presents the principal issue

of whether under the facts alleged in the complaint, respondent is entitled to rescind its contract with petitioner and for the latter to pay damages; that such issue constitutes a judicial question or one that requires the exercise of judicial function and cannot be the subject of arbitration. Respondent contends that Section 8 of the Rules of Court, which allowed a defendant to adopt in the same action several defenses, alternatively or hypothetically, even if such defenses are inconsistent with each other refers to allegations in the pleadings, such as complaint, counterclaim, cross-claim, third-party complaint, answer, but not to a motion to dismiss. Finally, respondent claims that petitioner's argument is premised on the existence of a contract with respondent containing a provision for arbitration. However, its reliance on the contract, which it repudiates, is inappropriate. In its Reply, petitioner insists that respondent filed an action for rescission and damages on the basis of the contract, thus, respondent admitted the existence of all the provisions contained thereunder, including the arbitration clause; that if respondent relies on said contract for its cause of action against petitioner, it must also consider itself bound by the rest of the terms and conditions contained thereunder notwithstanding that respondent may find some provisions to be adverse to its position; that respondent's citation of the Gonzales case, decided in 2005, to show that the validity of the contract cannot be the subject of the arbitration proceeding and that it is the RTC which has the jurisdiction to resolve the situation between the parties herein, is not correct since in the resolution of the Gonzales' motion for reconsideration in 2007, it had been ruled that an arbitration agreement is effective notwithstanding the fact that one of the parties thereto repudiated the main contract which contained it. We first address the procedural issue raised by respondent that petitioner's petition for certiorari under Rule 65 filed in the CA against an RTC Order denying a Motion to Dismiss/Suspend Proceedings and to Refer Controversy to Voluntary Arbitration was a wrong remedy invoking Section 29 of R.A. No. 876, which provides: Section 29. x x x An appeal may be taken from an order made in a proceeding under this Act, or from a judgment entered upon an award throughcertiorari proceedings, but such appeals shall be limited to question of law. x x x. To support its argument, respondent cites the case of Gonzales v. Climax Mining Ltd.[13] (Gonzales case), wherein we ruled the impropriety of a petition for certiorariunder Rule 65 as a mode of appeal from an RTC Order directing the parties to arbitration. We find the cited case not in point. In the Gonzales case, Climax-Arimco filed before the RTC of Makati a petition to compel arbitration under R.A. No. 876, pursuant to the arbitration clause found in the Addendum Contract it entered with Gonzales. Judge Oscar Pimentel of the RTC of Makati then directed the parties to arbitration proceedings. Gonzales filed a petition for certiorari with Us contending that Judge Pimentel acted with grave abuse of discretion in immediately ordering the parties to proceed with arbitration despite the proper, valid and timely raised argument in his Answer with counterclaim that the Addendum Contract containing the arbitration clause was null and void. Climax-Arimco assailed the mode of review availed of by Gonzales, citing Section 29 of R.A. No. 876 contending that certiorari under Rule 65 can be availed of only if there was no appeal or any adequate remedy in the ordinary course of law; that R.A. No. 876 provides for an appeal from such order. We then ruled that Gonzales' petition forcertiorari should be dismissed as it was filed in lieu of an appeal by certiorari which was the prescribed remedy under R.A. No. 876 and the petition was filed far beyond the reglementary period. We found that Gonzales' petition for certiorari raises a question of law, but not a question of jurisdiction; that Judge Pimentel acted in accordance with the procedure prescribed in R.A. No. 876 when he ordered Gonzales to proceed with arbitration and appointed a sole arbitrator after making

the determination that there was indeed an arbitration agreement. It had been held that as long as a court acts within its jurisdiction and does not gravely abuse its discretion in the exercise thereof, any supposed error committed by it will amount to nothing more than an error of judgment reviewable by a timely appeal and not assailable by a special civil action ofcertiorari.[14] In this case, petitioner raises before the CA the issue that the respondent Judge acted in excess of jurisdiction or with grave abuse of discretion in refusing to dismiss, or at least suspend, the proceedings a quo, despite the fact that the party's agreement to arbitrate had not been complied with. Notably, the RTC found the existence of the arbitration clause, since it said in its decision that "hardly disputed is the fact that the arbitration clause in question contravenes several provisions of the Arbitration Law x x x and to apply Section 7 of the Arbitration Law to such an agreement would result in the disregard of the afore-cited sections of the Arbitration Law and render them useless and mere surplusages." However, notwithstanding the finding that an arbitration agreement existed, the RTC denied petitioner's motion and directed petitioner to file an answer. In La Naval Drug Corporation v. Court of Appeals,[15] it was held that R.A. No. 876 explicitly confines the court's authority only to the determination of whether or not there is an agreement in writing providing for arbitration. In the affirmative, the statute ordains that the court shall issue an order summarily directing the parties to proceed with the arbitration in accordance with the terms thereof. If the court, upon the other hand, finds that no such agreement exists, the proceedings shall be dismissed. In issuing the Order which denied petitioner's Motion to Dismiss/Suspend Proceedings and to Refer Controversy to Voluntary Arbitration, the RTC went beyond its authority of determining only the issue of whether or not there is an agreement in writing providing for arbitration by directing petitioner to file an answer, instead of ordering the parties to proceed to arbitration. In so doing, it acted in excess of its jurisdiction and since there is no plain, speedy, and adequate remedy in the ordinary course of law, petitioner's resort to a petition for certiorari is the proper remedy. We now proceed to the substantive issue of whether the CA erred in finding that this case cannot be brought under the arbitration law for the purpose of suspending the proceedings in the RTC. We find merit in the petition. Arbitration, as an alternative mode of settling disputes, has long been recognized and accepted in our jurisdiction.[16] R.A. No. 876[17] authorizes arbitration of domestic disputes. Foreign arbitration, as a system of settling commercial disputes of an international character, is likewise recognized.[18] The enactment of R.A. No. 9285 on April 2, 2004 further institutionalized the use of alternative dispute resolution systems, including arbitration, in the settlement of disputes.[19] A contract is required for arbitration to take place and to be binding.[20] Submission to arbitration is a contract [21] and a clause in a contract providing that all matters in dispute between the parties shall be referred to arbitration is a contract.[22] The provision to submit to arbitration any dispute arising therefrom and the relationship of the parties is part of the contract and is itself a contract.[23] In this case, the contract sued upon by respondent provides for an arbitration clause, to wit: ARBITRATION Any dispute which the Buyer and Seller may not be able to settle by mutual agreement shall be settled by arbitration in the City of New York before the American Arbitration Association, The Arbitration Award shall be final and binding on both parties. The CA ruled that arbitration cannot be ordered in this case, since petitioner alleged that the contract between the parties did not exist or was invalid and arbitration is not proper when one of the parties repudiates the existence or validity of the contract. Thus, said the CA:

