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G.R. No.

175404
CARGILL PHILIPPINES, INC., Petitioner,
v.
SAN FERNANDO REGALA TRADING, INC., Respondent.

FACTS:
Cargill Philippines, Inc. and Regala Trading, Inc. entered into a contract and agreed upon that San Fernando Regala Trading,
Inc. would purchase from Cargill a Thailand origin cane blackstrap molasses and the delivery was to be made in January or February
however, the delivery was moved to April or May and the payment would be by an Irrevocable Letter of Credit Payable at Sight. Cargill
failed to comply with the obligation and Regala Trading filed a complaint with the RTC for the Rescission of the Contract with Damages
against Cargill. Cargill filed a Motion to Dismiss / Suspend Proceedings and refer controversy to Voluntary Arbitration, it argued that the
contract between the parties was never consummated because Regala Trading did not return the proposed agreement bearing its
written acceptance.

ISSUE:
Whether or not the validity and enforceability of the contract containing the arbitration agreement violate any provision of the
Arbitration Law.

HELD:
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. 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.

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.

Licomcen Incorporated v. Foundation Specialists, Inc. (G.R. No. 167022, 4 April 2011)
Foundation Specialists, Inc., v. Licomcen incorporated (G.R. No. 169678, 4 April 2011)
FACTS: In March 1997, the City Government of Legaspi awarded to LICOMCEN a lease contract over a lot located in the central
business district of the city. LICOMCEN was to finance the construction of a commercial complex/mall to be known as the LCC Citimall
(Citimall), operate and manage the same for 50 years, and, thereafter, turn over the ownership and operation to the City Government.
LICOMCEN hired E.S. de Castro and Associates (ESCA) to act as its engineering consultant.
LICOMCEN contracted respondent Foundation Specialists, Inc. (FSI) to do initial construction works, specifically, the construction and
installation of bored piles foundation.
On 16 December 1997, LICOMCEN sent word to FSI that it was considering major design revisions and the suspension of work on the
Citimall project. FSI expressed concern over the revisions and the suspension, as it had fully mobilized its manpower and equipment,
and had ordered the delivery of steel bars. FSI also asked for the payment of accomplished work amounting to P3,627,818.00.
ESCA wrote FSI stating that the revised design necessitated a change in the bored piles requirement and a substantial reduction in the
number of piles. ESCA proposed to FSI that only 50% of the steel bars be delivered to the jobsite and the rest be shipped back to
Manila. Notwithstanding this instruction, all the ordered steel bars arrived in Legaspi City on January 14, 1998.
On January 15, 1998, LICOMCEN instructed FSI to hold all construction activities on the project, in view of a pending administrative
case against the officials of the City Government of Legaspi and LICOMCEN filed before the Ombudsman (OMB-ADM-1-97-0622). On
January 19, 1998, ESCA formalized the suspension of construction activities and ordered the constructions demobilization until the
case was resolved. In response, FSI sent ESCA a letter requesting payment of costs incurred on account of the suspension which
totaled P22,667,026.97.
FSI filed a petition for arbitration with the Construction Industry Arbitration Commission (CIAC) on 2 October 2002, docketed as CIAC
Case No. 37-2002.
During the preliminary conference, LICOMCEN reiterated its objections to the CIACs jurisdiction, which the arbitrators simply noted.
Both FSI and LICOMCEN then proceeded to draft the Terms of Reference.
On 4 February 2003, LICOMCEN, through a collaborating counsel, filed its Ex Abundati Ad CautelaOmnibus Motion, insisting that FSIs
petition before the CIAC should be dismissed for lack of jurisdiction; thus, it prayed for the suspension of the arbitration proceedings
until the issue of jurisdiction was finally settled. The CIAC denied LICOMCENs motion in its February 20, 2003 order,finding that the
question of jurisdiction depends on certain factual conditions that have yet to be established by ample evidence. As the CIACs
February 20, 2003 order stood uncontested, the arbitration proceedings continued, with both parties actively participating.
The CIAC issued its decision on July 7, 2003, ruling in favor of FSI.
LICOMCEN appealed the CIACs decision before the Court of Appeals (CA). On November 23, 2004, the CA upheld the CIACs
decision, modifying only the amounts awarded.
Hence, the parties filed their own petition for review on certiorari before the Court.
Ruling:
1. The CIAC has jurisdiction. The arbitration clause which provides for arbitration of disputes in connection with or arising out of
execution of the works include contractual money claims.
LICOMCEM principally raises the question of the CIACs jurisdiction, insisting that FSIs claims are non-arbitrable. In support of its
position, LICOMCEN cites GC-61 of the GCC:

GC-61. DISPUTES AND ARBITRATION


Should any dispute of any kind arise between the LICOMCEN INCORPORATED and the Contractor [referring to FSI] or the
Engineer [referring to ESCA] and the Contractor in connection with, or arising out of the execution of the Works, such dispute
shall first be referred to and settled by the LICOMCEN, INCORPORATED who shall within a period of thirty (30) days after being
formally requested by either party to resolve the dispute, issue a written decision to the Engineer and Contractor.
Such decision shall be final and binding upon the parties and the Contractor shall proceed with the execution of the Works with
due diligence notwithstanding any Contractor's objection to the decision of the Engineer. If within a period of thirty (30) days from
receipt of the LICOMCEN, INCORPORATED's decision on the dispute, either party does not officially give notice to contest such
decision through arbitration, the said decision shall remain final and binding. However, should any party, within thirty (30) days from
receipt of the LICOMCEN, INCORPORATED's decision, contest said decision, the dispute shall be submitted for arbitration under the
Construction Industry Arbitration Law, Executive Order 1008. The arbitrators appointed under said rules and regulations shall have full
power to open up, revise and review any decision, opinion, direction, certificate or valuation of the LICOMCEN, INCORPORATED.
Neither party shall be limited to the evidence or arguments put before the LICOMCEN, INCORPORATED for the purpose of obtaining
his said decision. No decision given by the LICOMCEN, INCORPORATED shall disqualify him from being called as a witness and
giving evidence in the arbitration. It is understood that the obligations of the LICOMCEN, INCORPORATED, the Engineer and the
Contractor shall not be altered by reason of the arbitration being conducted during the progress of the Works.
LICOMCEN posits that only disputes in connection with or arising out of the execution of the Works are subject to arbitration.
LICOMCEN construes the phrase execution of the Works as referring to the physical construction activities, since Works under
the GCC specifically refer to the structures and facilities required to be constructed and completed for the Citimall project. It considers
FSIs claims as mere contractual monetary claims that should be litigated before the courts of Legaspi City, as provided in GC-05 of
the GCC:
GC-05. JURISDICTION
Any question between the contracting parties that may arise out of or in connection with the Contract, or breach
thereof, shall be litigated in the courts of Legaspi City except where otherwise specifically stated or except when such question is
submitted for settlement thru arbitration as provided herein.
The CIAC was created through Executive Order No. 1008 (E.O. 1008), in recognition of the need to establish an arbitral machinery that
would expeditiously settle construction industry disputes. The prompt resolution of problems arising from or connected with the
construction industry was considered of necessary and vital for the fulfillment of national development goals, as the construction
industry provides employment to a large segment of the national labor force and is a leading contributor to the gross national product.
The jurisdiction of courts and quasi-judicial bodies is determined by the Constitution and the law. It cannot be fixed by the will of the
parties to a dispute; the parties can neither expand nor diminish a tribunals jurisdiction by stipulation or agreement. The text of Section
4 of E.O. 1008 is broad enough to cover any dispute arising from, or connected with construction contracts, whether these involve mere
contractual money claims or execution of the works. Considering the intent behind the law and the broad language adopted,
LICOMCEN erred in insisting on its restrictive interpretation of GC-61. The CIACs jurisdiction cannot be limited by the parties
stipulation that only disputes in connection with or arising out of the physical construction activities (execution of the works) are
arbitrable before it.
In fact, all that is required for the CIAC to acquire jurisdiction is for the parties to a construction contract to agree to submit
their dispute to arbitration.
In HUTAMA-RSEA Joint Operations, Inc. v. Citra Metro Manila Tollways Corporation, the Court declared that the bare fact that the
parties x x x incorporated an arbitration clause in [their contract] is sufficient to vest the CIAC with jurisdiction over any construction
controversy or claim between the parties. The arbitration clause in the construction contract ipso facto vested the CIAC with
jurisdiction.
Under GC-61 and GC-05 of the GCC, read singly and in relation with one another, the Court sees no intent to limit resort to arbitration
only to disputes relating to the physical construction activities.
First, consistent with the intent of the law, an arbitration clause pursuant to E.O. 1008 should be interpreted at its widest signification.
Under GC-61, the voluntary arbitration clause covers any dispute of any kind, not only arising of out the execution of the works but
also in connection therewith. The payments, demand and disputed issues in this case namely, work billings, material costs,
equipment and labor standby costs, unrealized profits all arose because of the construction activities and/or are connected or related
to these activities. In other words, they are there because of the construction activities. Attorneys fees and interests payment, on the
other hand, are costs directly incidental to the dispute. Hence, the scope of the arbitration clause, as worded, covers all the disputed
items.
Second and more importantly, in insisting that contractual money claims can be resolved only through court action, LICOMCEN
deliberately ignores one of the exceptions to the general rule stated in GC-05:
GC-05. JURISDICTION
Any question between the contracting parties that may arise out of or in connection with the Contract, or breach thereof, shall be
litigated in the courts of Legaspi City except where otherwise specifically stated or except when such question is submitted for
settlement thru arbitration as provided herein. The second exception clause authorizes the submission to arbitration of any dispute
between LICOMCEM and FSI, even if the dispute does not directly involve the execution of physical construction works. This was
precisely the avenue taken by FSI when it filed its petition for arbitration with the CIAC.

