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Alternative Dispute Resolution Case Digest: GROUP 1

1. Heirs of Augusto Salas vs Laperal Realty Corporation


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.
Facts: The petitioners in this case are the heirs of Salas, Jr., who was judicially
declared as a presumptively dead for being missing for more than seven (7) years
after leaving home for a business trip to Nueva Icija.
It is also alleged in the facts that Laperal Realty has a contract with
Salas, Jr. denominated as an Owner-Contract Agreement the purpose of which is to
render and provide complete (horizontal) construction services on his land. The
same contract provides an arbitration clause under Article IV of said agreement
which reads:
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.
This instant case arose when the agent of Salas, Jr. to whom a Special Power
of Attorney has been executed, Laperal Realty, one of the respondents in this case,
subdivided the lands of Salas and sold the same to other respondents.
Petitioners as heirs of Salas, Jr. filed in the Regional Trial Court of Lipa City a
Complaint for declaration of nullity of sale, reconveyance, cancellation of contract,
accounting and damages against herein respondents which was docketed as Civil
Case No. 98-0047.
The respondents moved to dismiss the complaint invoking Art. IV of the
Agreement providing for Arbitration before resorting to court action.
Issue: Whether of not the Arbitration Clause in the contract between Salas, Jr. and
Laperal Realty is binding upon the heirs of Salas, Jr.?
Ruling: Yes. A submission to arbitration is a contract. As such, the Agreement,
containing the stipulation on arbitration, binds the parties thereto, as well as their
assigns and heirs. But only they. Petitioners, as heirs of Salas, Jr., and respondent
Laperal Realty are certainly bound by the Agreement.
Respondent Laperal Realty, as a contracting party to the Agreement, has the
right to compel petitioners to first arbitrate before seeking judicial relief.
In a catena of cases inspired by Justice Malcolms provocative dissent in Vega
v. San Carlos Milling Co., 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 Arbitration is the wave of the

future in dispute resolution. To brush aside a contractual agreement calling for


arbitration in case of disagreement between parties would be a step backward.
2. Del Monte Corporation-USA vs CA
FACTS:
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:
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
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.
According to private respondents, DMC-USA products to be brought into the
country by parallel importers despite the appointment of private respondents MMT
as the sole and exclusive distributor of Del Monte products thereby causing them
great embarrassment and substantial damage.
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.
Petitioners filed a Motion to suspend proceedings invoking arbitration clause in
their agreement with private respondents.
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
Private respondents claim, on the other hand, that their causes of action are
rooted in Arts. 20, 21 and 23 of the Civil Code, 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.

ISSUE:
Whether the dispute between the
compelling them to submit to arbitration.

parties

warrants

an

order

HELD:
There is no doubt that arbitration is valid and constitutional in our
jurisdiction. Even before the enactment of RA 876, the 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.
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. 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.
The object of arbitration is to allow the expeditious determination of a
dispute. Clearly, the issue before the court could not be speedily and
efficiently resolved in its entirety if the court allows 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.

3. National Steel Corporation vs RTC of Lanao del Norte

Facts:
Edward Wilkom Enterprises Inc (EWEI) and National Steel Corporation (NSC)
executed a contract whereby the former jointly undertook the Contract for
Site Development for the latter's Integrated Iron and Steel Mills Complex to
be established at Iligan City.
When EWEI sent to NSC its final billing, the NSC refused to pay such alleging
that EWEI failed to complete the works as agreed upon and that NSC used
the fund withheld from EWEI to cover the cost differential paid to another
contractor who finished the work allegedly left uncompleted by EWEI.
EWEI then filed a civil case before RTC 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. NSC filed an answer with counterclaim to plaintiff's
complaints.
The RTC dismissed the said complaint and counterclaim since both parties to
desired to implement Sec. 19 of the contract, providing for a resolution of
any conflict by arbitration, by which the contract also stipulated who will
consist the Arbitration Board.
Arbitrators rendered the decision directing NSC to pay EWEI, as follows:
(a)
P458, 381.00 representing EWEI's last billing 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)

P50,000 as and for exemplary damages;

The RTC confirmed and affirmed the award in toto. NSC filed a Petition to
Vacate Award, a Motion for Reconsideration and lastly an appeal to Supreme
Court via Rule 65 since the first two was unheeded.
Petitioner alleged the following grounds in vacating the award (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. (Sec 24, RA 876)
Issue: Whether or not the lower court acted with grave abuse of discretion
in not vacating the arbitrator's award?
Ruling: No, the court did not act with grave abuse of discretion.
(a) Refute on the issue of partiality of Arbitrators Court finds that 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.
And that the Arbitrators conclusion is well-founded is fully
supported by substantial evidence. The allegation of evident partiality is
not well-taken because the petitioner failed to substantiate the same.
(b)On the issue of mistaken appreciation of the facts Petitioner was
claiming that it has right to withheld the payment of EWEI due to its
failure to complete the work agreed upon and that it paid another
contractor to finished the job. "To authenticate the extent of unfinished
work, quantity, unit cost differential and amount, NSC was required by the
Arbitrators to submit copies of payment vouchers and/or job awards
extended to the other contractor engaged to complete the works.
However, it failed to produce documentary proofs.
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. Also, EWEI final billing would
not have passed processing for payment but since based on NSCs
evaluation report, there is no finding of unfinished work, the contract was
terminated.
(c) Petitioner contends that EWEI is not entitled to price escalation absent
any stipulation to that effect in the contract. Reading from the contract of
the parties, it can be inferred that the contract price of the work shall be
that agreed upon by the parties at the time of the execution of the
contract. It does not prohibit from imposing future increases or price
escalation.
Price escalation is expressly allowed under Presidential
Decree 1594, which law allows price escalation in all contracts involving
government projects.
(d) Lastly even if the RTC did not act on grave abuse of discretion, the
award of Arbitrators affirmed by RTC is modified by the SC to wit:
Instead of 1-1/4% interest per month from January 1, 1985 to actual
date of payment the SC applied the legal rate of 6% per annum on
both the amount of final billing and the escalation price from Jan. 1,
1985 until this decision becomes final and executor since there was
no stipulation in the contract about the interest.
The award of P50,000 for exemplary damages and attorney's fees of
P350,000 are deleted; and
The cost of arbitration of P35,000 to supplement arbitration
agreement has to be paid.