Notwithstanding our ruling on the validity and enforceability of the assailed arbitration clause providing for foreign arbitration, it is our considered opinion that the case at bench still cannot be brought under the Arbitration Law for the purpose of suspending the proceedings before the trial court. We note that in its Motion to Dismiss/Suspend Proceedings, etc, petitioner Cargill alleged, as one of the grounds thereof, that the alleged contract between the parties do not legally exist or is invalid. As posited by petitioner, it is their contention that the said contract, bearing the arbitration clause, was never consummated by the parties. That being the case, it is but proper that such issue be first resolved by the court through an appropriate trial. The issue involves a question of fact that the trial court should first resolve. Arbitration is not proper when one of the parties repudiates the existence or validity of the contract. Apropos is Gonzales v. Climax Mining Ltd., 452 SCRA 607, (G.R.No.161957), where the Supreme Court held that: The question of validity of the contract containing the agreement to submit to arbitration will affect the applicability of the arbitration clause itself. A party cannot rely on the contract and claim rights or obligations under it and at the same time impugn its existence or validity. Indeed, litigants are enjoined from taking inconsistent positions.... Consequently, the petitioner herein cannot claim that the contract was never consummated and, at the same time, invokes the arbitration clause provided for under the contract which it alleges to be non-existent or invalid. Petitioner claims that private respondent's complaint lacks a cause of action due to the absence of any valid contract between the parties. Apparently, the arbitration clause is being invoked merely as a fallback position. The petitioner must first adduce evidence in support of its claim that there is no valid contract between them and should the court a quo find the claim to be meritorious, the parties may then be spared the rigors and expenses that arbitration in a foreign land would surely entail.[24] However, the Gonzales case,[25] which the CA relied upon for not ordering arbitration, had been modified upon a motion for reconsideration in this wise: x x x The adjudication of the petition in G.R. No. 167994 effectively modifies part of the Decision dated 28 February 2005 in G.R. No. 161957. Hence, we now hold that the validity of the contract containing the agreement to submit to arbitration does not affect the applicability of the arbitration clause itself. A contrary ruling would suggest that a party's mere repudiation of the main contract is sufficient to avoid arbitration. That is exactly the situation that the separability doctrine, as well as jurisprudence applying it, seeks to avoid.We add that when it was declared in G.R. No. 161957 that the case should not be brought for arbitration, it should be clarified that the case referred to is the case actually filed by Gonzales before the DENR Panel of Arbitrators, which was for the nullification of the main contract on the ground of fraud, as it had already been determined that the case should have been brought before the regular courts involving as it did judicial issues.[26] In so ruling that the validity of the contract containing the arbitration agreement does not affect the applicability of the arbitration clause itself, we then applied the doctrine of separability, thus: The doctrine of separability, or severability as other writers call it, enunciates that an arbitration agreement is independent of the main contract. The arbitration agreement is to be treated as a separate agreement and the arbitration agreement does not automatically terminate when the contract of which it is a part comes to an end. The separability of the arbitration agreement is especially significant to the determination of whether the invalidity of the main contract also nullifies the arbitration clause. Indeed, the doctrine denotes that the invalidity of the main contract, also referred to as the "container" contract, does not affect the validity of the arbitration agreement. Irrespective of the fact that the main contract is invalid, the arbitration clause/agreement still remains valid and enforceable.[27] Respondent argues that the separability doctrine is not applicable in petitioner's case, since in

the Gonzales case, Climax-Arimco sought to enforce the arbitration clause of its contract with Gonzales and the former's move was premised on the existence of a valid contract; while Gonzales, who resisted the move of Climax-Arimco for arbitration, did not deny the existence of the contract but merely assailed the validity thereof on the ground of fraud and oppression. Respondent claims that in the case before Us, petitioner who is the party insistent on arbitration also claimed in their Motion to Dismiss/Suspend Proceedings that the contract sought by respondent to be rescinded did not exist or was not consummated; thus, there is no room for the application of the separability doctrine, since there is no container or main contract or an arbitration clause to speak of. We are not persuaded. Applying the Gonzales ruling, an arbitration agreement which forms part of the main contract shall not be regarded as invalid or non-existent just because the main contract is invalid or did not come into existence, since the arbitration agreement shall be treated as a separate agreement independent of the main contract. To reiterate. a contrary ruling would suggest that a party's mere repudiation of the main contract is sufficient to avoid arbitration and that is exactly the situation that the separability doctrine sought to avoid. Thus, we find that even the party who has repudiated the main contract is not prevented from enforcing its arbitration clause. Moreover, it is worthy to note that respondent filed a complaint for rescission of contract and damages with the RTC. In so doing, respondent alleged that a contract exists between respondent and petitioner. It is that contract which provides for an arbitration clause which states that "any dispute which the Buyer and Seller may not be able to settle by mutual agreement shall be settled before the City of New York by the American Arbitration Association. The arbitration agreement clearly expressed the parties' intention that any dispute between them as buyer and seller should be referred to arbitration. It is for the arbitrator and not the courts to decide whether a contract between the parties exists or is valid. Respondent contends that assuming that the existence of the contract and the arbitration clause is conceded, the CA's decision declining referral of the parties' dispute to arbitration is still correct. It claims that its complaint in the RTC presents the issue of whether under the facts alleged, it is entitled to rescind the contract with damages; 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. Respondent cites our ruling in Gonzales, 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, and that the complaint should have been filed with the regular courts as it involved issues which are judicial in nature. Such argument is misplaced and respondent cannot rely on the Gonzales case to support its argument. In Gonzales, petitioner Gonzales filed a complaint before the Panel of Arbitrators, Region II, Mines and Geosciences Bureau, of the Department of Environment and Natural Resources (DENR) against respondents Climax- Mining Ltd, Climax-Arimco and Australasian Philippines Mining Inc, seeking the declaration of nullity or termination of the addendum contract and the other contracts emanating from it on the grounds of fraud and oppression. The Panel dismissed the complaint for lack of jurisdiction. However, the Panel, upon petitioner's motion for reconsideration, ruled that it had jurisdiction over the dispute maintaining that it was a mining dispute, since the subject complaint arose from a contract between the parties which involved the exploration and exploitation of minerals over the disputed area. Respondents assailed the order of the Panel of Arbitrators via a petition for certiorari before the CA. The CA granted the petition and declared that the Panel of Arbitrators did not have jurisdiction over the complaint, since its jurisdiction was limited to the resolution of mining disputes, such as those which raised a question of fact or matter requiring the technical knowledge and experience of mining authorities and not when the complaint alleged fraud and oppression which called for the interpretation and application of laws. The CA further ruled that the petition should have been settled through arbitration under R.A. No. 876 the Arbitration Law as

provided under the addendum contract. On a review on certiorari, we affirmed the CA's finding that the Panel of Arbitrators who, under R.A. No. 7942 of the Philippine Mining Act of 1995, has exclusive and original jurisdiction to hear and decide mining disputes, such as mining areas, mineral agreements, FTAAs or permits and surface owners, occupants and claimholders/concessionaires, is bereft of jurisdiction over the complaint for declaration of nullity of the addendum contract; thus, the Panels' jurisdiction is limited only to those mining disputes which raised question of facts or matters requiring the technical knowledge and experience of mining authorities. We then said: In Pearson v. Intermediate Appellate Court, this Court observed that the trend has been to make the adjudication of mining cases a purely administrative matter. Decisions of the Supreme Court on mining disputes have recognized a distinction between (1) the primary powers granted by pertinent provisions of law to the then Secretary of Agriculture and Natural Resources (and the bureau directors) of an executive or administrative nature, such as granting of license, permits, lease and contracts, or approving, rejecting, reinstating or canceling applications, or deciding conflicting applications, and (2) controversies or disagreements of civil or contractual nature between litigants which are questions of a judicial nature that may be adjudicated only by the courts of justice. This distinction is carried on even in Rep. Act No. 7942.[28] We found that since the complaint filed before the DENR Panel of Arbitrators charged respondents with disregarding and ignoring the addendum contract, and acting in a fraudulent and oppressive manner against petitioner, the complaint filed before the Panel was not a dispute involving rights to mining areas, or was it a dispute involving claimholders or concessionaires, but essentially judicial issues. We then said that the Panel of Arbitrators did not have jurisdiction over such issue, since it does not involve the application of technical knowledge and expertise relating to mining. It is in this context that we said that: 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, which needs the interpretation and the application of that particular knowledge and expertise possessed by members of that Panel. 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. The validity of the contract cannot be subject of arbitration proceedings. Allegations of fraud and duress in the execution of a contract are matters within the jurisdiction of the ordinary courts of law. These questions are legal in nature and require the application and interpretation of laws and jurisprudence which is necessarily a judicial function.[29] In fact, We even clarified in our resolution on Gonzales' motion for reconsideration that "when we declared that the case should not be brought for arbitration, it should be clarified that the case referred to is the case actually filed by Gonzales before the DENR Panel of Arbitrators, which was for the nullification of the main contract on the ground of fraud, as it had already been determined that the case should have been brought before the regular courts involving as it did judicial issues." We made such clarification in our resolution of the motion for reconsideration after ruling that the parties in that case can proceed to arbitration under the Arbitration Law, as provided under the Arbitration Clause in their Addendum Contract. WHEREFORE, the petition is GRANTED. The Decision dated July 31, 2006 and the Resolution dated November 13, 2006 of the Court of Appeals in CA-G.R. SP No. 50304 are REVERSED and SET ASIDE. The parties are hereby ORDERED to SUBMITthemselves to the arbitration of their dispute, pursuant to their July 11, 1996 agreement. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 159586 July 26, 2004

EUROPEAN RESOURCES AND TECHNOLOGIES, INC. and DELFIN J. WENCESLAO, petitioners, vs. INGENIEUBURO BIRKHAHN + NOLTE, Ingeniurgesellschaft mbh and HEERS & BROCKSTEDT GMBH & CO., respondents.