2. The jurisdiction of the CIAC cannot be subject to a condition precedent


LICOMCEN also contends that FSI failed to comply with the condition precedent for arbitration laid down in GC-61 of the GCC. An
arbitrable dispute under GC-61 must first be referred to and settled by LICOMCEN, which has 30 days to resolve it. If within a period of
30 days from receipt of LICOMCENs decision on the dispute, either party does not officially give notice to contest such decision
through arbitration, the said decision shall remain final and binding. However, should any party, within 30 days from receipt of
LICOMCENs decision, contest said decision, the dispute shall be submitted for arbitration under the Construction Industry Arbitration
Law.
LICOMCEN considers its March 24, 1998 letter as its final decision on FSIs claims, but declares that FSIs reply letter of April 15, 1998
is not the notice to contest required by GC-61 that authorizes resort to arbitration before the CIAC. It posits that nothing in FSIs April
15, 1998 letter states that FSI will avail of arbitration as a mode to settle its dispute with LICOMCEN. While FSIs final demand letter of
March 14, 2001 mentioned its intention to refer the matter to arbitration, LICOMCEN declares that the letter was made three years after
its March 24, 1998 letter, hence, long after the 30-day period provided in GC-61. Indeed, FSI filed the petition for arbitration with the
CIAC only on October 2, 2002. Considering FSIs delays in asserting its claims, LICOMCEN also contends that FSIs action is barred
by laches.
If the CIACs jurisdiction can neither be enlarged nor diminished by the parties, it also cannot be subjected to a condition precedent.
GC-61 requires a party disagreeing with LICOMCENs decision to officially give notice to contest such decision through arbitration
within 30 days from receipt of the decision. However, FSIs April 15, 1998 letter is not the notice contemplated by GC-61; it never
mentioned FSIs plan to submit the dispute to arbitration and instead requested LICOMCEN to reevaluate its claims. Notwithstanding
FSIs failure to make a proper and timely notice, LICOMCENs decision (embodied in its March 24, 1998 letter) cannot become final
and binding so as to preclude resort to the CIAC arbitration. To reiterate, all that is required for the CIAC to acquire jurisdiction is for
the parties to agree to submit their dispute to voluntary arbitration:
[T]he mere existence of an arbitration clause in the construction contract is considered by law as an agreement by the parties
to submit existing or future controversies between them to CIAC jurisdiction, without any qualification or condition
precedent. To affirm a condition precedent in the construction contract, which would effectively suspend the jurisdiction of the CIAC
until compliance therewith, would be in conflict with the recognized intention of the law and rules to automatically vest CIAC with
jurisdiction over a dispute should the construction contract contain an arbitration clause.
The CIAC is given the original and exclusive jurisdiction over disputes arising from, or connected with, contracts entered into by
parties involved in construction in the Philippines. This jurisdiction cannot be altered by stipulations restricting the nature of
construction disputes, appointing another arbitral body, or making that bodys decision final and binding.
The jurisdiction of the CIAC to resolve the dispute between LICOMCEN and FSI is, therefore, affirmed.
3. Nominal damages may be awarded in CIAC arbitrations
FSI contends that it is not barred from recovering unrealized profit under GC-41(2), which states:
GC-41. LICOMCEN, INCORPORATEDs RIGHT TO SUSPEND WORK OR TERMINATE THE CONTRACT
2. For Convenience of the LICOMCEN, INCORPORATED
The Contractor [FSI] shall not claim damages for such discontinuance or termination of the Contract , but the Contractor shall
receive compensation for reasonable expenses incurred in good faith for the performance of the Contract and for reasonable expenses
associated with termination of the Contract. The LICOMCEN, INCORPORATED will determine the reasonableness of such
expenses.The Contractor [FSI] shall have no claim for anticipated profits on the work thus terminated, nor any other
claim, except for the work actually performed at the time of complete discontinuance, including any variations authorized by the
LICOMCEN, INCORPORATED/Engineer to be done.
The prohibition, FSI posits, applies only where the contract was properly and lawfully terminated, which was not the case at bar. FSI
also took pains in differentiating its claim for unrealized profit from the prohibited claim for anticipated profits; supposedly, unrealized
profit is one that is built-in in the contract price, while anticipated profit is not. We fail to see the distinction, considering that the
contract itself neither defined nor differentiated the two terms. [A] contract must be interpreted from the language of the contract itself,
according to its plain and ordinary meaning. If the terms of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of the stipulations shall control.
Nonetheless, on account of our earlier discussion of LICOMCENs failure to observe the proper procedure in terminating the contract by
declaring that it was merely indefinitely suspended, we deem that FSI is entitled to the payment of nominal damages. Nominal
damages may be awarded to a plaintiff whose right has been violated or invaded by the defendant, for the purpose of vindicating or
recognizing that right, and not for indemnifying the plaintiff for any loss suffered by him. Its award is, thus, not for the purpose of
indemnification for a loss but for the recognition and vindication of a right. A violation of the plaintiffs right, even if only technical, is
sufficient to support an award of nominal damages. FSI is entitled to recover the amount of P100,000.00 as nominal damages.