4. Asset Privatization Trust vs CA

Facts:
Republic of the Philippines thru the Surigao Mineral Reservation Board,
granted Marinduque Mining and Industrial Corporation (MMIC) the exclusive
right to explore, develop and exploit nickel, cobalt and other minerals in the
Surigao mineral reservation. The Philippine Government undertook to
support the financing of MMIC by purchase of MMIC debenture and extension
of guarantees. , MMIC, PNB and DBP executed a Mortgage Trust Agreement
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 including assets of whatever kind, nature or
description, which the mortgagor may acquire. MMIC was having a difficult
time meeting its financial obligations a total of P22.6B thus, a financial
restructuring plan (FRP) designed to reduce MMIC' interest expense through
debt conversion to equity was drafted. However, the proposed FRP had never
been formally adopted, approved or ratified by either PNB or DBP, instead,
they exercise their right to extra judicially foreclose the mortgages in
accordance with the Mortgage Trust Agreement. The foreclosed assets were

sold to PNB as the lone bidder which were transferred to the Asset
Privatization Trust (APT) later on.
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. 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.
The issues to be submitted for the Committees resolution shall be:
(a) Whether the MMIC stockholders 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.
The agreement was presented for approval to RTC of Makati Branch 62,
the court ordered a decision that this case submitted to him was now
dismissed.
In their award, 2 of the arbitrators concluded that the fore closure was
not legally and validly done therefore MMIC shall continue to pay APT the
P22.6B. However they hold that FRP is valid, DBPs equity in MMIC is raised
to 87% so the 87% equity of DBP is hereby deducted from the actual
damages of P19.4B resulting in the net actual damages of P2.5B plus
interest. This must be offset from the outstanding loan of MMIC to APT. They
further ordered APT to pay the MMIC and Jesus Cabarrus, Sr. for moral and
exemplary damages.
After the award has been promulgated, MMIC then filed a motion to the
same court (RTC of Makati, Branch 62) a Motion to Confirm the Award and it
was confirmed by RTC and the CS subsequently. APT now is raising the issue
among others, whether RTC of Makati, Branch 62 has still the jurisdiction to
confirm the award and invoking Section 24 of Rep. Act 876, stating that
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.
Issue 1: Whether the RTC of Makati, Branch 62, has jurisdiction to confirm
the arbitral award?
Ruling: No, the RTC of Makati, Branch 62, do not have jurisdiction to confirm
the arbitral award. 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. Branch 62 should have merely suspended the case and
not dismissed it. By its own action, Branch 62 had lost jurisdiction over the
case. It could not have validly reacquired jurisdiction over the said case on
mere motion of one of the parties. 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.
Issue 2: Whether the RTC and CA acted with grave abuse of discretion in
confirming the award made by the arbitrators

Ruling 2: Yes, the RTC and CA acted with grave abuse of discretion in
confirming the award made by the arbitrators that should have been
vacated.
The Arbitrators exceeded beyond the nature and limits of the
Arbitrators powers. The arbitrators cannot resolve issues beyond the scope
of the submission agreement. Art. 2044 of the Civil Code provides that the
finality of the arbitrators awards is not absolute and without exceptions.
Additionally, under Sections 24 and 25, of the Arbitration Law, there are
grounds for vacating, modifying or rescinding an arbitrators award. SC finds
that the arbitrators came out with an award in excess of their powers and
palpably devoid of factual and legal basis

The arbiters overstepped their powers by declaring as valid the


proposed Financial Restructuring Program. The DBP and PNB did not
ratify the FRP, as a contract, they did not consent to such, thus making
it inexistent. Since there was no financial structuring program the
foreclosure of mortgage then was fully justified.

The arbiters exceeded their authority in awarding damages to MMIC,


which is not impleaded as a party to the derivative suit and in
awarding moral damages to Jesus S. Cabarrus, Sr.
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. Award of damages to MMIC, which was not a party before the
Arbitration Committee, is a complete nullity.
The properties foreclosed belonged to MMIC, not to its
stockholders. Hence, if wrong was committed in the foreclosure, it was
done against the corporation, thus, Jesus S. Cabarrus, Sr. cannot
directly claim damages for himself. The Arbitration Committee,
therefore, passed upon matters not submitted to it.

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.
WHEREFORE, the Decision of the CA affirming the RTC is hereby REVERSED
and SET ASIDE, and the decision of the Arbitration Committee is hereby
VACATED.

5. National Irrigation Administration vs CA and CIAC and Hydro Resources


Corporation
FACTS: In a competitive bidding held by Petitioner NIA, Hydro Resources
Contractors Corporation (HYDRO) was awarded Contract for the construction of the
main civil works of the Magat River Multi-Purpose Project. The contract provided that
Respondent HYDRO would be paid partly in Philippine pesos and partly in U.S.
dollars. Respondent HYDRO substantially completed the works under the contract in
1982 and final acceptance by Petitioner NIA was made in 1984. Respondent HYDRO
thereafter determined that it still had an account receivable from Petitioner NIA
representing the dollar rate differential of the price escalation for the contract.
After unsuccessfully pursuing its case with Petitioner NIA, Respondent HYDRO filed
with the CIAC a Request for Adjudication of the aforesaid claim. Petitioner NIA filed
its Answer wherein it questioned the jurisdiction of the CIAC alleging lack of cause of
action, laches and estoppel in view of Respondent HYDROs alleged failure to avail
of its right to submit the dispute to arbitration within the prescribed period as
provided in the contract.
Later, Petitioner NIA filed a Motion to Dismiss alleging lack of jurisdiction over the
disputes.
The arbitral body constituted by both parties issued an order which deferred the
determination of the Motion to Dismiss and resolved to proceed with the hearing of
the case on the merits as the grounds cited by Petitioner NIA did not seem to be
indubitable. Petitioner NIA filed a Motion for Reconsideration of the aforesaid
Order. CIAC in denying the Motion for Reconsideration ruled that it has jurisdiction
over the Respondent HYDROs claim over Petitioner NIA pursuant to E.O 1008 and
that the hearing should proceed as scheduled. CIAC then rendered a decision in the
main case in favor of Respondent HYDRO.
Petitioner NIA filed with the CA an Original Action of Certiorari and Prohibition with
prayer for Restraining Order and/or Injunction which dismissed the same.
Hence, the present Petition for Certiorari and Prohibition with urgent prayer for
Temporary Restraining Order and Writ of Preliminary Injunction.
ISSUE: Whether or not CIAC has jurisdiction to hear and try the dispute between
the parties?
RULING: YES. Contrary to the claim of Petitioner NIA, the CIAC has jurisdiction over
the controversy.
EO No. 1008, otherwise known as the Construction Industry Arbitration Law which
was promulgated on 4 February 1985, vests upon 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.
The disputes may involve government or private contracts. For the Board to acquire
jurisdiction, the parties to a dispute must agree to submit the same to voluntary
arbitration.
The complaint of Respondent HYDRO against Petitioner NIA on the basis of
contract executed between them was filed on 7 December 1994, during
effectivity of E.O. No. 1008. Hence, it is well within the jurisdiction of CIAC.
jurisdiction of a court is determined by the law in force at the time of
commencement of the action.