DECISION

YNARES-SANTIAGO, J.: Assailed in this Petition for Review under Rule 45 of the Rules of Court is the Decision1 of the Court of Appeals dated May 15, 2003, which sustained the Order of the Regional Trial Court of Angeles City, Branch 61, dated June 28, 2001, and its subsequent Resolution dated August 3, 2003 denying petitioners motion for reconsideration. European Resources and Technologies Inc. (hereinafter "ERTI"), a corporation organized and existing under the laws of the Republic of the Philippines, is joined by Delfin J. Wenceslao as petitioner in this case. Ingenieuburo Birkhan + Nolte Ingiurgesellschaft mbh and Heers & Brockstedt Gmbh & Co. are German corporations who are respondents in this case and shall be collectively referred to as the "German Consortium". The German Consortium tendered and submitted its bid to the Clark Development Corporation ("CDC") to construct, operate and manage the Integrated Waste Management Center at the Clark Special Economic Zone ("CSEZ"). CDC accepted the German Consortiums bid and awarded the contract to it. On October 6, 1999, CDC and the German Consortium executed the Contract for Services2 which embodies the terms and conditions of their agreement. The Contract for Services provides that the German Consortium shall be empowered to enter into a contract or agreement for the use of the integrated waste management center by corporations, local government units, entities, and persons not only within the CSEZ but also outside. For waste collected within the CSEZ, the German Consortium may impose a "tipping fee" per ton of waste collected from locators and residents of the CSEZ, which fees shall be subject to the schedule agreed upon by the parties and specified in the Contract for Services. For its operations outside of the CSEZ, the German Consortium shall pay CDC US$1.50 per ton of non-hazardous solid waste collected.3 The CDC shall guarantee that nineteen thousand eighteen hundred (19,800) tons per year of solid waste volume shall be collected from inside and outside the CSEZ.4 The contract has a term of twenty-five (25) years,5 during which time the German Consortium shall operate the waste management center on a day-to-day basis.6 Article VIII, Section 7 of the Contract for Services provides that the German Consortium shall undertake to organize a local corporation as its representative for this project. On April 18, 2000, the German Consortium entered into a Joint Venture with D.M. Wenceslao and Associates, Inc. ("DMWAI") and Ma. Elena B. Villarama (doing business as LBV and

Associates), embodied in a Memorandum of Understanding7 ("MOU") signed by the parties. Under the MOU, the parties agreed to jointly form a local corporation to which the German Consortium shall assign its rights under the Contract for Services. Pursuant to this agreement, petitioner European Resources and Technologies, Inc. was incorporated. The parties likewise agreed to prepare and finalize a Shareholders Agreement within one (1) month from the execution of the MOU, which shall provide that the German Consortium shall own fifteen percent (15%) of the equity in the joint venture corporation, DMWAI shall own seventy percent (70%) and LBV&A shall own fifteen percent (15%). In the event that the parties fail to execute the Shareholders Agreement, the MOU shall be considered null and void.8 On August 1, 2000, without the Shareholders Agreement having been executed, the German Consortium and petitioner ERTI entered into a Memorandum of Agreement (MOA) 9 whereby the German Consortium ceded its rights and obligations under the Contract for Services in favor of ERTI and assigned unto ERTI, among others, "its license from CDC to engage in the business of providing environmental services needed in the CSEZ in connection with the waste management within the CSEZ and other areas."10 Likewise, the parties agreed that should there be a disagreement between or among them relative to the interpretation or implementation of the MOA and the collateral documents including but not limited to the Contract for Services between the German Consortium and CDC, the dispute shall be referred to a panel of arbitrators.11 On December 11, 2000, ERTI received a letter from BN Consultants Philippines, Inc., signed by Mr. Holger Holst for and on behalf of the German Consortium,12 stating that the German Consortiums contract with DMWAI, LBV&A and ERTI has been terminated or extinguished on the following grounds: (a) the CDC did not give its approval to the Consortiums request for the approval of the assignment or transfer by the German Consortium in favor of ERTI of its rights and interests under the Contract for Services; (b) the parties failed to prepare and finalize the Shareholders Agreement pursuant to the provision of the MOU; (c) there is no more factual or legal basis for the joint venture to continue; and (d) with the termination of the MOU, the MOA is also deemed terminated or extinguished. Attached to the letter was a copy of the letter of the CDC,13 stating that the German Consortiums assignment of an eighty-five percent (85%) majority interest to another party violated its representation to undertake both the financial and technical aspects of the project. The dilution of the Consortiums interest in ERTI is a substantial modification of the Consortiums representations which were used as bases for the award of the project to it. On February 20, 2001, petitioner ERTI, through counsel, sent a letter to CDC requesting for the reconsideration of its disapproval of the agreement between ERTI and the German Consortium. Before CDC could act upon petitioner ERTIs letter, the German Consortium filed a complaint for injunction against herein petitioners before the Regional Trial Court of Angeles City, Branch 61, docketed as Civil Case No. 10049. The German Consortium claimed that petitioner ERTIs continued misrepresentation as to their right to accept solid wastes from third parties for processing at the waste management center will cause irreparable damage to the Consortium and its exclusive right to operate the waste management center at the CSEZ. Moreover, petitioner ERTIs acts destroy the Consortiums credibility and undermine customer confidence in it. Hence, the German Consortium prayed that a writ of temporary restraining order be issued against petitioner ERTI and, after hearing, a writ of preliminary injunction be likewise issued ordering petitioner ERTI to cease and desist from misrepresenting to third parties or the public that it has any right or interest in the waste management center at CSEZ.14 Petitioners filed their Opposition to the application for preliminary injunction on February 7, 2001. The following day, February 8, 2001, petitioners sent respondents, through Mr. Holger Holst, a letter demanding that the parties proceed to arbitration in accordance with Section 17

of the MOA. At the hearings on the application for injunction, petitioners objected to the presentation of evidence on the ground that the trial court had no jurisdiction over the case since the German Consortium was composed of foreign corporations doing business in the country without a license. Moreover, the MOA between the parties provides that the dispute should be referred to arbitration. The trial court overruled the objection and proceeded with the hearing. On June 28, 2001, the trial court issued an Order granting the writ of preliminary injunction.15 Petitioners filed a motion for reconsideration, which was denied in a Resolution dated November 21, 2001. On January 17, 2002, petitioners filed a petition for certiorari and prohibition under Rule 65 of the Rules of Court before the Court of Appeals, assailing the trial courts Orders dated June 28, 2001 and November 21, 2001. Meanwhile, on February 11, 2002, the temporary restraining order issued was lifted in view of respondents failure to file sufficient bond.16 On September 6, 2002, all proceedings in Civil Case No. 10049 were suspended until the petition for certiorari pending before the Court of Appeals shall have been resolved.17 On May 15, 2003, the Court of Appeals dismissed the petition for certiorari. Petitioners Motion for Reconsideration was denied in a Resolution dated August 25, 2003. Hence, this petition arguing that the Court of Appeals committed reversible error in: (a) Ruling that petitioners are estopped from assailing the capacity of the respondents to institute the suit for injunction (b) Ruling that respondents are entitled to an injunctive writ. (c) Not holding that the dispute is covered by the arbitration clause in the memorandum of agreement. (d) Issuing the writ of preliminary injunction that is tantamount to a decision of the case on the merits.18 The petition is partly meritorious. There is no general rule or governing principle laid down as to what constitutes "doing" or "engaging in" or "transacting" business in the Philippines. Thus, it has often been held that a single act or transaction may be considered as "doing business" when a corporation performs acts for which it was created or exercises some of the functions for which it was organized.19 We have held that the act of participating in a bidding process constitutes "doing business" because it shows the foreign corporations intention to engage in business in the Philippines. In this regard, it is the performance by a foreign corporation of the acts for which it was created, regardless of volume of business, that determines whether a foreign corporation needs a license or not.20 Consequently, the German Consortium is doing business in the Philippines without the appropriate license as required by our laws. By participating in the bidding conducted by the CDC for the operation of the waste management center, the German Consortium exhibited its intent to transact business in the Philippines. Although the Contract for Services provided for the establishment of a local corporation to serve as respondents representative, it is clear from the other provisions of the Contract for Services as well as the letter by the CDC containing the disapproval that it will be the German Consortium which shall manage and conduct the operations of the waste management center for at least twenty-five years. Moreover, the German Consortium was allowed to transact with other entities outside the CSEZ for solid waste collection. Thus, it is clear that the local corporation to be established will merely act as a conduit or extension of the German Consortium.