TUNA PROCESSING, INC. vs. PHILIPPINE KINGFORD, INC.

FACTS:
Kanemitsu Yamaoka, co-patentee of a US Patent, Philippine Letters Patent, and an Indonesian Patent, entered into aMemorandum of
Agreement (MOA) with five Philippine tuna processors including Respondent Philippine Kingford, Inc. (KINGFORD). The MOA
provides for the enforcing of the abovementioned patents, granting licenses under the same, and collecting royalties, and for the
establishment of herein Petitioner Tuna Processors, Inc. (TPI).
Due to a series of events not mentioned in the Petition, the tuna processors, including Respondent KINGFORD, withdrew from
Petitioner TPI and correspondingly reneged on their obligations. Petitioner TPI submitted the dispute for arbitration before the
International Centre for Dispute Resolution in the State of California, United States and won the case against Respondent KINGFORD.
To enforce the award, Petitioner TPI filed a Petition for Confirmation, Recognition, and Enforcement of Foreign Arbitral Award before the
RTC of Makati City. Respondent KINGFORD filed a Motion to Dismiss, which the RTC denied for lack of merit. Respondent KINGFORD
then sought for the inhibition of the RTC judge, Judge Alameda, and moved for the reconsideration of the order denying the Motion.
Judge Alameda inhibited himself notwithstanding [t]he unfounded allegations and unsubstantiated assertions in the motion. Judge
Ruiz, to which the case was re-raffled, in turn, granted Respondent KINGFORDSs Motion for Reconsideration and dismissed the
Petition on the ground that Petitioner TPI lacked legal capacity to sue in the Philippines. Petitioner TPI is a corporation established in
the State of California and not licensed to do business in the Philippines.
Hence, the present Petition for Review on Certiorari under Rule 45.

ISSUE:
Whether or not a foreign corporation not licensed to do business in the Philippines, but which collects royalties from entities in the
Philippines, sue here to enforce a foreign arbitral award?

ARGUMENT:
Petitioner TPI contends that it is entitled to seek for the recognition and enforcement of the subject foreign arbitral award in accordance
with RA No. 9285 (Alternative Dispute Resolution Act of 2004 ), the Convention on the Recognition and Enforcement of Foreign Arbitral
Awards drafted during the United Nations Conference on International Commercial Arbitration in 1958 (New York Convention), and
the UNCITRAL Model Law on International Commercial Arbitration ( Model Law), as none of these specifically requires that the party
seeking for the enforcement should have legal capacity to sue.

