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THIRD DIVISION [G.R. No. 141833. March 26, 2003] arbitrable the issue of whether respondents take-over of some
work items had been intended to be a termination of the original
contract under Letter K of the Subcontract. It ruled likewise on
LM POWER ENGINEERING CORPORATION, petitioner,
two other issues: whether petitioner was liable under the
vs. CAPITOL INDUSTRIAL CONSTRUCTION GROUPS,
warranty clause of the Agreement, and whether it should
INC., respondent.
reimburse respondent for the work the latter had taken over. [15]

PANGANIBAN, J.:
Hence, this Petition.[16]

Alternative dispute resolution methods or ADRs -- like


The Issues
arbitration, mediation, negotiation and conciliation -- are
encouraged by the Supreme Court. By enabling parties to
resolve their disputes amicably, they provide solutions that are In its Memorandum, petitioner raises the following issues
less time-consuming, less tedious, less confrontational, and for the Courts consideration:
more productive of goodwill and lasting relationships. [1]
A
The Case
Whether or not there exist[s] a controversy/dispute between
Before us is a Petition for Review on Certiorari[2] under Rule petitioner and respondent regarding the interpretation and
45 of the Rules of Court, seeking to set aside the January 28, implementation of the Sub-Contract Agreement dated February
2000 Decision of the Court of Appeals[3] (CA) in CA-GR CV No. 22, 1983 that requires prior recourse to voluntary arbitration;
54232. The dispositive portion of the Decision reads as follows:
B
WHEREFORE, the judgment appealed from is REVERSED and SET
ASIDE. The parties are ORDERED to present their dispute to In the affirmative, whether or not the requirements provided in
arbitration in accordance with their Sub-contract Article III [1] of CIAC Arbitration Rules regarding request for
Agreement. The surety bond posted by [respondent] is arbitration ha[ve] been complied with[.] [17]
[d]ischarged.[4]

The Courts Ruling


The Facts

The Petition is unmeritorious.


On February 22, 1983, Petitioner LM Power Engineering
Corporation and Respondent Capitol Industrial Construction
Groups Inc. entered into a Subcontract Agreement involving First Issue: Whether Dispute Is Arbitrable
electrical work at the Third Port of Zamboanga.[5]
Petitioner claims that there is no conflict regarding the
On April 25, 1985, respondent took over some of the work interpretation or the implementation of the Agreement. Thus,
contracted to petitioner.[6] Allegedly, the latter had failed to without having to resort to prior arbitration, it is entitled to
finish it because of its inability to procure materials.[7] collect the value of the services it rendered through an ordinary
action for the collection of a sum of money from respondent. On
the other hand, the latter contends that there is a need for prior
Upon completing its task under the Contract, petitioner arbitration as provided in the Agreement. This is because there
billed respondent in the amount of P6,711,813.90.[8] Contesting are some disparities between the parties positions regarding the
the accuracy of the amount of advances and billable extent of the work done, the amount of advances and billable
accomplishments listed by the former, the latter refused to accomplishments, and the set off of expenses incurred by
pay. Respondent also took refuge in the termination clause of respondent in its take-over of petitioners work.
the Agreement.[9] That clause allowed it to set off the cost of the
work that petitioner had failed to undertake -- due to
termination or take-over -- against the amount it owed the latter. We side with respondent. Essentially, the dispute arose
from the parties ncongruent positions on whether certain
provisions of their Agreement could be applied to the facts. The
Because of the dispute, petitioner filed with the Regional instant case involves technical discrepancies that are better left
Trial Court (RTC) of Makati (Branch 141) a Complaint [10] for the to an arbitral body that has expertise in those areas. In any
collection of the amount representing the alleged balance due it event, the inclusion of an arbitration clause in a contract does
under the Subcontract. Instead of submitting an Answer, not ipso facto divest the courts of jurisdiction to pass upon the
respondent filed a Motion to Dismiss, [11]alleging that the findings of arbitral bodies, because the awards are still judicially
Complaint was premature, because there was no prior recourse reviewable under certain conditions.[18]
to arbitration.

In the case before us, the Subcontract has the following


In its Order[12] dated September 15, 1987, the RTC denied arbitral clause:
the Motion on the ground that the dispute did not involve the
interpretation or the implementation of the Agreement and was,
therefore, not covered by the arbitral clause.[13] 6. The Parties hereto agree that any dispute or
conflict as regards to interpretation and
implementation of this Agreement which cannot be
After trial on the merits, the RTC [14] ruled that the take-over settled between [respondent] and [petitioner]
of some work items by respondent was not equivalent to a amicably shall be settled by means of arbitration x x
termination, but a mere modification, of the Subcontract. The x.[19]
latter was ordered to give full payment for the work completed
by petitioner.
Clearly, the resolution of the dispute between the parties
herein requires a referral to the provisions of their
Ruling of the Court of Appeals Agreement. Within the scope of the arbitration clause are
discrepancies as to the amount of advances and billable
On appeal, the CA reversed the RTC and ordered the accomplishments, the application of the provision on
referral of the case to arbitration. The appellate court held as termination, and the consequent set-off of expenses.
2
A review of the factual allegations of the parties reveals percent (10%) of the value of the approved
that they differ on the following questions: (1) Did a take- quantities. Any claims by [respondent] on [petitioner]
over/termination occur? (2) May the expenses incurred by may be deducted by [respondent] from the progress
respondent in the take-over be set off against the amounts it payments and/or retained amount. Any excess from
owed petitioner? (3) How much were the advances and billable the retained amount after deducting [respondents]
accomplishments? claims shall be released by [respondent] to
[petitioner] after the issuance of [the Ministry of Public
Works and Highways] of the Certificate of Completion
The resolution of the foregoing issues lies in the
and final acceptance of the WORK by [the Ministry of
interpretation of the provisions of the Agreement. According to
Public Works and Highways].
respondent, the take-over was caused by petitioners delay in
completing the work. Such delay was in violation of the
provision in the Agreement as to time schedule: xxxxxxxxx

G. TIME SCHEDULE D. IMPORTED MATERIALS AND EQUIPMENT

[Petitioner] shall adhere strictly to the schedule [Respondent shall open the letters of credit for the
related to the WORK and complete the WORK within importation of equipment and materials listed in
the period set forth in Annex C hereof. NO time Annex E hereof after the drawings, brochures, and
extension shall be granted by [respondent] to other technical data of each items in the list have
[petitioner] unless a corresponding time extension is been formally approved by [the Ministry of Public
granted by [the Ministry of Public Works and Works and Highways]. However, petitioner will still be
Highways] to the CONSORTIUM.[20] fully responsible for all imported materials and
equipment.
Because of the delay, respondent alleges that it took over
some of the work contracted to petitioner, pursuant to the All expenses incurred by [respondent], both in foreign
following provision in the Agreement: and local currencies in connection with the opening
of the letters of credit shall be deducted from the
Contract Prices.
K. TERMINATION OF AGREEMENT

xxxxxxxxx
[Respondent] has the right to terminate and/or take
over this Agreement for any of the following causes:
N. OTHER CONDITIONS
xxxxxxxxx
xxxxxxxxx
6. If despite previous warnings by [respondent],
[petitioner] does not execute the WORK in 2. All customs duties, import duties, contractors
accordance with this Agreement, or persistently taxes, income taxes, and other taxes that may be
or flagrantly neglects to carry out [its] required by any government agencies in connection
obligations under this Agreement.[21] with this Agreement shall be for the sole account of
[petitioner].[23]
Supposedly, as a result of the take-over, respondent
incurred expenses in excess of the contracted price. It sought to Being an inexpensive, speedy and amicable method of
set off those expenses against the amount claimed by petitioner settling disputes,[24] arbitration -- along with mediation,
for the work the latter accomplished, pursuant to the following conciliation and negotiation -- is encouraged by the Supreme
provision: Court. Aside from unclogging judicial dockets, arbitration also
hastens the resolution of disputes, especially of the commercial
kind.[25] It is thus regarded as the wave of the future in
If the total direct and indirect cost of completing the remaining
international civil and commercial disputes. [26] Brushing aside a
part of the WORK exceed the sum which would have been
contractual agreement calling for arbitration between the
payable to [petitioner] had it completed the WORK, the amount
parties would be a step backward.[27]
of such excess [may be] claimed by [respondent] from either of
the following:
Consistent with the above-mentioned policy of
encouraging alternative dispute resolution methods, courts
1. Any amount due [petitioner] from [respondent] at the time of
should liberally construe arbitration clauses. Provided such
the termination of this Agreement.[22]
clause is susceptible of an interpretation that covers the
asserted dispute, an order to arbitrate should be granted. [28] Any
The issue as to the correct amount of petitioners advances doubt should be resolved in favor of arbitration.[29]
and billable accomplishments involves an evaluation of the
manner in which the parties completed the work, the extent to
Second Issue:
which they did it, and the expenses each of them incurred in
connection therewith. Arbitrators also need to look into the
computation of foreign and local costs of materials, foreign and Prior Request for Arbitration
local advances, retention fees and letters of credit, and taxes
and duties as set forth in the Agreement. These data can be According to petitioner, assuming arguendo that the
gathered from a review of the Agreement, pertinent portions of dispute is arbitrable, the failure to file a formal request for
which are reproduced hereunder: arbitration with the Construction Industry Arbitration
Commission (CIAC) precluded the latter from acquiring
C. CONTRACT PRICE AND TERMS OF PAYMENT jurisdiction over the question. To bolster its position, petitioner
even cites our ruling in Tesco Services Incorporated v. Vera.
[30]
We are not persuaded.
xxxxxxxxx

Section 1 of Article II of the old Rules of Procedure


All progress payments to be made by [respondent] to
Governing Construction Arbitration indeed required the
[petitioner] shall be subject to a retention sum of ten
submission of a request for arbitration, as follows:
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SECTION. 1. Submission to Arbitration -- Any party to a SO ORDERED.
construction contract wishing to have recourse to arbitration by
the Construction Industry Arbitration Commission (CIAC) shall THIRD DIVISION [G.R. No. 121171. December 29, 1998]
submit its Request for Arbitration in sufficient copies to the
Secretariat of the CIAC; PROVIDED, that in the case of ASSET PRIVATIZATION TRUST, petitioner, vs., COURT OF
government construction contracts, all administrative remedies APPEALS, JESUS S. CABARRUS, SR., JESUS S.
available to the parties must have been exhausted within 90 CABARRUS, JR., JAIME T. CABARRUS, JOSE MIGUEL
days from the time the dispute arose. CABARRUS, ALEJANDRO S. PASTOR, JR., ANTONIO
U. MIRANDA, and MIGUEL M. ANTONIO, as
Minority Stock Holders of Marinduque Mining and
Tesco was promulgated by this Court, using the foregoing Industrial Corporation, respondents.
provision as reference.
KAPUNAN, J.:
On the other hand, Section 1 of Article III of the new Rules
of Procedure Governing Construction Arbitration has dispensed The petition for review on certiorari before us seeks us to
with this requirement and recourse to the CIAC may now be reverse and set aside the decision of the Court of Appeals which
availed of whenever a contract contains a clause for the denied due course to the petition for certiorari filed by the Asset
submission of a future controversy to arbitration, in this wise: Privatization Trust (APT) assailing the order of the Regional Trial
Court (RTC) Branch 62, Makati City. The Makati RTCs order
upheld and confirmed the award made by the Arbitration
SECTION 1. Submission to CIAC Jurisdiction An arbitration clause Committee in favor of Marinduque Mining and Industrial
in a construction contract or a submission to arbitration of a Corporation (MMIC) and against the Government, represented
construction dispute shall be deemed an agreement to submit by herein petitioner APT for damages in the amount of P2.5
an existing or future controversy to CIAC jurisdiction, BILLION (or approximately P4.5 BILLION, including interest).
notwithstanding the reference to a different arbitration
Ironically, the staggering amount of damages was imposed
institution or arbitral body in such contract or submission. When
on the Government for exercising its legitimate right of
a contract contains a clause for the submission of a future
foreclosure as creditor against the debtor MMIC as a
controversy to arbitration, it is not necessary for the parties to consequence of the latters failure to pay its overdue and unpaid
enter into a submission agreement before the claimant may obligation of P22 billion to the Philippine National Bank (PNB)
invoke the jurisdiction of CIAC. and the Development Bank of the Philippines (DBP).

The foregoing amendments in the Rules were formalized


by CIAC Resolution Nos. 2-91 and 3-93.[31] The antecedent facts of the case

The difference in the two provisions was clearly explained


in China Chang Jiang Energy Corporation (Philippines) v. Rosal The development, exploration and utilization of the mineral
Infrastructure Builders et al.[32] (an extended unsigned deposits in the Surigao Mineral Reservation have been
Resolution) and reiterated in National Irrigation Administration v. authorized by Republic Act No. 1828, as amended by Republic
Court of Appeals,[33] from which we quote thus: Acts No. 2077 and 4167, by virtue of which laws, a
Memorandum of Agreement was drawn on July 3, 1968, whereby
Under the present Rules of Procedure, for a particular the Republic of the Philippines thru the Surigao Mineral
Reservation Board, granted MMIC the exclusive right to explore,
construction contract to fall within the jurisdiction of CIAC, it is
develop and exploit nickel, cobalt and other minerals in the
merely required that the parties agree to submit the same to
Surigao mineral reservation.[1] MMIC is a domestic corporation
voluntary arbitration Unlike in the original version of Section 1, engaged in mining with respondents Jesus S. Cabarrus, Sr. as
as applied in the Tesco case, the law as it now stands does not President and among its original stockholders.
provide that the parties should agree to submit disputes arising
from their agreement specifically to the CIAC for the latter to The Philippine Government undertook to support the
acquire jurisdiction over the same. Rather, it is plain and clear financing of MMIC by purchase of MMIC debenture and extension
that as long as the parties agree to submit to voluntary of guarantees. Further, the Philippine Government obtained a
arbitration, regardless of what forum they may choose, their firm, commitment from the DBP and/or other government
agreement will fall within the jurisdiction of the CIAC, such that, financing institutions to subscribed in MMIC and issue
even if they specifically choose another forum, the parties will guarantee/s for foreign loans or deferred payment arrangements
secured from the US Eximbank, Asian Development Bank, Kobe
not be precluded from electing to submit their dispute before
Steel, of amount not exceeding US$100 Million.[2]
the CIAC because this right has been vested upon each party by
law, i.e., E.O. No. 1008.[34] DBP approved guarantees in favor of MMIC and subsequent
requests for guarantees were based on the unutilized portion of
Clearly, there is no more need to file a request with the the Government commitment.Thereafter, the Government
extended accommodations to MMIC in various amounts.
CIAC in order to vest it with jurisdiction to decide a construction
dispute. On July 13, 1981, MMIC, PNB and DBP executed a Mortgage
Trust Agreement[3] whereby MMIC, as mortgagor, agreed to
The arbitral clause in the Agreement is a commitment on constitute a mortgage in favor of PNB and DBP as mortgagees,
the part of the parties to submit to arbitration the disputes over all MMICs assets, subject of real estate and chattel
mortgage executed by the mortgagor, and additional assets
covered therein. Because that clause is binding, they are
described and identified, including assets of whatever kind,
expected to abide by it in good faith. [35] And because it covers
nature or description, which the mortgagor may acquire whether
the dispute between the parties in the present case, either of in substitution of, in replenishment, or in addition thereto.
them may compel the other to arbitrate.[36]
Article IV of the Mortgage Trust Agreement provides for
Events of Default, which expressly includes the event that the
Since petitioner has already filed a Complaint with the RTC
MORTGAGOR shall fail to pay any amount secured by this
without prior recourse to arbitration, the proper procedure to enable
Mortgage Trust Agreement when due.[4]
the CIAC to decide on the dispute is to request the stay or
suspension of such action, as provided under RA 876 [the Article V of the Mortgage Trust Agreement prescribes in
Arbitration Law].[37] detail, and in addition to the enumerated events of defaults,
circumstances by which the mortgagor may be declared in
default, the procedure therefor, waiver of period to foreclose,
WHEREFORE, the Petition is DENIED and the assailed
authority of Trustee before, during and after foreclosure,
Decision AFFIRMED. Costs against petitioner. including taking possession of the mortgaged properties.[5]
4
In various request for advances/remittances of loans of 2. Submission. The parties hereby agree that (a) the controversy
huge amounts, Deeds of Undertakings, Promissory Notes, Loans in Civil Case No. 9900 shall be submitted instead to arbitration
Documents, Deeds of Real Estate Mortgages, MMIC invariably under RA 876 and (b) the reliefs prayed for in Civil Case No.
committed to pay either on demand or under certain terms the 9900 shall, with the approval of the Trial Court of this
loans and accommodations secured from or guaranteed by both Compromise and Arbitration Agreement, be transferred and
DBP and PNB. reduced to pure pecuniary/money claims with the parties
waiving and foregoing all other forms of reliefs which they
By 1984, DBP and PNBs financial exposure both in loans prayed for or should have payed for in Civil Case No. 9900.[13]
and in equity in MMIC had reached tremendous proportions, and
MMIC was having a difficult time meeting its financial
obligations. MMIC had an outstanding loan with DBP in the The Compromise and Arbitration Agreement limited the
amount of P13,792,607,565.92 as of August 31, 1984 and in the issues to the following:
amount of P8,789,028,249.38 as of July 15, 1984 or a total
Government exposure of Twenty Two Billion Six Hundred Sixty- 5. Issues. The issues to be submitted for the Committees
Eight Million Five Hundred Thirty-Seven Thousand Seven resolution shall be: (a) Whether PLAINTIFFS have the capacity or
Hundred Seventy and 05/100 (P22,668,537,770.05), Philippine the personality to institute this derivative suit in behalf of the
Currency.[6] Thus, a financial restructuring plan (FRP) designed to MMIC or its directors; (b) Whether or not the actions leading to,
reduce MMIC' interest expense through debt conversion to and including, the PNB-DBP foreclosure of the MMIC assets were
equity was drafted by the Sycip Gorres Velayo accounting firm. proper, valid and in good faith.[14]
[7]
On April 30, 1984, the FRP was approved by the Board of
Directors of the MMIC.[8] However, the proposed FRP had never
been formally adopted, approved or ratified by either PNB or This agreement was presented for approval to the trial
DBP.[9] court. On October 14, 1992, the Makati RTC, Branch 62, issued
an order, to wit:
In August and September 1984, as the various loans and
advances made by DBP and PNB to MMIC had become overdue
WHEREFORE, this Court orders:
and since any restructuring program relative to the loans was no
longer feasible, and in compliance with the directive of
Presidential Decree No. 385, DBP and PNB as mortgagees of 1. Substituting PNB and DBP with the Asset
MMIC assets, decided to exercise their right to extrajudicially Privatization Trust as party defendant.
foreclose the mortgages in accordance with the Mortgage Trust
Agreement.[10]
2. Approving the Compromise and Arbitration
The foreclosed assets were sold to PNB as the lone bidder Agreement dated October 6, 1992, attached
and were assigned to three newly formed corporations, namely, as Annex C of the Omnibus Motion.
Nonoc Mining Corporation, Maricalum Mining and Industrial
Corporation, and Island Cement Corporation. In 1986, these 3. Approving the Transformation of the reliefs prayed
assets were transferred to the Asset Privatization Trust (APT). [11] for [by] the plaintiffs in this case into pure
money claims; and
On February 28, 1985, Jesus S. Cabarrus, Sr., together with
the other stockholders of MMIC, filed a derivative suit against
DBP and PNB before the RTC of Makati, Branch 62, for 4. The Complaint is hereby DISMISSED.[15]
Annulment of Foreclosures, Specific Performance and Damages.
[12]
The suit, docketed as Civil Case No. 9900, prayed that the The Arbitration Committee was composed of retired
court: (1) annul the foreclosure, restore the foreclosed assets to Supreme Court Justice Abraham Sarmiento as Chairman, Atty.
MMIC, and require the banks to account for their use and Jose C. Sison and former Court of Appeals Justice Magdangal
operation in the interim; (2) direct the banks to honor and Elma as Members. On November 24, 1993, after conducting
perform their commitments under the alleged FRP; and (3) pay several hearings, the Arbitration Committee rendered a majority
moral and exemplary damages, attorneys fees, litigation decision in favor of MMIC, the pertinent portions of which read
expenses and costs. as follows:
In the course of the trial, private respondents and
petitioner APT, as successor of the DBP and PNBs interest in Since, as this Committee finds, there is no foreclosure at all was
MMIC, mutually agreed to submit the case to arbitration by not legally and validly done, the Committee holds and so
entering into a Compromise and Arbitration Agreement, declares that the loans of PNB and DBP to MMIC, for the
stipulating, inter alia: payment and recovery of which the void foreclosure sales were
undertaken, continue to remain outstanding and
NOW, THEREFORE, for and in consideration of the foregoing unpaid. Defendant APT as the successor-in-interest of PNB and
premises and the mutual covenants contain herein, the parties DBP to the said loans is therefore entitled and retains the right,
agreed as follows: to collect the same from MMIC pursuant to and based on the
loan documents signed by MMIC, subject to the legal and valid
defenses that the latter may duly and seasonably
1. Withdrawal and Compromise. The parties have agreed to interpose. Such loans shall, however, be reduced by the amount
withdraw their respective claims from the Trial Court and to which APT may have realized from the sale of the seized assets
resolve their dispute through arbitration by praying to the Trial of MMIC which by agreement should no longer be returned even
Court to issue a Compromise Judgment based on this if the foreclosure were found to be null and void.
Compromise and Arbitration Agreement.
The documentary evidence submitted and adopted by both
In withdrawing their dispute form the court and in choosing to parties (Exhibits 3, 3-B; Exhibits 100; and also Exhibit ZZZ) as
resolve it through arbitration, the parties have agreed that: their exhibits would show that the total outstanding obligation
due to DBP and PNB as of the date of foreclosure
(a) their respective money claims shall be reduced to purely is P22,668,537,770.05, more or less.
money claims; and
Therefore, defendant APT can, and is still entitled to, collect the
(b) as successor and assignee of the PNB and DBP interest in outstanding obligations of MMIC to PNB and DBP amounting
MMIC and the MMIC accounts, APT shall likewise succeed to the to P22,668.537,770.05, more or less, with interest thereon as
rights and obligations of PNB and DBP in respect of the stipulated in the loan documents from the date of foreclosure up
controversy subject of Civil Case No. 9900 to be transferred to to the time they are fully paid less the proportionate liability of
arbitration and any arbitral award/order against either PNB DBP as owner of 87% of the total capitalization of MMIC under
and/or DBP shall be the responsibility of, be discharged by and the FRP. Simply put, DBP shall share in the award of damages to,
be enforceable against APT, the partied having agreed to drop and in obligations of MMIC in proportion to its 87% equity in the
PNB and DBP from the arbitration. total capital stock of MMIC.
5
x x x. to the court having jurisdiction, (not necessarily with this
Honorable Court) for an order confirming the award;
As this Committee holds that the FRP is valid, DBPs equity in
MMIC is raised to 87%. So pursuant to the above provision of the 3. The issues submitted for arbitration have been limited to two:
Compromise and Arbitration Agreement, the 87% equity of DBP (1) propriety of the plaintiffs filing the derivative suit and (2) the
is hereby deducted from the actual damages regularity of the foreclosure proceedings. The arbitration award
of P19,486,118,654.00 resulting in the net actual damages sought to be confirmed herein far exceeded the issues
of P2,531,635,425.02 plus interest. submitted and even granted moral damages to one of the
herein plaintiffs;
DISPOSITION
4. Under Section 24 of Rep. Act 876, the Court must make an
order vacating the award where the arbitrators exceeded their
WHEREFORE, premises considered, judgment is hereby
powers, or so imperfectly executed them, that a mutual final
rendered:
and definite award upon the subject matter submitted to them
was not made.[17]
1. Ordering the defendant to pay to the Marinduque Mining and
Industrial Corporation, except the DBP, the sum
Private respondents filed a REPLY AND OPPOSITION dated
of P2,531,635,425.02 with interest thereon at the legal rate of
November 10, 1984, arguing that a dismissal of Civil case No.
six per cent (6%) per annum reckoned from August 3, 9, and 24,
9900 was merely a qualified dismissal to pave the way for the
1984, pari passu, as and for actual damages. Payment of these
submission of the controversy to arbitration, and operated
actual damages shall be offset by APT from the outstanding and
simply as a mere suspension of the proceedings. They denied
unpaid loans of the MMIC with DBP and PNB, which have not
that the Arbitration Committee had exceeded its powers.
been converted into equity. Should there be any balance due to
the MMIC after the offsetting, the same shall be satisfied from In an Order dated November 28, 1994, the trial court
the funds representing the purchase price of the sale of the confirmed the award of the Arbitration Committee. The
shares of Island Cement Corporation in the amount dispositive portion of said order reads:
of P503,000,000.00 held under escrow pursuant to the Escrow
Agreement dated April 22, 1988 or to such subsequent escrow
agreement that would supercede [sic] it pursuant to paragraph WHEREFORE, premises considered, and in the light of the
(9) of the Compromise and Arbitration Agreement; parties [sic] Compromise and Arbitration Agreement dated
October 6, 1992, the Decision of the Arbitration Committee
promulgated on November 24, 1993, as affirmed in a Resolution
2. Ordering the defendant to pay to the Marinduque Mining and dated July 26, 1994, and finally settled and clarified in the
Industrial Corporation, except the DBP, the sum Separate Opinion dated September 2, 1994 of Committee
of P13,000,000.00 as and for moral and exemplary Member Elma, and the pertinent provisions of RA 876,also
damages. Payment of these moral and exemplary damages shall known as the Arbitration Law, this Court GRANTS PLAINTIFFS
be offset by APT from the outstanding and unpaid loans of MMIC APPLICATION AND THUS CONFIRMS THE ARBITRATION AWARD,
with DBP and PNB, which have not been converted into AND JUDGMENT IS HEREBY RENDERED:
equity. Should there be any balance due to MMIC after the
offsetting, the same shall be satisfied from the funds
representing the purchase price of the sale of the shares of (a) Ordering the defendant APT to the Marinduque Mining and
Island Cement Corporation in the of P503,000,000.00 held under Industrial Corporation (MMIC, except the DBP, the sum
escrow pursuant to the Escrow Agreement dated April 22, 1988 of P3,811,757,425.00, as and for actual damages, which shall be
or to such subsequent escrow agreement that would supercede partially satisfied from the funds held under escrow in the
[sic] it pursuant to paragraph (9) of the Compromise and amount of P503,000,000.00 pursuant to the Escrow Agreement
Arbitration Agreement; dated April 22, 1988. The Balance of the award, after the escrow
funds are fully applied, shall be executed against the APT;

3. Ordering the defendant to pay to the plaintiff, Jesus Cabarrus,


Sr., the sum of P10,000,000.00, to be satisfied likewise from the (b) Ordering the defendant to pay to the MMIC, except the DBP,
funds held under escrow pursuant to the Escrow Agreement the sum of P13,000,000.00 as and moral and exemplary
dated April 22, 1988 or to such subsequent escrow agreement damages;
that would supercede it, pursuant to paragraph (9) of the
Compromise and Arbitration Agreement, as and for moral (c) Ordering the defendant to pay to Jesus S. Cabarrus, Sr., the
damages; and sum of P10,000,000.00 as and for moral damages; and

4. Ordering the defendant to pay arbitration costs. (d) Ordering the defendant to pay the herein
plaintiffs/applicants/movants the sum of P1,705,410.22 as
This Decision is FINAL and EXECUTORY. arbitration costs.

IT IS SO ORDERED.[16] In reiteration of the mandates of Stipulation No. 10 and


Stipulation No. 8 paragraph 2 of the Compromise and Arbitration
Agreement, and the final edict of the Arbitration Committees
Motions for reconsiderations were filed by both parties, but decision, and with this Courts Confirmation, the issuance of the
the same were denied. Arbitration Committees Award shall henceforth be final and
executory.
On October 17, 1994, private respondents filed in the same
Civil Case No. 9900 an Application/Motion for Confirmation of
Arbitration Award. Petitioner countered with an Opposition and SO ORDERED.[18]
Motion to Vacate Judgment raising the following grounds:
On December 27, 1994, petitioner filed its motion for
1. The plaintiffs Application/Motion is improperly filed with this reconsideration of the Order dated November 28, 1994. Private
branch of the Court, considering that the said motion is neither respondents, in turn, submitted their reply and opposition
a part nor the continuation of the proceedings in Civil Case No. thereto.
9900 which was dismissed upon motion of the parties. In fact,
the defendants in the said Civil Case No. 9900 were the On January 18, 1995, the trial court handed down its order
Development Bank of the Philippines and the Philippine National denying APTs motion for reconsideration for lack of merit and for
Bank (PNB); having been filed out of time.The trial court declared that
considering that the defendant APT through counsel, officially
and actually received a copy of the Order of this Court dated
2. Under Section 22 of Rep. Act 876, an arbitration under a November 28, 1994 on December 6, 1994, the Motion for
contract or submission shall be deemed a special proceedings Reconsideration thereof filed by the defendant APT on
and a party to the controversy which was arbitrated may apply December 27, 1994, or after the lapse of 21 days, was clearly
6
filed beyond the 15-day reglementary period prescribed or THE COURT OF APPEALS ERRED IN NOT TREATING
provided for by law for the filing of an appeal from final orders, PETITIONER APTS PETITION FOR CERTIORARI AS AN
resolutions, awards, judgments or decisions of any court in all APPEAL TAKEN FROM THE ORDER CONFIRMING THE
cases, and by necessary implication for the filling of a motion for AWARD
reconsideration thereof.

On February 7, 1995, petitioner received private V


respondents motion for Execution and Appointment of Custodian
of Proceeds of Execution dated February 6, 1995. THE COURT OF APPEALS ERRED IN NOT RULING ON THE
LEGAL ISSUE OF WHEN TO RECKON THE COUNTING OF THE
Petitioner thereafter filed with the Court of Appeals a
PERIOD TO FILE A MOTION FOR RECONSIDERATION.[21]
special civil action for certiorari with temporary restraining order
and/or preliminary injunction dated February 13, 1996 to annul
and declare as void the Orders of the RTC-Makati dated The petition is impressed with merit.
November 28, 1994 and January 18, 1995 for having been
issued without or in excess of jurisdiction and/or with grave I
abuse of discretion.[19] As ground therefor, petitioner alleged The RTC of Makati, Branch 62, did not have jurisdiction to confirm the arbitral award
that:
The use of the term dismissed is not a mere semantic
I THE RESPONDENT JUDGE HAS NOT VALIDLY ACQUIRED
imperfection. The dispositive portion of the Order of the trial
JURISDICTION MUCH LESS, HAS THE COURT AUTHORITY, TO
court dated October 14, 1992 stated in no uncertain terms:
CONFIRM THE ARBITRAL AWARD CONSIDERING THAT THE
ORIGINAL CASE, CIVIL CASE NO. 9900, HAD PREVIOUSLY BEEN 4. The Complaint is hereby DISMISSED.[22]
DISMISSED.
The term dismiss has a precise definition in law. To dispose of an
II THE RESPONDENT JUDGE COMMITTED GRAVE ABUSE OF action suit, or motion without trial on the issues
DISCRETION AND ACTED WITHOUT OR IN EXCESS OF involved. Conclude, discontinue, terminate, quash.[23]
JURISDICTION, IN ISSUING THE QUESTIONED ORDERS
CONFIRMING THE ARBITRAL AWARD AND DENYING THE MOTION Admittedly the correct procedure was for the parties to go
FOR RECONSIDERATION OF ORDER OF AWARD. back to the court where the case was pending to have the award
confirmed by said court.However, Branch 62 made
III THE RESPONDENT JUDGE GROSSLY ABUSED HIS DISCRETION the fatal mistake of issuing a final order dismissing the
AND ACTED WITHOUT OR IN EXCESS OF AND WITHOUT case. While Branch 62 should have merely suspended the case
JURISDICTION IN RECKONING THE COUNTING OF THE PERIOD TO and not dismissed it,[24] neither of the parties questioned said
FILE MOTION FOR RECONSIDERATION, NOT FROM THE DATE OF dismissal. Thus, both parties as well as said court are bound by
SERVICE OF THE COURTS COPY CONFIRMING THE AWARD, BUT such error.
FROM RECEIPT OF A XEROX COPY OF WHAT PRESUMABLY IS THE
OPPOSING COUNSELS COPY THEREOF.[20] It is erroneous then to argue, as private respondents do,
that petitioner APT was charged with the knowledge that the
On July 12, 1995, the Court of Appeals, through its fifth case was merely stayed until arbitration finished, as again, the
Division denied due course and dismissed the petition order of Branch 62 in very clear terms stated that the complaint
for certiorari. was dismissed. By its own action, Branch 62 had lost jurisdiction
over the vase. It could not have validly reacquired jurisdiction
Hence, the instant petition for review
over the said case on mere motion of one of the parties. The
on certiorari imputing to the Court of Appeals the following
Rules of Court is specific on how a new case may be initiated
errors.
and such is not done by mere motion in a particular branch of
the RTC. Consequently, as there was no pending action to speak
ASSIGNMENT OF ERRORS 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.
I
II
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT Petitioner was not estopped from questioning the jurisdiction of Branch 62 of the RTC of Makati.
THE MAKATI REGIONAL TRIAL COURT, BRANCH 62 WHICH
HAS PREVIOULSY DISMISSED CIVIL CASE NO. 9900 HAD The Court of Appeals ruled that APT was already estopped
LOST JURISDICTION TO CONFIRM THE ARBITRAL AWARD to question the jurisdiction of the RTC to confirm the arbitral
UNDER THE SAME CIVIL CASE AND IN NOT RULING THAT award because it sought affirmative relief in said court by asking
THE APPLICATION FOR CONFIRMATION SHOULD HAVE BEEN that the arbitral award be vacated.
FILED AS A NEW CASE TO BE RAFFLED OFF AMONG THE
DIFFERENT BRANCHES OF THE RTC. The rule is that Where the court itself clearly has no
jurisdiction over the subject matter or the nature of the action,
II the invocation of this defense may de done at any time. It is
neither for the courts nor for the parties to violate or disregard
that rule, let alone to confer that jurisdiction, this matter being
THE COURT OF APPEALS LIKEWISE ERRED IN HOLDING legislative in character.[25] As a rule the, neither waiver nor
THAT PETITIONER WAS ESTOPPED FROM QUESTIONING estoppel shall apply to confer jurisdiction upon a court barring
THE ARBITRATION AWARD, WHEN PETITIONER highly meritorious and exceptional circumstances.[26] One such
QUESTIONED THE JURISDICTION OF THE RTC-MAKATI, exception was enunciated in Tijam vs. Sibonghanoy,[27] where it
BRANCH 62 AND AT THE SAME TIME MOVED TO VACATE was held that after voluntarily submitting a cause and
THE ARBITRAL AWARD. encountering an adverse decision on the merits, it is too late for
the loser to question the jurisdiction or power of the court."
III Petitioners situation is different because from the outset, it
has consistently held the position that the RTC, Branch 62 had
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT no jurisdiction to confirm the arbitral award; consequently, it
THE RESPONDENT TRIAL COURT SHOULD HAVE EITHER cannot be said that it was estopped from questioning the RTCs
DISMISSED/DENIED PRIVATE RESPONDENTS jurisdiction. Petitioners prayer for the setting aside of the
MOTION/PETITION FOR CONFIRMATION OF ARBITRATION arbitral award was not inconsistent with its disavowal of the
AWARD AND/OR SHOULD HAVE CONSIDERED THE MERITS courts jurisdiction.
OF THE MOTION TO VACATE ARBITRAL AWARD.
III
Appeal of petitioner to the Court of Appeals thru certiorari under Rule 65 was proper.
IV
The Court of Appeals in dismissing APTs petition
for certiorari upheld the trial courts denial of APTs motion for
7
reconsideration of the trial courts order confirming the arbitral rescinded. Additionally, under Sections 24 and 25, of the
award, on the ground that said motion was filed beyond the 15- Arbitration Law, there are grounds for vacating, modifying or
day reglementary period; consequently, the petition rescinding an arbitrators award. Thus, if and when the factual
for certiorari could not be resorted to as substitute to the lost circumstances referred to in the above-cited provisions are
right of appeal. present, judicial review of the award is properly warranted.