As a general rule, unlicensed foreign non-resident corporations cannot file suits in the Philippines. Section 133 of the Corporation Code specifically provides: SECTION 133. No foreign corporation transacting business in the Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines, 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. A corporation has legal status only within the state or territory in which it was organized. For this reason, a corporation organized in another country has no personality to file suits in the Philippines. In order to subject a foreign corporation doing business in the country to the jurisdiction of our courts, it must acquire a license from the Securities and Exchange Commission (SEC) and appoint an agent for service of process. Without such license, it cannot institute a suit in the Philippines.21 However, there are exceptions to this rule. In a number of cases,22 we have declared a party estopped from challenging or questioning the capacity of an unlicensed foreign corporation from initiating a suit in our courts. In the case of Communication Materials and Design, Inc. v. Court of Appeals,23 a foreign corporation instituted an action before our courts seeking to enjoin a local corporation, with whom it had a "Representative Agreement", from using its corporate name, letter heads, envelopes, sign boards and business dealings as well as the foreign corporations trademark. The case arose when the foreign corporation discovered that the local corporation has violated certain contractual commitments as stipulated in their agreement. In said case, we held that a foreign corporation doing business in the Philippines without license may sue in Philippine Courts a Philippine citizen or entity that had contracted with and benefited from it. Hence, the party is estopped from questioning the capacity of a foreign corporation to institute an action in our courts where it had obtained benefits from its dealings with such foreign corporation and thereafter committed a breach of or sought to renege on its obligations. The rule relating to estoppel is deeply rooted in the axiom ofcommodum ex injuria sua non habere debetno person ought to derive any advantage from his own wrong. In the case at bar, petitioners have clearly not received any benefit from its transactions with the German Consortium. In fact, there is no question that petitioners were the ones who have expended a considerable amount of money and effort preparatory to the implementation of the MOA. Neither do petitioners seek to back out from their obligations under both the MOU and the MOA by challenging respondents capacity to sue. The reverse could not be any more accurate. Petitioners are insisting on the full validity and implementation of their agreements with the German Consortium. To rule that the German Consortium has the capacity to institute an action against petitioners even when the latter have not committed any breach of its obligation would be tantamount to an unlicensed foreign corporation gaining access to our courts for protection and redress. We cannot allow this without violating the very rationale for the law prohibiting a foreign corporation not licensed to do business in the Philippines from suing or maintaining an action in Philippine courts. The object of requiring a license is not to prevent the foreign corporation from performing single acts, but to prevent it from acquiring domicile for the purpose of business without taking the steps necessary to render it amenable to suits in the local courts.24 In other words, the foreign corporation is merely prevented from being in a position where it takes the good without accepting the bad. On the issue of whether the respondents were entitled to the injunctive writ, the petitioners claim that respondents right is not in esse but is rather a future right which is contingent upon a judicial declaration that the MOA has been validly rescinded. The Court of Appeals, in its decision, held that the MOA should be deemed subject to a suspensive condition, that is, that CDCs prior written consent must be obtained for the validity of the assignment.

This issue must be resolved in a separate proceeding. It must be noted that the hearing conducted in the trial court was merely a preliminary hearing relating to the issuance of the injunctive writ. In order to fully appreciate the facts of this case and the surrounding circumstances relating to the agreements and contract involved, further proof should be presented for consideration of the court. Likewise, corollary matters, such as whether either of the parties is liable for damages and to what extent, cannot be resolved with absolute certainty, thus rendering any decision we might make incomplete as to fully dispose of this case. More importantly, it is evident that CDC must be made a proper party in any case which seeks to resolve the effectivity or ineffectivity of its disapproval of the assignment made between petitioners and respondent German Consortium. Where, as in the instant case, CDC is not impleaded as a party, any decision of the court which will inevitably affect or involve CDC cannot be deemed binding on it. For the same reason, petitioners assertion that the instant case should be referred to arbitration pursuant to the provision of the MOA is untenable. We have ruled in several cases that arbitration agreements are valid, binding, enforceable and not contrary to public policy such that when there obtains a written provision for arbitration which is not complied with, the trial court should suspend the proceedings and order the parties to proceed to arbitration in accordance with the terms of their agreement. 25 In the case at bar, the MOA between petitioner ERTI and respondent German Consortium provided: 17. Should there be a disagreement between or among the Parties relative to the interpretation or implementation of this Agreement and the collateral documents including but not limited to the Contract for Services between GERMAN CONSORTIUM and CDC and the Parties cannot resolve the same by themselves, the same shall be endorsed to a panel of arbitrators which shall be convened in accordance with the process ordained under the Arbitration Law of the Republic of the Philippines.26 Indeed, to brush aside a contractual agreement calling for arbitration in case of disagreement between parties would be a step backward.27 But there are exceptions to this rule. Even if there is an arbitration clause, there are instances when referral to arbitration does not appear to be the most prudent action. The object of arbitration is to allow the expeditious determination of a dispute. Clearly, the issue before us could not be speedily and efficiently resolved in its entirety if we allow simultaneous arbitration proceedings and trial, or suspension of trial pending arbitration.28 As discussed earlier, the dispute between respondent German Consortium and petitioners involves the disapproval by the CDC of the assignment by the German Consortium of its rights under the Contract for Services to petitioner ERTI. Admittedly, the arbitration clause is contained in the MOA to which only the German Consortium and petitioner ERTI were parties. Even if the case is brought before an arbitration panel, the decision will not be binding upon CDC who is a non-party to the arbitration agreement. What is more, the arbitration panel will not be able to completely dispose of all the issues of this case without including CDC in its proceedings. Accordingly, the interest of justice would only be served if the trial court hears and adjudicates the case in a single and complete proceeding. Lastly, petitioners question the propriety of the issuance of writ of preliminary injunction claiming that such is already tantamount to granting the main prayer of respondents complaint without the benefit of a trial. Petitioners point out that the purpose of a preliminary injunction is to prevent threatened or continuous irremediable injury to some of the parties before their claims can be thoroughly studied and decided. It cannot be used to railroad the main case and seek a judgment without a full-blown trial as in the instant case.

The Court of Appeals ruled that since petitioners did not raise this issue during the hearing on the application for preliminary injunction before the trial court, the same cannot be raised for the first time on appeal and even in special civil actions for certiorari as in this case. At the outset, it must be noted that with the finding that the German Consortium is without any personality to file the petition with the trial court, the propriety of the injunction writ issued is already moot and academic. Even assuming for the sake of argument that respondents have the capacity to file the petition, we find merit in the issue raised by petitioners against the injunction writ issued. Before an injunctive writ can be issued, it is essential that the following requisites are present: (1) there must be a right in esse or the existence of a right to be protected; and (2) the act against which injunction to be directed is a violation of such right.29 The onus probandi is on movant to show that there exists a right to be protected, which is directly threatened by the act sought to be enjoined. Further, there must be a showing that the invasion of the right is material and substantial and that there is an urgent and paramount necessity for the writ to prevent a serious damage.30 Thus, it is clear that for the issuance of the writ of preliminary injunction to be proper, it must be shown that the invasion of the right sought to be protected is material and substantial, that the right of complainant is clear and unmistakable and that there is an urgent and paramount necessity for the writ to prevent serious damage.31 At the time of its application for an injunctive writ, respondents right to operate and manage the waste management center, to the exclusion of or without any participation by petitioner ERTI, cannot be said to be clear and unmistakable. The MOA executed between respondents and petitioner ERTI has not yet been judicially declared as rescinded when the complaint was lodged in court.32 Hence, a cloud of doubt exists over respondent German Consortiums exclusive right relating to the waste management center. WHEREFORE, the decision of the Court of Appeals in CA-G.R. SP No. 68923 dated May 15, 2003 is REVERSED and SET ASIDE. The Orders of the trial court dated June 28, 2001 and November 21, 2001 are ANNULLED and SET ASIDE and Civil Case No. 10049 is DISMISSED for lack of legal capacity of respondents to institute the action. Costs against respondents. SO ORDERED.

FIRST DIVISION

INSULAR SAVINGS BANK, Petitioner,

G.R. No. 141818 Present: Panganiban, C.J. (Chairperson), Ynares-Santiago, Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ.