RULING:
YES. Petitioner TPI, although not licensed to do business in the Philippines, may seek recognition and enforcement of the foreign
arbitral award in accordance with the provisions of theAlternative Dispute Resolution Act of 2004. A foreign corporations capacity to
sue in the Philippines is not material insofar as the recognition and enforcement of a foreign arbitral award is concerned.
The Resolution of the RTC is REVERSED and SET ASIDE.

RATIO DECIDENDI:
Sec. 45 of the Alternative Dispute Resolution Act of 2004 provides that the opposing party in an application for recognition and
enforcement of the arbitral award may raise only those grounds that were enumerated under Article V of the New York Convention, to
wit:

Article V

1. Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party
furnishes to the competent authority where the recognition and enforcement is sought, proof that:
a. The parties to the agreement referred to in Article II were, under the law applicable to them, under some incapacity, or the said
agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the
country where the award was made;
b. The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration
proceedings or was otherwise unable to present his case;
c. The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains
decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to
arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to
arbitration may be recognized and enforced;
d. The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing
such agreement, was not in accordance with the law of the country where the arbitration took place; or
e. The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in
which, or under the law of which, that award was made.
2. Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition
and enforcement is sought finds that:
a. The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or
b. The recognition or enforcement of the award would be contrary to the public policy of that country.
Not one of the abovementioned exclusive grounds touched on the capacity to sue of the party seeking the recognition and enforcement
of the award.

Pertinent provisions of the Special Rules of Court on Alternative Dispute Resolution, which was promulgated by the Supreme Court,
likewise support this position.

Rule 13.1 of the Special Rules provides that [a]ny party to a foreign arbitration may petition the court to recognize and enforce a
foreign arbitral award. The contents of such petition are enumerated in Rule 13.5. Capacity to sue is not included. Oppositely, in the
rule on local arbitral awards or arbitrations in instances where the place of arbitration is in the Philippines, it is specifically required that
a petition to determine any question concerning the existence, validity and enforceability of such arbitration agreement available to the
parties before the commencement of arbitration and/or a petition for judicial relief from the ruling of the arbitral tribunal on a preliminary
question upholding or declining its jurisdiction after arbitration has already commenced should state [t]he facts showing that the
persons named as petitioner or respondent have legal capacity to sue or be sued.

Indeed, it is in the best interest of justice that in the enforcement of a foreign arbitral award, the Court deny availment by the
losing party of the rule that bars foreign corporations not licensed to do business in the Philippines from maintaining a suit in
Philippine courts. When a party enters into a contract containing a foreign arbitration clause and, as in this case, in fact submits
itself to arbitration, it becomes bound by the contract, by the arbitration and by the result of arbitration, conceding thereby the
capacity of the other party to enter into the contract, participate in the arbitration and cause the implementation of the result. Although
not on all fours with the instant case, also worthy to consider is the wisdom of then Associate Justice Flerida Ruth P. Romero in her
Dissenting

Opinion in Asset Privatization Trust v. Court of Appeals [1998], to wit:


xxx Arbitration, as an alternative mode of settlement, is gaining adherents in legal and judicial circles here and abroad. If its tested
mechanism can simply be ignored by an aggrieved party, one who, it must be stressed, voluntarily and actively participated in the
arbitration proceedings from the very beginning, it will destroy the very essence of mutuality inherent in consensual contracts.
Clearly, on the matter of capacity to sue, a foreign arbitral award should be respected not because it is favored over domestic laws and
procedures, but because Republic Act No. 9285 has certainly erased any conflict of law question.

Finally, even assuming, only for the sake of argument, that the RTC correctly observed that the Model Law, not the New York
Convention, governs the subject arbitral award, Petitioner TPI may still seek recognition and enforcement of the award in Philippine
court, since the Model Law prescribes substantially identical exclusive grounds for refusing recognition or enforcement.