the
the
The
the

Petitioner NIAs argument that CIAC had no jurisdiction to arbitrate on contract


which preceded its existence is untenable. E.O. 1008 is clear that the CIAC has
jurisdiction over all disputes arising from or connected with construction contract
whether the dispute arises BEFORE or AFTER the completion of the contract. Thus,
the date the parties entered into a contract and the date of completion of the same,
even if these occurred before the constitution of the CIAC, did not automatically
divest the CIAC of jurisdiction as long as the dispute submitted for arbitration arose
after the constitution of the CIAC. Stated differently, the jurisdiction of CIAC is over
the dispute, not the contract; and the instant dispute having arisen when CIAC was

already constituted, the arbitral board was actually exercising current, not
retroactive, jurisdiction.
It is undisputed that the contracts between Respondent HYDRO and Petitioner NIA
contained an arbitration clause wherein they agreed to submit to arbitration any
dispute between them that may arise before or after the termination of the
agreement. Consequently, the claim of Respondent HYDRO having arisen from the
contract is arbitrable. Petitioner NIAs reliance with the ruling on the case of Tesco
Services Incorporated v. Vera, is misplaced.
The 1988 CIAC Rules of Procedure which were applied by this Court in the Tesco
case had been duly amended by CIAC Resolutions No. 2-91 and 3-93, Section 1 of
Article III of which read as follows:
Submission to CIAC Jurisdiction An arbitration clause in a construction contract or
a submission to arbitration of a construction contract or a submission to arbitration
of a construction dispute shall be deemed an agreement to submit an existing or
future controversy to CIAC jurisdiction, 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.
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.
Moreover, it is undeniable that Petitioner NIA agreed to submit the dispute for
arbitration to the CIAC. Petitioner NIA through its counsel actively participated in the
arbitration proceedings by filing an Answer with Counterclaim, as well as its
compliance wherein it nominated arbitrators to the proposed panel, participating in
the deliberations on, and the formulation of, the Terms of Reference of the
arbitration proceeding, and examining the documents submitted by Respondent
HYDRO after Petitioner NIA asked for the originals of the said documents.

6. Agan vs Philippine International Air Terminals Co., INC.


FACTS: In August 1989, the DOTC engaged the services of Aeroport de Paris (ADP)
to conduct a comprehensive study of the Ninoy Aquino International Airport (NAIA)
and determine whether the present airport can cope with the traffic development up
to the year 2010. The study consisted of two parts: first, traffic forecasts, capacity
of existing facilities, NAIA future requirements, proposed master plans and
development plans; and second, presentation of the preliminary design of the
passenger terminal building. The ADP submitted a Draft Final Report to the DOTC in
December 1989.
Some time in 1993, six business leaders consisting of John Gokongwei, Andrew
Gotianun, Henry Sy, Sr., Lucio Tan, George Ty and Alfonso Yuchengco met with then
President Fidel V. Ramos to explore the possibility of investing in the construction
and operation of a new international airport terminal. To signify their commitment to
pursue the project, they formed the Asia's Emerging Dragon Corp. (AEDC) which
was registered with the Securities and Exchange Commission (SEC) on September
15, 1993.
On October 5, 1994, AEDC submitted an unsolicited proposal to the Government
through the DOTC/MIAA for the development of NAIA International Passenger
Terminal III (NAIA IPT III) under a build-operate-and-transfer arrangement pursuant
to RA 6957 as amended by RA 7718 (BOT Law).1
On December 2, 1994, the DOTC issued Dept. Order No. 94-832 constituting the
Prequalification Bids and Awards Committee (PBAC) for the implementation of the
NAIA IPT III project.
On March 27, 1995, then DOTC Secretary Jose Garcia endorsed the proposal of
AEDC to the National Economic and Development Authority (NEDA). A revised
proposal, however, was forwarded by the DOTC to NEDA on December 13, 1995. On
January 5, 1996, the NEDA Investment Coordinating Council (NEDA ICC) Technical
Board favorably endorsed the project to the ICC Cabinet Committee which
approved the same, subject to certain conditions, on January 19, 1996. On February
13, 1996, the NEDA passed Board Resolution No. 2 which approved the NAIA IPT III
project.
On June 7, 14, and 21, 1996, DOTC/MIAA caused the publication in two daily
newspapers of an invitation for competitive or comparative proposals on AEDC's
unsolicited proposal, in accordance with Sec. 4-A of RA 6957, as amended. The
alternative bidders were required to submit three (3) sealed envelopes on or before
5:00 p.m. of September 20, 1996. The first envelope should contain the
Prequalification Documents, the second envelope the Technical Proposal, and the
third envelope the Financial Proposal of the proponent.
On June 20, 1996, PBAC Bulletin No. 1 was issued, postponing the availment of the
Bid Documents and the submission of the comparative bid proposals. Interested
firms were permitted to obtain the Request for Proposal Documents beginning June
28, 1996, upon submission of a written application and payment of a nonrefundable fee of P50,000.00 (US$2,000).
The Bid Documents issued by the PBAC provided among others that the proponent
must have adequate capability to sustain the financing requirement for the detailed
engineering, design, construction, operation, and maintenance phases of the
project. The proponent would be evaluated based on its ability to provide a

minimum amount of equity to the project, and its capacity to secure external
financing for the project.
On July 23, 1996, the PBAC issued PBAC Bulletin No. 2 inviting all bidders to a prebid conference on July 29, 1996.
On August 16, 1996, the PBAC issued PBAC Bulletin No. 3 amending the Bid
Documents. The following amendments were made on the Bid Documents:
a. Aside from the fixed Annual Guaranteed Payment, the proponent shall include in
its financial proposal an additional percentage of gross revenue share of the
Government, as follows:
i. First 5 years
5.0%
ii. Next 10 years
7.5%
iii. Next 10 years
10.0%
b. The amount of the fixed Annual Guaranteed Payment shall be subject of the price
challenge. Proponent may offer an Annual Guaranteed Payment which need not be
of equal amount, but payment of which shall start upon site possession.
c. The project proponent must have adequate capability to sustain the financing
requirement for the detailed engineering, design, construction, and/or operation and
maintenance phases of the project as the case may be. For purposes of prequalification, this capability shall be measured in terms of:
i. Proof of the availability of the project proponent and/or the consortium to provide
the minimum amount of equity for the project; and
ii. a letter testimonial from reputable banks attesting that the project proponent
and/or the members of the consortium are banking with them, that the project
proponent and/or the members are of good financial standing, and have adequate
resources.
d. The basis for the prequalification shall be the proponent's compliance with the
minimum technical and financial requirements provided in the Bid Documents and
the IRR of the BOT Law. The minimum amount of equity shall be 30% of the Project
Cost.
e. Amendments to the draft Concession Agreement shall be issued from time to
time. Said amendments shall only cover items that would not materially affect the
preparation of the proponent's proposal.
On August 29, 1996, the Second Pre-Bid Conference was held where certain
clarifications were made. Upon the request of prospective bidder People's Air Cargo
& Warehousing Co., Inc (Paircargo), the PBAC warranted that based on Sec. 11.6,
Rule 11 of the Implementing Rules and Regulations of the BOT Law, only the
proposed Annual Guaranteed Payment submitted by the challengers would be
revealed to AEDC, and that the challengers' technical and financial proposals would
remain confidential. The PBAC also clarified that the list of revenue sources
contained in Annex 4.2a of the Bid Documents was merely indicative and that other
revenue sources may be included by the proponent, subject to approval by
DOTC/MIAA. Furthermore, the PBAC clarified that only those fees and charges
denominated as Public Utility Fees would be subject to regulation, and those
charges which would be actually deemed Public Utility Fees could still be revised,
depending on the outcome of PBAC's query on the matter with the Department of
Justice.