- versus -

FAR EAST BANK AND TRUST COMPANY, Respondent. June 22, 2006 Promulgated:

x ---------------------------------------------------------------------------------------- x

DECISION

YNARES-SANTIAGO, J.:

This petition for review on certiorari[1] assails the November 9, 1999 Order[2] of the Regional Trial Court of Makati City, Branch 135, in Civil Case No. 92-145 which dismissed the petition for review for lack of jurisdiction and its February 1, 2000 Order [3] denying reconsideration thereof. The antecedent facts are as follows: On December 11, 1991, Far East Bank and Trust Company (Respondent) filed a complaint against Home Bankers Trust and Company (HBTC)[4] with the Philippine Clearing

House Corporations (PCHC) Arbitration Committee docketed as Arbicom Case No. 91069.[5] Respondent sought to recover from the petitioner, the sum of P25,200,000.00 representing the total amount of the three checks drawn and debited against its clearing account. HBTC sent these checks to respondent for clearing by operation of the PCHC clearing system. Thereafter, respondent dishonored the checks for insufficiency of funds and returned the checks to HBTC. However, the latter refused to accept them since the checks were returned by respondent after the reglementary regional clearing period.[6] Meanwhile, on January 17, 1992, before the termination of the arbitration proceedings, respondent filed another complaint but this time with the Regional Trial Court (RTC) in Makati City docketed as Civil Case No. 92-145 for Sum of Money and Damages with Preliminary Attachment. The complaint was filed not only against HBTC but also against Robert Young, Eugene Arriesgado and Victor Tancuan (collectively known as Defendants), who were the president and depositors of HBTC respectively.[7] Aware of the arbitration proceedings between respondent and petitioner, the RTC, in an Omnibus Order datedApril 30, 1992,[8] suspended the proceedings in the case against all the defendants pending the decision of the Arbitration Committee, to wit:
WHEREFORE, the Court hereby orders: (a) Home Bankers & Trust Co. to produce and permit plaintiff to inspect, copy and/or photograph the checking account deposit ledger of Victor Tancuans Account No. 1803-00605-3; (b) merit; and The Motions to Dismiss filed by all defendants denied, for lack of

(c) Proceedings in this case against all defendants be suspended pending award/decision in the arbitration proceedings against Home Bankers and Trust Co. SO ORDERED.[9] (Emphasis supplied)

The above Omnibus Order was amended by the trial court in its October 1, 1992 Order,[10] the dispositive portion of which reads as follows:
WHEREFORE, the Omnibus Order dated 30 April 1992 is hereby reconsidered by deleting the phrase since the complaint also seeks exemplary damages, attorneys fees, litigation expenses and costs of suit against HBT, on page 4 thereof and par. C of its dispositive portion is amended to read: (c) Procedings against Home Bankers and Trust Co. are suspended pending award/decision in the arbitration proceedings while those against individual defendants be immediately reinstated and continued.

HBT and Tancuans separate Motions for Reconsiderations are hereby denied, for lack of merit. SO ORDERED.[11]

On February 2, 1998, the PCHC Arbitration Committee rendered its decision in favor of respondent,[12] thus:
IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered in favor of the plaintiff and against the defendant sentencing the latter to pay the plaintiff the sum of P25.2 million as principal. In view of the fact, however, that this amount was split between the plaintiff and the defendant in the course of the proceedings, the amount to be paid by the defendant to the plaintiff should only be P12,600,000.00 plus interest on this latter amount at the rate of 12% per annum from February 11, 1992, the date when the total amount of P25.2 Million was split between plaintiff and defendant up to the date of payment. In view of the facts found by the committee, no attorneys fees nor other damages are awarded. SO ORDERED.[13]

The motion for reconsideration filed by petitioner was denied by the Arbitration Committee.[14] Consequently, to appeal the decision of the Arbitration Committee in Arbicom Case No. 91-069, petitioner filed a petition for review in the earlier case filed by respondent in Branch 135 of the RTC of Makati and docketed as Civil Case No. 92-145.[15] In an order datedJanuary 20, 1999, the RTC directed both petitioner and respondent to file their respective memoranda, after which, said petition would be deemed submitted for resolution.[16] Both parties filed several pleadings. On February 8, 1999, respondent filed a Motion to Dismiss Petition for Review for Lack of Jurisdiction,[17] which was opposed by the petitioner.[18] Respondent then filed its Reply to the opposition,[19] to which petitioner filed a Rejoinder.[20] On August 16, 1999, respondent submitted its Surrejoinder.[21] On November 9, 1999, the RTC rendered the assailed Order which held, thus:
Acting on plaintiff Far East Bank and Trust Companys Motion To Dismiss Petition For Review For Lack Of Jurisdiction, considering that the petition for review is a separate and distinct case, the same must comply with all the requirements for filing initiatory pleadings for civil actions before this Court so that since the commencement of the subject petition lacks the mandatory requirements provided for, except the payment of docket fees, for lack of jurisdiction, the petition for review is hereby dismissed. SO ORDERED.[22]

The RTC denied petitioners motion for reconsideration,[23] hence, this petition on the sole ground, to wit:
THE REGIONAL TRIAL COURT ERRED IN DISMISSING THE PETITION OF PETITIONER FOR LACK OF JURISDICTION ON THE GROUND THAT IT SHOULD HAVE BEEN DOCKETED AS A SEPARATE CASE.[24]

Petitioner contends that Civil Case No. 92-145 was merely suspended to await the outcome of the arbitration case pending before the PCHC. Thus, any petition questioning the decision of the Arbitration Committee must be filed in Civil Case No. 92-145 and should not be docketed as a separate action. Likewise, petitioner avers that had it filed a separate action, this would have resulted in a multiplicity of suits, which is abhorred in procedure. Meanwhile respondent avers that the RTC correctly dismissed the appeal from the award of private arbitrators since there is no statutory basis for such appeal. Respondent argues that petitioners claim that the parties by agreement had conferred on the RTC appellate jurisdiction over decisions of private arbitrators is erroneous because they cannot confer a non-existent jurisdiction on the RTC or any court. Furthermore, the petition for review filed by petitioner violated the rule on commencing an original action under Section 5, Rule 1, and the raffle of cases under Section 2, Rule 20 of the Rules of Court, when it filed the same in Branch 135 of the RTC of Makati where there was already a pending original action, i.e., Civil Case No. 92145. The petition lacks merit. The Philippine Clearing House Corporation was created to facilitate the clearing of checks of member banks. Among these member banks exists a compromissoire,[25] or an arbitration agreement embedded in their contract wherein they consent that any future dispute or controversy between its PCHC participants involving any check would be submitted to the Arbitration Committee for arbitration. Petitioner and respondent are members of PCHC, thus they underwent arbitration proceedings.

The PCHC has its own Rules of Procedure for Arbitration (PCHC Rules). However, this is governed by Republic Act No. 876, also known as The Arbitration Law[26] and supplemented by the Rules of Court.[27] Thus, we first thresh out the remedy of petition for review availed of by the petitioner to appeal the order of the Arbitration Committee. Sections 23, 24 and 29 of The Arbitration Law, and Section 13 of the PCHC Rules, provide:
SEC. 23. Confirmation of award. At any time within one month after the award is made, any party to the controversy which was arbitrated may apply to the court having jurisdiction, as provided in Section 28, for an order confirming the award; and thereupon the court must grant such order unless the award is vacated, modified or corrected, as prescribed herein. Notice of such motion must be served upon the adverse party or his attorney as prescribed by law for the service of such notice upon an attorney in action in the same court. SEC. 24. Grounds for vacating award. In any one of the following cases, the court must make an order vacating the award upon the petition of any party to the controversy when such party proves affirmatively that in the arbitration proceedings: (a) The award was procured by corruption, fraud or other undue means; or (b) That there was evident partiality or corruption in the arbitrators or any of them; or (c) That the arbitrators were guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; that one or more of the arbitrators was disqualified to act as such under section nine hereof, and willfully refrained from disclosing such disqualification or of any other misbehavior by which the rights of any party have been materially prejudiced; or (d) That the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual, final and definite award upon the subject matter submitted to them was not made. xxxx SEC. 25. Grounds for modifying or correcting award. In any one of the following cases, the court must make an order modifying or correcting the award, upon the application of any party to the controversy which was arbitrated: (a) Where there was an evident miscalculation of figures, or an evident mistake in the description of any person, thing or property referred to in the award; or (b) Where the arbitrators have awarded upon a matter not submitted to them, not affecting the merits of the decision upon the matter submitted; or (c) Where the award is imperfect in a matter of form not affecting the merits of the controversy, and if it had been a commissioners report, the defect could have been amended or disregarded by the court. The order may modify and correct the award so as to effect the intent thereof and promote justice between the parties.