We do not agree.
Accordingly, Section 20 of R.A. 876 provides:
Section 29 of Republic Act No. 876,[28] provides that:
SEC. 20. Form and contents of award. The award must be made
x x x An appeal may be taken from an order made in a in writing and signed and acknowledged by a majority of the
proceeding under this Act, or from a judgment entered arbitrators, if more than one; and by the sole arbitrator, if there
upon an award through certiorari proceedings, but such is only one. Each party shall be furnished with a copy of the
appeals shall be limited to question of law. x x x. award. The arbitrators in their award may grant any remedy or
relief which they deem just and equitable and within the scope
of the agreement of the parties, which shall include, but not be
The aforequoted provision, however, does not preclude a
limited to, the specific performance of a contract.
party aggrieved by the arbitral award from resorting to the
extraordinary remedy of certiorariunder Rule 65 of the Rules of
Court where, as in this case, the Regional Trial Court to which xxx
the award was submitted for confirmation has acted without
jurisdiction, or with grave abuse of discretion and there is no
The arbitrators shall have the power to decide only those
appeal, nor any plain, speedy remedy in the course of law.
matters which have been submitted to them. The terms of the
Thus, Section 1 of Rule 65 provides: award shall be confined to such disputes.(Underscoring ours).

SEC 1. Petition for Certiorari: - When any tribunal, board or xxx.


officer exercising judicial functions, has acted without or in
Section 24 of the same law enumerating the grounds for
excess of its or his jurisdiction, or with grave abuse of discretion
vacating an award states:
and there is no appeal, nor any plain, speedy, and adequate
remedy in the ordinary course of law, a person aggrieved
thereby may file a verified petition in the proper court alleging SEC. 24. Grounds for vacating award. In any one of the following
the facts with certainty and praying that judgment be rendered cases, the court must make an order vacating the award upon
annulling or modifying the proceedings, as the law requires, of the petition of any party to the controversy when such party
such tribunal, board or officer. proves affirmatively that in the arbitration proceedings:

In the instant case, the respondent court erred in (a) The award was procured by corruption, fraud, or other undue
dismissing the special civil action for certiorari, it being from the means; or
pleadings and the evidence that the trial court lacked
jurisdiction and/or committed grave abuse of discretion in taking
(b) That there was evident partiality or corruption in arbitrators
cognizance of private respondent motion to confirm the arbitral
or any of them; or
award and, worse, in confirming said award which is grossly and
patently not in accord with the arbitration agreement, as will be
hereinafter demonstrated. (c) That the arbitrators were guilty of misconduct in refusing to
postpone the hearing upon sufficient cause shown, or in refusing
IV to hear evidence pertinent and material to the controversy; that
The nature and limits of the Arbitrators powers. one or more of the arbitrators was disqualified to act as such
under section nine hereof, and willfully refrained from disclosing
As a rule, the award of an arbitrator cannot be set aside for such disqualifications or any other misbehavior by which the
mere errors of judgment either as to the law or as to the facts. rights of any party have been materially prejudiced; or
[29]
Courts are without power to amend or overrule merely
because of disagreement with matters of law or facts (d) That the arbitrators exceeded their powers, or so imperfectly
determined by the arbitrators.[30] They will not review the executed them, that a mutual, final and definite award upon the
findings of law and fact contained in an award, and will not subject matter submitted to them was not made. (Underscoring
undertake to substitute their judgment for that of the ours).
arbitrators, since any other rule would make an award the
commencement, not the end, of litigation. [31] Errors of law and
fact, or an erroneous decision of matters submitted to the xxx.
judgment of the arbitrators, are insufficient to invalidate an Section 25 which enumerates the grounds for modifying
award fairly and honestly made. [32] Judicial review of an the award provides:
arbitration is, thus, more limited than judicial review of a trial.[33]

Nonetheless, the arbitrators awards is not absolute and SEC. 25. Grounds for modifying or correcting award In anyone of
without exceptions. The arbitrators cannot resolve issues the following cases, the court must make an order modifying or
beyond the scope of the submission agreement. [34] The parties correcting the award, upon the application of any party to the
to such an agreement are bound by the arbitrators award only controversy which was arbitrated:
to the extent and in the manner prescribed by the contract and
only if the award is rendered in conformity thereto. [35] Thus,
Sections 24 and 25 of the Arbitration Law provide grounds for (a) Where there was an evident miscalculation of figures, or an
vacating, rescinding or modifying an arbitration award. Where evident mistake in the description of any person, thing or
the conditions described in Articles 2038, [36] 2039[37] and property referred to in the award; or
2040[38] of the Civil Code applicable to compromises and
arbitration are attendant, the arbitration award may also be (b) Where the arbitrators have awarded upon a matter not
annulled. submitted to them, not affecting the merits of the decision upon
the matter submitted; or
In Chung Fu Industries (Phils.) vs. Court of Appeals, [39] we
held:
(c) Where the award is imperfect in a matter of form not
affecting the merits of the controversy, and if it had been a
x x x. It is stated explicitly under Art. 2044 of the Civil Code that commissioners report, the defect could have been amended or
the finality of the arbitrators awards is not absolute and without disregarded by the court.
exceptions. Where the conditions described in Articles 2038,
2039, and 2040 applicable to both compromises and arbitration
are obtaining, the arbitrators' award may be annulled or x x x.
8
Finally, it should be stressed that while a court is precluded A : Yes.
from overturning an award for errors in determination of factual
issues, nevertheless, if an examination of the record reveals no xxx
support whatever for the arbitrators determinations, their award
must be vacated.[40] In the same manner, an award must be Which brings me to my last point in this separate opinion. Was
vacated if it was made in manifest disregard of the law.[41] PNB and DBP absolutely unjustified in foreclosing the
mortgages?
Against the backdrop of the foregoing provisions and
principles, we find that the arbitrators came out with an award
in excess of their powers and palpably devoid of factual and In this connection, it can readily be seen and it cannot quite be
legal basis. denied that MMIC accounts in PNB-DBP were past due. The
drawing up of the FRP is the best proof of this. When MMIC
V adopted a restructuring program for its loan, it only meant that
There was no financial structuring program; foreclosure of mortgage was fully justified. these loans were already due and unpaid. If these loans were
restructurable because they were already due and unpaid, they
The point need not be belabored that PNB and DBP had the are likewise forecloseable. The option is with the PNB-DBP on
legitimate right to foreclose of the mortgages of MMIC whose what steps to take.
obligations were past due. The foreclosure was not a wrongful
act of the banks and, therefore, could not be the basis of any The mere fact that MMIC adopted the FRP does not mean that
award of damages. There was no financial restructuring DBP-PNB lost the option to foreclose. Neither does it mean that
agreement to speak of that could have constituted an the FRP is legally binding and implementable. It must be pointed
impediment to the exercise of the banks right to foreclose. that said FRP will, in effect, supersede the existing and past due
loans of MMIC with PNB-DBP. It will become the new loan
As correctly stated by Mr. Jose C. Sison, a member of the agreement between the lenders and the borrowers. As in all
Arbitration Committee who wrote a separate opinion: other contracts, there must therefore be a meeting of minds of
the parties; the PNB and DBP must have to validly adopt and
1. The various loans and advances made by DBP and PNB to ratify such FRP before they can be bound by it; before it can be
MMIC have become overdue and remain unpaid. The fact that a implemented. In this case, not an iota of proof has been
FRP was drawn up is enough to establish that MMIC has not presented by the PLAINTIFFS showing that PNB and DBP ratified
been complying with the terms of the loan and adopted the FRP. PLAINTIFFS simply relied on a legal
agreement. Restructuring simply connotes that the obligations doctrine of promissory estoppel to support its allegation in this
are past due that is why it is restructurable; regard.[42]

2. When MMIC thru its board and the stockholders agreed and Moreover, PNB and DBP had to initiate foreclosure
adopted the FRP, it only means that MMIC had been informed or proceedings as mandated by P.D. No. 385, which took effect on
notified that its obligations were past due and that foreclosure is January 31, 1974. The decree requires government financial
forthcoming; institutions to foreclose collaterals for loans where the
arrearages amount to 20% of the total outstanding
obligations. The pertinent provisions of said decree read as
3. At that stage, MMIC also knew that PNB-DBP had the option of follows:
either approving the FRP or proceeding with the
foreclosure. Cabarrus, who filed this case supposedly in behalf of
MMIC should have insisted on the FRP. Yet Cabarrus himself SEC. 1. It shall be mandatory for government financial
opposed the FRP; institutions, after the lapse of sixty (60) days from the issuance
of this Decree to foreclose the collaterals and/or securities for
any loan, credit, accommodations, and/or guarantees granted
4. So when PNB-DBP proceeded with the foreclosure, it was done by them whenever the arrearages on such account, including
without bad faith but with honest and sincere belief that accrued interest and other charges, amount to at least twenty
foreclosure was the only alternative; a decision further explained percent (20%) of the total outstanding obligations, including
by Dr. Placido Mapa who testified that foreclosure was, in the interest and other charges, as appearing in the books of account
judgment of PNB, the best move to save MMIC itself. and/or related records of the financial institutions
concerned. This shall be without prejudice to the exercise by the
Q : Now in this portion of Exh. L which was marked as Exh. L- government financial institutions of such rights and/or remedies
1, and we adopted as Exh. 37-A for the respondent, available to them under their respective contracts with their
may I know from you, Dr. Mapa what you meant by that debtor, including the right to foreclosure on loans, credits,
the decision to foreclose was neither precipitate nor accommodations and/or guarantees on which the arrearages are
arbitrary? less than twenty percent (20%).

A : Well, it is not a whimsical decision but rather decision


arrived at after weighty considerations of the SEC. 2. No restraining order, temporary or permanent injunction
information that we have received, and listening to the shall be issued by the court against any government financial
prospects which reported to us that we had assumed institution in any action taken by such institution in compliance
would be the premises of the financial rehabilitation with the mandatory foreclosure provided in Section 1 hereof,
plan was not materialized nor expected to materialized. whether such restraining order, temporary or permanent
injunction is sought by the borrower(s) or any third party or
Q : And this statement that it was premised upon the known parties, except after due hearing in which it is established by the
fact that means, it was referring to the decision to borrower and admitted by the government financial institution
foreclose, was premised upon the known fact that the concerned that twenty percent (20%) of the outstanding
rehabilitation plan earlier approved by the stockholders arrearages has been paid after the filing of foreclosure
was no longer feasible, just what is meant by no longer proceedings. (Underscoring supplied.)
feasible?

A : Because the revenue that they were counting on to make Private respondents thesis that the foreclosure proceedings
the rehabilitation plan possible, was not anymore were null and void because of lack of publication in the
expected to be forthcoming because it will result in a newspaper is nothing more than a mere unsubstantiated
short fall compared to the prices that were actually allegation not borne out by the evidence. In any case, a
taking place in the market. disputable presumption exists in favor of petitioner that official
duty has been regularly performed and ordinary course of
Q : And I supposed that was you were referring to when you business has been followed.[43]
stated that the production targets and assumed prices
of MMICs products, among other projections, used in VI
the financial reorganization program that will make it Not only was the foreclosure rightfully exercised by the
viable were not met nor expected to be met? PNB and DBP, but also, from the facts of the case, the
9
arbitrators in making the award went beyond the arbitration was not a party to the derivative suit; and (c) in awarding moral
agreement. damages to Jesus S. Cabarrus, Sr.
The arbiters overstepped their powers by declaring as valid proposed Financial Restructuring Program.
In their complaint filed before the trial court, private
respondent Cabarrus, et al. prayed for judgment in their favor:
The Arbitration Committee went beyond its mandate and
thus acted in excess of its powers when it ruled on the validity
1. Declaring the foreclosure effected by the defendants DBP and of, and gave effect to, the proposed FRP.
PNB on the assets of MMIC null and void and directing said
defendants to restore the foreclosed assets to the possession of In submitting the case to arbitration, the parties had
MMIC, to render an accounting of their use and/or operation of mutually agreed to limit the issue to the validity of the
said assets and to indemnify MMIC for the loss occasioned by its foreclosure and to transform the reliefs prayed for therein into
dispossession or the deterioration thereof; pure money claims.

There is absolutely no evidence that the DBP and PNB


2. Directing the defendants DBP and PNB to honor and perform agreed, expressly or impliedly, to the proposed FRP. It cannot be
their commitments under the financial reorganization plan which overemphasized that a FRP, as a contract, requires the consent
was approved at the annual stockholders meeting of MMIC on 30 of the parties thereto.[47] The contract must bind both
April 1984; contracting parties.[48] Private respondents even by their own
admission recognized that the FRP had yet not been carried out
3. Condemning the defendants DBP and PNB, jointly and and that the loans of MMIC had not yet been converted into
severally to pay the plaintiffs actual damages consisting of the equity.[49]
loss of value of their investment amounting to not less
than P80,000,000.00, the damnum emerges and lucrum cessans However, the arbitration Committee not only declared the
in such amount as may be establish during the trial, moral FRP valid and effective, but also converted the loans of MMIC
damages in such amount as this Honorable Court may deem just into equity raising the equity of DBP to 87%.[50]
and equitable in the premises, exemplary damages in such The Arbitration Committee ruled that there was a
amount as this Honorable Court may consider appropriate for commitment to carry out the FRP[51] on the ground of promissory
the purpose of setting an example for the public good, attorneys estoppel.
fees and litigation expenses in such amounts as may be proven
during the trial, and the costs legally taxable in this litigation.
Similarly, the principle of promissory estoppel applies in the
present case considering as we observed, the fact that the
Further, Plaintiffs pray for such other reliefs as may be just and government (that is Alfredo Velayo) was the FRPs
equitable in the premises.[44] proponent. Although the plaintiffs are agreed that the
government executed no formal agreement, the fact remains
Upon submission for arbitration, the Compromise and that the DBP itself which made representations that the FRP
Arbitration Agreement of the parties clearly and explicitly constituted a way out for MMIC. The Committee believes that
defined and limited the issues to the following: although the DBP did not formally agree (assuming that the
board and stockholders approvals were not formal enough), it is
(a) whether PLAINTIFFS have the capacity or the bound nonetheless if only for its conspicuous representations.
personality to institute this derivative suit in behalf of the
MMIC or its directors;
Although the DBP sat in the board in a dual capacity-as holder of
(b) whether or not the actions leading to, and including, 36% of MMICs equity (at that time) and as MMICs creditor-the
the PNB-DBP foreclosure of the MMIC assets were proper, DBP can not validly renege on its commitments simply because
valid and in good faith.[45] at the same time, it held interest against the MMIC.

Item No. 8 of the Agreement provides for the period by


The fact, of course, is that as APT itself asserted, the FRP was
which the Committee was to render its decision, as well as the
being carried out although apparently, it would supposedly fall
nature thereof:
short of its targets. Assuming that the FRP would fail to meet its
8. Decision. The committee shall issue a decision on the targets, the DBP-and so this Committee holds-can not, in any
controversy not later than six (6) months from the date of its event, brook any denial that it was bound to begin with, and the
constitution. fact is that adequate or not (the FRP), the government is still
bound by virtue of its acts.

In the event the committee finds that PLAINTIFFS have the


personality to file this suit and extra-judicial foreclosure of the The FRP, of course, did not itself promise a resounding success,
MMIC assets wrongful, it shall make an award in favor of the although it raised DBPs equity in MMIC to 87%. It is not excuse,
PLAINTIFFS (excluding DBP), in an amount as may be however, for the government to deny its commitments.[52]
established or warranted by the evidence which shall be payable
in Philippine Pesos at the time of the award. Such award shall be Atty. Sison, however, did not agree and correctly observed
paid by the APT or its successor-in-interest within sixty (60) days that:
from the date of the award in accordance with the provisions of
par. 9 hereunder. x x x. The PLAINTIFFS remedies under this
Section shall be in addition to other remedies that may be But the doctrine of promissory estoppel can hardly find
available to the PLAINTIFFS, all such remedies being cumulative application here. The nearest that there can be said of any
and not exclusive of each other. estoppel being present in this case is the fact that the board of
MMIC was, at the time the FRP was adopted, mostly composed
of PNB and DBP representatives. But those representatives,
On the other hand, in case the arbitration committee finds that singly or collectively, are not themselves PNB or DBP. They are
PLAINTIFFS have no capacity to sue and/or that the extra-judicial individuals with personalities separate and distinct from the
foreclosure is valid and legal, it shall also make an award in banks they represent. PNB and DBP have different boards with
favor of APT based on the counterclaims of DBP and PNB in an different members who may have different decisions. It is unfair
amount as may be established or warranted by the to impose upon them the decision of the board of another
evidence. This decision of the arbitration committee in favor of company and thus pin them down on the equitable principle of
APT shall likewise finally settle all issues regarding the estoppel. Estoppel is a principle based on equity and it is
foreclosure of the MMIC assets so that the funds held in escrow certainly not equitable to apply it in this particular
mentioned in par. 9 hereunder will thus be released in full in situation. Otherwise the rights of entirely separate, distinct and
favor of APT.[46] autonomous legal entities like PNB and DBP with thousands of
stockholders will be suppressed and rendered nugatory.[53]
The clear and explicit terms of the submission
notwithstanding, the Arbitration Committee clearly exceeded its As a rule, a corporation exercises its powers, including the
powers or so imperfectly executed them: (a) in ruling on and power to enter into contracts, through its board of
declaring valid the FRP; (b) in awarding damages to MMIC which directors. While a corporation may appoint agents to enter into
10
a contract in its behalf, the agent, should not exceed his of Evangelista v. Santos, that the stockholders may not directly
authority.[54] In the case at bar, there was no showing that the claim those damages for themselves for that would result in the
representatives of PNB and DBP in MMIC even had the requisite appropriation by, and the distribution among them of part of the
authority to enter into a debt-for-equity swap. And if they had corporate assets before the dissolution of the corporation and
such authority, there was no showing that the banks, through the liquidation of its debts and liabilities, something which
their board of directors, had ratified the FRP. cannot be legally done in view of section 16 of the Corporation
Law xxx;
Further, how could the MMIC be entitled to a big amount of
moral damages when its credit reputation was not exactly
something to be considered sound and wholesome. Under (3) the filing of such suits would conflict with the duty of the
Article 2217 of the Civil Code, moral damages include management to sue for the protection of all concerned;
besmirched reputation which a corporation may possibly
suffer. A corporation whose overdue and unpaid debts to the (4) it would produce wasteful multiplicity of suits; and
Government alone reached a tremendous amount of P22 Billion
Pesos cannot certainly have a solid business reputation to brag
about. As Atty. Sison in his separate opinion persuasively put it: (5) it would involve confusion in a ascertaining the effect of
partial recovery by an individual on the damages recoverable by
the corporation for the same act.[58]
Besides, it is not yet a well settled jurisprudence that
corporations are entitled to moral damages. While the Supreme
Court may have awarded moral damages to a corporation for If at all an award was due MMIC, which it was not, the
besmirched reputation in Mambulao vs. PNB 22 SCRA 359, such same should have been given sans deduction, regardless of
ruling cannot find application in this case. It must be pointed out whether or not the party liable had equity in the corporation, in
that when the supposed wrongful act of foreclosure was done, view of the doctrine that a corporation has a personality
MMICs credit reputation was no longer a desirable one. The separate and distinct from its individual stockholders or
company then was already suffering from serious financial crisis members. DBPs alleged equity, even if it were indeed 87%, did
which definitely projects an image not compatible with good and not give it ownership over any corporate property, including the
wholesome reputation. So it could not be said that there was a monetary award, its right over said corporate property being a
reputation besmirches by the act of foreclosure.[55] mere expectancy or inchoate right.[59]Notably, the stipulation
even had the effect of prejudicing the other creditors of MMIC.
The arbiters, likewise, exceeded their authority in awarding moral damages to Jesus Cabarrus, Sr.

The arbiters exceeded their authority in awarding damages to MMIC, which is not impleaded as a
It is perplexing how the Arbitration Committee can in one
party to the derivative suit.
breath rule that the case before it is a derivative suit, in which
the aggrieved party or the real party in interest is supposedly
the MMIC, and at the same time award moral damages to an
Civil Code No. 9900 filed before the RTC being a derivative individual stockholder, to wit:
suit, MMIC should have been impleaded as a party. It was not
joined as a party plaintiff or party defendant at any stage of the WHEREFORE, premises considered, judgment is hereby
proceedings. As it is, the award of damages to MMIC, which was rendered:
not a party before the Arbitration Committee, is a complete
nullity.
xxx.
Settled is the doctrine that in a derivative suit, the
corporation is the real party in interest while the stockholder
filing suit for the corporations behalf is only nominal party. The 3. Ordering the defendant to pay to the plaintiff, Jesus S.
corporation should be included as a party in the suit. Cabarrus, Sr., the sum of P10,000,000.00, to be satisfied
likewise from the funds held under escrow pursuant to the
Escrow Agreement dated April 22, 1988 or to such subsequent
An individual stockholder is permitted to institute a derivative escrow agreement that would supersede it, pursuant to
suit on behalf of the corporation wherein he holds stock in order paragraph (9), Compromise and Arbitration Agreement, as and
to protect or vindicate corporate rights, whenever the officials of for moral damages; x x x[60]
the corporation refuse to sue, or are the ones to be sued or hold
the control of the corporation. In such actions, the suing
stockholder is regarded as a nominal party, with the corporation The majority decision of the Arbitration Committee sought
as the real party in interest. x x x.[56] to justify its award of moral damages to Jesus S. Cabarrus, Sr. by
pointing to the fact that among the assets seized by the
government were assets belonging to Industrial Enterprise Inc.
It is a condition sine qua non that the corporation be (IEI), of which Cabarrus is the majority stockholder. It then
impleaded as a party because- acknowledge that Cabarrus had already recovered said assets in
the RTC, but that he won no more than actual damages. While
x x x. Not only is the corporation an indispensible party, but it is the Committee cannot possibly speak for the RTC, there is no
also the present rule that it must be served with process. The doubt that Jesus S. Cabarrus, Sr., suffered moral damages on
reason given is that the judgment must be made binding upon account of that specific foreclosure, damages the Committee
the corporation and in order that the corporation may get the believes and so holds, he Jesus S. Cabarrus, Sr., may be awarded
benefit of the suit and may not bring a subsequent suit against in this proceeding.[61]
the same defendants for the same cause of action. In other Cabarrus cause of action for the seizure of the assets
words the corporations must be joined as party because it is its belonging to IEI, of which he is the majority stockholder, having
cause of action that is being litigated and because judgment been ventilated in a complaint he previously filed with the RTC,
must be a res ajudicata against it.[57] from which he obtained actual damages, he was barred res
judicata from filing a similar case in another court, this time
The reasons given for not allowing direct individual suit asking for moral damages which he failed to get from the earlier
are: case.[62] Worse, private respondents violated the rule against
non-forum shopping.
(1) x x x the universally recognized doctrine that a stockholder It is a basic postulate that s corporation has a personality
in a corporation has no title legal or equitable to the corporate separate and distinct from its stockholders. [63] The properties
property; that both of these are in the corporation itself for the foreclosed belonged to MMIC, not to its stockholders. Hence, if
benefit of the stockholders. In other words, to allow wrong was committed in the foreclosure, it was done against the
shareholders to sue separately would conflict with the separate corporation. Another reason is that Jesus S. Cabarrus, Sr. cannot
corporate entity principle; directly claim those damages for himself that would result in the
appropriation by, and the distribution to, him part of the
(2) x x x that the prior rights of the creditors may be corporations assets before the dissolution of the corporation and
prejudiced. Thus, our Supreme Court held in the case the liquidation of its debts and liabilities. The Arbitration
Committee, therefore, passed upon matters not submitted to
11
it.Moreover, said cause of action had already been decided in a there is no showing that the case at bar constitutes an
separate case. It is thus quite patent that the arbitration exception. Nevertheless, we gave due course to the petition to
committee exceeded the authority granted to it by the parties enable the Court to reiterate and clarify the jurisdictional
Compromise and Arbitration Agreement by awarding moral boundaries between Labor Arbiters and Voluntary Arbitrator or
damages to Jesus S. Cabarrus, Sr. Panel of Voluntary Arbitrators over money claims, and to render
Atty. Sison, in his separate opinion, likewise expressed substantial and speedy justice to subject aged stevedore retiree
befuddlement to the award of moral damages to Jesus S. who first presented his claim for retirement benefit in April 1991,
Cabarrus, Sr.: or seven years ago.

It is clear and it cannot be disputed therefore that based on Labor law practitioners and all lawyers, for that
these stipulated issues, the parties themselves have agreed that matter, should be fully conversant with the requirements for the
the basic ingredient of the causes of action in this case is the institution of certiorari proceedings under Rule 65 of the Revised
wrong committed on the corporation (MMIC) for the alleged Rules of Court. For instance, it is necessary that a Motion for
illegal foreclosure of its assets. By agreeing to this Reconsideration of the Decision of the National Labor Relations
stipulation, PLAINTIFFS themselves (Cabarrus, et al.) admit that Commission must first be resorted to. The ruling in Corazon
the cause of action pertains only to the corporation (MMIC) and Jamer v. National Labor Relations Commission, G.R. No. 112630,
that they are filing this for and in behalf of MMIC. September 5, 1997, comes to the fore and should be well
understood and observed. An ordinary allegation ... and there is
Perforce this has to be so because it is the basic rule in no appeal, nor any plain, speedy, and adequate remedy in the
Corporation Law that the shareholders have no title, legal or ordinary course of law (Rule 65, Sec. 1, Revised Rules of Court)
equitable to the property which is owned by the corporation (13 is not a foolproof substitute for a Motion for Reconsideration,
Am. Jur. 165; Pascual vs. Oresco, 14 Phil. 83). In Ganzon & Sons absence of which can be fatal to a Petition
vs. Register of Deeds, 6 SCRA 373, the rule has been reiterated for Certiorari. Petitioner cannot and should not rely on the
that a stockholder is not the co-owner of corporate liberality of the Court simply because he is a working man.
property. Since the property or assets foreclosed belongs [sic] to
MMIC, the wrong committed, if any, is done against the
corporation. There is therefore no direct injury or direct violation In the Jamer case, this court said:
of the rights of Cabarrus et al. There is no way, legal or
equitable, by which Cabarrus et al. could recover damages in ... This premature action of petitioners constitutes a fatal
their personal capacities even assuming or just because the
infirmity as ruled in a long line of decisions, most recently is the
foreclosure is improper or invalid. The Compromise and
case of Building Care Corporation v. National Labor Relations
Arbitration Agreement itself and the elementary principles of
Corporation Law say so. Therefore, I am constrained to dissent Commission
from the award of moral damages to Cabarrus.[64]
The filing of such motion is intended to afford public respondent
From the foregoing discussions, it is evident that, not only an opportunity to correct any actual or fancied error attributed
did the arbitration committee exceed its powers or so to it by way of a re-examination of the legal and factual aspects
imperfectly execute them, but also, its findings and conclusions of the case. Petitioners inaction or negligence under the
are palpably devoid of any factual basis and in manifest circumstances is tantamount to a deprivation of the right and
disregard of the law. opportunity of the respondent commission to cleanse itself of an
error unwittingly committed or to vindicate itself of an act
We do not find it necessary to remand this case to the RTC unfairly imputed...
for appropriate action. The pleadings and memoranda filed with
this Court, as well as in the Court of Appeals, raised and
extensively discussed the issues on the merits. Such being the Likewise, a motion for reconsideration is an adequate remedy;
case, there is sufficient basis for us to resolve the controversy hence certiorari proceedings, as in this case, will not prosper.
between the parties anchored on the records and the pleadings
before us.[65]
As stated in the Decision of the Labor Arbiter in NLRC-NCR-
WHEREFORE, the Decision of the Court of Appeals dated Case No. 00-03-0201-93, dated January 19, 1994, the facts of
July 17, 1995, as well as the Orders of the Regional Trial Court of this case are undisputed. The Labor Arbiter reported, thus:
Makati, Branch 62, dated November 28, 1994 and January 19,
1995, is hereby REVERSED and SET ASIDE, and the decision of
Complainant, in his position paper (Record, pages 11 to
the Arbitration Committee is hereby VACATED.
14) states that he was hired sometime in July 1980 as a
SO ORDERED stevedore continuously until he was advised in April 1991 to
retire from service considering that he already reached 65 years
old (sic); that accordingly, he did apply for retirement and was
THIRD DIVISION[G.R. No. 121227. August 17, 1998]
paid P3,156.39 for retirement pay... (Rollo, pp. 15, 26-27, 58-
59).
VICENTE SAN JOSE, petitioner, vs. NATIONAL LABOR
RELATIONS COMMISSION and OCEAN TERMINAL
Decision of the Labor Arbiter in NLRC-NCR-Case No. 00-03-
SERVICES, INC., respondents.
02101-93, January 9, 1994 (Rollo, pp. 15017, at pp. 16-17).

PURISIMA, J.:
The Labor Arbiter decided the case solely on the merits of
the complaint. Nowhere in the Decision is made mention of or
Before the Court is a Petition for Certiorari seeking to annul reference to the issue of jurisdiction of the Labor Arbiter (Rollo,
a Decision of the National Labor Relations Commission dated pp. 15-17). But the issue of jurisdiction is the bedrock of the
April 20, 1995 in NLRC-NCR-CA-No. 00671-94 which reversed, on Petition because, as earlier intimated, the Decision of the
jurisdictional ground, a Decision of the Labor Arbiter dated National Labor Relations Commission, hereinbelow quoted,
January 19, 1994 in NLRC-NCR Case No. 00-03-02101-93 a case reversed the Labor Arbiters Decision on the issue of
for a money claim - underpayment of retirement jurisdiction. Reads subject Decision of the Labor Arbiter:
benefit. Records do not show that petitioner presented a Motion
for Reconsideration of subject Decision of the National Labor
Respondents, in their Reply to complainants position paper,
Relations Commission, which motion is, generally required
allege (Record, pages 18 to 21) that complainants latest basic
before the filing of Petition for Certiorari.
salary was P120.34 per day; that he only worked on rotation
basis and not seven days a week due to numerous stevedores
While the rule prescribing the requisite motion for who can not all be given assignments at the same time; that all
reconsideration is not absolute and recognizes some exceptions, stevedores only for paid every time they were assigned or
12
actually performed stevedoring; that the computation used in xxx The company agrees that in case of casual employees
arriving at the amount of P3,156.30 was the same computation and/or workers who work on rotation basis the criterion for
applied to the other stevedores; that the use of divisor 303 is determining their retirement pay shall be 303 rotation calls or
not applicable because complainant performed stevedoring job work days as equivalent to one (1) year and shall be paid their
only on call, so while he was connected with the company for retirement pay equivalent to one half (1/2) month for every year
the past 11 years, he did not actually render 11 years of service; of service.
that the burden of proving that complainants latest salary
was P200.00 rests upon him; that he already voluntarily signed xxx
a waiver of quitclaim; that if indeed respondent took advantage
of his illiteracy into signing his quitclaim, he would have
immediately filed this complaint but nay, for it took him Since the instant case arises from interpretation or
two (2) years to do so. implementation of a collective bargaining agreement, the Labor
Arbiter should have dismissed it for lack of jurisdiction in
accordance with Article 217 (c) of the Labor Code, which
The issue therefore is whether or not complainant is entitled to reads: (Underscoring supplied)
the claimed differential of separation pay.

Art. 217. Jurisdiction of Labor Arbiter and the Commission.


We find for the complainant. He is entitled to differential.

xxx
We cannot sustain a computation of length of service based on
the ECC contribution records. Likewise, the allegation that
complainant rendered service for only five days a month for the (c) Cases arising from the interpretation or implementation of
past 11 years is statistically improbable, aside from the fact that collective bargaining agreement and those arising from the
the best evidence thereof are complainants daily time records interpretation or enforcement of company procedure/policies
which respondent are (sic) duty bound to keep and make shall be disposed of by the Labor Arbiter by referring the same
available anytime in case of this. to the grievance machinery and voluntary arbitrator as may be
provided in said agreements.

The late filing has no bearing. The prescription period is three


years. It is suffice (sic) that the filing falls within the period. Petitioner contends that:

Whether or not complainant worked on rotation basis is a I. THE PUBLIC RESPONDENT NLRC GRAVELY ABUSED ITS
burden which lies upon the employer. The presumption is that DISCRETION IN GIVING DUE COURSE TO THE APPEAL
the normal working period is eight (8)hours a day and DESPITE THE FACT 4 (SIC) THAT IT WAS FILED OUT OF
six (6) days a week, or 26 days a month, unless proven TIME AND THERE IS NO SHOWING THAT A SURETY BOND
otherwise. WAS POSTED.

Also, the burden of proving the amount of salaries paid to II. THE PUBLIC RESPONDENT NLRC GRAVELY ABUSED ITS
employees rests upon the employer not on the employee. It can DISCRETION N SETTING ASIDE THE DECISION OF XXX
be easily proven by payrolls, vouchers, etc. which the employers DATED 19 JANUARY 1994 AND DISMISSING THE CASE ON
are likewise duty bound to keep and present. There being non, THE GROUND OF LACK OF JURISDICTION WHEN THE
we have to sustain complainants assertion that his latest salary ISSUE DOES NOT INVOLVE ANY PROVISION OF THE
rate was P200 a day or P5,200 a month. Therefore, his COLLECTIVE BARGAINING AGREEMENT. (Rollo, pp. 7-8)
retrenchment pay differential is P25,443.70 broken down as
follows: The Manifestation and Motion (In Lieu of Comment) sent in
on December 6, 1995 by the Office of the Solicitor General
P200 x 26 days = P5,200 x 11 years support the second issue, re: jurisdiction raised by the Petitioner
(Rollo, pp. 26-33, at pp. 38-32).