In September 1996, the PBAC issued Bid Bulletin No. 5, entitled "Answers to the
Queries of PAIRCARGO as Per Letter Dated September 3 and 10, 1996." Paircargo's
queries and the PBAC's responses were as follows:
1. It is difficult for Paircargo and Associates to meet the required minimum equity
requirement as prescribed in Section 8.3.4 of the Bid Documents considering that
the capitalization of each member company is so structured to meet the
requirements and needs of their current respective business undertaking/activities.
In order to comply with this equity requirement, Paircargo is requesting PBAC to just
allow each member of (sic) corporation of the Joint Venture to just execute an
agreement that embodies a commitment to infuse the required capital in case the
project is awarded to the Joint Venture instead of increasing each corporation's
current authorized capital stock just for prequalification purposes.
In prequalification, the agency is interested in one's financial capability at the time
of prequalification, not future or potential capability.
A commitment to put up equity once awarded the project is not enough to establish
that "present" financial capability. However, total financial capability of all member
companies of the Consortium, to be established by submitting the respective
companies' audited financial statements, shall be acceptable.
2. At present, Paircargo is negotiating with banks and other institutions for the
extension of a Performance Security to the joint venture in the event that the
Concessions Agreement (sic) is awarded to them. However, Paircargo is being
required to submit a copy of the draft concession as one of the documentary
requirements. Therefore, Paircargo is requesting that they'd (sic) be furnished copy
of the approved negotiated agreement between the PBAC and the AEDC at the
soonest possible time.
A copy of the draft Concession Agreement is included in the Bid Documents. Any
material changes would be made known to prospective challengers through bid
bulletins. However, a final version will be issued before the award of contract.
The PBAC also stated that it would require AEDC to sign Supplement C of the Bid
Documents (Acceptance of Criteria and Waiver of Rights to Enjoin Project) and to
submit the same with the required Bid Security.
On September 20, 1996, the consortium composed of People's 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 PBAC. On September 23, 1996, the PBAC opened
the first envelope containing the prequalification documents of the Paircargo
Consortium. On the following day, September 24, 1996, the PBAC prequalified the
Paircargo Consortium.
On September 26, 1996, AEDC informed the PBAC in writing of its reservations as
regards the Paircargo Consortium, which include:
a. The lack of corporate approvals and financial capability of PAIRCARGO;
b. The lack of corporate approvals and financial capability of PAGS;
c. The prohibition imposed by RA 337, as amended (the General Banking Act) on the
amount that Security Bank could legally invest in the project;
d. The inclusion of Siemens as a contractor of the PAIRCARGO Joint Venture, for
prequalification purposes; and
e. The appointment of Lufthansa as the facility operator, in view of the Philippine
requirement in the operation of a public utility.
The PBAC gave its reply on October 2, 1996, informing AEDC that it had considered
the issues raised by the latter, and that based on the documents submitted by
Paircargo and the established prequalification criteria, the PBAC had found that the
challenger, Paircargo, had prequalified to undertake the project. The Secretary of
the DOTC approved the finding of the PBAC.

The PBAC then proceeded with the opening of the second envelope of the Paircargo
Consortium which contained its Technical Proposal.
On October 3, 1996, AEDC reiterated its objections, particularly with respect to
Paircargo's financial capability, in view of the restrictions imposed by Section 21-B of
the General Banking Act and Sections 1380 and 1381 of the Manual Regulations for
Banks and Other Financial Intermediaries. On October 7, 1996, AEDC again
manifested its objections and requested that it be furnished with excerpts of the
PBAC meeting and the accompanying technical evaluation report where each of the
issues they raised were addressed.
On October 16, 1996, the PBAC opened the third envelope submitted by AEDC and
the Paircargo Consortium containing their respective financial proposals. Both
proponents offered to build the NAIA Passenger Terminal III for at least $350 million
at no cost to the government and to pay the government: 5% share in gross
revenues for the first five years of operation, 7.5% share in gross revenues for the
next ten years of operation, and 10% share in gross revenues for the last ten years
of operation, in accordance with the Bid Documents. However, in addition to the
foregoing, AEDC offered to pay the government a total of P135 million as
guaranteed payment for 27 years while Paircargo Consortium offered to pay the
government a total of P17.75 billion for the same period.
Thus, the PBAC formally informed AEDC that it had accepted the price proposal
submitted by the Paircargo Consortium, and gave AEDC 30 working days or until
November 28, 1996 within which to match the said bid, otherwise, the project would
be awarded to Paircargo.
As AEDC failed to match the proposal within the 30-day period, then DOTC
Secretary Amado Lagdameo, on December 11, 1996, issued a notice to Paircargo
Consortium regarding AEDC's failure to match the proposal.
On February 27, 1997, Paircargo Consortium
International Airport Terminals Co., Inc. (PIATCO).

incorporated

into

Philippine

AEDC subsequently protested the alleged undue preference given to PIATCO and
reiterated its objections as regards the prequalification of PIATCO.
On April 11, 1997, the DOTC submitted the concession agreement for the secondpass approval of the NEDA-ICC.
On April 16, 1997, AEDC filed with the Regional Trial Court of Pasig a Petition for
Declaration of Nullity of the Proceedings, Mandamus and Injunction against the
Secretary of the DOTC, the Chairman of the PBAC, the voting members of the PBAC
and Pantaleon D. Alvarez, in his capacity as Chairman of the PBAC Technical
Committee.
On April 17, 1997, the NEDA-ICC conducted an ad referendum to facilitate the
approval, on a no-objection basis, of the BOT agreement between the DOTC and
PIATCO. As the ad referendum gathered only four (4) of the required six (6)
signatures, the NEDA merely noted the agreement.
On July 9, 1997, the DOTC issued the notice of award for the project to PIATCO.
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). The Government
granted PIATCO the franchise to operate and maintain the said terminal during the
concession period and to collect the fees, rentals and other charges in accordance
with the rates or schedules stipulated in the 1997 Concession Agreement. The
Agreement provided that the concession period shall be for twenty-five (25) years
commencing from the in-service date, and may be renewed at the option of the
Government for a period not exceeding twenty-five (25) years. At the end of the
concession period, PIATCO shall transfer the development facility to MIAA.
On November 26, 1998, the Government and PIATCO signed an Amended and
Restated Concession Agreement (ARCA). Among the provisions of the 1997