G.R. No. 179628 : January 16, 2013


THE MANILA INSURANCE COMPANY, INC., Petitioner, v. SPOUSES ROBERTO and AIDA AMURAO, Respondents.
DEL CASTILLO, J.:
FACTS:
Spouses Roberto and Aida Amurao (Sps. Amurao) entered into a Construction Contract Agreement (CCA) with Aegean Construction
and Development Corp. (Aegean) for the construction of a six-storey commercial building. To guarantee its obligation, Aegean posted
performance bonds secured by petitioner Manila Insurance Company, Inc. (Manila Insurance) and Intra Strata Assurance Corporation
(Intra Strata). Aegean failed to comply with its obligation. Hence, the spouses filed a complaint before the RTC to enforce its claim
against the sureties.
During the pre-trial, Manila Insurance and Intra Strata discovered that the CCA contained an arbitration clause. Consequently, they filed
a Motion to Dismiss on the grounds of lack of cause of action and lack of jurisdiction. The RTC denied the motion to dismiss.
Manila Insurance appealed to the Court of Appeals. The CA dismissed the petition.
Hence, Manila Insurance elevated the matter to the Supreme Court.
Manila Insurance argues that it cannot be held liable as a surety because the claim of Sps. Amurao is premature. Manila Insurance
contends that the dispute between the spouses and Aegean should be brought first before the CIAC for arbitration.

ISSUES:
I. Whether or not Manila Insurance can be held liable as surety of Aegean?
II. Whether or not the RTC has jurisdiction over the dispute?
HELD:
CIVIL LAW: suretys liability
FIRST ISSUE: Manila Insurance is liable as surety.
A contract of suretyship is defined as an agreement whereby a party, called the surety, guarantees the performance by another party,
called the principal or obligor, of an obligation or undertaking in favor of a third party, called the obligee.
The Court has consistently held that a suretys liability is joint and several, limited to the amount of the bond, and determined strictly by
the terms of contract of suretyship in relation to the principal contract between the obligor and the obligee.It bears stressing, however,
that although the contract of suretyship is secondary to the principal contract, the suretys liability to the obligee is nevertheless direct,
primary, and absolute. But while there is a cause of action against Manila Insurance, the complaint must still be dismissed for lack of
jurisdiction.

REMEDIAL LAW: arbitration


SECOND ISSUE: The CIAC has jurisdiction over the case and not the RTC.
In order for the CIAC to acquire jurisdiction two requisites must concur: first, the dispute must be somehow connected to a construction
contract; and second, the parties must have agreed to submit the dispute to arbitration proceedings. In this case, both requisites are
present.
DISMISSED.

J Plus Asia Development Corporation vs. Utility Assurance Crpporation


FACTS:
Petitioner J Plus Asia Development Corporation and Martin E. Mabunay entered into a Construction Agreement on December 24, 2007
whereby the latter undertook to build the formers 72-room condominium/hotel located in Boracay Island.

The project, costing P42M, was to be completed within one year or 365 days reckoned from the first calendar day after signing of
the Notice of Award and Notice to Proceed and receipt of down payment (20% of contract price). The P8.4M down payment was fully
paid on January 14, 2008. Payment of the balance of the contract price will be based on actual work finished within 15 days from
receipt of the monthly progress billings. Per the agreed work schedule, the completion date of the project was December 2008.
Mabunay also submitted the required Performance Bondissued by Respondent Utility Assurance Corporation in the amount equivalent
to 20% down payment or P8.4M.

Mabunay commenced work at the project site on January 7, 2008. Petitioner paid up to the 7th monthly progress billing sent by
Mabunay. As of September 16, 2008, Petitioner had paid the total amount of P15.98M inclusive of the 20% down payment. However,
as of said date, Mabunay had accomplished only 27.5% of the project. It was later found out by the joint inspection and evaluation by
the Petitioner and Mabunay that, as of November 14, 2008, the project was only 31.39% complete and that the uncompleted portion
was 68.61%.
On November 19, 2008, Petitioner terminated the contract and sent Demand Letters to Mabunay and Respondent surety. As its
demands went unheeded, Petitioner filed a Request for Arbitration before the Construction Industry Arbitration Commission (CIAC).

In his Answer, Mabunay claimed that the delay was caused by retrofitting and other revision works ordered by Petitioner. He asserted
that he actually had until April 30, 2009 to finish the project since the 365 days period of completion started only on May 2, 2008 after
clearing the retrofitted old structure. Hence, the termination of the contract by Petitioner was premature and the filing of the Complaint
against him was baseless, malicious and in bad faith.

Respondent, on the other hand, filed a Motion to Dismiss on the ground that Petitioner has no cause of action and the complaint states
no cause of action against it. The CIAC denied the Motion to Dismiss.