2
Labor Arbiter Decision

= (P2,600 x 11 years) - P3,156.30


Labor Arbiters should exert all efforts to cite statutory
provisions and/or judicial decision to buttress their
= P28,600 - P3,156.30 dispositions. An Arbiter cannot rely on simplistic statements,
generalizations, and assumptions. These are not substitutes for
= P25,443.70 reasoned judgment. Had the Labor Arbiter exerted more
research efforts, support for the Decision could have been found
in pertinent provisions of the Labor Code, its Implementing
The Decision of the National Labor Relations Commission in
Rules, and germane decisions of the Supreme Court. As this
NLRC-NCR-CA No. 06701-94, April 20, 1995 (Rollo, pp. 18-21).
Court said in Juan Saballa, et al. v. NLRC, G.R. No. 102472-84,
August 22, 1996:
The National Labor Relations Commission reversed on
jurisdictional ground the aforesaid Decision of the Labor Arbiter;
xxx This Court has previously held that judges and arbiters
ruling, as follows:
should draw up their decisions and resolutions with due care,
and make certain that they truly and accurately reflect their
... His claim for separation pay differential is based on the conclusions and their final dispositions. A decision should
Collective Bargaining Agreement (CBA) between his union and faithfully comply with Section 14, Article VIII of the Constitution
the respondent company, the pertinent portion of which reads: which provides that no decision shall be rendered by any court
without expressing therein clearly and distinctly the facts of the
xxx ANY UNION member shall be compulsory retired (sic) by the case and the law on which it is based. If such decision had to be
company upon reaching the age of sixty (60) years, unless completely overturned or set aside, upon the modified decision,
otherwise extended by the company for justifiable reason. He such resolution or decision should likewise state the factual and
shall be paid his retirement pay equivalent to one- legal foundation relied upon. The reason for this is
half (1/2) month salary for every year of service, a fraction of at obvious: aside from being required by the Constitution, the court
least six months being considered as one (1) whole year. should be able to justify such a sudden change of course; it
must be able to convincingly explain the taking back of its
13
solemn conclusions and pronouncements in the earlier The jurisdiction of Labor Arbiters and Voluntary Arbitrator or
decision. The same thing goes for the findings of fact made by Panel of Voluntary Arbitrators is clearly defined and specifically
the NLRC, as it is a settled rule that such findings are entitled to delineated in the Labor Code.The pertinent provisions of the
great respect and even finality when supported by substantial Labor Code, read:
evidence; otherwise, they shall be struck down for being
whimsical and capricious and arrived at with grave abuse of A. Jurisdiction of Labor Arbiters
discretion. It is a requirement of due process and fair play that
the parties to a litigation be informed of how it was decided,
with an explanation of the factual and legal reasons that led to Art. 217. Jurisdiction of Labor Arbiter and the Commission. -- (a)
the conclusions of the court.A decision that does not clearly and Except as otherwise provided under this Code the Labor Arbiter
distinctly state the facts and the law on which it is based leaves shall have original and exclusive jurisdiction to hear and decide,
the parties in the dark as to how it was reached and is especially within thirty (30) calendar days after the submission of the case
prejudicial to the losing party, who is unable to pinpoint the by the parties for decision without extension, even in the
possible errors of the court for review by a higher tribunal. xxx absence of stenographic notes, the following cases involving all
workers, whether agricultural or non-agricultural:

This is not an admonition but rather, advice and a critique


to stress that both have obligations to the Courts and students 1. Unfair labor practice cases;
of the law. Decisions of the Labor Arbiters, the National Labor
Relations Commission, and the Supreme Court serve not only to 2. Termination disputes;
adjudicate disputes, but also as an educational tool to
practitioners, executives, labor leaders and law students. They
3. If accompanied with a claim for reinstatement, those cases
all have a keen interest in methods of analysis and the
that workers may file involving wages, rates of pay, hours of
reasoning processes employed in labor dispute adjudication and
work and other terms and conditions of employment;
resolution. In fact, decisions rise or fall on the basis of the
analysis and reasoning processes of decision makers or
adjudicators. 4. claims for actual, moral, exemplary and other forms of
damages arising from the employer-employee relations;
On the issues raised by the Petitioner, we rule:
5. Cases arising from any violation of Article 264 of this Code,
I. Timeliness of Appeal And Filing of Appeal Bond including questions involving the legality of strikes and lockouts;
and,

The Court rules that the appeal of the respondent


6. Except claims for Employees Compensation, Social Security,
corporation was interposed within the reglementary period, in
Medicare and maternity benefits, all other claims, arising from
accordance with the Rules of the National Labor Relations
employer-employee relations, including those of persons in
Commission, and an appeal bond was duly posted. We adopt the
domestic or household service, involving an amount exceeding
following Comment dated August 14, 1996, submitted by the
five thousand pesos (P5,000) regardless of whether
National Labor Relations Commission, to wit:
accompanied with a claim for reinstatement.

xxx While it is true that private respondent company received a


xxx
copy of the decision dated January 19, 1994 of the Labor Arbiter
xxx and filed its appeal on February 14, 1994, it is undisputed
that the tenth day within which to file an appeal fell on a (c) Cases arising from the interpretation or implementation of
Saturday, the last day to perfect an appeal shall be the next collective bargaining agreement and those arising from the
working day. interpretation or enforcement of company procedure/policies
shall be disposed of by the Labor Arbiter by referring the same
to the grievance machinery and voluntary arbitrator so maybe
Thus, the amendments to the New Rules of Procedure of the
provided in said agreement.
NLRC, Resolution No. 11-01-91 which took effect on January 14,
1992, provides in part:
B. Jurisdiction of Voluntary Arbitrator or Panel of Voluntary
Arbitrators
xxx

Art. 261. Jurisdiction of Voluntary Arbitrators or panel of


1. Rule VI, Sections 1 and 6 are hereby amended to read as
Voluntary Arbitrators. The Voluntary Arbitrator or panel of
follows:
Voluntary Arbitrators shall have original and exclusive
jurisdiction to hear and decide all unresolved grievances arising
Section 1. Period of Appeal Decisions, awards or orders of the from the interpretation or implementation of the Collective
Labor Arbiter ... shall be final and executory unless appealed to Bargaining Agreement and those arising from the interpretation
the Commission by any or both parties within ten (10) calendar or enforcement of company personnel policies referred to in the
days from receipt of such decisions, awards or orders of the immediately preceding article. Accordingly, violations of a
Labor Arbiter xxx ... If the 10th day ... falls on a Saturday, Sunday Collective Bargaining Agreement, except those which are gross
or a Holiday, the last day to perfect the decision shall be the in character, shall no longer be treated as unfair labor practice
next working day. (Underscoring supplied) and shall be resolved as grievances under the collective
bargaining agreement. For purposes of this Article, gross
Hence, it is crystal clear that the appeal was filed within the violations of Collective Bargaining Agreement shall mean
prescriptive period to perfect an appeal. Likewise, the flagrant and/or malicious refusal to comply with the economic
petitioners contention that private respondent did not post the provisions of such agreement.
required surety bond, deserves scant consideration, for the
simple reason that a surety bond was issued by BF General The Commission, its Regional Offices and the Regional Directors
Insurance Company, Inc., in the amount of P25, 443.70 (Rollo, of the Department of Labor and Employment shall not entertain
pp. 63-64). disputes, grievances or matters under the exclusive and original
jurisdiction of the Voluntary Arbitrator or panel of Voluntary
2. Jurisdictional Issue Arbitrators and shall immediately dispose and refer the same to
the Grievance Machinery or Voluntary Arbitration provided in the
Collective Bargaining Agreement.
14
Art. 262. Jurisdiction over other labor disputes. The Voluntary shall be resolved as grievances under the Collective Bargaining
Arbitrator or panel of Voluntary Arbitrators, upon agreement of Agreement. xxx.
the parties, shall also hear and decide all other labor disputes
including unfair labor practices and bargaining deadlocks. 2. Voluntary Arbitrators or Panel of Voluntary Arbitrators,
however, can exercise jurisdiction over any and all disputes
The aforecited provisions of law cannot be read in isolation between an employer and a union and/or individual worker as
or separately. They must be read as a whole and each Article of provided for in Article 262.
the Code reconciled one with the other. An analysis of the
provisions of Articles 217, 261, and 262 indicates, that: Art. 262. Jurisdiction over other labor disputes. - The voluntary
arbitrator or panel of voluntary arbitrators, upon agreement of
1. The jurisdiction of the Labor Arbiter and Voluntary the parties, shall also hear and decide all other labor disputes
Arbitrator or Panel of Voluntary Arbitrators over the including unfair labor practices and bargaining deadlocks.
cases enumerated in Articles 217, 261 and 262, can
possibly include money claims in one form or another. It must be emphasized that the jurisdiction of the Voluntary
Arbitrator or Panel of Voluntary Arbitrators under Article 262
2. The cases where the Labor Arbiters have original and must be voluntarily conferred upon by both labor and
exclusive jurisdiction are enumerated in Article 217, management. The labor disputes referred to in the same Article
and that of the Voluntary Arbitrator or Panel of 262 can include all those disputes mentioned in Article 217 over
Voluntary Arbitrators in Article 261. which the Labor Arbiter has original and exclusive jurisdiction.

3. The original and exclusive jurisdiction of Labor Arbiters As shown in the above contextual and wholistic analysis of
is qualified by an exception as indicated in the Articles 217, 261, and 262 of the Labor Code, the National Labor
introductory sentence of Article 217 (a), to wit: Relations Commission correctly ruled that the Labor Arbiter had
no jurisdiction to hear and decide petitioners money-
claim underpayment of retirement benefits, as the
Art. 217. Jurisdiction of Labor Arbiters ... (a) Except as otherwise
controversy between the parties involved an issue arising from
provided under this Code the Labor Arbiter shall have original
the interpretation or implementation of a provision of the
and exclusive jurisdiction to hear and decide ... the following
collective bargaining agreement. The Voluntary Arbitrator or
cases involving all workers...
Panel of Voluntary Arbitrators has original and exclusive
jurisdiction over the controversy under Article 261 of the Labor
The phrase Except as otherwise provided under this Code Code, and not the Labor Arbiter.
refers to the following exceptions:

3. Merits of the Case


A. Art. 217. Jurisdiction of Labor Arbiters ...

The Court will not remand the case to the Voluntary


xxx Arbitrator or Panel of Voluntary Arbitrators for hearing. This case
has dragged on far too long - eight (8) years. Any further delay
(c) Cases arising from the interpretation or implementation of would be a denial of speedy justice to an aged retired
collective bargaining agreement and those arising from the stevedore. There is further the possibility that any Decision by
interpretation or enforcement of company procedure/policies the Voluntary Arbitrator or Panel of Voluntary Arbitrators will be
shall be disposed of by the Labor Arbiter by referring the same appealed to the Court of Appeals, and finally to this
to the grievance machinery and voluntary arbitrator as may be Court. Hence, the Court will rule on the merits of the case.
provided in said agreement.
We adopt as our own the retirement benefit computation
B. Art. 262. Jurisdiction over other labor disputes. - The formula of the Labor Arbiter, and the reasons therefor as stated
Voluntary Arbitrator or panel of Voluntary Arbitrators, upon in the decision abovequoted.
agreement of the parties, shall also hear and decide all other
labor disputes including unfair labor practices and bargaining The simple statement of the Labor Arbiter that we cannot
deadlocks. sustain a computation of length of service based on ECC
contribution records, was not amply explained by the Labor
Parenthetically, the original and exclusive jurisdiction of the Arbiter; however, there is legal and factual basis for the same. It
Labor Arbiter under Article 217 (c), for money claims is limited is unrealistic to expect a lowly stevedore to know what reports
only to those arising from statutes or contracts other than a his employer submits to the Employees Compensation
Collective Bargaining Agreement. The Voluntary Arbitrator or Commission under Book IV, Health, Safety and Welfare Benefits,
Panel of Voluntary Arbitrators will have original and exclusive Title II, Employees Compensation and State Insurance Fund, of
jurisdiction over money claims arising from the interpretation or the Labor Code, simply because the insurance fund is solely
implementation of the Collective Bargaining Agreement and, funded by the employer and the rate of employers contribution
those arising from the interpretation or enforcement of company varies according to time and actuarial
personnel policies, under Article 261. computations. (See Articles 183-184; Labor Code). The worker
has no ready access to this employers record. In fact, it is
farthest from his mind to inquire into the amount of employers
4. The jurisdiction of Voluntary Arbitrator or Panel of contribution, much less whether the employer remits the
Voluntary Arbitrators is provided for in Arts. 261 and contributions. The worker is at all times entitled to benefits upon
262 of the Labor Code as indicated above. the occurrence of the defined contingency even when the
employer fails to remit the contributions. (See Article 196 (b),
1. A close reading of Article 261 indicates that the original Labor Code).
and exclusive jurisdiction of Voluntary Arbitrator or Panel of
Voluntary Arbitrators is limited only to: All employers are likewise required to keep an employment
record of all their employees, namely: payrolls; and time
... unresolved grievances arising from the interpretation or records. (See Book III, Rule X, specifically Secs. 6,7,8, 1 and
implementation of the Collective Bargaining Agreement and 12, Omnibus Rules - Implementing the Labor Code).
those arising from the interpretation or enforcement of company
personnel policies... Accordingly, violations of a collective The respondent-employer was afforded the opportunity to
bargaining agreement, except those which are gross in show proof of the petitioners length of service and pay
character, shall no longer be treated as unfair labor practice and
15
records. In both instances, the respondent-employer failed. By as of the close of business hours on November 2, 1990. Private
its own folly, it must therefore suffer the consequences of such respondents were in fact purged on the date aforesaid.
failure. (South Motorists Enterprises v. Tosoc, 181 SCRA 386,
[1990]) From the very beginning - by the provision of the Thus, on February 25, 1991, private respondents filed a
retirement provision of the Collective Bargaining Agreement, complaint against petitioners for Illegal Dismissal and Unfair
i.e., the length of service as requirement for retirement, and Labor Practices, with a prayer for damages and attorneys fees,
salary as a basis for benefit computation - the employer was with the Arbitration Branch of respondent National Labor
forewarned of the need for accurate record keeping. This is Relations Commission. The complaint[1] was assigned to Labor
precisely the basis of retirement, and the computation of Arbiter Eduardo F. Carpio for hearing and proper disposition.
benefits based on years of service and monthly wage.

On April 15, 1991, petitioners filed a motion to dismiss the


To recapitulate; the Court hereby rules - complaint, alleging that respondent Labor Arbiter had no
jurisdiction over the subject matter of the complaint, and that
1. That the National Labor Relations Commission correctly respondent Labor Arbiter must defer consideration of the unfair
ruled that the Labor Arbiter had no jurisdiction over the labor practice complaint until after the parties have gone
case, because the case involved an issue arising from through the grievance procedure provided for in the existing
the interpretation or implementation of a Collective Collective Bargaining Agreement (CBA). Respondent Labor
Bargaining Agreement; Arbiter denied this motion in a Resolution, dated September 23,
1991.
2. That the appeal to the National Labor Relations
Commission was filed within the reglementary period The petitioners appealed the denial to respondent
and that the appeal bond was filed; and Commission on November 8, 1991. Unimpressed by the grounds
therefor, respondent Commission dismissed the appeal in its
assailed Resolution, dated August 11, 1992. Petitioners promptly
3. That we adopt the computation formula for the
filed a Motion for Reconsideration which, however, was denied
retirement benefits by the Labor Arbiter, and the basis
through the likewise assailed Resolution, dated October 29,
thereof. The respondent must therefore pay the
1992.
petitioner the additional amount of Twenty-Five
Thousand Four Hundred Forty-Three and Seventy
Centavos P25,443.70) Pesos. Hence, the instant petition for certiorari alleging the
following grounds was filed by the petitioners:
In view of the long delay in the disposition of the case, this
decision is immediately executory. I.

SO ORDERED. RESPONDENT LABOR ARBITER CANNOT EXERCISE JURISDICTION


OVER THE ALLEGED ILLEGAL TERMINATION AND ALLEGED ULP
CASES WITHOUT PRIOR RESORT TO GRIEVANCE AND
FIRST DIVISION[G.R. No. 108001. March 15, 1996]
ARBITRATION PROVIDED UNDER THE CBA.

SAN MIGUEL CORPORATION, ANGEL G. ROA and MELINDA


II
MACARAIG, petitioners, vs. NATIONAL LABOR
RELATIONS COMMISSION (Second Division),
LABOR ARBITER EDUARDO J. CARPIO, ILAW AT THE STRONG STATE POLICY ON THE PROMOTION OF VOLUNTARY
BUKLOD NG MANGGAWA (IBM), ET MODES OF SETTLEMENT OF LABOR DISPUTES CRAFTED IN THE
AL., respondents. CONSTITUTION AND THE LABOR CODE DICTATES THE
SUBMISSION OF THE CBA DISPUTE TO GRIEVANCE AND
ARBITRATION.[2]
HERMOSISIMA, JR., J.:

Petitioners posit the basic principle that a collective


In the herein petition for certiorari under
bargaining agreement is a contract between management and
Rule 65, petitioners question the jurisdiction of the Labor Arbiter
labor that must bind and be enforced in the first instance as
to hear a complaint for unfair labor practice, illegal dismissal,
between the parties thereto. In this case, the CBA between the
and damages, notwithstanding the provision for grievance and
petitioners and respondent union provides, under Section 1,
arbitration in the Collective Bargaining Agreement.
Article V entitled ARBITRATION, that wages, hours of work,
conditions of employment and/or employer-employee relations
Let us unfurl the facts. shall be settled by arbitration. Petitioners thesis is that the
dispute as to the termination of the union members and the
Private respondents, employed by petitioner San Miguel unfair labor practice should first be settled by arbitration, and
Corporation (SMC) as mechanics, machinists, and carpenters, not directly by the labor arbiter, following the above provision of
were and still are, bona fide officers and members of private the CBA, which ought to be treated as the law between the
respondent Ilaw at Buklod ng Manggagawa. parties thereto.

On or about July 31, 1990, private respondents were The argument is unmeritorious. The law in point is Article
served a Memorandum from petitioner Angel G. Roa, Vice- 217 (a) of the Labor Code. It is elementary that this law is
President and Manager of SMCs Business Logistics Division deemed written into the CBA. In fact, the law speaks in plain and
(BLD), to the effect that they had to be seperated from the unambiguous terms that termination disputes, together with
service effective October 31, 1990 on the ground of redundancy unfair labor practices, are matters falling under the original and
or excesss personnel. Respondent union, in behalf of private exclusive jurisdiction of the Labor Arbiter, to wit:
respondents, opposed the intended dismissal and asked for a
dialogue with management. Article 217. Jurisdiction of Labor Arbiters and the Commission -
(a) Except as otherwise provided under this Code, the Labor
Accordingly, a series of dialogues were held between Arbiters shall have original and exclusive jurisdiction to hear and
petitioners and private respondents. Even before the conclusion decide x x x the following cases involving all workers, whether
of said dialogues, the aforesaid petitioner Angel Roa issued agricultural or non-agricultural:
another Memorandum on October 1, 1990 informing private
respondents that they would be dismissed from work effective
16
(1) Unfair labor practice cases: ART. 217(c). Cases arising from the interpretation or
implementation of collective bargaining agreements and those
arising from the interpretation or enforcement of company
(2) Termination disputes;
personnel policies shall be disposed of by the Labor Arbiter by
referring the same to the grievance machinery and voluntary
x x x x x x x x x. arbitration as may be provided in said agreements. (As
amended by R.A. 6715).
The sole exception to the above rule can be found under Article
262 of the same Code, which provides: Petitioners theorize that since respondents questioned the
discharges, the main question for resolution is whether SMC had
Aricle 262. Jurisdiction over other labor disputes - The voluntary the management right or prerogative to effect the discharges on
arbitrator or panel of voluntary arbitrators, upon agreement of the ground of redundancy, and this necessarily calls for the
the parties, shall also hear and decide all other labor disputes interpretation or implementation of Article III (Job Security) in
including unfair labor practices and bargaining deadlocks. (As relation to Article IV (Grievance Machinery)of the CBA.[4]
added by R.A. 6715)
Petitioners theory does not hold water. There is no
We subjected the records of this case, particularly the CBA, to connection whatsoever between SMCs management prerogative
meticulous scrutiny and we find no agreement between SMC to effect the discharges and the interpretation or
and the respondent union that would state in unequivocal implementation of Articles III and IV of the CBA. The only
language that petitioners and the respondent union conform to relevant provision under Article III that may need interpretation
the submission of termination disputes and unfair labor or implementation is Section 2 which was cited herein. However,
practices to voluntary arbitration. Section 1, Article V of the as patiently pointed out by this court, said provision does not
CBA, cited by the herein petitioners, certainly does not provide come into play considering that the union never exercised its
so. Hence, consistent with the general rule under Article 217 (a) right to seek reconsideration of the discharges effected by the
of the Labor Code, the Labor Arbiter properly has jurisdiction company. It would have been different had the union sought
over the complaint filed by the respondent union on February reconsideration. Such recourse under Section 2 would have
25, 1991 for illegal dismissal and unfair labor practice. been treated as a grievance under Article IV (Grievance
Machinery) of the CBA, thus calling for the possible
interpretation or implementation of the entire provision on
Petitioners point however to Section 2, Article III of the Grievance Machinery as agreed upon by the parties. This was
CBA, under the heading Job Security, to show that the dispute is not the case however. The union brought the termination
a proper subject of the grievance procedure, viz: dispute directly to the Labor Arbiter rendering Articles III and IV
of the CBA inapplicable for the resolution of this case.
x x x The UNION, however, shall have the right to seek
reconsideration of any discharge, lay-off or disciplinary action, The discharges, petitioners also contend, call for the
and such requests for reconsideration shall be considered a interpretation or enforcement of company personnel policies,
dispute or grievance to be dealt with in accordance with the particulary SMCs personnel policies on lay-offs arising from
procedure outlined in Article IV hereof [on Grievance Machinery] redundacy, and so, they may be considered grievable and
x x x[3] (Emphasis ours) arbitrable by virtue of Article 2 17(c). Not necessarily
so. Company personnel policies are guiding principles stated in
Petitioners allege that respondent union requested management broad, long-range terms that express the philosophy or beliefs
for a reconsideration and review of the companys decision to of an organizations top authority regarding personnel
terminate the employment of the union members. By this act, matters. They deal with matters affecting efficiency and well-
petitioners argue, respondent union recognized that the being of employees and include, among others, the procedure in
questioned dismissal is a grievable dispute by virtue of Section the administration of wages, benefits, promotions, transfer and
2, Article III of the CBA. This allegation was strongly denied by other personnel movements which are usually not spelled out in
the respondent union. In a Memorandum filed for the public the collective agreement. The usual source of grievances,
respondent NLRC, the Solicitor General supported the position of however, is the rules and regulations governing disciplinary
the respondent union that it did not seek reconsideration from actions.[5] Judging therefrom, the questioned discharges due to
the SMC management in regard to the dismissal of the alleged redundancy can hardly be cosidered company personnel
employees. policies and therefore need not directly be subject to the
grievance machinery nor to voluntary arbitration.
Petitioners fail miserably to prove that, indeed, the
respondent union requested for a reconsideration or review of Third. Petitioners would like to persuade us that
the management decision to dismiss the private respondents. A respondents ULP claims are merely conclusory and cannot serve
punctilious examination of the records indubitably reveals that to vest jurisdiction to the Labor Arbiters. Petitioners argue with
at no time did the respondent union exercise its right to seek passion: How was the discharges (sic) right to self-organization
reconsideration of the companys move to terminate the restrained by their termination? Respondent did not show..
employment of the union members, which request for There is no allegation of the existence of anti-union animus or of
reconsideration would have triggered the application of Section the ultimate facts showing how the discharges affected the
2, Article III of the CBA, thus resulting in the treatment of the rights to self-organization of individual respondents. [6] In short,
dispute as a grievance to be dealt with in accordance with the petitioners maintain that respondents complaint does not allege
Grievance Machinery laid down in Article IV of, the CBA. Stated a genuine case for ULP.
differently, the filing of a request. for reconsideration by the
respondent union, which is the condition sine qua non to The Court is not convinced.
categorize the termination dispute and the ULP complaint as a
grievable dispute, was decidedly absent in the case at
bench. Hence, the respondent union acted well within their The complaint alleges that:
rights in filing their complaint for illegal dismissal and ULP
directly with the Labor Arbiter under Article 217 (a) of the Labor 5. Individual complainants are bona fide officers and members
Code. of complainant Ilaw at Buklod ng Manggagawa (IBM). They are
active and militant in the affairs and activities of the union.
Second. Petitioners insist that involved in the controversy
is the interpretation and implementation of the CBA which is xxx xxx xxx
grievable and arbitrable by law under Article 217(c) of the Labor
Code, viz:
17
23. The dismissal or lock-out from work of the individual redundancy. The important fact is that in all of these cases,
complainants clearly constitutes an act of unfair labor practices including the one at bar, all of the dismissed employees were
in the light of the fact that the work being performed by the officers and members of their respective unions, and their
individual complainants are being contracted out by the employers failed to give a satisfactory explanation as to why
respondent company, and, therefore, deprives individual this group of employees was singled out.
complainants of their right to work and it constitutes a criminal
violation of existing laws. It may be the case that employees other than union
members may have been terminated also by petitioner SMC on
xxx xxx xxx account of its redundancy program. If that is true, the
discharges may really be for a bona fide authorized cause under
Article 283[11] of the Labor Code. On the other hand, it is also
25. The acts of the respondent company in economically
possible that such may only be a clever scheme of the petitioner
coercing employees to accept payment of seperation and/or
company to camouflage its real intention of discriminating
retirement benefits, pending final resolution of the labor
against union members particularly the private respondents. In
disputes between the parties constitute acts of unfair labor
any case, these matters will be best ventilated in a hearing
practice in the light of the fact that there is undue interference,
before the Labor Arbiter.
restraint, and coercion of employees in the exercise of their right
to self-organization and collective bargaining.[7]
It is for the above reason that we cannot hold the
petitioners guilty of the ULP charge. This will be the task of the
Short of pre-empting the proceedings before the Labor
Labor Arbiter. We however find that based on the cicumstances
Arbiter, the above complaint, makes Out a genuine case for ULP.
surrounding this case and settled jurisprudence on the subject,
the complaint filed by the private respondents on
In Manila Pencil Co. v. CIR,[8] This Court had occasion to February 25, 1991 alleges facts sufficient to costitute a bona
observe that even where business conditions justified a lay-off of fide case of ULP, and therefore properly cognizable by the Labor
employees, unfair labor practices were committed in the form of Arbiter under Article 2 17(a) of the Labor Code. This is
discriminatory dismissal where only unionists were permanently consistent with the rule that jurisdictioin over the subject matter
dismissed. This was despite the valid excuse given by the Manila is determined by the allegations of the complaint. [12]
Pencil Company that the dismissal of the employees was due to
the reduction of the companys dollar allocations for importation
Finally, petitioners try to impress on this Court the strong
and that both union members and non-union members were
State policy on the promotion of voluntary modes of settlement
laid-off. The Court, thru Justice Makalintal, rebuffed the
of labor disputes crafted in the Constitution and the Labor Code
petitioner Company and said:
which dictate the submission of the CBA dispute to grievance
and arbitration.[13]
x x x The explanation, however, does not by any means account
for the permanent dismissal of five of the unionists, where it
In this regard, the response of the Solicitor General is apt:
does not appear that non-unionists were similarly dismissed.

Petitioners deserve commendation for divulging and bringing to


xxx xxx xxx
public respondents attention the noble legislative intent behind
the law mandating the inclusion of grievance and voluntary
And the discrimination shown by the Company strongly is arbitration provisions in the CBA. However, in the absence of an
confirmed by the fact that during the period from October 1958 express legal conferment thereof, jurisdiction cannot be
to August 17, 1959 it hired from fifteen to twenty new appropriated by an official or tribunal (sic) no matter how well-
employees and ten apprentices. It says these employees were intentioned it is, even in the pursuit of the clearest substantial
for its new lead factory, but is (sic) not shown that the five who right (Concurring Opinion of Justice Barredo,
had been permanently dismissed were not suitable for work in Estanislao v. Honrado, 114 SCRA 748, 29 June 1982).[14]
that new factory.

In the same manner, petitioners cannot arrogate into the powers


A similar ruling was made by this Court in Peoples Bank of voluntary arbitrators the original and exclusive jurisdiction of
and Trust Co. v. Peoples Bank and Trust Co. Employees Labor Arbiters over unfair labor practices, termination disputes,
Union[9] involving the lay-off by a bank of sixty- and claims for damages, in the absence of an express
five (65) employees who were active union members allegedly agreement between the parties in order for Article 262 [15] of the
by reason of retrechment. The Court likewise found the Labor Law to apply in the case at bar.[16]
employer in that case to have committed ULP in effecting the
discharges.
WHEREFORE, the instant petition is DISMISSED for lack of
merit and the resolutions of the National Labor Relations
This Court was more emphatic however in Bataan Shipyard Commission dated August 11, 1992 and October 29, 1992 are
and Engineering Co., Inc. v. NLRC, et al.:[10] hereby AFFIRMED.

Under the circumstances obtaining in this case, We are inclined SO ORDERED


to believe that the company had indeed been discriminatory in
selecting the employees who were to be retrenched. All of the
THIRD DIVISION[G. R. No. 138094. May 29, 2003]
retrenched employees are officers and members of the
NAFLU.The record of the case is bereft of any satisfactory
explanation from the Company regarding this situation. As such, MARILOU GUANZON APALISOK, petitioner, vs. RADIO
the action taken by the firm becomes highly suspect. It leads PHILIPPINES NETWORK RADIO STATION DYKC and
Us to conclude that the firm had been discriminating STATION MANAGER GEORGE SUAZO, respondents.
against membership in the NAFLU, an act which amounts
to interference in the employees exercise of their right DECISION
of self-organization. Under Art. 249 (now Art. 248) of the
Labor Code of the Philippines, such interference is considered an
act of unfair labor practice on the part of the Company x x x. CARPIO-MORALES, J.:
(Emphasis ours)
Before this Court is a petition for review on certiorari under
It matters not that the cause of termination in the above Rule 45 assailing the Court of Appeals Decision [1] of October 30,
cited cases was retrenchment while that in the instant case was 1998 and Resolution[2] of February 26, 1999.
18
On May 15, 1995, Marilou Gaunzon Apalisok (petitioner), 2. BACKWAGES (P14,600 X 6
then Production Chief of Radio Philippines Network (RPN) Station
DYKC, received a Memorandum[3] from Branches Operations months) ................................ P 88,817.00
Manager Gilito Datoc asking her to submit a written explanation
why no disciplinary action should be taken against her for
performance of acts hostile to RPN, and arrogant, disrespectful 3. MORAL AND EXEMPLARY
and defiant behavior towards her superior Station Manager
George Suazo. DAMAGES .................................. P100,000.00

Complying, petitioner submitted on May 16, 1995 her 4. SERVICE INCENTIVE LEAVES
Answer[4] to the memorandum.

(P14,600 divide by 30 days =


On May 31, 1995, petitioner received another
memorandum from the Administrative Manager of RPN,
P486.67 x 5 days = P2,433.35 x
informing her of the termination of her services effective the
close of regular office hours of June 15, 1995.
19 years ........................................ P 46,233.65
By letter of June 5, 1995, petitioner informed RPN, by letter
of June 5, 1995, of her decision to waive her right to resolve her 5. ATTORNEYS FEES (10%) .... P 37,375.16
case through the grievance machinery of RPN as provided for in
the Collective Bargaining Agreement (CBA) and to lodge her All other claims are hereby denied.
case before the proper government forum. She thereafter filed a
complaint against RPN DYKC and Suazo (respondents) for illegal
dismissal before the National labor Relations Commission, SO ORDERED. (Emphasis supplied)
Regional Arbitration Branch of Region 7 which referred it to the
National Conciliation and Mediation Board. Respondents motion for reconsideration[9] of the Award
having been denied by the voluntary arbitrator by Order of
By Submission Agreement[5] dated June 20, 1995 signed by November 21, 1995, they filed a petition for certiorari before
their respective counsels, petitioner and respondents agreed to this Court, docketed as G. R. No. 122841.
submit for voluntary arbitration the issue of whether petitioners
dismissal was valid and to abide by the decision of the voluntary By Resolution[10] of December 13, 1995, the Third Division
arbitrator. of this Court referred G. R. No. 122841 to the Court of Appeals,
following the case of Luzon Development Bank v. Association of
In her position paper[6] submitted before the voluntary Luzon Development Bank Employees, et al.[11]holding that
arbitrator, petitioner prayed that her dismissal be declared decisions or awards of a voluntary arbitrator or panel of
invalid and that she be awarded separation pay, backwages and arbitrators in labor cases are reviewable by the Court of
other benefits granted to her by the Labor Code since Appeals.
reinstatement is no longer feasible due to strained relations. She
also prayed that she be awarded P2,000,000.00 for moral The Court of Appeals, finding that the option of petitioner
damages and P500,000.00 for exemplary damages. not to subject the dispute to the grievance machinery provided
for in the CBA was tantamount to relinquishing her right to avail
Respondents on the other hand prayed for the dismissal of of the aid of a voluntary arbitrator in settling the dispute which
the complaint, arguing that the voluntary arbitrator had no likewise converted an unresolved grievance into a resolved one,
jurisdiction over the case and, assuming that he had, the held that the voluntary arbitrator did not have jurisdiction over
complaint is dismissible for lack of merit as petitioner was not petitioners complaint and accordingly nullified and set aside, by
illegally dismissed.[7] Decision of October 30, 1998, the voluntary arbitration award.