Concession Agreement that were amended by the ARCA were: Sec. 1.11 pertaining
to the definition of "certificate of completion"; Sec. 2.05 pertaining to the Special
Obligations of GRP; Sec. 3.02 (a) dealing with the exclusivity of the franchise given
to the Concessionaire; Sec. 4.04 concerning the assignment by Concessionaire of its
interest in the Development Facility; Sec. 5.08 (c) dealing with the proceeds of
Concessionaire's insurance; Sec. 5.10 with respect to the temporary take-over of
operations by GRP; Sec. 5.16 pertaining to the taxes, duties and other imposts that
may be levied on the Concessionaire; Sec. 6.03 as regards the periodic adjustment
of public utility fees and charges; the entire Article VIII concerning the provisions on
the termination of the contract; and Sec. 10.02 providing for the venue of the
arbitration proceedings in case a dispute or controversy arises between the parties
to the agreement.
Subsequently, the Government and PIATCO signed three Supplements to the ARCA.
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 First Supplement to the ARCA amended Sec. 1.36 of the ARCA defining
"Revenues" or "Gross Revenues"; Sec. 2.05 (d) of the ARCA referring to the
obligation of MIAA to provide sufficient funds for the upkeep, maintenance, repair
and/or replacement of all airport facilities and equipment which are owned or
operated by MIAA; and further providing additional special obligations on the part of
GRP aside from those already enumerated in Sec. 2.05 of the ARCA. The First
Supplement also provided a stipulation as regards the construction of a surface road
to connect NAIA Terminal II and Terminal III in lieu of the proposed access tunnel
crossing Runway 13/31; the swapping of obligations between GRP and PIATCO
regarding the improvement of Sales Road; and the changes in the timetable. It also
amended Sec. 6.01 (c) of the ARCA pertaining to the Disposition of Terminal Fees;
Sec. 6.02 of the ARCA by inserting an introductory paragraph; and Sec. 6.02 (a) (iii)
of the ARCA referring to the Payments of Percentage Share in Gross Revenues.
The Second Supplement to the ARCA contained provisions concerning the clearing,
removal, demolition or disposal of subterranean structures uncovered or discovered
at the site of the construction of the terminal by the Concessionaire. It defined the
scope of works; it provided for the procedure for the demolition of the said
structures and the consideration for the same which the GRP shall pay PIATCO; it
provided for time extensions, incremental and consequential costs and losses
consequent to the existence of such structures; and it provided for some additional
obligations on the part of PIATCO as regards the said structures.
Finally, the Third Supplement provided for the obligations of the Concessionaire as
regards the construction of the surface road connecting Terminals II and III.
Meanwhile, the MIAA which is charged with the maintenance and operation of the
NAIA Terminals I and II, had existing concession contracts with various service
providers to offer international airline airport services, such as in-flight catering,
passenger handling, ramp and ground support, aircraft maintenance and provisions,
cargo handling and warehousing, and other services, to several international airlines
at the NAIA. Some of these service providers are the Miascor Group, DNATA-Wings
Aviation Systems Corp., and the MacroAsia Group. Miascor, DNATA and MacroAsia,
together with Philippine Airlines (PAL), are the dominant players in the industry with
an aggregate market share of 70%.
On September 17, 2002, the workers of the international airline service providers,
claiming that they stand to lose their employment upon the implementation of the
questioned agreements, filed before this Court a petition for prohibition to enjoin
the enforcement of said agreements.2
On October 15, 2002, the service providers, joining the cause of the petitioning
workers, filed a motion for intervention and a petition-in-intervention.
On October 24, 2002, Congressmen Salacnib Baterina, Clavel Martinez and
Constantino Jaraula filed a similar petition with this Court.3
On November 6, 2002, several employees of the MIAA likewise filed a petition
assailing the legality of the various agreements.4

On December 11, 2002. another group of Congressmen, Hon. Jacinto V. Paras,


Rafael P. Nantes, Eduardo C. Zialcita, Willie B. Villarama, Prospero C. Nograles,
Prospero A. Pichay, Jr., Harlin Cast Abayon and Benasing O. Macaranbon, moved to
intervene in the case as Respondents-Intervenors. They filed their Comment-InIntervention defending the validity of the assailed agreements and praying for the
dismissal of the petitions.
During the pendency of the case before this Court, President Gloria Macapagal
Arroyo, on November 29, 2002, in her speech at the 2002 Golden Shell Export
Awards at Malacaang Palace, stated that she will not "honor (PIATCO) contracts
which the Executive Branch's legal offices have concluded (as) null and void."5
Respondent PIATCO filed its Comments to the present petitions on November 7 and
27, 2002. The Office of the Solicitor General and the Office of the Government
Corporate Counsel filed their respective Comments in behalf of the public
respondents.
On December 10, 2002, the Court heard the case on oral argument. After the oral
argument, the Court then resolved in open court to require the parties to file
simultaneously their respective Memoranda in amplification of the issues heard in
the oral arguments within 30 days and to explore the possibility of arbitration or
mediation as provided in the challenged contracts.
In their consolidated Memorandum, the Office of the Solicitor General and the Office
of the Government Corporate Counsel prayed that the present petitions be given
due course and that judgment be rendered declaring the 1997 Concession
Agreement, the ARCA and the Supplements thereto void for being contrary to the
Constitution, the BOT Law and its Implementing Rules and Regulations.
On March 6, 2003, respondent PIATCO informed the Court that on March 4, 2003
PIATCO commenced arbitration proceedings before the International Chamber of
Commerce, International Court of Arbitration (ICC) by filing a Request for Arbitration
with the Secretariat of the ICC against the Government of the Republic of the
Philippines acting through the DOTC and MIAA.
ISSUE: Whether or not the Court has jurisdiction over the case.
RULING: Yes. The court held that:
There is one more procedural obstacle which must be overcome. The Court is aware
that arbitration proceedings pursuant to Section 10.02 of the ARCA have been filed
at the instance of respondent PIATCO. Again, we hold that the arbitration step taken
by PIATCO will not oust this Court of its jurisdiction over the cases at bar.
In Del Monte Corporation-USA v. Court of Appeals,20 even after finding that the
arbitration clause in the Distributorship Agreement in question is valid and the
dispute between the parties is arbitrable, this Court affirmed the trial court's
decision denying petitioner's Motion to Suspend Proceedings pursuant to the
arbitration clause under the contract. In so ruling, this Court held that as contracts
produce legal effect between the parties, their assigns and heirs, only the parties to
the Distributorship Agreement are bound by its terms, including the arbitration
clause stipulated therein. This Court ruled that arbitration proceedings could be
called for but only with respect to the parties to the contract in question.
Considering that there are parties to the case who are neither parties to the
Distributorship Agreement nor heirs or assigns of the parties thereto, this Court,
citing its previous ruling in Salas, Jr. v. Laperal Realty Corporation,21 held that to
tolerate the splitting of proceedings by allowing arbitration as to some of the parties
on the one hand and trial for the others on the other hand would, in effect, result in
multiplicity of suits, duplicitous procedure and unnecessary delay.22 Thus, we ruled
that the interest of justice would best be served if the trial court hears and
adjudicates the case in a single and complete proceeding.
It is established that petitioners in the present cases who have presented legitimate
interests in the resolution of the controversy are not parties to the PIATCO
Contracts. Accordingly, they cannot be bound by the arbitration clause provided for
in the ARCA and hence, cannot be compelled to submit to arbitration proceedings. A
speedy and decisive resolution of all the critical issues in the present controversy,

including those raised by petitioners, cannot be made before an arbitral tribunal.


The object of arbitration is precisely to allow an expeditious determination of a
dispute. This objective would not be met if this Court were to allow the parties to
settle the cases by arbitration as there are certain issues involving non-parties to
the PIATCO Contracts which the arbitral tribunal will not be equipped to resolve.