SEC. 29. Appeals. An appeal may be taken from an order made in a proceeding under this Act, or from judgment entered upon an award through certiorari proceedings, but such appeals shall be limited to questions of law. The proceedings upon such an appeal, including the judgment thereon shall be governed by the Rules of Court insofar as they are applicable. AMENDED ARBITRATION RULES OF PROCEDURE OF PCHC Sec. 13. The findings of facts of the decision or award rendered by the Arbitration Committee or by the sole Arbitrator as the case may be shall be final and conclusive upon all the parties in said arbitration dispute. The decision or award of the Arbitration Committee or of the Sole Arbitrator or of the Board of Directors, as the case may be, shall be appealable only on questions of law to any of the Regional Trial Courts in the National Capital Region where the Head Office of any of the parties is located. The appellant shall perfect his appeal by filing a notice of appeal to the Arbitration Secretariat and filing a Petition with the Regional Trial Court of the National Capital Region for the review of the decision or award of the committee or sole arbitrator or of the Board of Directors, as the case may be, within a non-extendible period of fifteen (15) days from and after its receipt of the order denying or granting said motion for reconsideration or new trial had been filed, within a non-extendible period of fifteen (15) days from and after its receipt of the order denying or granting said motion for reconsideration or of the decision rendered after the new trial if one had been granted. x x x x. (Emphasis supplied)

As provided in the PCHC Rules, the findings of facts of the decision or award rendered by the Arbitration Committee shall be final and conclusive upon all the parties in said arbitration dispute.[28] Under Article 2044[29] of the New Civil Code, the validity of any stipulation on the finality of the arbitrators award or decision is recognized. However, where the conditions described in Articles 2038,[30] 2039[31] and 2040[32] applicable to both compromises and arbitrations are obtaining, the arbitrators award may be annulled or rescinded.[33] Consequently, the decision of the Arbitration Committee is subject to judicial review. Furthermore, petitioner had several judicial remedies available at its disposal after the Arbitration Committee denied its Motion for Reconsideration. It may petition the proper RTC to issue an order vacating the award on the grounds provided for under Section 24 of the Arbitration Law.[34] Petitioner likewise has the option to file a petition for review under Rule 43 of the Rules of Court with the Court of Appeals on questions of fact, of law, or mixed questions of fact and law.[35] Lastly, petitioner may file a petition for certiorari under Rule 65 of the Rules of Court on the ground that the Arbitrator Committee acted without or in excess of its jurisdiction or with grave abuse of discretion amounting to lack or excess of jurisdiction. Since this case involves acts or omissions of a quasi-judicial agency, the petition should be filed in and cognizable only by the Court of Appeals.[36]

In this instance, petitioner did not avail of any of the abovementioned remedies available to it. Instead it filed a petition for review with the RTC where Civil Case No. 92-145 is pending pursuant to Section 13 of the PCHC Rules to sustain its action. Clearly, it erred in the procedure it chose for judicial review of the arbitral award. Having established that petitioner failed to avail of the abovementioned remedies, we now discuss the issue of the jurisdiction of the trial court with respect to the petition for review filed by petitioner. Jurisdiction is the authority to hear and determine a cause - the right to act in a case.[37] Jurisdiction over the subject matter is the power to hear and determine the general class to which the proceedings in question belong. Jurisdiction over the subject matter is conferred by law and not by the consent or acquiescence of any or all of the parties or by erroneous belief of the court that it exists.[38] In the instant case, petitioner and respondent have agreed that the PCHC Rules would govern in case of controversy. However, since the PCHC Rules came about only as a result of an agreement between and among member banks of PCHC and not by law, it cannot confer jurisdiction to the RTC. Thus, the portion of the PCHC Rules granting jurisdiction to the RTC to review arbitral awards, only on questions of law, cannot be given effect. Consequently, the proper recourse of petitioner from the denial of its motion for reconsideration by the Arbitration Committee is to file either a motion to vacate the arbitral award with the RTC, a petition for review with the Court of Appeals under Rule 43 of the Rules of Court, or a petition for certiorari under Rule 65 of the Rules of Court. In the case at bar, petitioner filed a petition for review with the RTC when the same should have been filed with the Court of Appeals under Rule 43 of the Rules of Court. Thus, the RTC of Makati did not err in dismissing the petition for review for lack of jurisdiction but not on the ground that petitioner should have filed a separate case from Civil Case No. 92-145 but on the necessity of filing the correct petition in the proper court. It is immaterial whether petitioner filed the petition for review in Civil Case No. 92-145 as an appeal of the arbitral award or whether it filed a separate case in the RTC, considering that the RTC will only have jurisdiction over an arbitral award in cases of motions to vacate the same. Otherwise, as elucidated herein, the Court of Appeals retains jurisdiction in petitions for review or in petitions for certiorari. Consequently, petitioners arguments, with respect to the filing of separate action from Civil Case No. 92-145 resulting in a multiplicity of suits, cannot be given due course.

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. [39] It must be borne in mind that arbitration proceedings are mainly governed by the Arbitration Law and suppletorily by the Rules of Court. WHEREFORE, in light of the foregoing, the petition is DENIED. The November 9, 1999 Order of the Regional Trial Court of Makati City, Branch 135, in Civil Case No. 92-145 which dismissed the petition for review for lack of jurisdiction and the February 1, 2000 Order denying its reconsideration, are AFFIRMED. SO ORDERED.

THIRD DIVISION

[G.R. No. 141833. March 26, 2003]

LM POWER ENGINEERING CORPORATION, petitioner, vs. CAPITOL INDUSTRIAL CONSTRUCTION GROUPS, INC., respondent. DECISION
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 Certiorari under Rule 45 of the Rules of Court, seeking to set aside the January 28, 2000 Decision of the Court of Appeals (CA) in CAGR CV No. 54232. The dispositive portion of the Decision reads as follows:
[2] [3]

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. Allegedly, the latter had failed to finish it because of its inability to procure materials.
[6] [7]

Upon completing its task under the Contract, petitioner billed respondent in the amount of P6,711,813.90. 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. 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.
[8] [9]

Because of the dispute, petitioner filed with the Regional Trial Court (RTC) of Makati (Branch 141) a Complaint for the collection of the amount representing the alleged balance due it under the Subcontract. Instead of submitting an Answer, respondent filed a Motion to Dismiss, alleging that the Complaint was premature, because there was no prior recourse to arbitration.
[10] [11]

In its Order 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.
[12] [13]

After trial on the merits, the RTC 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.
[14]

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 arbitrable the issue of whether respondents 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 Courts 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 Courts 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 between 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 petitioners 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 petitioners 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 x xx xxx 6. If despite previous warnings by [respondent], [petitioner] does not execute the WORK in accordance with this Agreement, orpersistently 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]

The issue as to the correct amount of petitioners advances and billable accomplishments involves an evaluation of the manner in which the parties completed the work, the extent to which they did it, and the expenses each of them incurred in connection therewith. Arbitrators also need to look into the computation of foreign and local costs of materials, foreign and local advances, retention fees and letters of credit, and taxes and duties as set forth in the Agreement. These data can be gathered from a review of the Agreement, pertinent portions of which are reproduced hereunder: C. CONTRACT PRICE AND TERMS OF PAYMENT xxx x xx 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. Any claims by [respondent] on [petitioner] may be deducted by [respondent] from the progress payments and/or retained amount. Any excess from the retained amount after deducting [respondents] claims shall be released by [respondent] to [petitioner] after the issuance of [the Ministry of Public Works and Highways] of the Certificate of Completion and final acceptance of the WORK by [the Ministry of Public Works and Highways]. xxx x D. 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, brochures, and other technical data of each items in the list have been formally approved by [the Ministry of Public Works and Highways]. However, petitioner will still be fully responsible for all imported materials and equipment. All expenses incurred by [respondent], both in foreign and local currencies in connection with the opening of the letters of credit shall be deducted from the Contract Prices. xxx x N. OTHER CONDITIONS xxx x xx xxx xx xxx xx xxx

2. All customs duties, import duties, contractors taxes, income taxes, and other taxes that may be required by any government agencies in connection with this Agreement shall be for the sole account of [petitioner].
[23]