On October 18, 1995, the voluntary arbitrator rendered an Petitioners Motion for Reconsideration [12] of the Court of
Award[8] in favor of petitioner, the dispositive portion of which Appeals Decision having been denied by Resolution [13] of
reads: February 26, 1999, the present petition was filed which raises
the following issues:

WHEREFORE, above premises considered, this Voluntary


Arbitrator rules that the dismissal of complainant was 1. Whether or not the Voluntary Arbitrator had jurisdiction over
invalid. petitioners complaint, and

However, considering the impracticality of reinstatement 2. Whether or not respondents are guilty of estoppel.[14]
because of proven strained relation between the parties,
respondents, instead shall pay complainant the amount of FOUR Petitioner, citing Article 262 of the Labor Code of the
HUNDRED ELEVEN THOUSAND ONE HUNDRED TWENTY SIX Philippines, as amended which reads:
PESOS & SEVENTY-SIX CENTAVOS (P411,126.76) itemized as
follows:
ARTICLE 262. JURISDICTION OVER OTHER LABOR DISPUTES. The
Voluntary Arbitrator or panel of Voluntary
In summary, the total award is hereunder itemized: Arbitrators, upon agreement of the parties, shall hear and
decide all other labor disputes including unfair labor
1. SEPARATION PAY (P14,600.00 practices and bargaining deadlocks. (Emphasis and
underscoring supplied),

divide by 30 days multiplied by


contends that her option not to subject the dispute to the
grievance machinery of RPN did not amount to her relinquishing
15 days per year of service x 19 of her right to avail of voluntary arbitration as a mode of settling
it for she and respondents in fact agreed to have the dispute
years) ......................................... P138,700.95 settled by a voluntary arbitrator when they freely executed the
above-said Submission Agreement. She thus concludes that the
voluntary arbitrator has jurisdiction over the controversy. [15]
19
Petitioner contends in any event that even assuming that according to the length of service rendered by the availing
the voluntary arbitrator had no jurisdiction over the case, it employee.
would not be in keeping with settled jurisprudence to allow a
losing party to question the authority of the voluntary arbitrator Thereafter, the union requested LUDO to include in its
after it had freely submitted itself to its authority.[16] members period of service the time during which they rendered
arrastre services to LUDO through the CLAS so that they could
The petition is impressed with merit. get higher benefits. LUDO failed to act on the request. Thus, the
matter was submitted for voluntary arbitration.
The above-quoted Article 262 of the Labor Code provides
that upon agreement of the parties, the voluntary arbitrator The parties accordingly executed a submission agreement
can hear and decide all other labor disputes. raising the sole issue of the date of regularization of the workers
for resolution by the Voluntary Arbitrator.
Contrary to the finding of the Court of Appeals, voluntary
arbitration as a mode of settling the dispute was not forced In its decision dated April 18, 1997, the Voluntary
upon respondents. Both parties indeed agreed to submit the Arbitrator ruled that: (1) the respondent employees were
issue of validity of the dismissal of petitioner to the jurisdiction engaged in activities necessary and desirable to the business of
of the voluntary arbitrator by the Submission Agreement duly petitioner, and (2) CLAS is a labor-only contractor of petitioner.
[2]
signed by their respective counsels. It disposed of the case thus:

As the voluntary arbitrator had jurisdiction over the parties WHEREFORE, in view of the foregoing, this Voluntary Arbitrator
controversy, discussion of the second issue is no longer finds the claims of the complainants meritorious and so hold
necessary. that:

WHEREFORE, the Court of Appeals Decision of October a. the 214 complainants, as listed in the Annex A, shall be
30, 1998 is hereby SET ASIDE and the voluntary arbitration considered regular employees of the respondents six (6) months
Award of October 18, 1995 is hereby REINSTATED. from the first day of service at CLAS;

SO ORDERED. b. the said complainants, being entitled to the CBA benefits


during the regular employment, are awarded a) sick leave, b)
vacation leave & c) annual wage and salary increases during
SECOND DIVISION[G.R. No. 140960. January 20, 2003]
such period in the amount of FIVE MILLION SEVEN HUNDRED
SEVEN THOUSAND TWO HUNDRED SIXTY ONE PESOS AND SIXTY
LUDO & LUYM CORPORATION, petitioner, vs. FERDINAND ONE CENTAVOS (P5,707,261.61) as computed in Annex A;
SAORNIDO as voluntary arbitrator and
LUDO EMPLOYEES UNION (LEU) representing 214
c. the respondents shall pay attorneys fees of ten (10) percent
of its officers and members, respondents.
of the total award;

DECISION
d. an interest of twelve (12) percent per annum or one (1)
percent per month shall be imposed to the award from the date
QUISUMBING, J.: of promulgation until fully paid if only to speed up the payment
of these long over due CBA benefits deprived of the complaining
This petition for review on certiorari seeks to annul and set workers.
aside the decision[1] of the Court of Appeals promulgated on July
6, 1999 and its Order denying petitioners motion for Accordingly, all separation and/or retirement benefits shall be
reconsideration in CA-G.R. SP No. 44341. construed from the date of regularization aforementioned
subject only to the appropriate government laws and other
The relevant facts as substantially recited by the Court of social legislation.
Appeals in its decision are as follows:
SO ORDERED.[3]
Petitioner LUDO & LUYM CORPORATION (LUDO for brevity)
is a domestic corporation engaged in the manufacture of coconut In due time, LUDO filed a motion for reconsideration, which
oil, corn starch, glucose and related products. It operates a was denied. On appeal, the Court of Appeals affirmed in toto the
manufacturing plant located at Tupas Street, Cebu City and a decision of the Voluntary Arbitrator, thus:
wharf where raw materials and finished products are shipped
out.
WHEREFORE, finding no reversible error committed by
respondent voluntary arbitrator, the instant petition is hereby
In the course of its business operations, LUDO engaged the DISMISSED.
arrastre services of Cresencio Lu Arrastre Services (CLAS) for the
loading and unloading of its finished products at the
SO ORDERED.[4]
wharf. Accordingly, several arrastre workers were deployed by
CLAS to perform the services needed by LUDO.
Hence this petition. Before us, petitioner raises the
following issues:
These arrastre workers were subsequently hired, on
different dates, as regular rank-and-file employees of LUDO
every time the latter needed additional manpower services. Said I
employees thereafter joined respondent union, the LUDO
Employees Union (LEU), which acted as the exclusive bargaining WHETHER OR NOT BENEFITS CONSISTING OF SALARY
agent of the rank-and-file employees. INCREASES, VACATION LEAVE AND SICK LEAVE BENEFITS FOR
THE YEARS 1977 TO 1987 ARE ALREADY BARRED BY
On April 13, 1992, respondent union entered into a PRESCRIPTION WHEN PRIVATE RESPONDENTS FILED THEIR CASE
collective bargaining agreement with LUDO which provides IN JANUARY 1995;
certain benefits to the employees, the amount of which vary
20
II The Commission, its Regional Offices and the Regional Directors
of the Department of Labor and Employment shall not entertain
disputes, grievances or matters under the exclusive and original
WHETHER OR NOT A VOLUNTARY ARBITRATOR CAN AWARD
jurisdiction of the Voluntary Arbitrator or panel of Voluntary
BENEFITS NOT CLAIMED IN THE SUBMISSION AGREEMENT. [5]
Arbitrators and shall immediately dispose and refer the same to
the Grievance Machinery or Voluntary Arbitration provided in the
Petitioner contends that the appellate court gravely erred Collective Bargaining Agreement.
when it upheld the award of benefits which were beyond the
terms of submission agreement. Petitioner asserts that the
Art. 262. Jurisdiction over other labor disputes. The
arbitrator must confine its adjudication to those issues
Voluntary Arbitrator or panel of Voluntary Arbitrators, upon
submitted by the parties for arbitration, which in this case is the
agreement of the parties, shall also hear and decide all other
sole issue of the date of regularization of the workers.Hence, the
labor disputes including unfair labor practices and bargaining
award of benefits by the arbitrator was done in excess of
deadlocks.
jurisdiction.[6]

In construing the above provisions, we held in San Jose vs.


Respondents, for their part, aver that the three-year
NLRC, [9] that the jurisdiction of the Labor Arbiter and the
prescriptive period is reckoned only from the time the obligor
Voluntary Arbitrator or Panel of Voluntary Arbitrators over the
declares his refusal to comply with his obligation in clear and
cases enumerated in the Labor Code, Articles 217, 261 and
unequivocal terms. In this case, respondents maintain that
262, can possibly include money claims in one form or another.
LUDO merely promised to review the company records in [10]
Comparatively, in Reformist Union of R.B. Liner, Inc. vs.
response to respondents demand for adjustment in the date of
NLRC,[11] compulsory arbitration has been defined both as the
their regularization without making a categorical statement of
process of settlement of labor disputes by a government
refusal.[7] On the matter of the benefits, respondents argue that
agency which has the authority to investigate and to make an
the arbitrator is empowered to award the assailed benefits
award which is binding on all the parties, and as a mode of
because notwithstanding the sole issue of the date of
arbitration where the parties are compelled to accept the
regularization, standard companion issues on reliefs and
resolution of their dispute through arbitration by a third party
remedies are deemed incorporated. Otherwise, the whole
(emphasis supplied).[12] While a voluntary arbitrator is not part
arbitration process would be rendered purely academic and the
of the governmental unit or labor departments personnel, said
law creating it inutile.[8]
arbitrator renders arbitration services provided for under labor
laws.
The jurisdiction of Voluntary Arbitrator or Panel of Voluntary
Arbitrators and Labor Arbiters is clearly defined and specifically
Generally, the arbitrator is expected to decide only those
delineated in the Labor Code. The pertinent provisions of the
questions expressly delineated by the submission
Labor Code, read:
agreement. Nevertheless, the arbitrator can assume that he has
the necessary power to make a final settlement since arbitration
Art. 217. Jurisdiction of Labor Arbiters and the is the final resort for the adjudication of disputes. [13] The
Commission. --- (a) Except as otherwise provided under this succinct reasoning enunciated by the CA in support of its
Code the Labor Arbiters shall have original and exclusive holding, that the Voluntary Arbitrator in a labor controversy has
jurisdiction to hear and decide, within thirty (30) calendar days jurisdiction to render the questioned arbitral awards, deserves
after the submission of the case by the parties for decision our concurrence, thus:
without extension, even in the absence of stenographic notes,
the following cases involving all workers, whether agricultural or
In general, the arbitrator is expected to decide those questions
non-agricultural:
expressly stated and limited in the submission
agreement. However, since arbitration is the final resort for the
1. Unfair labor practice cases: adjudication of disputes, the arbitrator can assume that he has
the power to make a final settlement. Thus, assuming that the
2. Termination disputes; submission empowers the arbitrator to decide whether an
employee was discharged for just cause, the arbitrator in this
instance can reasonable assume that his powers extended
3. If accompanied with a claim for reinstatement, those cases beyond giving a yes-or-no answer and included the power to
that workers may file involving wage, rates of pay, hours of work reinstate him with or without back pay.
and other terms and conditions of employment;

In one case, the Supreme Court stressed that xxx the Voluntary
4. Claims for actual, moral, exemplary and other forms of Arbitrator had plenary jurisdiction and authority to interpret the
damages arising from the employer-employee relations; agreement to arbitrate and to determine the scope of his own
authority subject only, in a proper case, to the certiorari
xxx jurisdiction of this Court. The Arbitrator, as already indicated,
viewed his authority as embracing not merely the determination
of the abstract question of whether or not a performance bonus
Art. 261. Jurisdiction of Voluntary Arbitrators or panel of
was to be granted but also, in the affirmative case, the amount
Voluntary Arbitrators. The Voluntary Arbitrator or panel of
thereof.
Voluntary Arbitrators shall have original and exclusive
jurisdiction to hear and decide all unresolved grievances arising
from the interpretation or implementation of the Collective By the same token, the issue of regularization should be viewed
Bargaining Agreement and those arising from the interpretation as two-tiered issue. While the submission agreement mentioned
or enforcement of company personnel policies referred to in the only the determination of the date or regularization, law and
immediately preceding article. Accordingly, violations of a jurisprudence give the voluntary arbitrator enough leeway of
Collective Bargaining Agreement, except those which are gross authority as well as adequate prerogative to accomplish the
in character, shall no longer be treated as unfair labor practice reason for which the law on voluntary arbitration was created
and shall be resolved as grievances under the Collective speedy labor justice. It bears stressing that the underlying
Bargaining Agreement. For purposes of this article, gross reason why this case arose is to settle, once and for all, the
violations of Collective Bargaining Agreement shall mean ultimate question of whether respondent employees are entitled
flagrant and/or malicious refusal to comply with the economic to higher benefits. To require them to file another action for
provisions of such agreement. payment of such benefits would certainly undermine labor
proceedings and contravene the constitutional mandate
providing full protection to labor.[14]
21
As regards petitioners contention that the money claim in BELLOSILLO, J.:
this case is barred by prescription, we hold that this contention
is without merit. So is petitioners stance that the benefits CELESTINO VIVERO, in this petition for review, seeks the
claimed by the respondents, i.e., sick leave, vacation leave and reversal of the Decision of the Court of Appeals of 26 May 1999
13th-month pay, had already prescribed, considering the three- setting aside the Decision of the National Labor Relations
year period for the institution of monetary claims. [15] Such Commission of 28 May 1998 as well as its Resolution of 23 July
determination is a question of fact which must be ascertained 1998 denying his motion for its reconsideration, and reinstating
based on the evidence, both oral and documentary, presented the decision of the Labor Arbiter of 21 January 1997.
by the parties before the Voluntary Arbitrator. In this case, the
Voluntary Arbitrator found that prescription has not as yet set in
to bar the respondents claims for the monetary benefits Petitioner Vivero, a licensed seaman, is a member of the
awarded to them. Basic is the rule that findings of fact of Associated Marine Officers and Seamen's Union of the
administrative and quasi-judicial bodies, which have acquired Philippines (AMOSUP). The Collective Bargaining Agreement
expertise because their jurisdiction is confined to specific entered into by AMOSUP and private respondents provides,
matters, are generally accorded not only great respect but even among others -
finality.[16] Here, the Voluntary Arbitrator received the evidence
of the parties first-hand. No compelling reason has been shown ARTICLE XII
for us to diverge from the findings of the Voluntary Arbitrator,
especially since the appellate court affirmed his findings, that it
GRIEVANCE PROCEDURE
took some time for respondent employees to ventilate their
claims because of the repeated assurances made by the
petitioner that it would review the company records and xxxx
determine therefrom the validity of the claims, without
expressing a categorical denial of their claims. As elucidated by Sec. 3. A dispute or grievance arising in connection with the
the Voluntary Arbitrator: terms and provisions of this Agreement shall be adjusted in
accordance with the following procedure:
The respondents had raised prescription as defense. The
controlling law, as ruled by the High Court, is: 1. Any seaman who feels that he has been unjustly treated or
even subjected to an unfair consideration shall endeavor to
The cause of action accrues until the party obligated refuses xxx have said grievance adjusted by the designated representative
to comply with his duty. Being warded off by promises, the of the unlicensed department abroad the vessel in the following
workers not having decided to assert [their] right[s], [their] manner:
causes of action had not accrued (Citation omitted.)
A. Presentation of the complaint to his immediate superior.
Since the parties had continued their negotiations even after the
matter was raised before the Grievance Procedure and the B. Appeal to the head of the department in which the seaman
voluntary arbitration, the respondents had not refused to involved shall be employed.
comply with their duty. They just wanted the complainants to
present some proofs. The complainants cause of action had not
therefore accrued yet. Besides, in the earlier voluntary C. Appeal directly to the Master.
arbitration case aforementioned involving exactly the same
issue and employees similarly situated as the complainants, the Sec. 4. If the grievance cannnot be resolved under the provision
same defense was raised and dismissed by Honorable Thelma of Section 3, the decision of the Master shall govern at sea x x x
Jordan, Voluntary Arbitrator. x in foreign ports and until the vessel arrives at a port where the
Master shall refer such dispute to either the COMPANY or the
In fact, the respondents promised to correct their length of UNION in order to resolve such dispute. It is understood,
service and grant them the back CBA benefits if the however, if the dispute could not be resolved then both parties
complainants can prove they are entitled rendered the former in shall avail of the grievance procedure.
estoppel, barring them from raising the defense of laches or
prescription. To hold otherwise amounts to rewarding the Sec. 5. In furtherance of the foregoing principle, there is hereby
respondents for their duplicitous representation and abet them created a GRIEVANCE COMMITTEE to be composed of two
in a dishonest scheme against their workers.[17] COMPANY REPRESENTATIVES to be designated by the COMPANY
and two LABOR REPRESENTATIVES to be designated by the
Indeed, as the Court of Appeals concluded, under the UNION.
equitable principle of estoppel, it will be the height of injustice if
we will brush aside the employees claims on a mere Sec. 6. Any grievance, dispute or misunderstanding concerning
technicality, especially when it is petitioners own action that any ruling, practice, wages or working conditions in the
prevented them from interposing the claims within the COMPANY, or any breach of the Employment Contract, or any
prescribed period. dispute arising from the meaning or the application of the
provision of this Agreement or a claim of violation thereof or any
WHEREFORE, the petition is DENIED. The appealed complaint that any such crewmembers may have against the
decision of the Court of Appeals in CA-G.R. SP No. 44341 and the COMPANY, as well as complaint which the COMPANY may have
resolution denying petitioners motion for reconsideration, against such crewmembers shall be brought to the attention of
are AFFIRMED. Costs against petitioner. the GRIEVANCE COMMITTEE before either party takes any
action, legal or otherwise.

SO ORDERED.
Sec. 7. The COMMITTEE shall resolve any dispute within seven
(7) days from and after the same is submitted to it for resolution
SECOND DIVISION[G.R. No. 138938. October 24, 2000] and if the same cannot be settled by the COMMITTEE or if the
COMMITTEE fails to act on the dispute within the 7-day period
CELESTINO VIVIERO, petitioner, vs. COURT OF APPEALS, herein provided, the same shall be referred to a VOLUNTARY
HAMMONIA MARINE SERVICES, and HANSEATIC ARBITRATION COMMITTEE.
SHIPPING CO., LTD. respondents.
An "impartial arbitrator" will be appointed by mutual choice and
DECISION consent of the UNION and the COMPANY who shall hear and
22
decide the dispute or issue presented to him and his decision file his Complaint originally with POEA, then the Labor Arbiter to
shall be final and unappealable x x x x[1] whom the case was transferred would have to take cognizance
of the case.[7]
As found by the Labor Arbiter -
The NLRC then remanded the case to the Labor Arbiter for
further proceedings. On 3 July 1998 respondents filed a Motion
Complainant was hired by respondent as Chief Officer of the
for Reconsideration which was denied by the NLRC on 23 July
vessel "M.V. Sunny Prince" on 10 June 1994 under the terms and
1998.
conditions, to wit:

Thus, private respondents raised the case to the Court of


Duration of Contract - - - - 10 months
Appeals contending that the provision in the CBA requiring a
dispute which remained unresolved by the Grievance Committee
Basic Monthly Salary - - - - US $1,100.00 to be referred to a Voluntary Arbitration Committee, was
mandatory in character in view of the CBA between the
Hours of Work - - - - 44 hrs./week parties. They stressed that "since it is a policy of the state to
promote voluntary arbitration as a mode of settling labor
disputes, it is clear that the public respondent gravely abused its
Overtime - - - - 495 lump O.T. discretion in taking cognizance of a case which was still within
the mantle of the Voluntary Arbitration Commitees
Vacation leave with pay - - - - US $220.00/mo. jurisdiction."[8]

On grounds of very poor performance and conduct, refusal to On the other hand, petitioner argued -
perform his job, refusal to report to the Captain or the vessels
Engineers or cooperate with other ship officers about the (A)s strongly suggested by its very title, referral of cases of this
problem in cleaning the cargo holds or of the shipping pump and nature to the Voluntary Arbitration Committee is voluntary in
his dismal relations with the Captain of the vessel, complainant nature.Otherwise, the committee would not have been called
was repatriated on 15 July 1994. Voluntary Arbitration Committee but rather, a Compulsory
Arbitration Committee. Moreover, if the referral of cases of
On 01 August 1994, complainant filed a complaint for illegal similar nature to the Voluntary Arbitration Committee would be
dismissal at Associated Marine Officers and Seamans Union of deemed mandatory by virtue of the provisions in the CBA, the
the Philippines (AMOSUP) of which complainant was a [NLRC] would then be effectively deprived of its jurisdiction to
member. Pursuant to Article XII of the Collective Bargaining try, hear and decide termination disputes, as provided for under
Agreement, grievance proceedings were conducted; however, Article 217 of the Labor Code. Lastly, [respondents] ought to be
parties failed to reach and settle the dispute amicably, thus, on deemed to have waived their right to question the procedure
28 November 1994, complainant filed [a] complaint with the followed by [petitioner], considering that they have already filed
Philippine Overseas Employment Administration (POEA). [2] their Position Paper beforebelatedly filing a Motion to Dismiss x x
x x [9]
The law in force at the time petitioner filed his Complaint with
the POEA was EO No. 247.[3] But the Court of Appeals ruled in favor of private
respondents. It held that the CBA "is the law between the
parties and compliance therewith is mandated by the express
While the case was pending before the POEA, private
policy of the law."[10] Hence, petitioner should have followed the
respondents filed a Motion to Dismiss on the ground that the
provision in the CBA requiring the submission of the dispute to
POEA had no jurisdiction over the case considering petitioner
the Voluntary Arbitration Committee once the Grievance
Vivero's failure to refer it to a Voluntary Arbitration Committee in
Committee failed to settle the controversy.[11] According to the
accordance with the CBA between the parties. Upon the
Court of Appeals, the parties did not have the choice to
enactment of RA 8042, the Migrant Workers and Overseas
"volunteer" to refer the dispute to the Voluntary Arbitrator or a
Filipinos Act of 1995, the case was transferred to the
Panel of Arbitrators when there was already an agreement
Adjudication Branch of the National Labor Relations Commission.
requiring them to do so. "Voluntary Arbitration" means that it is
binding because of a prior agreement or contract, while
On 21 January 1997 Labor Arbiter Jovencio Ll. Mayor Jr., on "Compulsory Arbitration" is when the law declares the dispute
the basis of the pleadings and documents available on record, subject to arbitration, regardless of the consent or desire of the
rendered a decision dismissing the Complaint for want of parties.[12]
jurisdiction.[4] According to the Labor Arbiter, since the CBA of
the parties provided for the referral to a Voluntary Arbitration
The Court of Appeals further held that the Labor Code itself
Committee should the Grievance Committee fail to settle the
enumerates the original and exclusive jurisdiction of the
dispute, and considering the mandate of Art. 261 of the Labor
Voluntary Arbitrator or Panel of Voluntary Arbitrators, and
Code on the original and exclusive jurisdiction of Voluntary
prohibits the NLRC and the Regional Directors of the Department
Arbitrators, the Labor Arbiter clearly had no jurisdiction over the
of Labor and Employment (DOLE) from entertaining cases falling
case.[5]
under the same.[13] Thus, the fact that private respondents filed
their Position Paper first before filing their Motion to
Petitioner (complainant before the Labor Arbiter) appealed Dismiss was immaterial and did not operate to confer
the dismissal of his petition to the NLRC. On 28 May 1998 the jurisdiction upon the Labor Arbiter, following the well-settled
NLRC set aside the decision of the Labor Arbiter on the ground rule that jurisdiction is determined by law and not by consent or
that the record was clear that petitioner had exhausted his agreement of the parties or by estoppel.[14]
remedy by submitting his case to the Grievance Committee of
AMOSUP. Considering however that he could not obtain any
Finally, the appellate court ruled that a case falling under
settlement he had to ventilate his case before the proper
the jurisdiction of the Labor Arbiter as provided under Art. 217 of
forum, i.e., the Philippine Overseas Employment Administration.
[6] the Labor Code may be lodged instead with a Voluntary
The NLRC further held that the contested portion in the CBA
Arbitrator because the law prefers, or gives primacy, to
providing for the intercession of a Voluntary Arbitrator was not
voluntary arbitration instead of compulsory arbitration.
binding upon petitioner since both petitioner and private [15]
Consequently, the contention that the NLRC would be
respondents had to agree voluntarily to submit the case before
deprived of its jurisdiction to try, hear and decide termination
a Voluntary Arbitrator or Panel of Voluntary Arbitrators. This
disputes under Art. 217 of the Labor Code, should the instant
would entail expenses as the Voluntary Arbitrator chosen by the
dispute be referred to the Voluntary Arbitration Committee, is
parties had to be paid. Inasmuch however as petitioner chose to
23
clearly bereft of merit.[16] Besides, the Voluntary Arbitrator, any violation of Article 264 of this Code, including questions
whether acting solely or in a panel, enjoys in law the status of a involving the legality of strikes and lockouts; and, (6) Except
quasi-judicial agency independent of, and apart from, the NLRC claims for Employees Compensation, Social Security, Medicare
since his decisions are not appealable to the latter.[17] and maternity benefits, all other claims arising from employer-
employee relations, including those of persons in domestic or
household service, involving an amount exceeding five thousand
Celestino Vivero, in his petition for review assailing the
pesos (P5,000.00) regardless of whether accompanied with a
Decision of the Court of Appeals, alleges that the appellate court
claim for reinstatement.
committed grave abuse of discretion in holding that a Voluntary
Arbitrator or Panel of Voluntary Arbitrators, and not the
Adjudication Branch of the NLRC, has jurisdiction over his (b) The Commission shall have exclusive appellate jurisdiction
complaint for illegal dismissal. He claims that his complaintfor over all cases decided by Labor Arbiters.
illegal dismissal was undeniably a termination dispute and did
not, in any way, involve an "interpretation or implementation of (c) Cases arising from the interpretation of collective bargaining
collective bargaining agreement" or "interpretation" or agreements and those arising from the interpretation or
"enforcement" of company personnel policies.Thus, it should fall enforcement of company personnel policies shall be disposed of
within the original and exclusive jurisdiction of the NLRC and its by the Labor Arbiter by referring the same to the grievance
Labor Arbiter, and not with a Voluntary Arbitrator, in accordance machinery and voluntary arbitration as may be provided in said
with Art. 217 of the Labor Code. agreements (emphasis supplied).

Private respondents, on the other hand, allege that the However, any or all of these cases may, by agreement of
case is clearly one "involving the the parties, be submitted to a Voluntary Arbitrator or Panel of
proper interpretation and implementation of the Grievance Voluntary Arbitrators for adjudication. Articles 261 and 262 of
Procedure found in the Collective Bargaining Agreement (CBA) the Labor Code provide -
between the parties"[18]because of petitioners allegation in his
claim/assistance request form submitted to the Union, to wit:
Art. 261. Jurisdiction of Voluntary Arbitrators or Panel of
Voluntary Arbitrators. - The Voluntary Arbitrator or panel of
NATURE OF COMPLAINT Voluntary Arbitrators shall have original and exclusive
jurisdiction to hear and decide all unresolved grievances arising
3. Illegal Dismissal - Reason: (1) That in this case it was the from the interpretation or implementation of the Collective
master of M.V. SUNNY PRINCE Capt. Andersen who created the Bargaining Agreement and those arising from the interpretation
trouble with physical injury and stating false allegation; (2) That or enforcement of company personnel policies referred to in the
there was no proper procedure of grievance; (3) No proper immediately preceding article. Accordingly, violations of a
notice of dismissal. Collective Bargaining Agreement, except those which are gross
in character, shall no longer be treated as unfair labor practice
and shall be resolved as grievances under the Collective
Is there a Notice of dismissal? _x_ Yes or ____ No
Bargaining Agreement. For purposes of this article, gross
violations of Collective Bargaining Agreement shall mean
What date? 11 July 1994 flagrant and/or malicious refusal to comply with the economic
provisions of such agreement.
Is there a Grievance Procedure observed? ____ Yes or _x_ No[19]
The Commission, its Regional Offices and the Regional Directors
Private respondents further allege that the fact that of the Department of Labor and Employment shall not entertain
petitioner sought the assistance of his Union evidently shows disputes, grievances or matters under the exclusive and original
that he himself was convinced that his Complaint was within the jurisdiction of the Voluntary Arbitrator or panel of Voluntary
ambit of the jurisdiction of the grievance machinery and Arbitrators and shall immediately dispose and refer the same to
subsequently by a Panel of Voluntary Arbitrators as provided for the Grievance Machinery or Voluntary Arbitration provided in the
in their CBA, and as explicitly mandated by Art. 261 of the Labor Collective Bargaining Agreement.
Code.[20]
Art. 262. Jurisdiction Over Other Labor Disputes. - The Voluntary
Thus, the issue is whether the NLRC is deprived of Arbitrator or panel of Voluntary Arbitrators, upon agreement of
jurisdiction over illegal dismissal cases whenever a CBA provides the parties, shall also hear and decide all other labor disputes
for grievance machinery and voluntary arbitration including unfair labor practices and bargaining deadlocks
proceedings. Or, phrased in another way, does the dismissal of (emphasis supplied).
an employee constitute a "grievance between the parties," as
defined under the provisions of the CBA, and consequently, Private respondents attempt to justify the conferment of
within the exclusive original jurisdiction of the Voluntary jurisdiction over the case on the Voluntary Arbitrator on the
Arbitrators, thereby rendering the NLRC without jurisdiction to ground that the issue involves the proper interpretation and
decide the case? implementation of the Grievance Procedure found in the
CBA. They point out that when petitioner sought the assistance
On the original and exclusive jurisdiction of Labor Arbiters, of his Union to avail of the grievance machinery, he in effect
Art. 217 of the Labor Code provides - submitted himself to the procedure set forth in the CBA
regarding submission of unresolved grievances to a Voluntary
Arbitrator.
Art. 217. Jurisdiction of Labor Arbiters and the Commission.
- (a) Except as otherwise provided under this Code, the Labor
Arbiters shall have original and exclusive jurisdiction to hear and The argument is untenable. The case is primarily a
decide within thirty (30) calendar days after the submission of termination dispute. It is clear from the claim/assistance request
the case by the parties for decision without extension, even in form submitted by petitioner to AMOSUP that he was
the absence of stenographic notes, the following cases involving challenging the legality of his dismissal for lack of cause and
all workers, whether agricultural or non-agricultural: (1) Unfair lack of due process. The issue of whether there was proper
labor practice cases; (2) Termination disputes; (3) If interpretation and implementation of the CBA provisions comes
accompanied with a claim for reinstatement, those cases that into play only because the grievance procedure provided for in
workers may file involving wages, rates of pay, hours of work the CBA was not observed after he sought his Unions assistance
and other terms and conditions of employment; (4) Claims for in contesting his termination. Thus, the question to be resolved
actual, moral, exemplary and other forms of damages arising necessarily springs from the primary issue of whether there was
from the employer-employee relations; (5) Cases arising from a valid termination; without this, then there would be no reason
24
to invoke the need to interpret and implement the CBA legal conferment. In the same manner, petitioner cannot
provisions properly. arrogate into the powers of Voluntary Arbitrators the original
and exclusive jurisdiction of Labor Arbiters over unfair labor
practices, termination disputes, and claims for damages, in the
In San Miguel Corp. v. National Labor Relations
absence of an express agreement between the parties in order
Commission[21] this Court held that the phrase "all other labor
for Art. 262 of the Labor Code to apply in the case at bar. In
disputes" may include termination disputes provided that the
other words, the Court of Appeals is correct in holding that
agreement between the Union and the Company states "in
Voluntary Arbitration is mandatory in character if there is a
unequivocal language that [the parties] conform to the
specific agreement between the parties to that effect. It must be
submission of termination disputes and unfair labor practices to
stressed however that, in the case at bar, the use of the word
voluntary arbitration."[22] Ergo, it is not sufficient to merely say
"may" shows the intention of the parties to reserve the right of
that parties to the CBA agree on the principle that "all disputes"
recourse to Labor Arbiters.
should first be submitted to a Voluntary Arbitrator. There is a
need for an express stipulation in the CBA that illegal
termination disputes should be resolved by a Voluntary The CBA clarifies the proper procedure to be followed in
Arbitrator or Panel of Voluntary Arbitrators, since the same fall situations where the parties expressly stipulate to submit
within a special class of disputes that are generally within the termination disputes to the jurisdiction of a Voluntary Arbitrator
exclusive original jurisdiction of Labor Arbiters by express or Panel of Voluntary Arbitrators. For when the parties have
provision of law. Absent such express stipulation, the phrase "all validly agreed on a procedure for resolving grievances and to
disputes" should be construed as limited to the areas of conflict submit a dispute to voluntary arbitration then that procedure
traditionally within the jurisdiction of Voluntary Arbitrators, i.e., should be strictly observed. Non-compliance therewith cannot
disputes relating to contract-interpretation, contract- be excused, as petitioner suggests, by the fact that he is not
implementation, or interpretation or enforcement of company well-versed with the "fine prints" of the CBA. It was his
personnel policies. Illegal termination disputes - not falling responsibility to find out, through his Union, what the provisions
within any of these categories - should then be considered as a of the CBA were and how they could affect his rights. As
special area of interest governed by a specific provision of law. provided in Art. 241, par. (p), of the Labor Code -