In its Answer Ex Abundante Ad Cautelam with Compulsory Counterclaims and Cross-claims, Respondent argued that thePerformance
Bond merely guaranteed the 20% down payment and not the entire obligation of Mabunay under the Construction Agreement. Since
the value of the projects accomplishment already exceeded the said amount, Respondents obligation under the Performance
Bond had been fully extinguished. As to the claim for alleged overpayment to Mabunay, Respondent contended that it should not be
credited against the 20% down payment which was already exhausted and such application by Petitioner is tantamount to reviving an
obligation that had been legally extinguished by payment. Respondent also set up a cross-claim against Mabunay who executed in its
favor anIndemnity Agreement whereby Mabunay undertook to indemnify Respondent for whatever amounts it may be adjudged liable to
pay Petitioner under the surety bond.

On February 2, 2010, CIAC rendered its Decision and made Awards in favor of Petitioner. CIAC ruled that Mabunay had incurred delay
which entitled Petitioner to the stipulated liquidated damages and unrecouped down payment.
Dissatisfied, Respondent filed in the CA a Petition for Reviewunder Rule 43 of the 1997 Rules of Civil Procedure, as amended, which
reversed the CIACs ruling.
Hence, the present Petition for Review on Certiorari under Rule 45 seeking to reverse the CA insofar as it denied its claims under
the Performance Bond and to reinstate in its entirety the February 2, 2010 CIAC Decision.

ISSUE:

Whether or not the Alternative Dispute Resolution Act of 2004 and the Special ADR Rules have stripped the CA of jurisdiction to review
arbitral awards?

ARGUMENT:
Petitioner contends that that with the institutionalization of alternative dispute resolution under RA No. 9285, otherwise known as the
Alternative Dispute Resolution Act of 2004, the CA was divested of jurisdiction to review the decisions or awards of the CIAC.

RULING:
NO. The Petitioners contention is without merit. Petitioner erroneously relied on the provision in RA No. 9285 allowing any party to a
domestic arbitration to file in the RTC a petition either to confirm, correct or vacate a domestic arbitral award.
The Petition is GRANTED. The assailed decision of the CA is REVERSED and SET ASIDE. The Award made in the Decision rendered
by CIAC dated February 2, 2010 is REINSTATED with MODIFICATIONS.
RATIO DECIDENDI:
SC holds that RA No. 9285 did not confer on RTCs jurisdiction to review awards or decisions of the CIAC in construction disputes. On
the contrary, Section 40 thereof expressly declares that confirmation by the RTC is NOT required, thus:

SEC. 40. Confirmation of Award. The confirmation of a domestic arbitral award shall be governed by Section 23 of R.A. 876.
A domestic arbitral award when confirmed shall be enforced in the same manner as final and executory decisions of the Regional Trial
Court.
The confirmation of a domestic award shall be made by the regional trial court in accordance with the Rules of Procedure to be
promulgated by the Supreme Court.
A CIAC arbitral award need not be confirmed by the regional trial court to be executory as provided under E.O. No. 1008. (Emphasis
supplied.)
EO No. 1008 vests upon the CIAC original and exclusive jurisdiction over disputes arising from, or connected with, contracts entered
into by parties involved in construction in the Philippines, whether the dispute arises before or after the completion of the contract, or
after the abandonment or breach thereof. By express provision of Section 19 thereof, the arbitral award of the CIAC is final and
unappealable, except on questions of law, which are appealable to the Supreme Court. With the amendments introduced by RA No.
7902 and promulgation of the1997 Rules of Civil Procedure, as amended, the CIAC was included in the enumeration of quasi- judicial
agencies whose decisions or awards may be appealed to the CA in a Petition for Review under Rule 43. Such review of the CIAC
award may involve either questions of fact, of law, or of fact and law.

Petitioner misread the provisions of A.M. No. 07-11-08-SC (Special ADR Rules) promulgated by the SC and which took effect on
October 30, 2009. Since RA No. 9285 explicitly excluded CIAC awards from domestic arbitration awards that need to be confirmed to
be executory, said awards are therefore not covered by Rule 11 of the Special ADR Rules, as they continue to be governed by EO No.
1008, as amended and the rules of procedure of the CIAC. The CIAC Revised Rules of Procedure Governing Construction
Arbitration provide for the manner and mode of appeal from CIAC decisions or awards in Section 18 thereof, which reads:

SECTION 18.2 Petition for review. A petition for review from a final award may be taken by any of the parties within fifteen (15) days
from receipt thereof in accordance with the provisions of Rule 43 of the Rules of Court.