Being an inexpensive, speedy and amicable method of settling disputes, arbitration -along with mediation, conciliation and negotiation -- is encouraged by the Supreme Court. Aside from unclogging judicial dockets, arbitration also hastens the resolution of disputes, especially of the commercial kind. It is thus regarded as the wave of the future in international civil and commercial disputes. Brushing aside a contractual agreement calling for arbitration between the parties would be a step backward.
[24] [25] [26] [27]

Consistent with the above-mentioned policy of encouraging alternative dispute resolution methods, courts should liberally construe arbitration clauses. Provided such

clause is susceptible of an interpretation that covers the asserted dispute, an order to arbitrate should be granted. Any doubt should be resolved in favor of arbitration.
[28] [29]

Second Issue: Prior Request for Arbitration According to petitioner, assuming arguendo that the dispute is arbitrable, 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. To bolster its position, petitioner even cites our ruling in Tesco Services Incorporated v. Vera. We are not persuaded.
[30]

Section 1 of Article II of the old Rules of Procedure Governing Construction Arbitration indeed required the submission of a request for arbitration, as follows: SECTION. 1. Submission to Arbitration -- 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; PROVIDED, that in the case of government construction contracts, all administrative remedies available to the parties must have been exhausted within 90 days from the time the dispute arose. Tesco was promulgated by this Court, using the foregoing provision as reference. On the other hand, 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, in this wise: SECTION 1. 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, notwithstanding the reference to a different arbitration institution or arbitral body in such contract or submission. When a contract contains a clause for the submission of a future controversy to arbitration, it is not necessary for the parties to enter into a submission agreement before the claimant may invoke the jurisdiction of CIAC. The foregoing amendments in the Rules were formalized by CIAC Resolution Nos. 291 and 3-93.
[31]

The difference in the two provisions was clearly explained in China Chang Jiang Energy Corporation (Philippines) v. Rosal Infrastructure Builders et al. (an extended unsigned Resolution) and reiterated in National Irrigation Administration v. Court of Appeals, from which we quote thus:
[32] [33]

Under the present Rules of Procedure, for a particular construction contract to fall within the jurisdiction of CIAC, it is merely required that the parties agree to submit the same to voluntary arbitration Unlike in the original version of Section 1, as applied in the Tesco 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. Rather, it is plain and clear that as long as the parties agree to submit to voluntary arbitration, regardless of what forum they may choose, their agreement will fall within the jurisdiction of the CIAC, such that, even if they specifically choose another forum, 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, i.e., E.O. No. 1008.
[34]

Clearly, there is no more need to file a request with the CIAC in order to vest it with jurisdiction to decide a construction dispute.

The arbitral clause in the Agreement is a commitment on the part of the parties to submit to arbitration the disputes covered therein. Because that clause is binding, they are expected to abide by it in good faith. And because it covers the dispute between the parties in the present case, either of them may compel the other to arbitrate.
[35] [36]

Since petitioner has already filed a Complaint with the RTC without prior recourse to arbitration, the proper procedure to enable the CIAC to decide on the dispute is to request the stay or suspension of such action, as provided under RA 876 [the Arbitration Law].
[37]

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila EN BANC DECISION December 14, 1921 G.R. No. L-16398 A. CHAN LINTE, plaintiff-appellant, vs. LAW UNION AND ROCK INSURANCE CO., LTD., defendant-appellee. A. CHAN LINTE, plaintiff-appellant, vs. , J.: The plaintiff is a resident adult of the Philippine Islands, and the defendants are fire insurance companies duly licensed to do business here. Plaintiff alleges that he was the owner of 30,992.50 kilos of hemp stored in the warehouse in Calbayog, Province of Samar, Philippine Islands, which on the 25 of March, 1916, he requested the defendant Law Union and Rock Insurance Co., Ltd., to insure against loss by fire in the sum of P5,000, and upon the date it issued its policy No. 1,787,379 in favor of the plaintiff against such loss until 4 oclock p.m., of the 22nd of March, 1917, and that the policy was delivered to the plaintiff in consideration of which he paid the company a premium of P87.50. that in consideration of other previous payments, the policy was renewed from time to time and continued in force and effect to and including March 22, 1919; that during the life of the policy the hemp was destroyed by fire in the bodega where it was insured; that its value was P21,296.27; that he at once notified the defendant of the loss, and in all other respects complied with the terms and conditions of the policy, and made a demand for the payment of the full amount of the insurance. That defendant refused and still refuses to pay the same or any part thereof, and plaintiff prays for judgment for P5,000, with interest and costs. In his amended complaint he alleges that after the commencement of the action, the defendant requested that its liability should be submitted to arbitration, in accord with the provisions of the policy, and that plaintiff acceded to the requirement made by said defendant as aforesaid, but not that the award of arbitration should be conclusive or final, or deprive the courts of jurisdiction, and by agreement of both plaintiff and defendant Frank B. Ingersoll was named sole arbitrator, and both parties informally presented evidence before him and he made return of arbitration to the effect that said plaintiff had only seven bales of hemp destroyed in the fire of April 10, 1918, as hereinbefore set forth, with which return the said plaintiff is dissatisfied, and comes to this court for proper action under this amended complaint. For answer the defendant alleges that, claiming a loss under the policy, the plaintiff made a claim against the defendant for P5,000, that a difference arose between them as to the amount of the alleged loss, and that, under the terms of the policy, an arbitrator was agreed upon and selected by the mutual consent of both parties, for the purpose of deciding the alleged difference; that on December 28, 1918, the arbitrator found that only seven bales of hemp of the grade ovillo were destroyed. For supplemental answer to the amended complaint, the defendant further alleges that on July 8, 1919, the arbitrator filed a supplemental report and award wherein he finds from the evidence submitted that the local value of the seven bales of plaintiffs hemp destroyed by fire on April 10, 1918, was P608.34; that in addition to the defendants policy, the same property was covered by two other fire insurance polices, by each of which the property in question was

insured to the value of P5,000 against the loss; that defendant has offered and is now willing to pay plaintiff its one-third of the loss in full satisfaction of its liability. The other insurance companies are Tokyo Marine Insurance Co., Ltd., and the Chine Fire Insurance Co., Ltd., defendants and appellees. After the filing of the amended complaint, both parties agreed upon Frank B. Ingersoll as arbitrator, and submitted to him the evidence pro and con. His first finding was made on December 28, 1918, and on July 8, 1919, he filed a supplemental report in which he found the value of the property destroyed to be P608.34. It was stipulated that the arbitration clauses of the policies of insurance issued by the Law Union and Rock Insurance Co., Ltd., and the Chine Fire Insurance Co., Ltd., are in terms as follows, to wit: If any difference arises as to the amount of any loss or damage, such difference shall independently of all other questions be referred to the decision of an arbitrator, to be appointed in writing by the parties in difference, or, if they cannot agree upon a single arbitrator, to the decision of two disinterested persons as arbitrators, of whom one shall be appointed in writing by each of the parties within two calendar months after having been required so to do in writing by the other party. In case either party shall refuse or fail to appoint an arbitrator within two calendar months after receipt of notice in writing requiring appointment, the other party shall be at liberty to appoint a sole arbitrator; and in case of disagreement between the arbitrators, the difference shall be referred to the decision of an umpire who shall have been appointed by them in writing before entering on the reference and who shall sit with the arbitrators and preside at their meetings. The death of any party shall not revoke or affect the authority or powers of the arbitrator, arbitrators or umpire respectively; and in the event of the death of an arbitrator or umpire, another shall in each case be appointed in his stead by the party or arbitrators (as the case may be), by whom the arbitrator or umpire so dying was appointed. The costs of the reference and of the award shall be in the discretion of the arbitrator, arbitrators or umpire making the award. And it is hereby expressly stipulated and declared that it shall be a condition precedent to any right of action or suit upon this policy that the award by such arbitrator, arbitrators or umpire of the amount of the loss or damage if disputed shall be first obtained. That the arbitration clause in the policy issued by the Tokyo Marine Insurance Company, Limited, is as follows, to wit: If any difference shall arise with respect to any claim for loss or damage by fire and no fraud be suspected, and the Company does not elect to rebuild, repair, reinstate or replace same, such difference shall be submitted to arbitrators, indifferently chosen, whose award, or that of their umpire, shall be conclusive. Any liability arising out of the fire should be borne by the defendants in equal parts; that each of them has offered in writing to pay the plaintiff its one-third of the amount of the plaintiffs loss, as ascertained by the arbitrator. It is understood that in making this stipulation plaintiff shall not be deemed to have waived his right to contend, as a matter of law or fact, that the award of the arbitrator is not conclusive upon him and that the arbitrator was without authority to supplement or amend his findings after having once rendered decision; and that defendants have not waived their right to contend that such arbitration is conclusive, and that no evidence of the amount of the loss alleged to have been suffered by plaintiff should be considered, but that his right to recover is limited to the amount of damage found by the arbitrator to have been suffered by him. On November 6, 1919, it is hereby stipulated and agreed that the above entitled causes be and they are hereby submitted to the court upon the evidence taken at the trial and the depositions taken in Samar before the justice of the peace of the municipality of Calbayog, and by him transmitted to the clerk of this court; provided, that nothing herein contained shall be construed