In this case, however, while the parties did agree to make (p) It shall be the duty of any labor organization and its officers
termination disputes the proper subject of voluntary arbitration, to inform its members on the provisions of its constitution and
such submission remains discretionary upon the parties. A by-laws, collective bargaining agreement, the prevailing labor
perusal of the CBA provisions shows that Sec. 6, Art. XII relations system and all their rights and obligations under
(Grievance Procedure) of the CBA is the general agreement of existing labor laws.
the parties to refer grievances, disputes or misunderstandings
to a grievance committee, and henceforth, to a voluntary In fact, any violation of the rights and conditions of union
arbitration committee. The requirement of specificity is fulfilled membership is a "ground for cancellation of union registration or
by Art. XVII (Job Security) where the parties agreed - expulsion of officer from office, whichever is appropriate. At
least thirty percent (30%) of all the members of a union or any
Sec. 1. Promotion, demotion, suspension, dismissal or member or members especially concerned may report such
disciplinary action of the seaman shall be left to the discretion of violation to the Bureau [of Labor Relations] x x x x" [29]
the Master, upon consultation with the Company and notification
to the Union. This notwithstanding, any and all disciplinary It may be observed that under Policy Instruction No. 56 of
action taken on board the vessel shall be provided for in the Secretary of Labor, dated 6 April 1993, "Clarifying the
Appendix B of this Agreement x x x x [23] Jurisdiction Between Voluntary Arbitrators and Labor Arbiters
Over Termination Cases and Providing Guidelines for the
Sec. 4. x x x x Transfer, lay-off or discipline of seamen for Referral of Said Cases Originally Filed with the NLRC to the
incompetence, inefficiency, neglect of work, bad behavior, NCMB," termination cases arising in or resulting from the
perpetration of crime, drunkenness, insubordination, desertion, interpretation and implementation of collective bargaining
violation of x x x regulations of any port touched by the agreements and interpretation and enforcement of company
Companys vessel/s and other just and proper causes shall be at personnel policies which were initially processed at the various
Masters discretion x x x in the high seas or foreign ports. The steps of the plant-level Grievance Procedures under the parties'
Master shall refer the case/dispute upon reaching port and if not collective bargaining agreements fall within the original and
satisfactorily settled, the case/dispute may be referred to the exclusive jurisdiction of the voluntary arbitrator pursuant to Art.
grievance machinery or procedure hereinafter provided 217 (c) and Art. 261 of the Labor Code; and, if filed before the
(emphasis supplied).[24] Labor Arbiter, these cases shall be dismissed by the Labor
Arbiter for lack of jurisdiction and referred to the concerned
NCMB Regional Branch for appropriate action towards an
The use of the word "may" shows the intention of the
expeditious selection by the parties of a Voluntary Arbitrator or
parties to reserve the right to submit the illegal termination
Panel of Arbitrators based on the procedures agreed upon in the
dispute to the jurisdiction of the Labor Arbiter, rather than to a
CBA.
Voluntary Arbitrator. Petitioner validly exercised his option to
submit his case to a Labor Arbiter when he filed
his Complaint before the proper government agency. As earlier stated, the instant case is a termination dispute
falling under the original and exclusive jurisdiction of the Labor
Arbiter, and does not specifically involve the application,
Private respondents invoke Navarro III v.
implementation or enforcement of company personnel policies
Damasco[25] wherein the Court held that "it is the policy of the
contemplated in Policy Instruction No. 56. Consequently, Policy
state to promote voluntary arbitration as a mode of
Instruction No. 56 does not apply in the case at bar. In any case,
settling disputes."[26] It should be noted, however, that
private respondents never invoked the application of Policy
in Navarro III all the parties voluntarily submitted to the
Instruction No. 56 in their Position Papers, neither did they raise
jurisdiction of the Voluntary Arbitrator when they filed their
the question in their Motion to Dismiss which they filed nine (9)
respective position papers and submitted documentary
months after the filing of their Position Papers. At this late stage
evidence before him. Furthermore, they manifested during the
of the proceedings, it would not serve the ends of justice if this
initial conference that they were not questioning the authority of
case is referred back to a Voluntary Arbitrator considering that
the Voluntary Arbitrator.[27] In the case at bar, the dispute was
both the AMOSUP and private respondents have submitted to
never brought to a Voluntary Arbitrator for resolution; in fact,
the jurisdiction of the Labor Arbiter by filing their
petitioner precisely requested the Court to recognize the
respective Position Papers and ignoring the grievance procedure
jurisdiction of the Labor Arbiter over the case. The Court had
set forth in their CBA.
held in San Miguel Corp. v. NLRC[28] that neither officials nor
tribunals can assume jurisdiction in the absence of an express
25
After the grievance proceedings have failed to bring about voltage/pole who are team
a resolution, AMOSUP, as agent of petitioner, should have not exposed to the
informed him of his option to settle the case through voluntary risk
arbitration. Private respondents, on their part, should have
timely invoked the provision of their CBA requiring the referral of Collectors - no need for cash
their unresolved disputes to a Voluntary Arbitrator once it bond, no
became apparent that the grievance machinery failed to resolve need to reduce quota
it prior to the filing of the case before the proper tribunal. The and MAPL
private respondents should not have waited for nine (9) months
exclude confidential
from the filing of their Position Paper with the POEA before it CBU - include
employees
moved to dismiss the case purportedly for lack of jurisdiction. As
it is, private respondents are deemed to have waived their right maintenance of
Union security - closed shop
to question the procedure followed by petitioner, assuming that membership
they have the right to do so. Under their CBA, both Union and
respondent companies are responsible for selecting an impartial Contracting no need to consult
- consult first
out union
arbitrator or for convening an arbitration committee; [30] yet, it is
apparent that neither made a move towards this existing terms and
end. Consequently, petitioner should not be deprived of his All benefits - all terms
conditions
legitimate recourse because of the refusal of both Union and
respondent companies to follow the grievance procedure. Dec. 28, 1996-Dec. from Dec. 1,
Retroactivity -
27, 199(9) 1995
WHEREFORE, the Decision of the Court of Appeals is SET
ASIDE and the case is remanded to the Labor Arbiter to dispose Dissatisfied with the Decision, some alleged members of private
of the case with dispatch until terminated considering the undue respondent union (Union for brevity) filed a motion for
delay already incurred.SO ORDERED. intervention and a motion for reconsideration of the said
Decision. A separate intervention was likewise made by the
supervisor's union (FLAMES2) of petitioner corporation alleging
SPECIAL FIRST DIVISIONG.R. No. 127598 February 22,
that it has bona fide legal interest in the outcome of the
2000
case.3 The Court required the "proper parties" to file a comment
to the three motions for reconsideration but the Solicitor-
MANILA ELECTRIC COMPANY, petitioner, General asked that he be excused from filing the comment
vs. because the "petition filed in the instant case was granted" by
Hon. SECRETARY OF LABOR LEONARDO QUISUMBING and the Court.4 Consequently, petitioner filed its own consolidated
MERALCO EMPLOYEES and WORKERS ASSOCIATION comment. An "Appeal Seeking Immediate Reconsideration" was
(MEWA), respondent. also filed by the alleged newly elected president of the
Union.5 Other subsequent pleadings were filed by the parties
and intervenors.
YNARES-SANTIAGO, J.:

The issues raised in the motions for reconsideration had already


In the Decision promulgated on January 27, 1999, the Court
been passed upon by the Court in the January 27, 1999 decision.
disposed of the case as follows:
No new arguments were presented for consideration of the
Court. Nonetheless, certain matters will be considered herein,
WHEREFORE, the petition is granted and the orders of particularly those involving the amount of wages and the
public respondent Secretary of Labor dated August 19, retroactivity of the Collective Bargaining Agreement (CBA)
1996 and December 28, 1996 are set aside to the arbitral awards.
extent set forth above. The parties are directed to
execute a Collective Bargaining Agreement
Petitioner warns that if the wage increase of P2,200.00 per
incorporating the terms and conditions contained in the
month as ordered by the Secretary is allowed, it would simply
unaffected portions of the Secretary of Labor's orders
pass the cost covering such increase to the consumers through
of August 19, 1996 and December 28, 1996, and the
an increase in the rate of electricity. This is a non sequitur. The
modifications set forth above. The retirement fund
Court cannot be threatened with such a misleading argument.
issue is remanded to the Secretary of Labor for
An increase in the prices of electric current needs the approval
reception of evidence and determination of the legal
of the appropriate regulatory government agency and does not
personality of the MERALCO retirement fund.1
automatically result from a mere increase in the wages of
petitioner's employees. Besides, this argument presupposes that
The modifications of the public respondent's resolutions include petitioner is capable of meeting a wage increase. The All Asia
the following: Capital report upon which the Union relies to support its position
regarding the wage issue cannot be an accurate basis and
conclusive determinant of the rate of wage increase. Section 45
Secretary's of Rule 130 Rules of Evidence provides:
January 27, 1999 decision
resolution

P1,900.00 for 1995- Commercial lists and the like. Evidence of


Wages - P2,200.00 statements of matters of interest to persons engaged
96
in an occupation contained in a list, register, periodical,
modified to one or other published compilation is admissible as tending
X'mas bonus - 2 months
month to prove the truth of any relevant matter so stated if
that compilation is published for use by persons
remanded to the engaged in that occupation and is generally used and
Retirees - granted
Secretary relied upon by them therein.
Loan to coops - denied granted
Under the afore-quoted rule, statement of matters contained in
GHSIP, HMP a periodical, may be admitted only "if that compilation is
and granted up to published for use by persons engaged in that occupation and is
Housing loans - P60,000.00 granted generally used and relied upon by them therein." As correctly
held in our Decision dated January 27, 1999, the cited report is a
Signing bonus - denied granted mere newspaper account and not even a commercial list. At
most, it is but an analysis or opinion which carries no persuasive
Union leave - 40 days (typo error) 30 days
weight for purposes of this case as no sufficient figures to
High - not apply to those members of support
a it were presented. Neither did anybody testify to its
accuracy. It cannot be said that businessmen generally rely on
26
news items such as this in their occupation. Besides, no stated by public respondent in his assailed Order of
evidence was presented that the publication was regularly April 12, 1991 dismissing petitioner's Motion for
prepared by a person in touch with the market and that it is Reconsideration
generally regarded as trustworthy and reliable. Absent extrinsic
proof of their accuracy, these reports are not admissible. 6 In the
Anent the alleged lack of basis for the
same manner, newspapers containing stock quotations are not
retroactivity provisions awarded; we would
admissible in evidence when the source of the reports is
stress that the provision of law invoked by the
available.7 With more reason, mere analyses or projections of
Hospital, Article 253-A of the Labor Code,
such reports cannot be admitted. In particular, the source of the
speaks of agreements by and between the
report in this case can be easily made available considering that
parties, and not arbitral awards . . .
the same is necessary for compliance with certain governmental
requirements.
Therefore, in the absence of a specific provision of law
prohibiting retroactivity of the effectivity of arbitral
Nonetheless, by petitioner's own allegations, its actual total net
awards issued by the Secretary of Labor pursuant to
income for 1996 was P5.1 billion. 8 An estimate by the All Asia
Article 263(g) of the Labor Code, such as herein
financial analyst stated that petitioner's net operating income
involved, public respondent is deemed vested with
for the same year was about P5.7 billion, a figure which the
plenary and discretionary powers to determine the
Union relies on to support its claim. Assuming without admitting
effectivity thereof.
the truth thereof, the figure is higher than the P4.171 billion
allegedly suggested by petitioner as its projected net operating
income. The P5.7 billion which was the Secretary's basis for In the 1997 case of Mindanao Terminal, 17 the Court applied the
granting the P2,200.00 is higher than the actual net income of St. Luke's doctrine and ruled that:
P5.1 billion admitted by petitioner. It would be proper then to
increase this Court's award of P1,900.00 to P2,000.00 for the
In St. Luke's Medical Center v. Torres, a deadlock also
two years of the CBA award. For 1992, the agreed CBA wage
developed during the CBA negotiations between
increase for rank-and-file was P1,400.00 and was reduced to
management and the union. The Secretary of Labor
P1,350.00; for 1993; further reduced to P1,150.00 for 1994. For
assumed jurisdiction and ordered the retroaction of the
supervisory employees, the agreed wage increase for the years
CBA to the date of expiration of the previous CBA. As in
1992-1994 are P1,742.50, P1,682.50 and P1,442.50,
this case, it was alleged that the Secretary of Labor
respectively. Based on the foregoing figures, the P2,000.00
gravely abused its discretion in making his award
increase for the two-year period awarded to the rank-and-file is
retroactive. In dismissing this contention this Court
much higher than the highest increase granted to supervisory
held:
employees.9 As mentioned in the January 27, 1999 Decision, the
Court does "not seek to enumerate in this decision the factors
that should affect wage determination" because collective Therefore, in the absence of a specific
bargaining disputes particularly those affecting the national provision of law prohibiting retroactive of the
interest and public service "requires due consideration and effectivity of arbitral awards issued by the
proper balancing of the interests of the parties to the dispute Secretary of Labor pursuant to Article 263(g)
and of those who might be affected by the dispute." 10 The Court of the Labor Code, such as herein involved,
takes judicial notice that the new amounts granted herein are public respondent is deemed vested with
significantly higher than the weighted average salary currently plenary and discretionary powers to determine
enjoyed by other rank-and-file employees within the community. the effectivity thereof.
It should be noted that the relations between labor and capital is
impressed with public interest which must yield to the common
The Court in the January 27, 1999 Decision, stated that the CBA
good.11 Neither party should act oppressively against the other
shall be "effective for a period of 2 years counted from
or impair the interest or convenience of the public. 12 Besides,
December 28, 1996 up to December 27, 1999." Parenthetically,
matters of salary increases are part of management
this actually covers a three-year period. Labor laws are silent as
prerogative.13
to when an arbitral award in a labor dispute where the Secretary
had assumed jurisdiction by virtue of Article 263 (g) of the Labor
On the retroactivity of the CBA arbitral award, it is well to recall Code shall retroact. In general, a CBA negotiated within six
that this petition had its origin in the renegotiation of the months after the expiration of the existing CBA retroacts to the
parties' 1992-1997 CBA insofar as the last two-year period day immediately following such date and if agreed thereafter,
thereof is concerned. When the Secretary of Labor assumed the effectivity depends on the agreement of the parties. 18 On
jurisdiction and granted the arbitral awards, there was no the other hand, the law is silent as to the retroactivity of a CBA
question that these arbitral awards were to be given retroactive arbitral award or that granted not by virtue of the mutual
effect. However, the parties dispute the reckoning period when agreement of the parties but by intervention of the government.
retroaction shall commence. Petitioner claims that the award Despite the silence of the law, the Court rules herein that CBA
should retroact only from such time that the Secretary of Labor arbitral awards granted after six months from the expiration of
rendered the award, invoking the 1995 decision in Pier 8 the last CBA shall retroact to such time agreed upon by both
case14 where the Court, citing Union of Filipino Employees v. employer and the employees or their union. Absent such an
NLRC,15 said: agreement as to retroactivity, the award shall retroact to the
first day after the six-month period following the expiration of
the last day of the CBA should there be one. In the absence of a
The assailed resolution which incorporated the CBA to
CBA, the Secretary's determination of the date of retroactivity as
be signed by the parties was promulgated on June 5,
part of his discretionary powers over arbitral awards shall
1989, the expiry date of the past CBA. Based on the
control.
provision of Section 253-A, its retroactivity should be
agreed upon by the parties. But since no agreement to
that effect was made, public respondent did not abuse It is true that an arbitral award cannot per se be categorized as
its discretion in giving the said CBA a prospective an agreement voluntarily entered into by the parties because it
effect. The action of the public respondent is within the requires the interference and imposing power of the State thru
ambit of its authority vested by existing law. the Secretary of Labor when he assumes jurisdiction. However,
the arbitral award can be considered as an approximation of a
collective bargaining agreement which would otherwise have
On the other hand, the Union argues that the award should
been entered into by the parties. 19 The terms or periods set forth
retroact to such time granted by the Secretary, citing the 1993
in Article 253-A pertains explicitly to a CBA. But there is nothing
decision of St. Luke's.16
that would prevent its application by analogy to an arbitral
award by the Secretary considering the absence of an applicable
Finally, the effectivity of the Order of January 28, 1991, law. Under Article 253-A: "(I)f any such agreement is entered
must retroact to the date of the expiration of the into beyond six months, the parties shall agree on the duration
previous CBA, contrary to the position of petitioner. of retroactivity thereof." In other words, the law contemplates
Under the circumstances of the case, Article 253-A retroactivity whether the agreement be entered into before or
cannot be properly applied to herein case. As correctly after the said six-month period. The agreement of the parties
27
need not be categorically stated for their acts may be actually been distributed to them. The assailed Decision is
considered in determining the duration of retroactivity. In this AFFIRMED in all other respects.1wphi1.ntSO ORDERED.
connection, the Court considers the letter of petitioner's
Chairman of the Board and its President addressed to their
THIRD DIVISIONG.R. No. 80774 May 31, 1988
stockholders, which states that the CBA "for the rank-and-file
employees covering the period December 1, 1995 to November
30, 1997 is still with the Supreme Court," 20 as indicative of SAN MIGUEL CORPORATION, petitioner,
petitioner's recognition that the CBA award covers the said vs.
period. Earlier, petitioner's negotiating panel transmitted to the NATIONAL LABOR RELATIONS COMMISSION and RUSTICO
Union a copy of its proposed CBA covering the same period VEGA, respondents.
inclusive.21 In addition, petitioner does not dispute the allegation
that in the past CBA arbitral awards, the Secretary granted
retroactivity commencing from the period immediately following FELICIANO, J.:
the last day of the expired CBA. Thus, by petitioner's own
actions, the Court sees no reason to retroact the subject CBA In line with an Innovation Program sponsored by petitioner San
awards to a different date. The period is herein set at two (2)
Miguel Corporation ("Corporation;" "SMC") and under which
years from December 1, 1995 to November 30, 1997.
management undertook to grant cash awards to "all SMC
employees ... except [ED-HO staff, Division Managers and
On the allegation concerning the grant of loan to a cooperative, higher-ranked personnel" who submit to the Corporation Ideas
there is no merit in the union's claim that it is no different from and suggestions found to be beneficial to the Corporation,
housing loans granted by the employer. The award of loans for private respondent Rustico Vega submitted on 23 September
housing is justified because it pertains to a basic necessity of 1980 an innovation proposal. Mr. Vega's proposal was entitled
life. It is part of a privilege recognized by the employer and
"Modified Grande Pasteurization Process," and was supposed to
allowed by law. In contrast, providing seed money for the
eliminate certain alleged defects in the quality and taste of the
establishment of the employee's cooperative is a matter in
which the employer has no business interest or legal obligation. product "San Miguel Beer Grande:"
Courts should not be utilized as a tool to compel any person to
grant loans to another nor to force parties to undertake an Title of Proposal
obligation without justification. On the contrary, it is the
government that has the obligation to render financial
assistance to cooperatives and the Cooperative Code does not Modified Grande Pasteurization Process
make it an obligation of the employer or any private individual.22
Present Condition or Procedure
Anent the 40-day union leave, the Court finds that the same is a
typographical error. In order to avoid any confusion, it is herein At the early stage of beer grande production, several cases of
declared that the union leave is only thirty (30) days as granted
beer grande full goods were received by MB as returned beer
by the Secretary of Labor and affirmed in the Decision of this
fulls (RBF). The RBF's were found to have sediments and their
Court.
contents were hazy. These effects are usually caused by
underpasteurization time and the pasteurzation units for beer
The added requirement of consultation imposed by the grande were almost similar to those of the steinie.
Secretary in cases of contracting out for six (6) months or more
has been rejected by the Court. Suffice it to say that the
employer is allowed to contract out services for six months or Proposed lnnovation (Attach necessary information)
more. However, a line must be drawn between management
prerogatives regarding business operations per se and those In order to minimize if not elienate underpasteurization of
which affect the rights of employees, and in treating the latter, beer grande, reduce the speed of the beer grande pasteurizer
the employer should see to it that its employees are at least
thereby, increasing the pasteurization time and the
properly informed of its decision or modes of action in order to
pasteurization acts for grande beer. In this way, the self-life
attain a harmonious labor-management relationship and
enlighten the workers concerning their rights.23 Hiring of workers (sic) of beer grande will also be increased. 1
is within the employer's inherent freedom to regulate and is a
valid exercise of its management prerogative subject only to Mr. Vega at that time had been in the employ of petitioner
special laws and agreements on the matter and the fair Corporation for thirteen (1 3) years and was then holding the
standards of justice.24 The management cannot be denied the position of "mechanic in the Bottling Department of the SMC
faculty of promoting efficiency and attaining economy by a Plant Brewery situated in Tipolo, Mandaue City.
study of what units are essential for its operation. It has the
ultimate determination of whether services should be performed
by its personnel or contracted to outside agencies. While there Petitioner Corporation, however, did not find the aforequoted
should be mutual consultation, eventually deference is to be proposal acceptable and consequently refused Mr. Vega's
paid to what management decides.25 Contracting out of services subsequent demands for a cash award under the Innovation
is an exercise of business judgment or management Program. On 22 February 1983., a Complaint 2 (docketed as
prerogative.26 Absent proof that management acted in a Case No. RAB-VII-0170-83) was filed against petitioner
malicious or arbitrary manner, the Court will not interfere with Corporation with Regional Arbitration Branch No. VII (Cebu City)
the exercise of judgment by an employer.27 As mentioned in the of the then.", Ministry of Labor and Employment. Frivate
January 27, 1999 Decision, the law already sufficiently regulates
respondent Vega alleged there that his proposal "[had] been
this matter.28 Jurisprudence also provides adequate limitations,
accepted by the methods analyst and implemented by the
such that the employer must be motivated by good faith and the
contracting out should not be resorted to circumvent the law or Corporation [in] October 1980," and that the same "ultimately
must not have been the result of malicious or arbitrary and finally solved the problem of the Corporation in the
actions.29 These are matters that may be categorically production of Beer Grande." Private respondent thus claimed
determined only when an actual suit on the matter arises. entitlement to a cash prize of P60,000.00 (the maximum award
per proposal offered under the Innovation Program) and
attorney's fees.
WHEREFORE, the motion for reconsideration is PARTIALLY
GRANTED and the assailed Decision is MODIFIED as follows: (1)
the arbitral award shall retroact from December 1, 1995 to In an Answer With Counterclaim and Position Paper, 3 petitioner
November 30, 1997; and (2) the award of wage is increased Corporation alleged that private respondent had no cause of
from the original amount of One Thousand Nine Hundred Pesos action. It denied ever having approved or adopted Mr. Vega's
(P1,900.00) to Two Thousand Pesos (P2,000.00) for the years proposal as part of the Corporation's brewing procedure in the
1995 and 1996. This Resolution is subject to the monetary production of San Miguel Beer Grande. Among other things,
advances granted by petitioner to its rank-and-file employees petitioner stated that Mr. Vega's proposal was tumed down by
during the pendency of this case assuming such advances had
the company "for lack of originality" and that the same, "even if
28
implemented [could not] achieve the desired result." Petitioner While paragraph 3 above refers to "all money claims of
further alleged that the Labor Arbiter had no jurisdiction, Mr. workers," it is not necessary to suppose that the entire universe
Vega having improperly bypassed the grievance machinery of money claims that might be asserted by workers against their
procedure prescribed under a then existing collective bargaining employers has been absorbed into the original and exclusive
agreement between management and employees, and available jurisdiction of Labor Arbiters. In the first place, paragraph 3
administrative remedies provided under the rules of the should be read not in isolation from but rather within the context
Innovation Program. A counterclaim for moral and exemplary formed by paragraph 1 related to unfair labor practices),
damages, attorney's fees, and litigation expenses closed out paragraph 2 (relating to claims concerning terms and conditions
petitioner's pleading. of employment), paragraph 4 (claims relating to household
services, a particular species of employer-employee relations),
and paragraph 5 (relating to certain activities prohibited to
In an Order 4 dated 30 April 1986, the Labor Arbiter, noting that
employees or to employers).<re||an1w> It is evident that
the money claim of complainant Vega in this case is "not a
there is a unifying element which runs through paragraphs 1 to
necessary incident of his employment" and that said claim is not
5 and that is, that they all refer to cases or disputes arising out
among those mentioned in Article 217 of the Labor Code,
of or in connection with an employer-employee relationship. This
dismissed the complaint for lack of jurisdiction. However, in a
is, in other words, a situation where the rule of noscitur a sociis
gesture of "compassion and to show the government's concern
may be usefully invoked in clarifying the scope of paragraph 3,
for the workingman," the Labor Arbiter also directed petitioner
and any other paragraph of Article 217 of the Labor Code, as
to pay Mr. Vega the sum of P2,000.00 as "financial assistance."
amended. We reach the above conclusion from an examination
of the terms themselves of Article 217, as last amended by B.P.
The Labor Arbiter's order was subsequently appealed by both Blg. 227, and even though earlier versions of Article 217 of the
parties, private respondent Vega assailing the dismissal of his Labor Code expressly brought within the jurisdiction of the Labor
complaint for lack of jurisdiction and petitioner Corporation Arbiters and the NLRC "cases arising from employer employee
questioning the propriety of the award of "financial assistance" relations," 6 which clause was not expressly carried over, in
to Mr. Vega. Acting on the appeals, the public respondent printer's ink, in Article 217 as it exists today. For it cannot be
National Labor Relations Commission, on 4 September 1987, presumed that money claims of workers which do not arise out
rendered a Decision, 5 the dispositive portion of which reads: of or in connection with their employer-employee relationship,
and which would therefore fall within the general jurisdiction of
WHEREFORE, the appealed Order is hereby set aside and the regular courts of justice, were intended by the legislative
another udgment entered, order the respondent to pay the authority to be taken away from the jurisdiction of the courts
complainant the amount of P60,000.00 as explained above. and lodged with Labor Arbiters on an exclusive basis. The Court,
therefore, believes and so holds that the money claims of
workers" referred to in paragraph 3 of Article 217 embraces
SO ORDERED. money claims which arise out of or in connection with the
employer-employee relationship, or some aspect or incident of
In the present Petition for certiorari filed on 4 December 1987, such relationship. Put a little differently, that money claims of
petitioner Corporation, invoking Article 217 of the Labor Code, workers which now fall within the original and exclusive
seeks to annul the Decision of public respondent Commission in jurisdiction of Labor Arbiters are those money claims which have
Case No. RAB-VII-01 70-83 upon the ground that the Labor some reasonable causal connection with the employer-employee
Arbiter and the Commission have no jurisdiction over the subject relationship.
matter of the case.
Applying the foregoing reading to the present case, we note that
The jurisdiction of Labor Arbiters and the National Labor petitioner's Innovation Program is an employee incentive
Relations Commission is outlined in Article 217 of the Labor scheme offered and open only to employees of petitioner
Code, as last amended by Batas Pambansa Blg. 227 which took Corporation, more specifically to employees below the rank of
effect on 1 June 1982: manager. Without the existing employer-employee relationship
between the parties here, there would have been no occasion to
consider the petitioner's Innovation Program or the submission
ART. 217. Jurisdiction of Labor Arbiters and the commission.
by Mr. Vega of his proposal concerning beer grande; without that
(a) The Labor Arbiters shall have the original and exclusive
relationship, private respondent Vega's suit against petitioner
jurisdiction to hear and decide within thirty (30) working days
Corporation would never have arisen. The money claim of
after submission of the case by the parties for decision, the
private respondent Vega in this case, therefore, arose out of or
following cases involving are workers, whether agricultural or
in connection with his employment relationship with petitioner.
non-agricultural:

The next issue that must logically be confronted is whether the


1. Unfair labor practice cases;
fact that the money claim of private respondent Vega arose out
of or in connection with his employment relation" with petitioner
2. Those that workers may file involving wages, hours of work Corporation, is enough to bring such money claim within the
and other terms and conditions of employment; original and exclusive jurisdiction of Labor Arbiters.

3. All money claims of workers, including those based on non- In Molave Motor Sales, Inc. v. Laron, 7 the petitioner was a
payment or underpayment of wages, overtime compensation, corporation engaged in the sale and repair of motor vehicles,
separation pay and other benefits provided by law or while private respondent was the sales Manager of petitioner.
appropriate agreement, except claims for employees' Petitioner had sued private respondent for non-payment of
compensation, social security, medicare and maternity accounts which had arisen from private respondent's own
benefits; purchases of vehicles and parts, repair jobs on cars personally
owned by him, and cash advances from the corporation. At the
4. Cases involving household services; and pre-trial in the lower court, private respondent raised the
question of lack of jurisdiction of the court, stating that because
petitioner's complaint arose out of the employer-employee
5. Cases arising from any violation of Article 265 of this; Code, relationship, it fell outside the jurisdiction of the court and
including questions involving the legality of strikes and consequently should be dismissed. Respondent Judge did
lockouts. dismiss the case, holding that the sum of money and damages
sued for by the employer arose from the employer-employee
(b) The Commission shall have exclusive appellate jurisdiction relationship and, hence, fell within the jurisdiction of the Labor
over all cases decided by Labor Arbiters. (Emphasis supplied) Arbiter and the NLRC. In reversing the order of dismissal and
requiring respondent Judge to take cognizance of the case
29
below, this Court, speaking through Mme. Justice Melencio- terms and conditions of employment, but rather in the
Herrera, said: application of the general civil law. Clearly, such claims fall
outside the area of competence or expertise ordinarily ascribed
to Labor Arbiters and the NLRC and the rationale for granting
Before the enactment of BP Blg. 227 on June 1, 1982,
jurisdiction over such claims to these agencies disappears.
Labor Arbiters, under paragraph 5 of Article 217 of the
Labor Code had jurisdiction over" all other cases arising
from employer-employee relation, unless, expressly Applying the foregoing to the instant case, the Court notes that
excluded by this Code." Even then, the principle followed the SMC Innovation Program was essentially an invitation from
by this Court was that, although a controversy is between petitioner Corporation to its employees to submit innovation
an employer and an employee, the Labor Arbiters have no proposals, and that petitioner Corporation undertook to grant
jurisdiction if the Labor Code is not involved. In Medina vs. cash awards to employees who accept such invitation and
Castro-Bartolome, 11 SCRA 597, 604, in negating whose innovation suggestions, in the judgment of the
jurisdiction of the Labor Arbiter, although the parties were Corporation's officials, satisfied the standards and requirements
an employer and two employees, Mr. Justice Abad Santos of the Innovation Program 10 and which, therefore, could be
stated: translated into some substantial benefit to the Corporation.
Such undertaking, though unilateral in origin, could nonetheless
ripen into an enforceable contractual (facio ut des) 11 obligation
The pivotal question to Our mind is whether or not the
on the part of petitioner Corporation under certain
Labor Code has any relevance to the reliefs sought by the
circumstances. Thus, whether or not an enforceable contract,
plaintiffs. For if the Labor Code has no relevance, any
albeit implied arid innominate, had arisen between petitioner
discussion concerning the statutes amending it and
Corporation and private respondent Vega in the circumstances
whether or not they have retroactive effect is unnecessary.
of this case, and if so, whether or not it had been breached, are
preeminently legal questions, questions not to be resolved by
It is obvious from the complaint that the plaintiffs have not referring to labor legislation and having nothing to do with
alleged any unfair labor practice. Theirs is a simple action wages or other terms and conditions of employment, but rather
for damages for tortious acts allegedly committed by the having recourse to our law on contracts.
defendants. Such being the case, the governing statute is
the Civil Code and not the Labor Code. It results that the
WEREFORE, the Petition for certiorari is GRANTED. The decision
orders under review are based on a wrong premise.
dated 4 September 1987 of public respondent National Labor
Relations Commission is SET ASIDE and the complaint in Case
And in Singapore Airlines Limited v. Pao, 122 SCRA 671, No. RAB-VII-0170-83 is hereby DISMISSED, without prejudice to
677, the following was said: the right of private respondent Vega to file a suit before the
proper court, if he so desires. No pronouncement as to costs.SO
Stated differently, petitioner seeks protection under the ORDERED.
civil laws and claims no benefits under the Labor Code.
The primary relief sought is for liquidated damages for SECOND DIVISION February 13, 2008 G.R. No. 163101
breach of a contractual obligation. The other items
demanded are not labor benefits demanded by workers BENGUET CORPORATION, Petitioner,- versus - DEPARTMENT
generally taken cognizance of in labor disputes, such as OF ENVIRONMENT AND NATURAL RESOURCES-MINES
payment of wages, overtime compensation or separation ADJUDICATION BOARD and J.G. REALTY AND
pay. The items claimed are the natural consequences MINING CORPORATION,Respondents.
flowing from breach of an obligation, intrinsically a civil x----------------------------------------------------------------------------------------
dispute. -x
VELASCO, JR., J.:

In the case below, PLAINTIFF had sued for monies loaned The instant petition under Rule 65 of the Rules of Court seeks
to DEFENDANT, the cost of repair jobs made on his the annulment of the December 2, 2002 Decision [1]and March
personal cars, and for the purchase price of vehicles and 17, 2004 Resolution[2] of the Department of Environment and
parts sold to him. Those accounts have no relevance to Natural Resources-Mining Adjudication Board (DENR-MAB) in
the Labor Code. The cause of action was one under the MAB Case No. 0124-01 (Mines Administrative Case No. R-M-
civil laws, and it does not breach any provision of the 2000-01) entitled Benguet Corporation (Benguet) v. J.G. Realty
Labor Code or the contract of employment of DEFENDANT. and Mining Corporation (J.G. Realty). The December 2, 2002
Hence the civil courts, not the Labor Arbiters and the NLRC Decision upheld the March 19, 2001 Decision[3] of the MAB Panel
should have jurisdiction. 8 of Arbitrators (POA) which canceled the Royalty Agreement with
Option to Purchase (RAWOP) dated June 1, 1987[4] between
Benguet and J.G. Realty, and excluded Benguet from the joint
It seems worth noting that Medina v. Castro-Bartolome, referred Mineral Production Sharing Agreement (MPSA) application over
to in the above excerpt, involved a claim for damages by two (2) four mining claims. The March 17, 2004 Resolution denied
employees against the employer company and the General Benguets Motion for Reconsideration.
Manager thereof, arising from the use of slanderous language on
the occasion when the General Manager fired the two (2) The Facts
employees (the Plant General Manager and the Plant
Comptroller). The Court treated the claim for damages as "a On June 1, 1987, Benguet and J.G. Realty entered into a RAWOP,
wherein J.G. Realty was acknowledged as the owner of four
simple action for damages for tortious acts" allegedly committed
mining claims respectively named as Bonito-I, Bonito-II, Bonito-
by private respondents, clearly if impliedly suggesting that the
III, and Bonito-IV, with a total area of 288.8656 hectares,
claim for damages did not necessarily arise out of or in situated in Barangay Luklukam, Sitio Bagong
connection with the employer-employee relationship. Singapore Bayan, Municipality of Jose Panganiban, Camarines Norte. The
Airlines Limited v. Pao, also cited in Molave, involved a claim parties also executed a Supplemental Agreement [5] dated June 1,
for liquidated damages not by a worker but by the employer 1987. The mining claims were covered by MPSA Application No.
company, unlike Medina. The important principle that runs APSA-V-0009 jointly filed by J.G. Realty as claimowner and
through these three (3) cases is that where the claim to the Benguet as operator.
principal relief sought 9 is to be resolved not by reference to the
Labor Code or other labor relations statute or a collective In the RAWOP, Benguet obligated itself to perfect the rights to
bargaining agreement but by the general civil law, the the mining claims and/or otherwise acquire the mining rights to
jurisdiction over the dispute belongs to the regular courts of the mineral claims. Within 24 months from the execution of the
justice and not to the Labor Arbiter and the NLRC. In such RAWOP, Benguet should also cause the examination of the
situations, resolution of the dispute requires expertise, not in mining claims for the purpose of determining whether or not
they are worth developing with reasonable probability of
labor management relations nor in wage structures and other
profitable production. Benguet undertook also to furnish J.G.
30
Realty with a report on the examination, within a reasonable Therefrom, Benguet filed a Notice of Appeal [11] with the MAB on
time after the completion of the examination. Moreover, also April 23, 2001, docketed as Mines Administrative Case No. R-M-
within the examination period, Benguet shall conduct all 2000-01. Thereafter, the MAB issued the assailed December 2,
necessary exploration in accordance with a prepared exploration 2002 Decision. Benguet then filed a Motion for Reconsideration
program. If it chooses to do so and before the expiration of the of the assailed Decision which was denied in the March 17,
examination period, Benguet may undertake to develop the 2004Resolution of the MAB. Hence, Benguet filed the instant
mining claims upon written notice to J.G. Realty. Benguet must petition.
then place the mining claims into commercial productive stage
within 24 months from the written notice. [6] It is also provided in The Issues
the RAWOP that if the mining claims were placed in commercial
production by Benguet, J.G. Realty should be entitled to a royalty
of five percent (5%) of net realizable value, and to royalty for 1. There was serious and palpable error
any production done by Benguet whether during the when the Honorable Board failed to rule that the
examination or development periods. contractual obligation of the parties to arbitrate under
the Royalty Agreement is mandatory.
Thus, on August 9, 1989, the Executive Vice-President of
Benguet, Antonio N. Tachuling, issued a letter informing J.G. 2. The Honorable Board exceeded its
Realty of its intention to develop the mining claims. However, on jurisdiction when it sustained the cancellation of the
February 9, 1999, J.G. Realty, through its President, Johnny L. Royalty Agreement for alleged breach of contract
Tan, then sent a letter to the President of Benguet informing the despite the absence of evidence.
latter that it was terminating the RAWOP on the following
grounds: 3. The Questioned Decision of the
Honorable Board in cancelling the RAWOP prejudice[d]
a. The fact that your company has failed to the substantial rights of Benguet under the contract to
perform the obligations set forth in the RAWOP, i.e., to the unjust enrichment of JG Realty.[12]
undertake development works within 2 years from the
execution of the Agreement;
Restated, the issues are: (1) Should the controversy have first
b. Violation of the Contract by allowing high been submitted to arbitration before the POA took cognizance of
graders to operate on our claim. the case?; (2) Was the cancellation of the RAWOP supported by
evidence?; and (3) Did the cancellation of the RAWOP amount to
c. No stipulation was provided with respect unjust enrichment of J.G. Realty at the expense of Benguet?
to the term limit of the RAWOP. The Courts Ruling

d. Non-payment of the royalties thereon as Before we dwell on the substantive issues, we find that
provided in the RAWOP.[7] the instant petition can be denied outright as Benguet resorted
to an improper remedy.
The last paragraph of Section 79 of Republic Act No. (RA) 7942
In response, Benguets Manager for Legal Services, or the Philippine Mining Act of 1995 states, A petition for review
Reynaldo P. Mendoza, wrote J.G. Realty a letter dated March 8, by certiorari and question of law may be filed by the aggrieved
1999,[8] therein alleging that Benguet complied with its party with the Supreme Court within thirty (30) days from
obligations under the RAWOP by investing PhP 42.4 million to receipt of the order or decision of the [MAB].
rehabilitate the mines, and that the commercial operation was
hampered by the non-issuance of a Mines Temporary Permit by However, this Court has already invalidated such provision
the Mines and Geosciences Bureau (MGB) which must be in Carpio v. Sulu Resources Development Corp.,[13]ruling that a
considered as force majeure, entitling Benguet to an extension decision of the MAB must first be appealed to the Court of
of time to prosecute such permit. Benguet further claimed that Appeals (CA) under Rule 43 of the Rules of Court, before
the high graders mentioned by J.G. Realty were already recourse to this Court may be had. We held, thus:
operating prior to Benguets taking over of the premises, and
that J.G. Realty had the obligation of ejecting such small scale To summarize, there are sufficient legal
miners. Benguet also alleged that the nature of the mining footings authorizing a review of the MAB Decision
business made it difficult to specify a time limit for the RAWOP. under Rule 43 of the Rules of Court. First, Section 30 of
Benguet then argued that the royalties due to J.G. Realty were in Article VI of the 1987 Constitution, mandates that [n]o
fact in its office and ready to be picked up at any time. It law shall be passed increasing the appellate jurisdiction
appeared that, previously, the practice by J.G. Realty was to of the Supreme Court as provided in this Constitution
pick-up checks from Benguet representing such royalties. without its advice and consent. On the other hand,
However, starting August 1994, J.G. Realty allegedly refused to Section 79 of RA No. 7942 provides that decisions of
collect such checks from Benguet. Thus, Benguet posited that the MAB may be reviewed by this Court on a petition
there was no valid ground for the termination of the RAWOP. It for review by certiorari. This provision is obviously an
also reminded J.G. Realty that it should submit the disagreement expansion of the Courts appellate jurisdiction, an
to arbitration rather than unilaterally terminating the RAWOP. expansion to which this Court has not consented.
Indiscriminate enactment of legislation enlarging the
On June 7, 2000, J.G. Realty filed a Petition for appellate jurisdiction of this Court would unnecessarily
Declaration of Nullity/Cancellation of the RAWOP [9] with the burden it.
Legaspi City POA, Region V, docketed as DENR Case No. 2000- Second, when the Supreme Court, in the
01 and entitled J.G. Realty v. Benguet. exercise of its rule-making power, transfers to the CA
pending cases involving a review of a quasi-judicial
On March 19, 2001, the POA issued a Decision, [10] dwelling upon bodys decisions, such transfer relates only to
the issues of (1) whether the arbitrators had jurisdiction over the procedure; hence, it does not impair the substantive
case; and (2) whether Benguet violated the RAWOP justifying and vested rights of the parties. The aggrieved partys
the unilateral cancellation of the RAWOP by J.G. Realty. The right to appeal is preserved; what is changed is only
dispositive portion stated: the procedure by which the appeal is to be made or
decided. The parties still have a remedy and a
WHEREFORE, premises considered, the June competent tribunal to grant this remedy.
01, 1987 [RAWOP] and its Supplemental Agreement is
hereby declared cancelled and without effect. BENGUET Third, the Revised Rules of Civil Procedure
is hereby excluded from the joint MPSA Application over included Rule 43 to provide a uniform rule on appeals
the mineral claims denominated as BONITO-I, BONITO- from quasi-judicial agencies. Under the rule, appeals
II, BONITO-III and BONITO-IV. from their judgments and final orders are now required
to be brought to the CA on a verified petition for review.
SO ORDERED. A quasi-judicial agency or body has been defined as an
organ of government, other than a court or legislature,
which affects the rights of private parties through
either adjudication or rule-making. MAB falls under this
31
definition; hence, it is no different from the other quasi- Thus, Benguet argues that the POA should have first referred the
judicial bodies enumerated under Rule 43. Besides, the case to voluntary arbitration before taking cognizance of the
introductory words in Section 1 of Circular No. 1- case, citing Sec. 2 of RA 876 on persons and matters subject to
91among these agencies areindicate that the arbitration.
enumeration is not exclusive or conclusive and
acknowledge the existence of other quasi-judicial On the other hand, in denying such argument, the POA ruled
agencies which, though not expressly listed, should be that:
deemed included therein.
While the parties may establish such stipulations
Fourth, the Court realizes that under Batas clauses, terms and conditions as they may deem
Pambansa (BP) Blg. 129 as amended by RA No. 7902, convenient, the same must not be contrary to law and
factual controversies are usually involved in decisions public policy. At a glance, there is nothing wrong with
of quasi-judicial bodies; and the CA, which is likewise the terms and conditions of the agreement. But to state
tasked to resolve questions of fact, has more elbow that an aggrieved party cannot initiate an action
room to resolve them. By including questions of fact without going to arbitration would be tying ones hand
among the issues that may be raised in an appeal from even if there is a law which allows him to do so. [17]
quasi-judicial agencies to the CA, Section 3 of Revised
Administrative Circular No. 1-95 and Section 3 of Rule
43 explicitly expanded the list of such issues. The MAB, meanwhile, denied Benguets contention on the
ground of estoppel, stating:
According to Section 3 of Rule 43, [a]n appeal
under this Rule may be taken to the Court of Appeals Besides, by its own act, Benguet is already estopped in
within the period and in the manner herein provided questioning the jurisdiction of the Panel of Arbitrators
whether the appeal involves questions of fact, of law, to hear and decide the case. As pointed out in the
or mixed questions of fact and law. Hence, appeals appealed Decision, Benguet initiated and filed an
from quasi-judicial agencies even only on questions of Adverse Claim docketed as MAC-R-M-2000-02 over the
law may be brought to the CA. same mining claims without undergoing contractual
arbitration. In this particular case (MAC-R-M-2000-02)
Fifth, the judicial policy of observing the now subject of the appeal, Benguet is likewise in
hierarchy of courts dictates that direct resort from estoppel from questioning the competence of the Panel
administrative agencies to this Court will not be of Arbitrators to hear and decide in the summary
entertained, unless the redress desired cannot be proceedings J.G. Realtys petition, when Benguet itself
obtained from the appropriate lower tribunals, or unless did not merely move for the dismissal of the case but
exceptional and compelling circumstances justify also filed an Answer with counterclaim seeking
availment of a remedy falling within and calling for the affirmative reliefs from the Panel of Arbitrators.[18]
exercise of our primary jurisdiction.[14]

Moreover, the MAB ruled that the contractual provision on


The above principle was reiterated in Asaphil Construction and arbitration merely provides for an additional forum or venue and
Development Corporation v. Tuason, Jr. (Asaphil).[15] However, does not divest the POA of the jurisdiction to hear the case. [19]
the Carpio ruling was not applied to Asaphil as the petition in
the latter case was filed in 1999 or three years before the In its July 20, 2004 Comment, [20] J.G. Realty reiterated the above
promulgation of Carpio in 2002. Here, the petition was filed on rulings of the POA and MAB. It argued that RA 7942 or the
April 28, 2004 when the Carpio decision was already applicable, Philippine Mining Act of 1995 is a special law which should
thus Benguet should have filed the appeal with the CA. prevail over the stipulations of the parties and over a general
law, such as RA 876. It also argued that the POA cannot be
Petitioner having failed to properly appeal to the CA considered as a court under the contemplation of RA 876 and
under Rule 43, the decision of the MAB has become final and that jurisprudence saying that there must be prior resort to
executory. On this ground alone, the instant petition must be arbitration before filing a case with the courts is inapplicable to
denied. the instant case as the POA is itself already engaged in
arbitration.
Even if we entertain the petition although Benguet
skirted the appeal to the CA via Rule 43, still, the December 2, On this issue, we rule for Benguet.
2002 Decision and March 17, 2004 Resolution of the DENR-MAB Sec. 2 of RA 876 elucidates the scope of arbitration:
in MAB Case No. 0124-01 should be maintained.
Section 2. Persons and matters subject to
First Issue: The case should have first been brought to arbitration.Two or more persons or parties may
voluntary arbitration before the POA submit to the arbitration of one or more
arbitrators any controversy existing between
Secs. 11.01 and 11.02 of the RAWOP pertinently provide: them at the time of the submission and which
may be the subject of an action, or the parties to
11.01 Arbitration any contract may in such contract agree to settle
by arbitration a controversy thereafter arising
Any disputes, differences or disagreements between between them. Such submission or contract shall
BENGUET and the OWNER with reference to anything be valid, enforceable and irrevocable, save upon
whatsoever pertaining to this Agreement that cannot such grounds as exist at law for the revocation of
be amicably settled by them shall not be cause of any any contract.
action of any kind whatsoever in any court or
administrative agency but shall, upon notice of one Such submission or contract may include
party to the other, be referred to a Board of Arbitrators question[s] arising out of valuations, appraisals or other
consisting of three (3) members, one to be selected by controversies which may be collateral, incidental,
BENGUET, another to be selected by the OWNER and precedent or subsequent to any issue between the
the third to be selected by the aforementioned two parties. (Emphasis supplied.)
arbitrators so appointed.

xxxx In RA 9285 or the Alternative Dispute Resolution Act of 2004, the


11.02 Court Action Congress reiterated the efficacy of arbitration as an alternative
mode of dispute resolution by stating in Sec. 32 thereof that
No action shall be instituted in court as to any matter in domestic arbitration shall still be governed by RA 876. Clearly, a
dispute as hereinabove stated, except to enforce the contractual stipulation that requires prior resort to voluntary
decision of the majority of the Arbitrators.[16] arbitration before the parties can go directly to court is not
illegal and is in fact promoted by the State. Thus, petitioner
correctly cites several cases whereby arbitration clauses have
been upheld by this Court.[21]
32
governmental unit or labor departments
Moreover, the contention that RA 7942 prevails over RA 876 personnel, said arbitrator renders arbitration services
presupposes a conflict between the two laws. Such is not the provided for under labor laws.[23] (Emphasis supplied.)
case here. To reiterate, availment of voluntary arbitration before
resort is made to the courts or quasi-judicial agencies of the
government is a valid contractual stipulation that must be There is a clear distinction between compulsory and voluntary
adhered to by the parties. As stated in Secs. 6 and 7 of RA 876: arbitration. The arbitration provided by the POA is compulsory,
while the nature of the arbitration provision in the RAWOP is
Section 6. Hearing by court.A party voluntary, not involving any government agency. Thus, J.G.
aggrieved by the failure, neglect or refusal of Realtys argument on this matter must fail.
another to perform under an agreement in As to J.G. Realtys contention that the provisions of RA 876
writing providing for arbitration may petition the cannot apply to the instant case which involves an
court for an order directing that such arbitration administrative agency, it must be pointed out that Section 11.01
proceed in the manner provided for in such of the RAWOP states that:
agreement. Five days notice in writing of the hearing
of such application shall be served either personally or [Any controversy with regard to the contract] shall not
by registered mail upon the party in default. The court be cause of any action of any kind whatsoever in any
shall hear the parties, and upon being satisfied court or administrative agency but shall, upon notice
that the making of the agreement or such failure of one party to the other, be referred to a Board of
to comply therewith is not in issue, shall make an Arbitrators consisting of three (3) members, one to be
order directing the parties to proceed to selected by BENGUET, another to be selected by the
arbitration in accordance with the terms of the OWNER and the third to be selected by the
agreement. If the making of the agreement or aforementioned two arbiters so appointed.
[24]
default be in issue the court shall proceed to (Emphasis supplied.)
summarily hear such issue. If the finding be that
no agreement in writing providing for arbitration There can be no quibbling that POA is a quasi-judicial body
was made, or that there is no default in the which forms part of the DENR, an administrative agency. Hence,
proceeding thereunder, the proceeding shall be the provision on mandatory resort to arbitration, freely entered
dismissed. If the finding be that a written into by the parties, must be held binding against them. [25]
provision for arbitration was made and there is a
default in proceeding thereunder, an order shall In sum, on the issue of whether POA should have referred the
be made summarily directing the parties to case to voluntary arbitration, we find that, indeed, POA has no
proceed with the arbitration in accordance with jurisdiction over the dispute which is governed by RA 876, the
the terms thereof. arbitration law.

xxxx However, we find that Benguet is already estopped from


questioning the POAs jurisdiction. As it were, when J.G. Realty
Section 7. Stay of civil action.If any suit or filed DENR Case No. 2000-01, Benguet filed its answer and
proceeding be brought upon an issue arising out of an participated in the proceedings before the POA, Region
agreement providing for the arbitration thereof, the V. Secondly, when the adverse March 19, 2001 POA Decision
court in which such suit or proceeding is pending, upon was rendered, it filed an appeal with the MAB in Mines
being satisfied that the issue involved in such suit or Administrative Case No. R-M-2000-01 and again participated in
proceeding is referable to arbitration, shall stay the the MAB proceedings. When the adverse December 2, 2002 MAB
action or proceeding until an arbitration has been had Decision was promulgated, it filed a motion for reconsideration
in accordance with the terms of the agreement: with the MAB. When the adverse March 17, 2004 MAB
Provided, That the applicant, for the stay is not in Resolution was issued, Benguet filed a petition with this Court
default in proceeding with such arbitration. (Emphasis pursuant to Sec. 79 of RA 7942 impliedly recognizing MABs
supplied.) jurisdiction. In this factual milieu, the Court rules that the
jurisdiction of POA and that of MAB can no longer be questioned
by Benguet at this late hour. What Benguet should have done
In other words, in the event a case that should properly be the was to immediately challenge the POAs jurisdiction by a special
subject of voluntary arbitration is erroneously filed with the civil action for certiorari when POA ruled that it has jurisdiction
courts or quasi-judicial agencies, on motion of the defendant, over the dispute. To redo the proceedings fully participated in by
the court or quasi-judicial agency shall determine whether such the parties after the lapse of seven years from date of institution
contractual provision for arbitration is sufficient and effective. If of the original action with the POA would be anathema to the
in affirmative, the court or quasi-judicial agency shall then order speedy and efficient administration of justice.
the enforcement of said provision. Besides, in BF Corporation v. Second Issue: The cancellation of the RAWOP
Court of Appeals, we already ruled: was supported by evidence

In this connection, it bears stressing that the The cancellation of the RAWOP by the POA was based
lower court has not lost its jurisdiction over the case. on two grounds: (1) Benguets failure to pay J.G. Realtys royalties
Section 7 of Republic Act No. 876 provides that for the mining claims; and (2) Benguets failure to seriously
proceedings therein have only been stayed. After the pursue MPSA Application No. APSA-V-0009 over the mining
special proceeding of arbitration has been pursued and claims.
completed, then the lower court may confirm the award As to the royalties, Benguet claims that the checks
made by the arbitrator.[22] representing payments for the royalties of J.G. Realty were
available for pick-up in its office and it is the latter which refused
to claim them. Benguet then thus concludes that it did not
J.G. Realtys contention, that prior resort to arbitration is violate the RAWOP for nonpayment of royalties. Further,
unavailing in the instant case because the POAs mandate is to Benguet reasons that J.G. Realty has the burden of proving that
arbitrate disputes involving mineral agreements, is misplaced. A the former did not pay such royalties following the principle that
distinction must be made between voluntary and compulsory the complainants must prove their affirmative allegations.
arbitration. In Ludo and Luym Corporation v. Saordino, the Court
had the occasion to distinguish between the two types of With regard to the failure to pursue the MPSA
arbitrations: application, Benguet claims that the lengthy time of approval of
Comparatively, in Reformist Union of R.B. Liner, Inc. vs. the application is due to the failure of the MGB to approve it. In
NLRC, compulsory arbitration has been defined both as other words, Benguet argues that the approval of the application
the process of settlement of labor disputes by is solely in the hands of the MGB.
a government agency which has the authority to
investigate and to make an award which is binding Benguets arguments are bereft of merit.
on all the parties, and as a mode of arbitration where
the parties are compelled to accept the resolution of Sec. 14.05 of the RAWOP provides:
their dispute through arbitration by a third party. While
a voluntary arbitrator is not part of the 14.05 Bank Account
33
equity and good conscience. Article 22 of the Civil Code
OWNER shall maintain a bank account at ___________ or provides that [e]very person who through an act of
any other bank from time to time selected by OWNER performance by another, or any other means, acquires
with notice in writing to BENGUET where BENGUET or comes into possession of something at the expense
shall deposit to the OWNERs credit any and all of the latter without just or legal ground, shall return
advances and payments which may become due the the same to him. The principle of unjust enrichment
OWNER under this Agreement as well as the purchase under Article 22 requires two conditions: (1) that a
price herein agreed upon in the event that BENGUET person is benefited without a valid basis or justification,
shall exercise the option to purchase provided for in the and (2) that such benefit is derived at anothers
Agreement. Any and all deposits so made by expense or damage.
BENGUET shall be a full and complete
acquittance and release to [sic] BENGUET from There is no unjust enrichment when the
any further liability to the OWNER of the person who will benefit has a valid claim to such
amounts represented by such deposits. (Emphasis benefit.[28](Emphasis supplied.)
supplied.)

Clearly, there is no unjust enrichment in the instant case as the


Evidently, the RAWOP itself provides for the mode of royalty cancellation of the RAWOP, which left Benguet without any legal
payment by Benguet. The fact that there was the previous right to participate in further developing the mining claims, was
practice whereby J.G. Realty picked-up the checks from Benguet brought about by its violation of the RAWOP. Hence, Benguet has
is unavailing. The mode of payment is embodied in a contract no one to blame but itself for its predicament.
between the parties. As such, the contract must be considered
as the law between the parties and binding on both.[26] Thus, WHEREFORE, we DISMISS the petition, and AFFIRM the
after J.G. Realty informed Benguet of the bank account where December 2, 2002 Decision and March 17, 2004 Resolution of
deposits of its royalties may be made, Benguet had the the DENR-MAB in MAB Case No. 0124-01 upholding the
obligation to deposit the checks. J.G. Realty had no obligation to cancellation of the June 1, 1987 RAWOP. No costs.
furnish Benguet with a Board Resolution considering that the SO ORDERED.
RAWOP itself provided for such payment scheme. THIRD DIVISIONG.R. No. 180640 April 24, 2009

Notably, Benguets claim that J.G. Realty must prove


HUTAMA-RSEA JOINT OPERATIONS, INC., Petitioner,
nonpayment of its royalties is both illogical and unsupported by
law and jurisprudence. vs.
CITRA METRO MANILA TOLLWAYS
The allegation of nonpayment is not a positive CORPORATION, Respondent.
allegation as claimed by Benguet. Rather, such is a negative
allegation that does not require proof and in fact transfers the DECISION
burden of proof to Benguet. Thus, this Court ruled in Jimenez
v. National Labor Relations Commission:
CHICO-NAZARIO, J.:
As a general rule, one who pleads payment
has the burden of proving it. Even where the plaintiff
Before Us is a Petition1 for Review on Certiorari under Rule 45 of
must allege non-payment, the general rule is that the
the Rules of Court seeking to set aside the Decision 2 dated 23
burden rests on the defendant to prove payment,
rather than on the plaintiff to prove non-payment. The May 2007 and Resolution3 dated 16 November 2007 of the Court
debtor has the burden of showing with legal of Appeals in CA-G.R. SP No. 92504.
certainty that the obligation has been discharged
by payment.[27] (Emphasis supplied.) The facts, culled from the records, are as follows:

In the instant case, the obligation of Benguet to pay Petitioner HUTAMA-RSEA Joint Operations Incorporation and
royalties to J.G. Realty has been admitted and supported by the respondent Citra Metro Manila Tollways Corporation are
provisions of the RAWOP. Thus, the burden to prove such corporations organized and existing under Philippine laws.
obligation rests on Benguet. Petitioner is a sub-contractor engaged in engineering and
construction works. Respondent, on the other hand, is the
It should also be borne in mind that MPSA Application No. APSA- general contractor and operator of the South Metro Manila
V-0009 has been pending with the MGB for a considerable Skyway Project (Skyway Project).
length of time. Benguet, in the RAWOP, obligated itself to
perfect the rights to the mining claims and/or otherwise acquire
the mining rights to the mineral claims but failed to present any On 25 September 1996, petitioner and respondent entered into
evidence showing that it exerted efforts to speed up and have an Engineering Procurement Construction Contract (EPCC)
the application approved. In fact, Benguet never even alleged whereby petitioner would undertake the construction of Stage 1
that it continuously followed-up the application with the MGB of the Skyway Project, which stretched from the junction of
and that it was in constant communication with the government Buendia Avenue, Makati City, up to Bicutan Interchange, Taguig
agency for the expeditious resolution of the application. Such City. As consideration for petitioners undertaking, respondent
allegations would show that, indeed, Benguet was remiss in obliged itself under the EPCC to pay the former a total amount
prosecuting the MPSA application and clearly failed to comply of US$369,510,304.00.4
with its obligation in the RAWOP.

Third Issue: There is no unjust enrichment in the instant During the construction of the Skyway Project, petitioner wrote
case respondent on several occasions requesting payment of the
formers interim billings, pursuant to the provisions of the EPCC.
Based on the foregoing discussion, the cancellation of the Respondent only partially paid the said interim billings, thus,
RAWOP was based on valid grounds and is, therefore, justified. prompting petitioner to demand that respondent pay the
The necessary implication of the cancellation is the cessation of outstanding balance thereon, but respondent still failed to do
Benguets right to prosecute MPSA Application No. APSA-V-0009 so.5
and to further develop such mining claims.

In Car Cool Philippines, Inc. v. Ushio Realty and Development The Skyway Project was opened on 15 December 1999 for public
Corporation, we defined unjust enrichment, as follows: use, and toll fees were accordingly collected. After informing
respondent that the construction of the Skyway Project was
We have held that [t]here is unjust enrichment already complete, petitioner reiterated its demand that
when a person unjustly retains a benefit to the loss of respondent pay the outstanding balance on the interim billings,
another, or when a person retains money or property of as well as the "Early Completion Bonus" agreed upon in the
another against the fundamental principles of justice,
34
EPCC. Respondent refused to comply with petitioners CIAC.12 Respondents Urgent Motion was denied by the CIAC in
demands.6 its Order dated 6 December 2005.13

On 24 May 2004, petitioner, through counsel, sent a letter to Respondent filed a Motion for Reconsideration of the CIAC Order
respondent demanding payment of the following: (1) the dated 6 December 2005.14 The CIAC issued, on 12 December
outstanding balance on the interim billings; (2) the amount of 2005, an Order denying respondents Motion for
petitioners final billing; (3) early completion bonus; and (4) Reconsideration.15 It held that prior resort by the parties to DAB
interest charges on the delayed payment. Thereafter, petitioner was not a condition precedent for it to assume jurisdiction over
and respondent, through their respective officers and CIAC Case No. 17-2005. Aggrieved, respondent assailed the
representatives, held several meetings to discuss the possibility CIAC Order dated 12 December 2005 by filing a special civil
of amicably settling the dispute. Despite several meetings and action for certiorari and prohibition with the Court of
continuous negotiations, lasting for a period of almost one year, Appeals,16 docketed as CA-G.R. SP No. 92504.
petitioner and respondent failed to reach an amicable
settlement.7 On 23 May 2007, the Court of Appeals rendered its Decision in
CA-G.R. SP No. 92504, annulling the 12 December 2005 Order of
Petitioner finally filed with the Construction Industry Arbitration the CIAC, and enjoining the said Commission from proceeding
Commission (CIAC) a Request for Arbitration, seeking to enforce with CIAC Case No. 17-2005 until the dispute between petitioner
its money claims against respondent.8 Petitioners Request was and respondent had been referred to and decided by the DAB, to
docketed as CIAC Case No. 17-2005. be constituted by the parties pursuant to Clause 20.4 of the
EPCC. The appellate court, thus, found that the CIAC exceeded
its jurisdiction in taking cognizance of petitioners Request for
In its Answer ad cautelam with Motion to Dismiss, respondent
Arbitration in CIAC Case No. 17-2005 despite the latters failure
averred that the CIAC had no jurisdiction over CIAC Case No. 17-
to initially refer its dispute with respondent to the DAB, as
2005. Respondent argued that the filing by petitioner of said
directed by Clause 20.4 of the EPCC.
case was premature because 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, The dispositive portion of the 23 May 2007 Decision of the Court
had not been satisfied or complied with. Respondent asked the of Appeals reads:
CIAC to dismiss petitioners Request for Arbitration in CIAC Case
No. 17-2005 and to direct the parties to comply first with Clause WHEREFORE, the instant petition is GRANTED and the order of
20.4 of the EPCC.9 the Arbitration Tribunal of the Construction Industry Arbitration
Commission dated December 12, 2005 is hereby ANNULED and
After submission by the parties of the necessary pleadings on SET ASIDE and, instead, [CIAC, members of the Arbitral
the matter of jurisdiction, the CIAC issued on 30 August 2005, Tribunal,17 and herein petitioner], their agents or anybody acting
an Order in CIAC Case No. 17-2005, favoring petitioner. The CIAC in their behalf, are enjoined from further proceeding with CIAC
ruled that it had jurisdiction over CIAC Case No. 17-2005, and Case No. 17-2005, promulgating a decision therein, executing
that the determination of whether petitioner had complied with the same if one has already been promulgated or otherwise
Clause 20.4 of the EPCC was a factual issue that may be enforcing said order of December 12, 2005 until the dispute has
resolved during the trial. It then ordered respondent to file an been referred to and decided by the Dispute Adjudication Board
Answer to petitioners Request for Arbitration.10 to be constituted by the parties in accordance with Sub-Clause
20.4 of the Engineering Procurement Construction Contract
dated September 25, 1996.
After respondent and petitioner filed an Answer and a Reply,
respectively, in CIAC Case No. 17-2005, the CIAC conducted a
preliminary conference, wherein petitioner and respondent Petitioner filed a Motion for Reconsideration of the afore-
signed the "Terms of Reference" outlining the issues to be mentioned Decision but this was denied by the Court of Appeals
resolved, viz: in a Resolution dated 16 November 2007.

(1) Is prior resort to the DAB a precondition to Hence, petitioner filed the instant Petition for Review before us
submission of the dispute to arbitration considering raising the sole issue of whether CIAC has jurisdiction over CIAC
that the DAB was not constituted?; Case No. 17-2005.

(2) Is [herein petitioner] entitled to the balance of the Section 4 of Executive Order No. 1008 18 defines the jurisdiction
principal amount of the contract? If so, how much?; of CIAC, thus:

(3) Is [petitioner] entitled to the early compensation SECTION 4. Jurisdiction. - The CIAC shall have original and
bonus net of VAT due thereon? If so, how much?; exclusive jurisdiction over disputes arising from, or connected
with, contracts entered into by parties involved in construction
in the Philippines, whether the disputes arises before or after
(4) Was there delay in the completion of the project? If
the completion of the contract, or after the abandonment or
so, is [herein respondent] entitled to its counterclaim
breach thereof. These disputes may involve government or
for liquidated damages?;
private contracts. For the Board to acquire jurisdiction, the
parties to a dispute must agree to submit the same to voluntary
(5) Is [petitioner] entitled to payment of interest on the arbitration.
amounts of its claims for unpaid billings and early
completion bonus? If so, at what rate and for what
The jurisdiction of the CIAC may include but is not limited to
period?;
violation of specifications for materials and workmanship;
violation of the terms of agreement; interpretation and/or
(6) Which of the parties is entitled to reimbursement of application of contractual provisions; amount of damages and
the arbitration costs incurred? 11 penalties; commencement time and delays; maintenance and
defects; payment default of employer or contractor and changes
Respondent, however, subsequently filed an Urgent Motion in contract cost.
requesting that CIAC refrain from proceeding with the trial
proper of CIAC Case No. 17-2005 until it had resolved the issue Excluded from the coverage of this law are disputes arising from
of whether prior resort by the parties to DAB was a condition employer-employee relationships which shall continue to be
precedent to the submission of the dispute to covered by the Labor Code of the Philippines. (Emphasis ours.)
35
Further, Section 1, Article III of the CIAC Rules of Procedure contract arising out of their appointment; the parties
Governing Construction Arbitration19 (CIAC Rules), provides: shall indemnify the members against such claims.

SECTION 1. Submission to CIAC Jurisdiction. An arbitration The terms of the remuneration of the Dispute Adjudication
clause in a construction contract or a submission to arbitration Board, including the remuneration of each member and of any
of a construction dispute shall be deemed an agreement to specialist from whom the Dispute Adjudication Board may
submit an existing or future controversy to CIAC jurisdiction, require to seek advice, shall be mutually agreed upon by the
notwithstanding the reference to a different arbitration Employer, the Contractor and each member of the Dispute
institution or arbitral body in such contract or submission. When Adjudication Board when agreeing such terms of appointment.
a contract contains a clause for the submission of a future In the event of disagreement, the remuneration of each member
controversy to arbitration, it is not necessary for the parties to shall include reimbursement for reasonable expenses, a daily
enter into a submission agreement before the claimant may fee in accordance with the daily fee established from time to
invoke the jurisdiction of CIAC. time for arbitrators under the administrative and financial
regulations of the International Centre for Settlement of
Investment Disputes, and a retainer fee per calendar month
An arbitration agreement or a submission to arbitration shall be
equivalent to three times such daily fee.
in writing, but it need not be signed by the parties, as long as
the intent is clear that the parties agree to submit a present or
future controversy arising from a construction contract to The Employer and the Contractor shall each pay one-half of the
arbitration. Dispute Adjudication Boards remuneration in accordance with
its terms of remuneration. If, at any time, either party shall fail
to pay its due proportion of such remuneration, the other party
It may be in the form of exchange of letters sent by post or by
shall be entitled to make payment on his behalf and recover if
telefax, telexes, telegrams or any other modes of
from the party in default.
communication. (Emphasis ours.)

The Dispute Adjudication Boards appointment may be


Based on the foregoing provisions, the CIAC shall have
terminated only by mutual agreement of the Employer and the
jurisdiction over a dispute involving a construction contract if
Contractor. The Dispute Adjudication Boards appointment shall
said contract contains an arbitration clause (nothwithstanding
expire when the discharge referred to in Sub-Clause 13.12 shall
any reference by the same contract to another arbitration
have become effective, or at such other time as the parties may
institution or arbitral body); or, even in the absence of such a
mutually agree.
clause in the construction contract, the parties still agree to
submit their dispute to arbitration.
It, at any time, the parties so agree, they may appoint a suitably
qualified person to replace (or to be available to replace) any or
It is undisputed that in the case at bar, the EPCC contains an
all members of the Dispute Adjudication Board. The
arbitration clause in which the petitioner and respondent
appointment will come into effect if a member of the Dispute
explicitly agree to submit to arbitration any dispute between
Adjudication Board declines to act or is unable to act as a result
them arising from or connected with the EPCC, under the
of death, disability, resignation or termination of appointment. If
following terms and conditions20 :
a member so declines or is unable to act, and no such
replacement is available to act, the member shall be replaced in
CLAIMS, DISPUTES and ARBITRATION the same manner as such member was to have been
nominated.
xxxx
If any of the following conditions apply, namely:
20.3 Unless the member or members of the Dispute
Adjudication Board have been previously mutually agreed upon (a) the parties fail to agree upon the appointment of
by the parties and named in the Contract, the parties shall, the sole member of a one-person Dispute Adjudication
within 28 days of the Effective Date, jointly ensure the Board within 28 days of the Effective Date,
appointment of a Dispute Adjudication Board. Such Dispute
Adjudication Board shall comprise suitably qualified persons as
(b) either party fails to nominate an acceptable
members, the number of members being either one or three, as
member, for the Dispute Adjudication Board of three
stated in the Appendix to Tender. If the Dispute Adjudication
members, within 28 days of the Effective Date,
Board is to comprise three members, each party shall nominate
one member for the approval of the other party, and the parties
shall mutually agree upon and appoint the third member (who (c) the parties fail to agree upon the appointment of
shall act as chairman). the third member (to act as chairman) within 28 days
of the Effective Date, or
The terms of appointment of the Dispute Adjudication Board
shall: (d) the parties fail to agree upon the appointment of a
replacement member of the Dispute Adjudication Board
within 28 days of the date on which a member of the
(a) incorporate the model terms published by the
Dispute Adjudication Board declines to act or is unable
Fdration Internationale des Ingnieurs-Conseils
to act as a result of death, disability, resignation or
(FIDIC),
termination of appointment,

(b) require each member of the Dispute Adjudication


then the person or administration named in the Appendix to the
Board to be, and to remain throughout the
Tender shall, after due consultation with the parties, nominate
appointment, independent of the parties,
such member of the Dispute Adjudication Board, and such
nomination shall be final and conclusive.
(c) require the Dispute Adjudication Board to act
impartially and in accordance with the Contract, and
20.4 If a dispute arises between the Employer and the
Contractor in connection with, or arising out of, the Contract or
(d) include undertakings by the parties (to each other the execution of the Works, including any dispute as to any
and to the Dispute Adjudication Board) that the opinion, instruction, determination, certification or valuation of
members of the Dispute Adjudication Board shall in no the Employers Representative, the dispute shall initially be
circumstances be liable for breach of duty or of referred in writing to the Dispute Adjudication Board for its
36
decision, with a copy to the other party. Such reference shall Adjudication Board shall not be altered by reason of the
state that it is made under this Sub-Clause. The parties shall arbitration being conducted during the progress of the Works.
promptly make available to the Dispute Adjudication Board all
such information, access to the Site, and appropriate facilities, 20.7 Where neither party has given notice of dissatisfaction
as the Dispute Adjudication Board may require for the purposes within the period stated in Sub-Clause 20.4 and the Dispute
of rendering its decision. No later than the fifty-sixth day after Adjudication Boards related decision, if any, has become final
the day on which it received such reference, the Dispute and binding, either party may, if the other party fails to comply
Adjudication Board, acting as a panel of expert(s) and not as with such decision, and without prejudice to any other rights it
arbitrator(s), shall give notice of its decision to the parties. Such may have, refer the failure itself to arbitration under Sub-Clause
notice shall include reasons and shall state that it is given under 20.6. The provisions of Sub-Clauses 20.4 and 20.5 shall not
this Sub-Clause.1awphi1.zw+ apply to any such reference.