9. Maria Luisa Park Association, Inc. vs Samantha Marie Almendras


FACTS: Respondents Samantha and Pia Almendras purchased from MRO
Development Corporation a residential lot located in Cebu City. Respondents filed
with petitioner Maria Luisa Park Association, Inc (MLPAI) an application to construct
a residential house which was approved. Upon ocular inspection of the house, MLPAI
found out that respondents violated the prohibition against multi-dwelling stated in
MPLAIs Deed of Restriction. MLPAI sent a letter to the respondents, demanding that
they rectify the structure. However, the respondents denied that they violated
MLPAIs Deed of Restriction. Thus, respondents filed with the RTC for Injunction,
Declaratory Relief, Annulment of Provisions of Articles and By-Laws. The petitioner
contends that the HLURB (Housing and Land Use Regulatory Board) has exclusive
jurisdiction over the controversy wherein it being a dispute between a subdivision
lot owner and a subdivision association and that the complaint must be dismissed
on the ground of lack of jurisdiction and failure to comply with the arbitration
clause. On the other hand, the respondents assert that the complaint they filed is
outside the competence of the HLURB to resolve.
ISSUE: Whether or not the HLURB and not the RTC has jurisdiction over the case.

HELD: Yes. The HLURB has original and exclusive jurisdiction over the case. Under
PD 957, it provides for an appropriate government agency, the HLURB, to which all
the parties aggrieved in the implementation of provisions and the enforcement of
contractual rights with respect to said category of real estate may take recourse.
The business of developing subdivisions and corporations being imbued with public
interest and welfare, any question arising from the exercise of that prerogative
should be brought to the HLURB which has the technical know-how on the matter.
Furthermore, the court found out that the parties failed to abide by the arbitration
agreement in the MLPAI by-laws. Article XII of the MLPAI by-laws provides, any
dispute or claim against the association or any of its officers and governors shall be
settled first amicably. If an amicable settlement fails, such dispute shall be brought
by the member to an arbitration panel for final settlement. The arbitral award shall
be valid and binding between the parties. The terms of the by-laws clearly express
the intention of the parties to bring first to the arbitration process all disputes
between them before a party can file the appropriate action. The agreement to
submit all disputes to arbitration is a contract. Respondents, being members of
MLPAI are bound by its by-laws and are expected to abide by it in good faith. In the
case at bar, parties made no earnest effort to resolve their differences in
accordance with the arbitration clause provided for in their by-laws. Such arbitration
must be respected by the parties otherwise to brush aside a contractual agreement
calling for arbitration in case of disagreement between the parties would therefore
be a step backward.

10. Fort Bonifacio Development Corporation vs. Manuel Domingo


FACTS: Petitioner entered into a Trade Contract with LMM Construction for partial
structural and architectural works on its Bonifacio Ridge Condominium. It was
provided in their contract that the petitioner had the right to withhold the retention
money equivalent to 5% of the contract price for a period of one year after the
completion of the project. Due to the defect and delay in the work of LMM
Construction, petitioner unilaterally terminated the Trade Contract and hired
another contractor to finish the rest of the work left undone by LMM Construction.
However, the petitioner was liable to pay LMM Construction a fraction of the
contract price in proportion to the works already performed by the latter. Petitioner
received the first notice of garnishment against the receivables of LMM construction
issued by CIAC. The petitioner also received a letter from respondent inquiring on

the retention money supposedly due to LMM construction and informing petitioner
that a portion of the amount receivable by the LMM construction was already
assigned to him as evidenced by the Deed of Assignment executed by LMM
construction in respondents favor. On the other hand, the petitioner asserts that
the retention money was not yet due and demandable and may be ascertained after
the completion of the works. A second notice of garnishment against the
receivables of LMM construction was issued by the NLRC to the petitioner. Thus,
respondent file a complaint for collection of sum of money against LMM construction
and petitioner. Petitioner argued that since respondent merely stepped into the
shoes of LMM construction as its assignor, it was the CIAC and not the regular courts
that had jurisdiction over the dispute as provided in the Trade Contract.
ISSUE: Whether or not the RTC has the jurisdiction over the instant case.
HELD: Yes. The RTC and not the CIAC has the jurisdiction over the case at bar. The
jurisdiction of the CIAC is limited to settling disputes arising among contractors,
developers and/or owners of construction projects. It does not include the
determination of who among the many creditors of the contractor should enjoy
preference in payment of its receivables from the developer/owner. In the case at
bar, the allegations in respondents complaint are clear and simple that his cause of
action springs not from a violation of the provisions of the Trade Contract, but from
the non-payment of the monetary obligation of LMM Construction to him. It is
encouraged that disputes arising from construction contracts be referred first to the
CIAC for their arbitration and settlement since such cases would often require
expertise and technical knowledge in construction. The court emphasized that the
respondents claim is not even construction related at all and the right to the
receivables of LMM construction from petitioner under the Trade Contract is not
being impugned herein. This court recognizes the laudable objective of voluntary
arbitration but it cannot, however, altogether surrender to arbitration those cases,
such as the one at bar, the extant facts of which plainly call for the exercise of
jurisdiction by the regular courts for their resolution.

11. Fort Bonifacio Development Corporation vs Sorongon and Fong


FACTS: Petitioner Fort Bonifacio Development Corporation entered into a trade
contract with L & M Maxco Specialist Constructions (Maxco) wherein Maxco would
undertake the structural and partial architectural package of the Bonifacio Ridge
Condominium Phase 1 (BRCP 1). Later, petitioner accused Maxco of delay in
completion of its work and sent the latter a notice of termination.

Subsequently, Maxco was sued by its creditors including respondent for debts
unrelated to BRCP 1. In order to settle the collection suit, Maxco assigned its
receivables representing its retention money from the BRCP 1 in the amount of
P1,577,115.90. Respondent Valentin Fong informed petitioner regarding Maxcos
assignment in his favor and asked to confirm the validity of Maxcos receivables.
Petitioner informed respondent Fong that there is no more amount due to Maxco
from petitioner after the rectification of defect as well as the satisfaction of notices
of garnishment dated July 30, 2004 and January 26, 2006.
Respondent Fong filed a complaint for a sum of money against petitioner and Maxco
in the Regional Trial Court of Mandaluyong City. Petitioner argued that since
respondent merely stepped into the shoes of Maxco as its assignee, it was the CIAC
and not the regular courts that had jurisdiction over the dispute as provided in the
Trade Contract.
ISSUE: Whether or not CIAC has jurisdiction over the claims of Valentin Fong?
HELD: No, CIAC has no jurisdiction on such claims.
An examination of the allegations in Fongs complaint reveals that his
cause of action springs not from a violation of the provisions of the Trade
Contract, but from the assignment of Maxcos retention money to him and
failure of petitioner to turn over the retention money.
Although the jurisdiction of the CIAC is not limited to the instances enumerated in
Section 4 of E. O. No. 1008, Fongs claim is not even construction-related at
all. This court has held that: "Construction is defined as referring to all onsite works on buildings or altering structures, from land clearance through
completion including excavation, erection and assembly and installation of
components and equipment."
Thus, petitioners insistence on the
application of the arbitration clause of the Trade Contract to Fong is
clearly anchored on an erroneous premise that the latter is seeking to
enforce a right under the trade contract. Fongs demand that the portion of
retention money should have been paid to him before the other creditors of Maxco
clearly, does not require the CIACs expertise and technical knowledge of
construction.