as a waiver of the contention of defendants that the award of the arbitrator is conclusive, and that no evidence of the amount of the loss other than such award should be considered. After the testimony was taken, the trial court rendered judgment against each of the defendants for P202.78, and that plaintiff should pay the costs of the action, from which he appealed, claiming that the court erred in holding that the decision of the arbitrator is conclusive or in any way binding on the plaintiff; that the arbitrators decision is in the main supported by the evidence; and that it erred in not awarding judgment for the plaintiff, is prayed for in his complaint. It will be noted that the policies of the Law Union and Rock Insurance Co., Ltd., and The Chine Fire Insurance Co., Ltd., provide for arbitration and expressly stipulated that it shall be a condition precedent to any right of action or suit upon this policy that the award by such arbitrator, arbitrators or umpire of the amount of the loss or damage if disputed shall be first obtained, and that the action was brought without making any effort to adjust the loss by arbitration. The policy of Tokyo Marine Insurance Co., Ltd., provides that in the event of a different it shall be submitted to arbitrators, indifferently chosen, whose award, or that of their umpire, shall be conclusive. After the action was brought, and upon the request of the defendant, an arbitrator was chosen to whom the evidence of the loss was submitted. On December 28, 1918, he found that only seven bales of hemp of the grade ovillo were destroyed, but did not then make any finding as to its value. July 8, 1919, he made and filed a supplemental report in which he found that the value of the hemp destroyed by the fire of April 10, 1918, was P608.34. The plaintiff contends; First, that the arbitration clauses are null and void as against public policy; second, that the award of the arbitrator of December 28, 1918, without finding the value of the property destroyed, was final, and that on July 8, 1919, he had no authority to make a supplemental finding as to the value of the property; and, third, that upon the evidence the court should have found for the plaintiff. Upon the first point he cites the case of Wahl and Wahl vs. Donaldson, Sims and Co. (2 Phil., 301), which apparently sustains his contention. That case holds that a clause in a contract providing that all matters in dispute between the parties shall be referred to arbitrators and to them alone is contrary to public policy and cannot oust the courts of jurisdiction. In Chang vs. Royal Exchange Assurance Corporation of London (8 Phil., 399), agreement was very similar to the one here with the two defendants above quoted, and it was there held that such a condition for arbitration is valid, and that, unless there was an effort to comply, no action could be maintained. In Allen vs. Province of Tayabas (38 Phil., 356), it is said: . . . It would be highly improper for courts out of untoward jealousy to annul laws or agreements which seek to oust the courts of their jurisdiction. . . . Unless the agreement is such as absolutely to close the doors of the courts against the parties, which agreement would be void. (Wahl and Wahl vs. Donaldson, Sims and Co. [1903], 2 Phil., 301), courts will look with favor upon such amicable arrangements and will only with great reluctance interfere to anticipate or nullify the action of the arbitrator. . . . In the instant case, it will be noted that sometime after the action was commenced and upon the request of the defendants, the plaintiff agreed to arbitrate under the terms and provisions of the policies; that the parties mutually agreed upon an arbitrator; and that each appeared before him and offered his or its evidence upon the questions in dispute. There is no claim or pretense that the proceedings were not honestly and fairly conducted. Having formally agreed and submitted to an arbitration after the action was commenced, it may well be doubted whether the plaintiff can at this time question the validity of the proceedings, except upon the ground of fraud or mistake.

Ruling Case Law, vol. 2, p. 359, says that when the subject-matter of a pending suit is submitted to arbitration without rule of court there is a conflict among the authorities as to whether or not the mere submission effects a discontinuance of the action. The majority rule is that the parties themselves show an intent to discontinue the pending suit by substituting another tribunal, so that a submission furnishes ground for a discontinuance. On page 352 of the same volume, it is said: Arbitration as a method of settling disputes and controversies is recognized at common law. The award of the arbitrators is binding on the parties, but, in the absence of statute, the successful party can only enforce his rights thereunder by a suit at law. Thus the only gain by a common law arbitration is the substitution of the definite findings of the award as the basis of a suit, in the place of the former unsettled rights of the parties. In an action on the award the award itself is conclusive evidence of all matters therein contained, provided the arbitrators have not exceeded the powers delegated to them by the agreement of submission. The courts regard matters submitted as concluded by the award, and in an action thereon they will not review the merits of the arbitrators findings. Corpus Juris, vol. 5, p. 16, says: The statement of controversies by arbitration is an ancient practice at common law. In its broad sense it is a substitution, by consent of parties, of another tribunal for the tribunals provided by the ordinary processes of law; a domestic tribunal, as contradistinguished from a regularly organized court proceeding according to the course of the common law, depending upon the voluntary act of the parties disputant in the selection of judges of their own choice. Its object is the final disposition, in a speedy and inexpensive way, of the matters involved, so that they may not become the subject of future litigation between the parties. On page 20, it is said: APPROVED METHOD OF SETTLEMENT; FAVORED BY CONSTRUCTION. - Although arbitration was recognized at the common law as a mode of adjusting matters in dispute, especially such as concerned personal chattels and personal wrongs, yet, from efforts perceptible in the earlier cases to construe arbitration proceedings and awards so as to defeat them, it would seem that they were not originally favored by the courts. This hostility, however, has long since disappeared, and, by reason of the fact that the proceeding represents a method of the parties own choice and furnishes a more expeditious and less expensive means of settling controversies than the ordinary course of regular judicial proceedings, it is the policy of the law to favor arbitration. Therefore every reasonable intendment will be indulged to give effect to such proceedings, and in favor of the regularity and integrity of the arbitrators acts. On page 43, it is said: Where a contract contains a stipulation, not that all questions arising thereunder, whether as to the validity or effect of such contract, or otherwise, shall be submitted to arbitration, but that the decision of arbitrators on a certain question or questions, such as the quantity, quality, or price of materials or workmanship, the value of work, the amount of loss or damage, or the like, shall be a condition precedent to the right of action on the contract itself, no fixed sum being stated in the contract, such stipulation will be enforced, because the parties to a contract have a right to adopt whatever method they see fit for determining such questions, and until the method adopted has been pursued, or some sufficient reason given for not pursuing it, no action can be brought on the contract. Freedom to contract for arbitration to this extent, it has been said, imports no invasion of the province of the courts, and there is no ground upon which a right so essential to the convenient transaction of modern business affairs can be denied, nor is such agreement objectionable as being against public policy. In order to give effect to such an agreement it must of course appear that the matter proposed to be referred is a difference, within the meaning of the agreement.

In the instant case, there was no dispute about the policy of insurance or the fire. The only real difference was the amount of the loss which plaintiff sustained, and that was the only question submitted to arbitration. In December, the arbitrator found the amount of plaintiffs hemp which was destroyed, but did not find its value. Hence the award on the question submitted was not complete or final. In the finding of the actual value of the hemp, there was no change or revision of any previous finding. It was simply the completion by the arbitrator of an unfinished work. No formal notice was served on the arbitrator, and he was not removed or discharged, and until such time as his duties were fully performed, or he was discharged, he would have the legal right to complete his award. The plaintiff, having agreed to arbitration after the action was commenced and submitted his proof to the arbitrator, in the absence of fraud or mistake, is estopped and bound by the award. Where a plaintiff has commenced an action to recover upon an insurance policy, and then voluntarily submits the amount of his loss to arbitration, he cannot ignore or nullify the award and treat it as void upon the ground that he is dissatisfied with the decision. Judgment is affirmed, with costs to the appellee. So ordered.