Unless the Contract has already been repudiated or terminated, 20.8 When the appointment of the Dispute Adjudication Board
the Contractor shall, in every case, continue to proceed with the and of any replacement has expired, any such dispute referred
Works with all due diligence, and the Contractor and the to in Sub-Clause 20.4 shall be finally settled by arbitration
Employer shall give effect forthwith to every decision of the pursuant to Sub-Clause 20.6. The provisions of Sub-Clauses 20.4
Dispute Adjudication Board, unless and until the same shall be and 20.5 shall not apply to any such reference. (Emphasis ours.)
revised, as hereinafter provided, in an amicable settlement or an
arbitral award.
Despite the presence of the afore-quoted arbitration clause in
the EPCC, it is respondents position, upheld by the Court of
If either party is dissatisfied with the Dispute Adjudication Appeals, that the CIAC still cannot assume jurisdiction over CIAC
Boards decision, then either party, on or before the twenty- Case No. 17-2005 (petitioners Request for Arbitration) because
eighth day after the day on which it received notice of such petitioner has not yet referred its dispute with respondent to the
decision, may notify the other party of its dissatisfaction. If the DAB, as directed by Clause 20.4 of the EPCC. Prior resort of the
Dispute Adjudication Board fails to give notice of its decision on dispute to DAB is a condition precedent and an indispensable
or before the fifty-sixth day after the day on which it received requirement for the CIAC to acquire jurisdiction over CIAC Case
the reference, then either party, on or before the twenty-eighth No. 17-2005.21
day after the day on which the said period of fifty-six days has
expired, may notify the other party of its dissatisfaction. In
either event, such notice of dissatisfaction shall state that it is It is true that Clause 20.4 of the EPCC states that a dispute
given under this Sub-Clause, such notice shall set out the between petitioner and respondent as regards the EPCC shall be
matters in dispute and the reason(s) for dissatisfaction and, initially referred to the DAB for decision, and only when the
subject to Sub-Clauses 20.7 and 20.8, no arbitration in respect parties are dissatisfied with the decision of the DAB should
of such dispute may be commenced unless such notice is given. 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.
If the Dispute Adjudication Board has given notice of its decision
as to a matter in dispute to the Employer and the Contractor
and no notice of dissatisfaction has been given by either party Under Section 1, Article III of the CIAC Rules, an arbitration
on or before the twenty-eighth day after the day on which the clause in a construction contract shall be deemed as an
parties received the Dispute Adjudication Boards decision, then agreement to submit an existing or future controversy to CIAC
the Dispute Adjudication Boards decision shall become final and jurisdiction, "notwithstanding the reference to a different
binding upon the Employer and the Contractor. arbitration institution or arbitral body in such contract x x x."
Elementary is the rule that when laws or rules are clear, it is
incumbent on the court to apply them. When the law (or rule) is
20.5 Where notice of dissatisfaction has been given under Sub- unambiguous and unequivocal, application, not interpretation
Clause 20.4, the parties shall attempt to settle such dispute thereof, is imperative.22
amicably before the commencement of arbitration. Provided
that unless the parties agree otherwise, arbitration may be
commenced on or after the fifty-sixth day after the day on which Hence, the bare fact that the parties herein incorporated an
notice of dissatisfaction was given, even if no attempt at arbitration clause in the EPCC is sufficient to vest the CIAC with
amicable settlement has been made. jurisdiction over any construction controversy or claim between
the parties.23 The arbitration clause in the construction contract
ipso facto vested the CIAC with jurisdiction.24 This rule applies,
20.6 Any dispute in respect of which: regardless of whether the parties specifically choose another
forum or make reference to another arbitral body. 25 Since the
(a) the decision, if any, of the Dispute Adjudication jurisdiction of CIAC is conferred by law, it cannot be subjected to
Board has not become final and binding pursuant to any condition; nor can it be waived or diminished by the
Sub-Clause 20.4, and 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
(b) amicable settlement has not been reached, shall be
contract.26 The parties will not be precluded from electing to
finally decided by international arbitration. The
submit their dispute to CIAC, because this right has been vested
arbitration rules under which the arbitration is
in each party by law.27
conducted, the institution to nominate the arbitrator(s)
or to administer the arbitration rules (unless named
therein), the number of arbitrators, and the language In China Chang Jiang Energy Corporation (Philippines) v. Rosal
and place of such arbitration shall be as set out in the Infrastructure Builders,28 we elucidated thus:
Appendix to Tender. The arbitrator(s) shall have full
power to open up, review and revise any decision of the What the law merely requires for a particular construction
Dispute Adjudication Board. contract to fall within the jurisdiction of CIAC is for the parties to
agree to submit the same to voluntary arbitration. Unlike in the
Neither party shall be limited, in the proceedings before such original version of Section 1, as applied in the Tesco case, the
arbitrator(s), to the evidence or arguments previously put before law does not mention that the parties should agree to submit
the Dispute Adjudication Board to obtain its decision. disputes arising from their agreement specifically to the CIAC for
the latter to acquire jurisdiction over such disputes. Rather, it is
plain and clear that as long as the parties agree to submit to
Arbitration may be commenced prior to or after completion of
voluntary arbitration, regardless of what forum they may
the Works. The obligations of the parties and the Dispute
choose, their agreement will fall within the jurisdiction of the
37
CIAC, such that, even if they specially choose another forum, the with, contracts entered into by the parties involved in
parties will not be precluded from electing to submit their construction in the Philippines.30
dispute before the CIAC because this right has been vested upon
each party by law, i.e., E.O. No. 1008. The dispute between petitioner and respondent has been
lingering for almost five years now. Despite numerous meetings
xxxx and negotiations between the parties, which took place prior to
petitioners filing with the CIAC of its Request for Arbitration, no
amicable settlement was reached. A ruling requiring the parties
Now that Section 1, Article III [CIAC Rules of Procedure
to still appoint a DAB, to which they should first refer their
Governing Construction Arbitration], as amended, is submitted
dispute before the same could be submitted to the CIAC, would
to test in the present petition, we rule to uphold its validity with
merely be circuitous and dilatory at this point. It would entail
full certainty. However, this should not be understood to mean
unnecessary delays and expenses on both parties, which
that the parties may no longer stipulate to submit their disputes
Executive Order No. 1008 precisely seeks to prevent. It would,
to a different forum or arbitral body. Parties may continue to
indeed, defeat the purpose for which the CIAC was created.
stipulate as regards their preferred forum in case of voluntary
arbitration, but in so doing, they may not divest the CIAC of
jurisdiction as provided by law. Under the elementary principle WHEREFORE, the Petition is hereby GRANTED. The Decision,
on the law on contracts that laws obtaining in a jurisdiction form dated 23 May 2007, and Resolution, dated 16 November 2007,
part of all agreements, when the law provides that the Board of the Court of Appeals in CA-G.R. SP No. 92504 are hereby
acquires jurisdiction when the parties to the contract agree to REVERSED and SET ASIDE. The instant case is hereby
submit the same to voluntary arbitration, the law in effect, REMANDED for further proceedings to the CIAC which is
automatically gives the parties an alternative forum before DIRECTED to resolve the same with dispatch.
whom they may submit their disputes. That alternative forum is
the CIAC. This, to the mind of the Court, is the real spirit of E.O. SO ORDERED.
No. 1008, as implemented by Section 1, Article III of the CIAC
Rules. (Emphases ours.)
FIRST DIVISION [G.R. No. 129169. November 17, 1999]

Likewise, in National Irrigation Administration v. Court of


Appeals,29 we pronounced that: NATIONAL IRRIGATION ADMINISTRATION (NIA), petitioner,
vs. HONORABLE COURT OF APPEALS (4th
Division), CONSTRUCTION INDUSTRY
Under the present Rules of Procedure [CIAC Rules of Procedure ARBITRATION COMMISSION, and HYDRO
Governing Construction Arbitration], for a particular construction RESOURCES CONTRACTORS
contract to fall within the jurisdiction of CIAC, it is merely CORPORATION, respondents.
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 DECISION
the parties should agree to submit disputes arising from their
agreement specifically to the CIAC for the latter to acquire DAVIDE, JR., C.J.:
jurisdiction over the same. Rather, it is plain and clear that as
long as the parties agree to submit to voluntary arbitration,
In this special civil action for certiorari under Rule 65 of the
regardless of what forum they may choose, their agreement will
Rules of Court, the National Irrigation Administration (hereafter
fall within the jurisdiction of the CIAC, such that, even if they
NIA), seeks to annul and set aside the Resolutions [1]of the Court
specifically choose another forum, the parties will not be
of Appeals in CA-GR. SP No. 37180 dated 28 June 1996 and 24
precluded from electing to submit their dispute before the CIAC
February 1997, which dismissed respectively NIAs petition
because this right has been vested upon each party by law, i.e.,
for certiorari and prohibition against the Construction Industry
E.O. No. 1008.
Arbitration Commission (hereafter CIAC), and the motion for
reconsideration thereafter filed.
We note that this is not a case wherein the arbitration clause in
the construction contract named another forum, not the CIAC,
Records show that in a competitive bidding held by NIA in
which shall have jurisdiction over the dispute between the
August 1978, Hydro Resources Contractors Corporation
parties; rather, the said clause requires prior referral of the
(hereafter HYDRO) was awarded Contract MPI-C-2 for the
dispute to the DAB. Nonetheless, we still hold that this condition
construction of the main civil works of the Magat River Multi-
precedent, or more appropriately, non-compliance therewith,
Purpose Project. The contract provided that HYDRO would be
should not deprive CIAC of its jurisdiction over the dispute
paid partly in Philippine pesos and partly in U.S. dollars. HYDRO
between the parties.
substantially completed the works under the contract in 1982
and final acceptance by NIA was made in 1984. HYDRO
It bears to emphasize that the mere existence of an arbitration thereafter determined that it still had an account receivable
clause in the construction contract is considered by law as an from NIA representing the dollar rate differential of the price
agreement by the parties to submit existing or future escalation for the contract.[2]
controversies between them to CIAC jurisdiction, without any
qualification or condition precedent. To affirm a condition
After unsuccessfully pursuing its case with NIA, HYDRO, on
precedent in the construction contract, which would effectively
7 December 1994, filed with the CIAC a Request for Adjudication
suspend the jurisdiction of the CIAC until compliance therewith,
of the aforesaid claim. HYDRO nominated six arbitrators for the
would be in conflict with the recognized intention of the law and
arbitration panel, from among whom CIAC appointed Engr. Lauro
rules to automatically vest CIAC with jurisdiction over a dispute
M. Cruz. On 6 January 1995, NIA filed its Answer wherein it
should the construction contract contain an arbitration clause.
questioned the jurisdiction of the CIAC alleging lack of cause of
action, laches and estoppel in view of HYDROs alleged failure to
Moreover, the CIAC was created in recognition of the avail of its right to submit the dispute to arbitration within the
contribution of the construction industry to national prescribed period as provided in the contract. On the same date,
development goals. Realizing that delays in the resolution of NIA filed a Compliance wherein it nominated six arbitrators, from
construction industry disputes would also hold up the among whom CIAC appointed Atty. Custodio O. Parlade, and
development of the country, Executive Order No. 1008 expressly made a counterclaim for P1,000,000 as moral damages; at
mandates the CIAC to expeditiously settle construction industry least P100,000 as exemplary damages; P100,000 as attorneys
disputes and, for this purpose, vests in the CIAC original and fees; and the costs of the arbitration.[3]
exclusive jurisdiction over disputes arising from, or connected
38
The two designated arbitrators appointed Certified Public E.O. NO. 1008 IS A SUBSTANTIVE LAW, NOT MERELY
Accountant Joven B. Joaquin as Chairman of the Arbitration PROCEDURAL AS RULED BY THE CIAC.
Panel.The parties were required to submit copies of the evidence
they intended to present during the proceedings and were D
provided the draft Terms of Reference.[4]

AN INDORSEMENT OF THE AUDITOR GENERAL DECIDING A


At the preliminary conference, NIA through its counsel Atty. CONTROVERSY IS A DECISION BECAUSE ALL THE ELEMENTS FOR
Joy C. Legaspi of the Office of the Government Corporate JUDGMENT ARE THERE; THE CONTROVERSY, THE AUTHORITY TO
Counsel, manifested that it could not admit the genuineness of DECIDE AND THE DECISION.IF IT IS NOT APPEALED SEASONABLY,
HYDROs evidence since NIAs records had already been THE SAME BECOMES FINAL.
destroyed. NIA requested an opportunity to examine the
originals of the documents which HYDRO agreed to provide. [5]
E

After reaching an accord on the issues to be considered by


the arbitration panel, the parties scheduled the dates of NIA HAS TIMELY RAISED THE ISSUE OF JURISDICTION. IT DID NOT
hearings and of submission of simultaneous memoranda.[6] WAIVE NOR IS IT ESTOPPED FROM ASSAILING THE SAME.

On 13 March 1995, NIA filed a Motion to Dismiss [7]alleging F


lack of jurisdiction over the disputes. NIA contended that there
was no agreement with HYDRO to submit the dispute to CIAC for THE LEGAL DOCTRINE THAT JURISDICTION IS DETERMINED BY
arbitration considering that the construction contract was THE STATUTE IN FORCE AT THE TIME OF THE COMMENCEMENT
executed in 1978 and the project completed in 1982, whereas OF THE ACTION DOES NOT ONLY APPLY TO THE INSTANT CASE. [11]
the Construction Industry Arbitration Law creating CIAC was
signed only in 1985; and that while they have agreed to
The Court of Appeals, after finding that there was no grave
arbitration as a mode of settlement of disputes, they could not
abuse of discretion on the part of the CIAC in issuing the
have contemplated submission of their disputes to CIAC. NIA
aforesaid Orders, dismissed the petition in its Resolution dated
further argued that records show that it had not voluntarily
28 June 1996. NIAs motion for reconsideration of the said
submitted itself to arbitration by CIAC citing TESCO Services,
Inc. v. Hon. Abraham Vera, et al.,[8] wherein it was ruled: decision was likewise denied by the Court of Appeals on 26
February 1997.

CIAC did not acquire jurisdiction over the dispute arising from
On 2 June 1997, NIA filed before us an original action
the sub-contract agreement between petitioner TESCO and
for certiorari and prohibition with urgent prayer for temporary
private respondent LAROSA. The records do not show that the
restraining order and writ of preliminary injunction, praying for
parties agreed to submit the disputes to arbitration by the CIAC
the annulment of the Resolutions of the Court of Appeals dated
xxxx. While both parties in the sub-contract had agreed to
28 June 1996 and 24 February 1997. In the said special civil
submit the matter to arbitration, this was only between
action, NIA merely reiterates the issues it raised before the
themselves, no request having been made by both with the
Court of Appeals. [12]
CIAC. Hence, as already stated, the CIAC, has no jurisdiction
over the dispute. xxxx. Nowhere in the said article (sub-
contract) does it mention the CIAC, much less, vest jurisdiction We take judicial notice that on 10 June 1997, CIAC
with the CIAC. rendered a decision in the main case in favor of HYDRO. [13] NIA
assailed the said decision with the Court of Appeals. In view of
the pendency of the present petitions before us the appellate
On 11 April 1995, the arbitral body issued an order [9] which
court issued a resolution dated 26 March 1998 holding in
deferred the determination of the motion to dismiss and
abeyance the resolution of the same until after the instant
resolved to proceed with the hearing of the case on the merits
petitions have been finally decided.[14]
as the grounds cited by NIA did not seem to be indubitable. NIA
filed a motion for reconsideration of the aforesaid Order. CIAC in
denying the motion for reconsideration ruled that it has At the outset, we note that the petition suffers from a
jurisdiction over the HYDROs claim over NIA pursuant to E.O procedural defect that warrants its outright dismissal. The
1008 and that the hearing should proceed as scheduled. [10] questioned resolutions of the Court of Appeals have already
become final and executory by reason of the failure of NIA to
appeal therefrom.Instead of filing this petition
On 26 May 1996, NIA filed with the Court of Appeals an
for certiorari under Rule 65 of the Rules of Court, NIA should
original action of certiorari and prohibition with prayer for
have filed a timely petition for review under Rule 45.
restraining order and/or injunction, seeking to annul the Orders
of the CIAC for having been issued without or in excess of
jurisdiction. In support of its petition NIA alleged that: There is no doubt that the Court of Appeals has jurisdiction
over the special civil action for certiorari under Rule 65 filed
before it by NIA. The original jurisdiction of the Court of Appeals
A
over special civil actions for certiorari is vested upon it under
Section 9(1) of B.P. 129. This jurisdiction is concurrent with the
RESPONDENT CIAC HAS NO AUTHORITY OR JURIDICTION TO Supreme Court[15] and with the Regional Trial Court.[16]
HEAR AND TRY THIS DISPUTE BETWEEN THE HEREIN PARTIES AS
E.O. NO. 1008 HAD NO RETROACTIVE EFFECT.
Thus, since the Court of Appeals had jurisdiction over the
petition under Rule 65, any alleged errors committed by it in the
B exercise of its jurisdiction would be errors of judgment which are
reviewable by timely appeal and not by a special civil action
THE DISPUTE BETWEEN THE PARTIES SHOULD BE SETTLED IN of certiorari.[17] If the aggrieved party fails to do so within the
ACCORDANCE WITH GC NO. 25, ART. 2046 OF THE CIVIL CODE reglementary period, and the decision accordingly becomes final
AND R.A. NO. 876 THE GOVERNING LAWS AT THE TIME and executory, he cannot avail himself of the writ of certiorari,
CONTRACT WAS EXECUTED AND TERMINATED. his predicament being the effect of his deliberate inaction. [18]

C The appeal from a final disposition of the Court of Appeals


is a petition for review under Rule 45 and not a special civil
action under Rule 65 of the Rules of Court, now Rule 45 and Rule
65, respectively, of the 1997 Rules of Civil Procedure.[19] Rule 45
39
is clear that decisions, final orders or resolutions of the Court of NIAs argument that CIAC had no jurisdiction to arbitrate on
Appeals in any case, i.e., regardless of the nature of the action contract which preceded its existence is untenable. E.O. 1008 is
or proceedings involved, may be appealed to this Court by filing clear that the CIAC has jurisdiction over all disputes arising from
a petition for review, which would be but a continuation of the or connected with construction contract whether the dispute
appellate process over the original case. [20] Under Rule 45 the arises before or after the completion of the contract. Thus, the
reglementary period to appeal is fifteen (15) days from notice of date the parties entered into a contract and the date of
judgment or denial of motion for reconsideration.[21] 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
In the instant case the Resolution of the Court of Appeals
after the constitution of the CIAC. Stated differently, the
dated 24 February 1997 denying the motion for reconsideration
jurisdiction of CIAC is over the dispute, not the contract; and the
of its Resolution dated 28 June 1997 was received by NIA on 4
instant dispute having arisen when CIAC was already
March1997. Thus, it had until 19 March 1997 within which to
constituted, the arbitral board was actually exercising current,
perfect its appeal. NIA did not appeal. What it did was to file an
not retroactive, jurisdiction. As such, there is no need to pass
original action for certiorari before this Court, reiterating the
upon the issue of whether E.O. No. 1008 is a substantive or
issues and arguments it raised before the Court of Appeals.
procedural statute.

For the writ of certiorari under Rule 65 of the Rules of Court


NIA also contended that the CIAC did not acquire
to issue, a petitioner must show that he has no plain, speedy
jurisdiction over the dispute since it was only HYDRO that
and adequate remedy in the ordinary course of law against its
requested for arbitration. It asserts that to acquire jurisdiction
perceived grievance.[22] A remedy is considered plain, speedy
over a case, as provided under E.O. 1008, the request for
and adequate if it will promptly relieve the petitioner from the
arbitration filed with CIAC should be made by both parties, and
injurious effects of the judgment and the acts of the lower court
hence the request by one party is not enough.
or agency.[23] In this case, appeal was not only available but also
a speedy and adequate remedy.
It is undisputed that the contracts between HYDRO and NIA
contained an arbitration clause wherein they agreed to submit
Obviously, NIA interposed the present special civil action
to arbitration any dispute between them that may arise before
of certiorari not because it is the speedy and adequate remedy
or after the termination of the agreement. Consequently, the
but to make up for the loss, through omission or oversight, of
the right of ordinary appeal. It is elementary that the special claim of HYDRO having arisen from the contract is
arbitrable. NIAs reliance with the ruling on the case of Tesco
civil action of certiorari is not and cannot be a substitute for an
Services Incorporated v. Vera,[30] is misplaced.
appeal, where the latter remedy is available, as it was in this
case. A special civil action under Rule 65 of the Rules of Court
will not be a cure for failure to timely file a petition for review The 1988 CIAC Rules of Procedure which were applied by
on certiorari under Rule 45 of the Rules of Court. [24] Rule 65 is this Court in Tesco case had been duly amended by CIAC
an independent action that cannot be availed of as a substitute Resolutions No. 2-91 and 3-93, Section 1 of Article III of which
for the lost remedy of an ordinary appeal, including that under read as follows:
Rule 45,[25] especially if such loss or lapse was occasioned by
ones own neglect or error in the choice of remedies.[26] Submission to CIAC Jurisdiction - An arbitration clause in a
construction contract or a submission to arbitration of a
For obvious reasons the rules forbid recourse to a special construction contract or a submission to arbitration of a
civil action for certiorari if appeal is available, as the remedies of construction dispute shall be deemed an agreement to submit
appeal and certiorari are mutually exclusive and not alternative an existing or future controversy to CIAC jurisdiction,
or successive.[27] Although there are exceptions to the rules, notwithstanding the reference to a different arbitration
none is present in the case at bar. NIA failed to show institution or arbitral body in such contract or submission. When
circumstances that will justify a deviation from the general rule a contract contains a clause for the submission of a future
as to make available a petition for certiorari in lieu of taking an controversy to arbitration, it is not necessary for the parties to
appropriate appeal. enter into a submission agreement before the claimant may
invoke the jurisdiction of CIAC.
Based on the foregoing, the instant petition should be
dismissed. 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
In any case, even if the issue of technicality is disregarded
voluntary arbitration. Unlike in the original version of Section 1,
and recourse under Rule 65 is allowed, the same result would be
as applied in the Tesco case, the law as it now stands does not
reached since a review of the questioned resolutions of the CIAC
provide that the parties should agree to submit disputes arising
shows that it committed no grave abuse of discretion.
from their agreement specifically to the CIAC for the latter to
acquire jurisdiction over the same. Rather, it is plain and clear
Contrary to the claim of NIA, the CIAC has jurisdiction over that as long as the parties agree to submit to voluntary
the controversy. Executive Order No.1008, otherwise known as arbitration, regardless of what forum they may choose, their
the Construction Industry Arbitration Law which was agreement will fall within the jurisdiction of the CIAC, such that,
promulgated on 4 February 1985, vests upon CIAC original and even if they specifically choose another forum, the parties will
exclusive jurisdiction over disputes arising from, or connected not be precluded from electing to submit their dispute before
with contracts entered into by parties involved in construction in the CIAC because this right has been vested upon each party by
the Philippines, whether the dispute arises before or after the law, i.e., E.O. No. 1008.[31]
completion of the contract, or after the abandonment or breach
thereof. The disputes may involve government or private
Moreover, it is undeniable that NIA agreed to submit the
contracts. For the Board to acquire jurisdiction, the parties to a
dispute for arbitration to the CIAC. NIA through its counsel
dispute must agree to submit the same to voluntary arbitration.
[28] 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
The complaint of HYDRO against NIA on the basis of the deliberations on, and the formulation of, the Terms of Reference
contract executed between them was filed on 7 December 1994, of the arbitration proceeding, and examining the documents
during the effectivity of E.O. No. 1008. Hence, it is well within submitted by HYDRO after NIA asked for the originals of the said
the jurisdiction of CIAC. The jurisdiction of a court is determined documents.[32]
by the law in force at the time of the commencement of the
action.[29]
40
As to the defenses of laches and prescription, they are After summing up the award to both parties this TRIBUNAL
evidentiary in nature which could not be established by mere hereby awards the amount of THREE MILLION NINE HUNDRED
allegations in the pleadings and must not be resolved in a SIXTY-FOUR THOUSAND SIX HUNDRED SEVENTY[-]ONE PESOS
motion to dismiss. Those issues must be resolved at the trial of AND SIXTEEN CENTAVOS (P3,964,671.16) to CLAIMANT
the case on the merits wherein both parties will be given ample Philippine Commercial Industrial Bank. Respondent William
opportunity to prove their respective claims and defenses. Golangco Construction is hereby ordered to pay the stated
[33]
Under the rule[34] the deferment of the resolution of the said amount with legal interest of six (6%) percent from date of this
issues was, thus, in order. An allegation of prescription can decision until fully paid.[2]
effectively be used in a motion to dismiss only when the
complaint on its face shows that indeed the action has already PCIB filed on June 28, 1996 a Motion for Partial
prescribed.[35] In the instant case, the issue of prescription and Reconsideration[3] of the CIAC Decision which is not
laches cannot be resolved on the basis solely of the complaint. It allowed under Section 9, Article XV of the CIAC Rules of
must, however, be pointed that under the new rules,
[36]
Procedure. It subsequently filed on July 12, 1996 before the CA a
deferment of the resolution is no longer permitted. The court petition for Certiorari and/or Partial Review [4] which may be
may either grant the motion to dismiss, deny it, or order the treated as an original action for certiorari under Rule 65 of the
amendment of the pleading. Rules of Court or as a petition for review under Circular 1-95 of
the Supreme Court, alleging that the CIAC acted in excess of its
WHEREFORE, the instant petition is DISMISSED for lack of jurisdiction and contrary to law in awarding, without basis, an
merit. The Court of Appeals is hereby DIRECTED to proceed with amount in favor of WGCC.
reasonable dispatch in the disposition of C.A. G.R. No. 44527
and include in the resolution thereof the issue of laches and To PCIBs petition filed before the CA WGCC filed a Motion to
prescription. Dismiss with Motion to Cite PCIB Counsel for Contempt[5] on the
ground that it was filed beyond the 15-day reglementary period
SO ORDERED. for filing an appeal, in support of which it alleged that, contrary
to the allegation of counsel for PCIB that he acquired actual
knowledge of the CIAC decision on June 28, 1996, PCIB actually
THIRD DIVISION[G.R. No. 127275. June 20, 2003]
received a copy thereof on June 24, 1996, hence, it had only
until July 9, 1996 within which to file before the CA a petition
PHILIPPINE COMMERCIAL INTERNATIONAL for review. Since PCIB filed before the CA its petition for
BANK, petitioner, vs. COURT OF APPEALS, Certiorari and/or Partial Review on July 12, 1996, WGCC
WILLIAM GOLANGCO CONSTRUCTION CORP., concluded that it was late by 3 days. WGCC attached to its
Chairman ERNESTO S. DE CASTRO, and members motion a certified photocopy[6] of the pertinent entry in the CIAC
LAURO M. CRUZ and VICTOR P. LAZATIN of the logbook showing that Engineer Bong Nuno received a copy of
ARBITRAL TRIBUNAL of the CONSTRUCTION the decision for PCIB on June 24, 1996.
INDUSTRY ARBITRATION
COMMISSION, respondents.
By its assailed Resolution,[7] the CA granted WGCCs Motion
to Dismiss PCIBs petition upon a finding that indeed PCIB
CARPIO-MORALES, J.: received a copy of the CIAC decision on June 24, 1996 and,
therefore, its petition was belatedly filed. On the nature of the
Petitioner Philippine Commercial Industrial Bank (PCIB) petition, the CA held that an original action for certiorari under
assails, by the present Petition for Certiorari and Mandamus, the Rule 65 and a petition for review under Circular 1-95 of the
September 25, 1996 Resolution of the Court of Appeals (CA) Supreme Court cannot be the subject of a single pleading.
dismissing its petition for Certiorari and/or Partial Review of CIAC
Case No. 07-95, on motion of private respondent William PCIBs Motion for Reconsideration having been denied by
Golangco Construction Corporation (WGCC). the CA, it comes to this Court by the present petition for
Certiorari and Mandamus upon the following grounds:
PCIB contracted WGCC to construct the 5th to 21st floors
of PCIB Tower II in Makati. Alleging that the granite finish [of the I
tower] proved to be defective such that after all efforts at
negotiations proved futile it hired another contractor to redo the
THE RESPONDENT COURT GRAVELY ABUSED ITS DISCRETION TO
defective finish, but that WGCC refused to pay it actual
THE GRAVE AND IRREPARABLE DAMAGE TO THE PETITIONER
damages incurred in the process, PCIB filed a request for
AND FAILED OR UNLAWFULLY NEGLECTED TO DO AN ACT WHICH
arbitration with the Construction Industry Arbitration
THE LAW ENJOINS IT TO DO WHEN IT DISMISSED THE PETITION
Commission (CIAC), which docketed it as CIAC Case No. 07-95,
IN CA G.R. SP NO. 41227.
praying that WGCC be held liable for construction deficiencies.

II
WGCC denied PCIBs claim, it alleging that it accomplished
the project faithfully and in accordance with the specifications-
requirements of PCIB which accepted it after due inspection. It THE RESPONDENT COURT GRAVELY ABUSED ITS DISCRETION TO
counterclaimed that PCIB was actually indebted to it for material THE GRAVE AND IRREPARABLE DAMAGE AND INJURY TO THE
cost adjustment since the cost of materials substantially PETITIONER AND FAILED OR UNLAWFULLY NEGLECTED TO DO AN
increased in the course of the construction of the project. ACT WHICH THE LAW ENJOINS IT TO DO WHEN IT REFUSED TO
ALLOW THE PETITIONERS ALTERNATIVE RELIEFS FOR REVIEW
AND/OR FOR CERTIORARI. (Underscoring supplied)
The CIAC, by Decision[1] of June 21, 1996, found that PCIB
was entitled to recover from WGCC the sum of P9,741,829.00
representing cost of repairs done by another contractor on the PCIBs counsel disclaims that Engineer Bong Nuno is his
project. On WGCCs counterclaim, finding that under the parties employee but submits anyway that he was not authorized to
contract, increase for labor and materials under certain receive the CIAC decision for him in his (counsels) capacity as,
conditions was allowed but that PCIB presented no strong, or at by his claim, the authorized representative of PCIB.
best, token opposition to the evidence presented by WGCC for
the escalated cost of materials, the CIAC awarded WGCC the The present petition fails.
amount of P5,777,157.84. The CIAC accordingly disposed as
follows:
In the petition for Certiorari and/or Partial Review of CIAC
Case No. 07-95[8] filed before the CA by PCIB, its counsel alleged,
inter alia, as follows, quoted verbatim:
41
Inasmuch as the undersigned counsel ha[s] not officially 1996, it was only on June 27 (sic), 1996 that [he] had actual
received its copy of the Decision sought to be reviewed knowledge of the content of the decision. (Emphasis
because the Arbitral Tribunal had such copy served only on supplied). PCIBs counsels latest position may not be entertained
[PCIB], the reglementary period should be reckoned from the given his glaring admission that copy of the CIAC decision was
date when the undersigned counsel actually acquired knowledge duly served on June 24 1996 on PCIB, a party to the case which,
thereof which was on 28 June 1996 when it filed [PCIBs] Motion as will now be discussed, CIAC Rules mandates should be the
for Partial Reconsideration.Accordingly, treated as a Petition for one to be notified of the text of the decision.
Review, pursuant to resolution No. 2-95, this petition is
seasonable. The CIAC Rules of Procedure does not contain a provision
similar to Section 2, Rule 13 of the Revised Rules of Court,
A copy of the Decision as served upon [PCIB] itself is attached reiterated in the 1997 Rules of Civil Procedure, which provides
marked as Annex A and made a part thereof.[9] (Underscoring that service to any party represented by counsel should be
supplied) made upon his counsel, unless service upon the party himself is
ordered by the court. Instead, Section 7, Article XV of the CIAC
Rules of Procedure provides:
The copy of the CIAC decision attached to PCIBs petition
before the CA is a computer print-out bearing
the originalsignatures of the Chairman and two members of Section 7. Notification of Award to Parties Once an award has
the Arbitral Tribunal.[10] When PCIB received that copy of the been made, provided that the costs of the arbitration have been
CIAC decision, the petition filed before the CA did not state. fully paid to the Secretariat by the parties or by one of them, the
Secretariat shall notify the parties of the text signed by the
Arbitrator or Arbitral Tribunal.
As earlier stated, WGCC filed before the CA a Motion to
Dismiss with Motion to Cite PCIB Counsel for Contempt, [11]on the
grounds that: Additional copies certified true by the Executive Director of the
Secretariat shall be made available, on request and at any time,
to the parties or their counsel but to no one else. (Emphasis
THE . . . PETITION HAS BEEN FILED BEYOND THE REGLEMENTARY
and underscoring supplied)
PERIOD OF FIFTEEN DAYS FROM PETITIONERS RECEIPT OF THE
ASSAILED DECISION.
From the immediately-quoted provision of the CIAC Rules,
it is the parties who are to be notified of the text of the CIAC
PETITIONERS COUNSEL IS GUILTY OF MISREPRESENTING FACTS IN
decision. This answers PCIBs counsels jarring complaint that he
A BLATANT ATTEMPT TO HIDE THE BELATED FILING OF THE . . .
was not officially served with a copy of the CIAC decision.
PETITION;

In fine, copy of the CIAC decision having admittedly been


and in said Motion to Dismiss, WGCC alleged that per CIAC
served on and received by PCIB on June 24, 1996, PCIBs
records, petitioner received its copy of the CIAC decision on June
counsel cannot assail the validity of such service by now
24, 1996, hence, the petition filed before the CA on July 12,
claiming that the same was ineffective as it was not served on
1996 was late by 3 days.
him (counsel) as the duly authorized representative of PCIB.