12. Hutama-Resa
Corporation

Joint

Operations,

INC.

vs

Citra

Manila

Tollways

FACTS: Petitioner HUTAMA-RSEA Joint Operations Incorpora and Respondent Citra


Metro Manila Tollways Corporation entered into an Engineering Procurement
Construction Contract (EPCC) whereby petitioner would undertake the construction
of Stage 1 of the Skyway Project. As consideration for petitioners undertaking,
respondent obliged itself under the EPCC to pay the former a total amount of
US$369,510,304.00.
During the construction of the Skyway Project, petitioner wrote respondent on
several occasions requesting payment of the formers interim billings, pursuant to
the provisions of the EPCC. Respondent only partially paid the said interim billings,
thus, prompting petitioner to demand that respondent pay the outstanding balance
thereon, but respondent still failed to do so.
Petitioner finally filed with the Construction Industry Arbitration Commission (CIAC)
a Request for Arbitration, seeking to enforce its money claims against respondent.
Respondent averred that the CIAC had no jurisdiction because the filing by
petitioner of said case was premature by reason that a condition precedent, i.e.,
prior referral by the parties of their dispute to the Dispute Adjudication Board (DAB) ,
required by Clause 20.4 of the EPCC, had not been satisfied or complied with.
ISSUE: Whether or not prior resort by the parties to DAB is a condition precedent to
the submission of their dispute to CIAC?
RULE: No, prior resort by the parties to DAB is not a condition precedent to the
submission of parties' dispute to CIAC.
It is true that Clause 20.4 of the EPCC states that a dispute between petitioner and
respondent as regards the EPCC shall be initially referred to the DAB for decision,
and only when the parties are dissatisfied with the decision of the DAB should
arbitration commence. This does not mean, however, that the CIAC is barred
from assuming jurisdiction over the dispute if such clause was not
complied with.
Under Section 1, Article III of the CIAC Rules, an arbitration clause in a
construction contract shall be deemed as 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 x x x."
Hence, the bare fact that the parties herein incorporated an arbitration
clause in the EPCC 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. This rule
applies, regardless of whether the parties specifically choose another forum or
make reference to another arbitral body. Since the jurisdiction of CIAC is
conferred by law, it cannot be subjected to any condition; nor can it be
waived or diminished by the stipulation, act or omission of the parties, as
long as the parties agreed to submit their construction contract dispute to
arbitration, or if there is an arbitration clause in the construction contract.
The parties will not be precluded from electing to submit their dispute to CIAC,
because this right has been vested in each party by law.
It bears to emphasize that the 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.

13. Equitable PCI vs RCBC


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.
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.
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.
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.
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, in favour of RCBC
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.
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.
ISSUE: Whether or not the petitioners appeal was proper to overturn the partial
arbitral award?
RULING:
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.
Petition is hereby denied.

15. Empire East Landholdings, Inc. vs Capitol Insudtrial Construction


Groups
FACTS: On February 12, 1997, petitioner Empire East Land Holdings, Inc. and
respondent Capitol Industrial Corporation Groups, Inc. entered into a Construction
Agreement[4] whereby the latter bound itself to undertake the complete supply and
installation of the building shell wet construction of the formers building known as
Gilmore Heights Phase I, located at Gilmore cor. Castilla St., San Juan, Metro Manila.
[5 Respondent further agreed that the construction work would be completed within
330 calendar days from Day 1, upon the Construction Managers confirmation.
Petitioner initially considered February 20, 1997 as Day 1 of the project. However,
when respondent entered the project site, it could not start work due to the ongoing bulk excavation by another contractor. Respondent thus asked petitioner to
move Day 1 to a later date, when the bulk excavation contractor would have
completely turned over the site. After a series of correspondence between petitioner
and respondent, February 25, 1997 was proposed as Day 1. Accordingly,
respondents completion date of the project was fixed on January 21, 1998.[9] Prior
to and during the construction period, changes in circumstances arose, prompting
the parties to make adjustments in the initial terms of their contract. On March 13,
1999, respondent submitted its final billing, amounting to P4,442,430.90
representing its work accomplishment and retention, less all deductions. On March
23, 1999, a punch list was drawn as a result of the joint inspection undertaken by
the parties. Petitioner, on the other hand, refused to issue a certificate of
completion. It, instead, sent a letter to respondent informing the latter that it was
already in default. On September 14, 1999, respondent was constrained to file a
Request for Adjudication with the CIAC, which eventually rendered rendered a
decision in favor of the respondent. CIAC however found the Punch Item portion on
the petitioners counterclaim to be rightful. Hence, there was an OFFSETTING of the
lesser amount due from Claimant with the bigger amount from the Respondent As
to petitioners counterclaim, the CIAC denied those which referred to masonry and

other works that it took over, considering that they were formally deleted from
respondents scope of work, which in turn caused the reduction of their total
contract price.[25] Petitioners claim for liquidated damages was likewise found
unmeritorious because it allowed respondent to complete the works despite
knowledge that the latter was already in default.[26] On the other hand, as the
punch list was drawn after the joint inspection by the parties, CIAC found for the
petitioner and thus awarded a total amount of P248,350.00[27] Aggrieved,
petitioner elevated the matter to the CA via a petition for review under Rule 43 of
the Rules of Court, which affirmed the decision of the CA with some modifications.
Hence, the present petition, raising the following
ISSUES: I. WHETHER OR NOT THE COURT OF APPEALS COMMITTED REVERSIBLE
ERROR WHEN IT ORDERED THE RELEASE OF RETENTION MONEY IN FAVOR OF CICG.
II. WHETHER OR NOT THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR
WHEN IT AWARDED THE CLAIM OF CICG FOR THE EXCAVATION OF FOUNDATION. III.
WHETHER OR NOT THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR WHEN
IT AFFIRMED CIACS OVERHEAD EXPENSES. AWARD FOR THE PAYMENT OF ALLEGED
IIII. WHETHER OR NOT THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR
WHEN IT DENIED EMPIRE EASTS CLAIM FOR MASONRY AND OTHER WORKS,
LIQUIDATED DAMAGES, AND COST OF MONEY FOR PAYROLL ASSISTANCE AND
MATERIALS ACCOMMODATION.[31]
HELD: On the Release of Retention Money In the construction industry, the ten
percent (10%) retention money is a portion of the contract price automatically
deducted from the contractors billings, as security for the execution of corrective
work if any becomes necessary. Respondent relied solely on petitioners failure to
issue the certificate of completion, which prevented the acquisition of a guarantee
bond and thus resulted in the non-release of the retention money. While it is true
that respondent was entitled to a certificate of completion as the issuance thereof
was just a ministerial duty of petitioner considering that the project had already
been completed, the certificate was not the only condition for said release. It was
simply a pre-requisite for the issuance of the guarantee bond. And there was no
showing that the absence of the certificate of completion was the only reason why
no guarantee bond was issued. On Respondents Right to Additional Overhead Costs
Respondent, only presented its own computation to substantiate its claim, hence,
respondent is not entitled even to the reduced amount of P1,397,642.70 which is
10% of its original claim. Supreme Court deny its prayer for additional overhead
costs. All other issues raised by the petitioners were denied by the Supreme Court.
As can be gleaned from the appealed CA decision, the appellate court had reviewed
the case based on the petition and annexes, and weighed them against the
Comment of respondent and the decision of the arbitral tribunal to arrive at the
conclusion that the latter decision was based on substantial evidence. In
administrative or quasi-judicial bodies like the CIAC, a fact may be established if
supported by substantial evidence, or that amount of relevant evidence which a
reasonable mind might accept as adequate to justify a conclusion It is well
established that under Rule 45 of the Rules of Court, only questions of law, not of
fact, may be raised before the Supreme Court. It must be stressed that this Court is
not a trier of facts and it is not its function to re-examine and weigh anew the
respective evidence of the parties. To be sure, findings of fact of lower courts are
deemed conclusive and binding upon the Supreme Court, save only in clear
exceptional cases.

16. ABS-CBN vs World Interactive Network Systems


Facts: ABS-CBN Broadcasting Corporation v. World Interactive Network Systems
(WINS) Japan Co., Ltd. involved a television service provided by broadcasting giant
ABS-CBN Broadcasting Corporation (ABS-CBN) known as The Filipino Channel (TFC).
This channel was licensed by ABSCBN on 27 September 1999 to be distributed in
Japan by World Interactive Network Systems, or WINS, a Japanese corporation. WINS
was, in fact, not only granted a license, but an exclusive license to distribute and
sublicense the distribution of the channel.
Trouble began when petitioner ABS-CBN accused respondent WINS of making
unauthorized insertions into TFC of WINS Weekly a 35- minute community news
program for Filipinos in Japan. The petitioner claimed that such insertions
constituted a material breach of their agreement, thus prompting ABS-CBN to
notify respondent on 9 May 2002 of its intention to terminate their agreement
effective 10 June 2002. It was at this point that WINS filed an arbitration suit
pursuant to the arbitration clause in their agreement. Professor Alfredo F. Tadiar was
appointed by the parties to act as sole arbitrator.

Respondent WINS claimed that the airing of WINS Weekly was made with ABS-CBNs
prior approval. Further, WINS claimed that ABSCBN only threatened to terminate
their agreement because it wanted to renegotiate the terms thereof to allow it to
demand higher fees.
Furthermore, respondent prayed for damages as ABS-CBN granted the license to
distribute TFC to another network NHK (i.e. Japan Broadcasting Corporation).
The arbitrator ruled in favor of respondent WINS. He held that indeed, as shown by
a series of written exchanges, ABS-CBN gave its approval for the airing of WINS
Weekly, and that it threatened to terminate the contract only because it wanted to
renegotiate their agreement. He also stated that even if respondent committed a
breach of the agreement, the same was seasonably cured. Respondent was thus
allowed to recover temperate damages, attorneys fees, and one-half of the amount
paid as arbitrators fee. It was at this point that ABS-CBN filed with the Court of
Appeals alternative Petitions for Review under Rule 43 and for Certiorari under Rule
65 of the 1997 Revised Rules of Civil Procedure. The petitioner alleged either serious
errors of fact or law and/or grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of the arbitrator. Meanwhile, respondent filed a petition for
confirmation of the arbitral award before the RTC of Quezon City.
This proceeding was held in abeyance however in view of the proceedings with the
appellate court.93 Nevertheless, ABS-CBNs petition with the appellate body failed.
The Court of Appeals ruled that it had no jurisdiction on the matter, stating that it
was the RTC which has jurisdiction over matters relating the jurisdiction. It further
stated that the appellate bodys jurisdiction would only come to play once an appeal
has been made as to the order of the RTC confirming, modifying, or vacating the
arbitral award. After its Motion for Reconsideration was denied, ABS-CBN filed a
Petition for Review on Certiorari under Rule 45 with the Supreme Court. The Courts
Ruling.
ISSUE: whether an aggrieved party may directly file with the Court of Appeals a
Petition for Review under Rule 43, or a Petition for Certiorari under Rule 65 of the
1997 Revised Rules of Civil Procedure,
RULING: The Court continued by citing Section 24 of R.A. No. 876 as the applicable
provision in a petition to vacate an award made by an arbitrator. The Supreme Court
highlighted the fact that Section 24 enumerated specific grounds for vacating an
award, and that no other grounds may be raised. Citing the legal maxim in statutory
construction of expressio unius est exclusio alterius, the Court said that errors of
fact and/or law and grave abuse of discretion are not grounds that may be raised in
a petition to vacate an award in the RTC.97 However, while errors of fact and/or law
may not be raised with the RTC, they may still be raised with the Court of Appeals
under Rule 43 this being the proper mode of review of the decision of the
arbitrator.98 Pointing to the case of Luzon Development Bank v. Association of
Luzon Development Bank Employees, the Supreme Court stated that voluntary
arbitrators are properly classified as a quasi-judicial instrumentality, falling within
the ambit of Section 9 (3) of the Judiciary Reorganization Act, as amended. They
have, therefore, been included under Rule 43 of the 1997 Revised Rules of Civil
Procedure. As to the remedy of Certiorari under Rule 65 of the 1997 Revised Rules
of Civil Procedure, the Court only cited Section 1 of Article VIII of the 1987
Constitution.
Thus, the Court ruled: We will not hesitate to review a voluntary arbitrators award
where there is a showing of grave abuse of authority or discretion and such is
properly raised in a petition for certiorari and there is no appeal, nor any plain,
speedy remedy in the course of law.
The Supreme Court finally outlined the judicial remedies of an aggrieved party to
an arbitral award as stated in Insular Savings Bank v. Far East Bank and Trust
Company, thus: (1) a petition in the proper RTC to issue an order to vacate the

award on the grounds provided for in Section 24 of R.A. [No.] 876; (2) 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, despite all the discussion on the proper mode of appeal,
the Supreme Court still disallowed the petition because of the fatal error of ABS-CBN
of filing alternative petitions under both Rules 43 and 65. Time and again, we have
ruled that the remedies of appeal and certiorari are mutually exclusive and not
alternative or successive. The High Court further stated that, [p]etitioners 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. Thus, the alternative petition filed in the CA,
being an inappropriate mode of appeal, should have been dismissed outright by the
CA.

Group 1 Case Digest Members:


Aurelio, Mary Justice
Cepe, Ruth
Sollano, Joanna Paula

Opalla, Nisa
Niez, Kc
Matutino, Lielet
Baldonado, Excelsis Deo
Lim, Khen
Alimes, Jesler Nick
Amarille, Jeanette
Chanco, Alona