In its Opposition [to WGCCs Motion to Dismiss], and


It is an elementary rule of procedure that perfection of an
Countermotion for Contempt,[12] PCIBs counsel admitted that
appeal within the reglementary period is not
PCIB was indeed served copy of the CIAC decision through
only mandatory but also jurisdictional so that failure to do so
Engineer Nuno but that it was only on June 28, 1996 that PCIB
renders the questioned decision final and executory, and
sent him a copy thereof. Thus PCIBs counsel alleged:
deprives an appellate court of jurisdiction to alter the final
judgment, much less to entertain the appeal.[13]
In its petition filed with this Honorable Court [of Appeals], the
petitioner was candid in alleging that although it received a copy
PCIB having filed its petition for Certiorari and/or Partial
of a decision of the Arbitral Tribunal, no actual service thereof
Review after the CIAC decision had become final and executory,
was made on the undersigned counsel. Receipt by the
the CA correctly granted WGCCs Motion to Dismiss the
petitioner itself of the decision did not start the running of the
same. This leaves it unnecessary to pass upon PCIBs plaint
period to appeal. It is basic that:
about the CAs refus[al] to allow [its] alternative reliefs for review
and/or certiorari. Suffice it to state that the following ruling of
xxx. The moment an attorney appears for any party, notice this Court instructs:
should be given to the furnished. xxx where a party appears by
attorney in an action or proving in a court of record all notices
We have time and again reminded members of the bench and
thereafter requires to be given in the action or providing must
bar that a special civil action for certiorari under Rule 65 lies
be given to the attorney and not to the client; and a notice given
only when there is no appeal nor plain, speedy and adequate
to the client and not to his attorney is not a notice in law (Palad
remedy in the ordinary course of law. Certiorari cannot be
vs. Cui, et al., 28 Phil. 44). In legal contemplation, therefore, and
allowed when a party to a case fails to appeal a judgment
under the fact, the present case, there was no legal service of
despite the availability of that remedy, certiorari not being a
the notice, and the defendants creed not be in default. (Elli, et
substitute for lost appeal. The remedies of appeal and
al. vs. Ditan, et al., 5 SCRA 503, 506).
certiorari are mutually exclusive and not alternative or
successive (Emphasis supplied, citations omitted.) [14]
When, therefore, the undersigned submitted in the petition
that it had actual knowledge of the decision on 28 June
PCIB, at all events, appeals for a relaxation of the Rules
1996 when the petitioner sent it a copy thereof, it was
given the [substantial] issues and amounts involved. But even
not only being candid, but was also admitting that it
its present petition for certiorari and mandamus is not the
already had actual notice of the decision as of then, hence,
proper remedy from the CA Resolution. What it should have filed
the running of the period to appeal must commence as of
was a petition for review under Rule 45 of the Rules of
then. (Emphasis supplied, underscoring by petitioner)
Court. But even if, in accordance with the liberal spirit pervading
the Rules of Court and in the interest of justice, this Court, in the
In the present petition before this Court, PCIBs exercise of its discretion, treats the present petition for certiorari
counsel now alleges that in the CIAC decision, he was as one for review under Rule 45, petitioner has failed to proffer
specifically named as the representative and counsel for [PCIB], meritorious reasons or arguments for its allowance.
but since the decision was not served on him as the authorized
representative of PCIB but to an employee of [PCIB] on June 24,
42
WHEREFORE, the present petition is hereby DISMISSED. pay the amount stated in the third progress billing, claiming that
it still had to evaluate the works accomplished by HRCC.
SO ORDERED. On November 25, 2004, HRCC submitted to FFCCI its
fourth progress billing in the amount of P1,527,112.95 for the
SECOND DIVISION March 14, 2012 G.R. No. 187521 works it had completed from October 26 to November 25, 2004.

F.F. CRUZ & CO., INC., Petitioner,- versus - HR Subsequently, FFCCI, after it had evaluated the
CONSTRUCTION CORP., completed works of HRCC from September 26 to November 25,
Respondent. 2004, approved the payment of the gross amount
of P1,505,570.99 to HRCC. FFCCI deducted
REYES, J.: therefrom P150,557.10 for retention and P27,374.02 for
expanded withholding tax leaving a net payment
This is a petition for review on certiorari under Rule 45 of P1,327,639.87, which amount was paid to HRCC on March 11,
of the Rules of Court filed by petitioner F.F. Cruz & Co., Inc. 2005.[9]
(FFCCI) assailing the Decision[1] dated February 6, 2009 and
Resolution[2] dated April 13, 2009 issued by the Court of Appeals Meanwhile, HRCC sent FFCCI a letter [10] dated
(CA) in CA-G.R. SP No. 91860. December 13, 2004 demanding the payment of its progress
billings in the total amount of P7,340,046.09, plus interests,
within three days from receipt thereof. Subsequently, HRCC
completely halted the construction of the subcontracted project
The Antecedent Facts after taking its Christmas break on December 18, 2004.

Sometime in 2004, FFCCI entered into a contract with On March 7, 2005, HRCC, pursuant to the arbitration
the Department of Public Works and Highways (DPWH) for the clause in the Subcontract Agreement, filed with the Construction
construction of the Magsaysay Viaduct, known as the Lower Industry Arbitration Commission (CIAC) a Complaint [11] against
Agusan Development Project. On August 9, 2004, FFCCI, in turn, FFCCI praying for the payment of the following: (1) overdue
entered into a Subcontract Agreement [3] with HR Construction obligation in the reduced amount of P4,096,656.53 as of
Corporation (HRCC) for the supply of materials, labor, December 15, 2004 plus legal interest; (2) P1,500,000.00 as
equipment, tools and supervision for the construction of a attorneys fees; (3) P80,000.00 as acceptance fee and
portion of the said project called the East Bank Levee and Cut- representation expenses; and (4) costs of litigation.
Off Channel in accordance with the specifications of the main
contract. In its Answer,[12] FFCCI claimed that it no longer has any
liability on the Subcontract Agreement as the three payments it
The subcontract price agreed upon by the parties made to HRCC, which amounted to P3,472,521.86, already
amounted to P31,293,532.72. Pursuant to the Subcontract represented the amount due to the latter in view of the works
Agreement, HRCC would submit to FFCCI a monthly progress actually completed by HRCC as shown by the survey it
billing which the latter would then pay, subject to stipulated conducted jointly with the DPWH. FFCCI further asserted that
deductions, within 30 days from receipt thereof. the delay in the payment processing was primarily attributable
to HRCC inasmuch as it presented unverified work
The parties agreed that the requests of HRCC for accomplishments contrary to the stipulation in the Subcontract
payment should include progress accomplishment of its Agreement regarding requests for payment.
completed works as approved by FFCCI. Additionally, they
agreed to conduct a joint measurement of the completed works Likewise, FFCCI maintained that HRCC failed to comply
of HRCC together with the representative of DPWH and with the condition stated under the Subcontract Agreement for
consultants to arrive at a common quantity. the payment of the latters progress billings, i.e. joint
measurement of the completed works, and, hence, it was
Thereafter, HRCC commenced the construction of the justified in not paying the amount stated in HRCCs progress
works pursuant to the Subcontract Agreement. billings.

On September 17, 2004, HRCC submitted to FFCCI its On June 16, 2005, an Arbitral Tribunal was created
first progress billing in the amount of P2,029,081.59 covering composed of Engineer Ricardo B. San Juan, Joven B. Joaquin and
the construction works it completed from August 16 to Attorney Alfredo F. Tadiar, with the latter being appointed as the
September 15, 2004.[4] However, FFCCI asserted that the DPWH Chairman.
was then able to evaluate the completed works of HRCC only
until July 25, 2004. Thus, FFCCI only approved the gross amount In a Preliminary Conference held on July 5, 2005, the
of P423,502.88 for payment. Pursuant to the Subcontract parties defined the issues to be resolved in the proceedings
Agreement, FFCCI deducted from the said gross before the CIAC as follows:
amount P42,350.29 for retention and P7,700.05 for expanded
withholding tax leaving a net payment in the amount 1. What is the correct amount of [HRCCs] unpaid
of P373,452.54. This amount was paid by FFCCI to HRCC on progress billing?
December 3, 2004.[5]
2. Did [HRCC] comply with the conditions set forth in
FFCCI and the DPWH then jointly evaluated the subparagraph 4.3 of the Subcontract Agreement
completed works of HRCC for the period of July 26 to September for the submission, evaluation/processing and
25, 2004. FFCCI claimed that the gross amount due for the release of payment of its progress billings?
completed works during the said period was P2,008,837.52.
From the said gross amount due, FFCCI deducted 3. Did [HRCC] stop work on the project?
therefrom P200,883.75 for retention and P36,524.07 for
expanded withholding tax leaving amount of P1,771,429.45 as 3.1 If so, is the work stoppage justified?
the approved net payment for the said period. FFCCI paid this
amount on December 21, 2004.[6] 3.2 If so, what was the percentage and value
of [HRCCs] work accomplishment at the
On October 29, 2004, HRCC submitted to FFCCI its time it stopped work on the project?
second progress billing in the amount of P1,587,760.23 covering
its completed works from September 18 to 25, 2004. [7] FFCCI did 4. Who between the parties should bear the cost of
not pay the amount stated in the second progress billing, arbitration or in what proportion should it be
claiming that it had already paid HRCC for the completed works shared by the parties?[13]
for the period stated therein.

On even date, HRCC submitted its third progress billing Likewise, during the said Preliminary Conference, HRCC
in the amount of P2,569,543.57 for its completed works from further reduced the amount of overdue obligation it claimed
September 26 to October 25, 2004. [8] FFCCI did not immediately from FFCCI to P2,768,916.66. During the course of the
proceedings before the CIAC, HRCC further reduced the said
43
amount to P2,635,397.77 the exact difference between the total
amount of HRCCs progress billings (P6,107,919.63) and FFCCIs
total payments in favor of the latter (P3,472,521.86). Further, the CIAC ruled that FFCCI had already waived
its right under the Subcontract Agreement to require a joint
The CIAC Decision measurement of HRCCs completed works as a condition
precedent to the payment of the latters progress billings. Hence:
On September 6, 2005, after due proceedings, the CIAC
rendered a Decision[14] in favor of HRCC, the decretal portion of [FFCCI] admits that in all three instances
which reads: where it paid [HRCC] for its progress billings, it never
required compliance with the aforequoted contractual
WHEREFORE, judgment is hereby rendered in provision of a prior joint quantification. Such repeated
favor of the Claimant HR CONSTRUCTION omission may reasonably be construed as
CORPORATION and AWARD made on its monetary a waiver by [FFCCI] of its contractual right to require
claim against Respondent F.F. CRUZ & CO., INC., as compliance of said condition and it is now too late in
follows: the day to so impose it. Article 6 of the Civil Code
expressly provides that rights may be waived unless
[P]2,239,452.63 as the balance of its unpaid the waiver is contrary to law, public order, public
billings and policy, morals or good customs. The tribunal cannot
see any such violation in this case.
101,161.57 as reimbursement of the
arbitration costs. xxx

[P]2,340,614.20 Total due the Claimant [FFCCIs] omission to enforce the contractually
required condition of payment, has led [HRCC] to
Interest on the foregoing believe it to be true that indeed [FFCCI] has waived the
amount [P]2,239,452.63 shall be paid at the rate of condition of joint quantification and, therefore, [FFCCI]
6% per annum from the date of this Decision. After may not be permitted to falsify such resulting position.
[17]
finality of this Decision, interest at the rate of 12% per
annum shall be paid thereon until full payment of the
awarded amount shall have been made x x x.
Likewise, the CIAC held that FFCCIs non-payment of the
SO ORDERED.[15] progress billings submitted by HRCC gave the latter the right to
rescind the Subcontract Agreement and, accordingly, HRCCs
work stoppage was justified. It further opined that, in effect,
The CIAC held that the payment method adopted by FFCCI had ratified the right of HRCC to stop the construction
FFCCI is actually what is known as the back-to-back payment works as it did not file any counterclaim against HRCC for
scheme which was not agreed upon under the Subcontract liquidated damages arising therefrom.
Agreement. As such, the CIAC ruled that FFCCI could not impose
upon HRCC its valuation of the works completed by the latter. FFCCI then filed a petition for review with CA assailing
The CIAC gave credence to HRCCs valuation of its completed the foregoing disposition by the CIAC.
works as stated in its progress billings. Thus:
The CA Decision
During the trial, [FFCCIs] Aganon admitted
that [HRCCs] accomplishments are included in its own On February 6, 2009, the CA rendered the herein
billings to the DPWH together with a substantial mark- assailed Decision[18] denying the petition for review filed by
up to cover overhead costs and profit. He further FFCCI. The CA agreed with the CIAC that FFCCI had waived its
admitted that it is only when DPWH approves its right under the Subcontract Agreement to require a joint
(Respondents) billings covering [HRCCs] scope of work quantification of HRCCs completed works.
and pays for them, that [FFCCI] will in turn pay [HRCC]
for its billings on the sub-contracted works. The CA further held that the amount due to HRCC as
claimed by FFCCI could not be given credence since the same
On clarificatory questioning by the Tribunal, was based on a survey of the completed works conducted
[FFCCI] admitted that there is no back-to- without the participation of HRCC. Likewise, being the main
back provision in the sub-contract as basis for contractor, it ruled that it was the responsibility of FFCCI to
this sequential payment arrangement and, include HRCC in the joint measurement of the completed works.
therefore, [FFCCIs] imposition thereof by withholding Furthermore, the CA held that HRCC was justified in stopping its
payment to [HRCC] until it is first paid by the project construction works on the project as the failure of FFCCI to pay
owner on the Main Contract, clearly violates said sub- its progress billings gave the former the right to rescind the
contract. It [is] this unauthorized implementation of a Subcontract Agreement.
back-to-back payment scheme that is seen to be the
reason for [FFCCIs] non-payment of the third progress FFCCI sought a reconsideration[19] of the said February
billings. 6, 2009 Decision but it was denied by the CA in its
Resolution[20] dated April 13, 2009.
It is accordingly the holding of this Arbitral
Tribunal that [FFCCI] is not justified in withholding Issues
payment of [HRCCs] third progress billing for this
scheme that [HRCC] has not agreed to in the sub- In the instant petition, FFCCI submits the following
contract agreement x x x. issues for this Courts resolution:

xxx [I.]

The total retention money deducted by [FFCCI] x x x First, [d]oes the act of [FFCCI] in
from [HRCCs] three progress billings, amounts conducting a verification survey of [HRCCs] billings in
to [P]395,945.14 x x x. The retention money is part of the latters presence amount to a waiver of the right of
[HRCCs] progress billings and must, therefore, be [FFCCI] to verify and approve said billings? What, if any,
credited to this account. The two amounts (deductions is the legal significance of said act?
and net payments) total [P]3,868,467.00 x x x. This
represents the total gross payments that should be [II.]
credited and deducted from the total gross billings to
arrive at what has not been paid to the [HRCC]. This x x x Second, [d]oes the payment of [FFCCI] to
results in the amount [HRCC] based on the results of the above mentioned
of [P]2,239,452.63 ([P]6,107,919.63 - verification survey result in the former being obliged to
[P]3,868,467.00) as the correct balance of [HRCCs] accept whatever accomplishment was reported by the
unpaid billings.[16] latter?
44
Aware of the objective of voluntary arbitration
[III.] in the labor field, in the construction industry, and in
any other area for that matter, the Court will not assist
x x x Third, [d]oes the mere comparison of the one or the other or even both parties in any effort to
payments made by [FFCCI] with the contested progress subvert or defeat that objective for their private
billings of [HRCC] amount to an adjudication of the purposes. The Court will not review the factual findings
controversy between the parties? of an arbitral tribunal upon the artful allegation that
such body had "misapprehended the facts" and will not
[IV.] pass upon issues which are, at bottom, issues of fact,
no matter how cleverly disguised they might be as
x x x Fourth, [d]oes the failure of [FFCCI] to "legal questions." The parties here had recourse to
interpose a counterclaim against [HRCC] for liquidated arbitration and chose the arbitrators themselves; they
damages due to the latters work stoppage, amount to a must have had confidence in such arbitrators. x x
ratification of such work stoppage? x[25] (Citation omitted)

[V.]
Thus, in cases assailing the arbitral award rendered by
x x x Fifth, [d]id the [CA] disregard or overlook the CIAC, this Court may only pass upon questions of
significant and material facts which would affect the law. Factual findings of construction arbitrators are final and
result of the litigation?[21] conclusive and not reviewable by this Court on appeal. This rule,
however, admits of certain exceptions.

In sum, the crucial issues for this Courts resolution In Spouses David v. Construction Industry and Arbitration
are: first, what is the effect of FFCCIs non-compliance with the Commission,[26] we laid down the instances when this Court may
stipulation in the Subcontract Agreement requiring a joint pass upon the factual findings of the CIAC, thus:
quantification of the works completed by HRCC on the payment
of the progress billings submitted by the latter; and second, We reiterate the rule that factual findings of
whether there was a valid rescission of the Subcontract construction arbitrators are final and conclusive and
Agreement by HRCC. not reviewable by this Court on appeal, except when
the petitioner proves affirmatively that: (1) the award
The Courts Ruling was procured by corruption, fraud or other undue
means; (2) there was evident partiality or corruption of
The petition is not meritorious. the arbitrators or of any of them; (3) the arbitrators
were guilty of misconduct in refusing to postpone the
hearing upon sufficient cause shown, or in refusing to
Procedural Issue: hear evidence pertinent and material to the
Finality and Conclusiveness of the CIACs Factual Findings controversy; (4) one or more of the arbitrators were
disqualified to act as such under section nine of
Before we delve into the substantial issues raised by FFCCI, we Republic Act No. 876 and willfully refrained from
shall first address the procedural issue raised by HRCC. disclosing such disqualifications or of any other
According to HRCC, the instant petition merely assails the misbehavior by which the rights of any party have been
factual findings of the CIAC as affirmed by the CA and, materially prejudiced; or (5) the arbitrators exceeded
accordingly, not proper subjects of an appeal under Rule 45 of their powers, or so imperfectly executed them, that a
the Rules of Court. It likewise pointed out that factual findings of mutual, final and definite award upon the subject
the CIAC, when affirmed by the CA, are final and conclusive matter submitted to them was not made. x x
upon this Court. x[27] (Citation omitted)

Generally, the arbitral award of CIAC is final and may not


be appealed except on questions of law. Issues on the proper interpretation of the terms of the
Subcontract Agreement involve questions of law.

Executive Order (E.O.) No. 1008 [22] vests upon the CIAC original
and exclusive jurisdiction over disputes arising from, or A question of law arises when there is doubt as to what the law
connected with, contracts entered into by parties involved in is on a certain state of facts, while there is a question of fact
construction in the Philippines. Under Section 19 of E.O. No. when the doubt arises as to the truth or falsity of the alleged
1008, the arbitral award of CIAC "shall be final and inappealable facts. For a question to be one of law, the same must not involve
except on questions of law which shall be appealable to the an examination of the probative value of the evidence presented
Supreme Court."[23] by the litigants or any of them. The resolution of the issue must
rest solely on what the law provides on the given set of
In Hi-Precision Steel Center, Inc. v. Lim Kim Steel Builders, Inc., circumstances. Once it is clear that the issue invites a review of
[24]
we explained raison d etre for the rule on finality of the CIACs the evidence presented, the question posed is one of fact.[28]
arbitral award in this wise:
On the surface, the instant petition appears to merely
Voluntary arbitration involves the reference of raise factual questions as it mainly puts in issue the appropriate
a dispute to an impartial body, the members of which amount that is due to HRCC. However, a more thorough analysis
are chosen by the parties themselves, which parties of the issues raised by FFCCI would show that it actually asserts
freely consent in advance to abide by the arbitral questions of law.
award issued after proceedings where both parties had
the opportunity to be heard. The basic objective is to FFCCI primarily seeks from this Court a determination
provide a speedy and inexpensive method of settling of whether amount claimed by HRCC in its progress billing may
disputes by allowing the parties to avoid the be enforced against it in the absence of a joint measurement of
formalities, delay, expense and aggravation which the formers completed works. Otherwise stated, the main
commonly accompany ordinary litigation, especially question advanced by FFCCI is this: in the absence of the joint
litigation which goes through the entire hierarchy of measurement agreed upon in the Subcontract Agreement, how
courts. Executive Order No. 1008 created an arbitration will the completed works of HRCC be verified and the amount
facility to which the construction industry in due thereon be computed?
the Philippines can have recourse. The Executive Order
was enacted to encourage the early and expeditious The determination of the foregoing question entails an
settlement of disputes in the construction industry, a interpretation of the terms of the Subcontract Agreement vis--
public policy the implementation of which is necessary vis the respective rights of the parties herein. On this point, it
and important for the realization of national should be stressed that where an interpretation of the true
development goals. agreement between the parties is involved in an appeal, the
appeal is in effect an inquiry of the law between the parties, its
interpretation necessarily involves a question of law. [29]
45
a common/agreed quantity.[33] (Emphasis
Moreover, we are not called upon to examine the supplied)
probative value of the evidence presented before the CIAC.
Rather, what is actually sought from this Court is an
interpretation of the terms of the Subcontract Agreement as it Pursuant to the terms of payment agreed upon by the
relates to the dispute between the parties. parties, FFCCI obliged itself to pay the monthly progress billings
of HRCC within 30 days from receipt of the same. Additionally,
First Substantive Issue: Effect of Non-compliance with the monthly progress billings of HRCC should indicate the extent
the Joint Quantification Requirement on the of the works completed by it, the same being essential to the
Progress Billings of HRCC valuation of the amount that FFCCI would pay to HRCC.

Basically, the instant issue calls for a determination as to which The parties further agreed that the extent of HRCCs
of the parties respective valuation of accomplished works should completed works that would be indicated in the monthly
be given credence. FFCCI claims that its valuation should be progress billings should be determined through a joint
upheld since the same was the result of a measurement of the measurement conducted by FFCCI and HRCC together with the
completed works conducted by it and the DPWH. On the other representative of DPWH and the consultants.
hand, HRCC maintains that its valuation should be upheld on
account of FFCCIs failure to observe the joint measurement It is the responsibility of FFCCI to call for the joint
requirement in ascertaining the extent of its completed works. measurement of HRCCs completed works.

The terms of the Subcontract Agreement should prevail.


It bears stressing that the joint measurement contemplated
under the Subcontract Agreement should be conducted by the
In resolving the dispute as to the proper valuation of the works parties herein together with the representative of the DPWH and
accomplished by HRCC, the primordial consideration should be the consultants. Indubitably, FFCCI, being the main contractor of
the terms of the Subcontract Agreement. It is basic that if the DPWH, has the responsibility to request the representative of
terms of a contract are clear and leave no doubt upon the DPWH to conduct the said joint measurement.
intention of the contracting parties, the literal meaning of its
stipulations shall control.[30] On this score, the testimony of Engineer Antonio M.
Aganon, Jr., project manager of FFCCI, during the reception of
In Abad v. Goldloop Properties, Inc.,[31] we stressed that: evidence before the CIAC is telling, thus:

A courts purpose in examining a contract is to MR. J. B. JOAQUIN:


interpret the intent of the contracting parties, as
objectively manifested by them. The process of Engr. Aganon, earlier there was a stipulation that in all
interpreting a contract requires the court to make a the four billings, there never was a joint quantification.
preliminary inquiry as to whether the contract before it
is ambiguous. A contract provision is ambiguous if it is PROF. A. F. TADIAR:
susceptible of two reasonable alternative
interpretations. Where the written terms of the He admitted that earlier. Pinabasa ko sa kanya.
contract are not ambiguous and can only be read
one way, the court will interpret the contract as a ENGR. R. B. SAN JUAN:
matter of law. If the contract is determined to be
ambiguous, then the interpretation of the contract is The joint quantification was done only between them
left to the court, to resolve the ambiguity in the light of and DPWH.
the intrinsic evidence.[32](Emphasis supplied and
citation omitted) xxxx

ENGR. AGANON:
Article 4 of the Subcontract Agreement, in part, contained the
following stipulations: Puwede ko po bang i-explain sandali lang po regarding
lang po doon sa quantification na iyon? Basically po as
ARTICLE 4 main contractor of DPWH, we are the ones who
[are] requesting for joint survey quantification
SUBCONTRACT PRICE with the owner, DPWH. Ngayon po, although wala sa
4.1 The total SUBCONTRACT Price shall be THIRTY ONE papel na nag-witness and [HRCC] still the same po,
MILLION nandoon din po sila during that time, kaya lang ho . . .
TWO HUNDRED NINETY THREE THOUSAND FIVE
HUNDRED THIRTY TWO PESOS & 72/100 ONLY MR. J. B. JOAQUIN:
([P]31,293,532.72) inclusive of Value Added
Tax x x x. Hindi pumirma?

xxx ENGR. AGANON:

4.3 Terms of Payment Hindi sila puwede pumirma kasi ho kami po ang
contractor ng DPWH hindi sila.[34] (Emphasis supplied)
FFCCI shall pay [HRCC] within thirty (30)
days upon receipt of the [HRCCs] Monthly
Progress Billingssubject to deductions due to FFCCI had waived its right to demand for a joint
ten percent (10%) retention, and any other sums measurement of HRCCs completed works under the
that may be due and recoverable by FFCCI from Subcontract Agreement.
[HRCC] under this SUBCONTRACT. In all cases,
however, two percent (2%) expanded
withholding tax on the [HRCCs] income will be The CIAC held that FFCCI, on account of its failure to demand
deducted from the monthly payments. the joint measurement of HRCCs completed works, had
effectively waived its right to ask for the conduct of the same as
Requests for the payment by the [HRCC] a condition sine qua non to HRCCs submission of its monthly
shall include progress accomplishment of progress billings.
completed works (unit of work accomplished x
unit cost) as approved by [FFCCI]. Cut-off We agree.
date of monthly billings shall be every 25 thof the
month and joint measurement shall be In People of the Philippines v. Donato,[35] this Court explained the
conducted with the DPWHs representative, doctrine of waiver in this wise:
Consultants, FFCCI and [HRCC] to arrive at
46
Waiver is defined as "a voluntary and FFCCI insist on the conduct of a joint measurement to verify the
intentional relinquishment or abandonment of a known extent of HRCCs completed works despite its receipt of the four
existing legal right, advantage, benefit, claim or monthly progress billings submitted by the latter.
privilege, which except for such waiver the party would
have enjoyed; the voluntary abandonment or FFCCI is already barred from contesting HRCCs valuation
surrender, by a capable person, of a right known by of the completed works having waived its right to
him to exist, with the intent that such right shall be demand the joint measurement requirement.
surrendered and such person forever deprived of its
benefit; or such conduct as warrants an inference
of the relinquishment of such right; or the In view of FFCCIs waiver of the joint measurement
intentional doing of an act inconsistent with requirement, the CA, essentially echoing the CIACs disposition,
claiming it." found that FFCCI is obliged to pay the amount claimed by HRCC
in its monthly progress billings. The CA reasoned thus:
As to what rights and privileges may be
waived, the authority is settled: Verily, the joint measurement that [FFCCI]
claims it conducted without the participation of [HRCC],
x x x the doctrine of waiver extends to rights to which [FFCCI] anchors its claim of full payment of its
and privileges of any character, and, since the obligations to [HRCC], cannot be applied, nor imposed,
word waiver covers every conceivable right, it on [HRCC]. In other words, [HRCC] cannot be made to
is the general rule that a person may accept a quantification of its works when the said
waive any matter which affects his quantification was made without its participation. As a
property, and any alienable right or consequence, [FFCCIs] claim of full payment cannot be
privilege of which he is the owner or upheld as this is a result of a quantification that was
which belongs to him or to which he is made contrary to the express provisions of the
legally entitled, whether secured by Subcontract Agreement.
contract, conferred with statute, or
guaranteed by constitution, provided such The Court is aware that by ruling so, [FFCCI]
rights and privileges rest in the would seem to be placed at a disadvantage because it
individual, are intended for his sole would result in [FFCCI] having to pay exactly what
benefit, do not infringe on the rights of [HRCC] was billing the former. If, on the other hand, the
others, and further provided the waiver Court were to rule otherwise[,] then [HRCC] would be
of the right or privilege is not forbidden the one at a disadvantage because it would be made to
by law, and does not contravene public accept payment that is less than what it was billing.
policy; and the principle is recognized that
everyone has a right to waive, and agree to Circumstances considered, however, the Court
waive, the advantage of a law or rule made deems it proper to rule in favor of [HRCC] because of
solely for the benefit and protection of the the explicit provision of the Subcontract Agreement
individual in his private capacity, if it can be that requires the participation of the latter in the joint
dispensed with and relinquished without measurement. If the Court were to rule otherwise, then
infringing on any public right, and without the Court would, in effect, be disregarding the explicit
detriment to the community at large. x x agreement of the parties in their contract. [43]
x[36] (Emphasis supplied and citations omitted)

Essentially, the question that should be resolved is this: In view


Here, it is undisputed that the joint measurement of HRCCs of FFCCIs waiver of its right to demand a joint measurement of
completed works contemplated by the parties in the HRCCs completed works, is FFCCI now barred from disputing the
Subcontract Agreement never materialized. Indeed, HRCC, on claim of HRCC in its monthly progress billings?
separate occasions, submitted its monthly progress billings
indicating the extent of the works it had completed sans prior We rule in the affirmative.
joint measurement. Thus:
As intimated earlier, the joint measurement requirement is a
Progress Billing Period Covered mechanism essentially granting FFCCI the opportunity to verify
1st Progress Billing dated and, if necessary, contest HRCCs valuation of its completed
August 16 to September 15, 2004
September 17, 2004[37] works prior to the submission of the latters monthly progress
2nd Progress Billing dated October billings.
September 18 to 25, 2004
29, 2004[38]
3rd Progress Billing dated October In the final analysis, the joint measurement
September 26 to October 25, 2004
29, 2004[39] requirement seeks to limit the dispute between the parties with
4th Progress Billing dated November regard to the valuation of HRCCs completed works. Accordingly,
October 26 to November 25, 2004
25, 2004 any issue which FFCCI may have with regard to HRCCs valuation
of the works it had completed should be raised and resolved
FFCCI did not contest the said progress billings submitted by during the said joint measurement instead of raising the same
HRCC despite the lack of a joint measurement of the latters after HRCC had submitted its monthly progress billings. Thus,
completed works as required under the Subcontract Agreement. having relinquished its right to ask for a joint measurement of
Instead, FFCCI proceeded to conduct its own verification of the HRCCs completed works, FFCCI had necessarily waived its right
works actually completed by HRCC and, on separate dates, to dispute HRCCs valuation of the works it had accomplished.
made the following payments to HRCC:

Date of Payment Period Covered Second Substantive Issue:


[40]
Validity of HRCCs Rescission of the Subcontract
December 3, 2004 April 2 to July 25, 2004 Agreement
December 21, 2004[41] July 26 to September 25, 2004 Both the CA and the CIAC held that the work stoppage of HRCC
[42] was justified as the same is but an exercise of its right to rescind
March 11, 2005 September 26 to November 25, 2004
the Subcontract Agreement in view of FFCCIs failure to pay the
formers monthly progress billings. Further, the CIAC stated that
FFCCIs voluntary payment in favor of HRCC, albeit in amounts FFCCI could no longer assail the work stoppage of HRCC as it
substantially different from those claimed by the latter, is a failed to file any counterclaim against HRCC pursuant to the
glaring indication that it had effectively waived its right to terms of the Subcontract Agreement.
demand for the joint measurement of the completed works.
FFCCIs failure to demand a joint measurement of HRCCs For its part, FFCCI asserted that the work stoppage of
completed works reasonably justified the inference that it had HRCC was not justified and, in any case, its failure to raise a
already relinquished its right to do so. Indeed, not once did counterclaim against HRCC for liquidated damages before the
47
CIAC does not amount to a ratification of the latters work Section 1, Rule 142 of the Rules of Court provides:
stoppage.
Section 1. Costs ordinarily follow results of
The determination of the validity of HRCCs work stoppage suit. Unless otherwise provided in these rules, costs
depends on a determination of the following: first,whether HRCC shall be allowed to the prevailing party as a matter of
has the right to extrajudicially rescind the Subcontract course, but the court shall have power, for special
Agreement; and second, whether FFCCI is already barred from reasons, to adjudge that either party shall pay the
disputing the work stoppage of HRCC. costs of an action, or that the same be divided, as
may be equitable. No costs shall be allowed against
HRCC had waived its right to rescind the Subcontract the Republic of the Philippines unless otherwise
Agreement. provided by law. (Emphasis supplied)

The right of rescission is statutorily recognized in Although, generally, costs are adjudged against the
reciprocal obligations. Article 1191 of the Civil Code pertinently losing party, courts nevertheless have discretion, for special
reads: reasons, to decree otherwise.

Art. 1191. The power to rescind obligations is Here, considering that the work stoppage of HRCC is
implied in reciprocal ones, in case one of the obligors not justified, it is only fitting that both parties should share in
should not comply with what is incumbent upon him. the burden of the cost of arbitration equally. HRCC had a valid
reason to institute the complaint against FFCCI in view of the
The injured party may choose between the latters failure to pay the full amount of its monthly progress
fulfillment and the rescission of the obligation, with the billings. However, we disagree with the CIAC and the CA that
payment of damages in either case. He may also seek only FFCCI should shoulder the arbitration costs. The arbitration
rescission, even after he has chosen fulfillment, if the costs should be shared equally by FFCCI and HRCC in view of the
latter should become impossible. latters unjustified work stoppage.

The court shall decree the rescission claimed, WHEREFORE, in consideration of the foregoing
unless there be just cause authorizing the fixing of a disquisitions, the Decision dated February 6, 2009 and
period. Resolution dated April 13, 2009 of the Court of Appeals in CA-
G.R. SP No. 91860 are
This is understood to be without prejudice to hereby AFFIRMED with MODIFICATION that the arbitration
the rights of third persons who have acquired the thing, costs shall be shared equally by the parties herein.SO
in accordance with Articles 1385 and 1388 and the ORDERED.
Mortgage Law.
FIRST DIVISIONG.R. No. 141897 September 24, 2001
The rescission referred to in this article, more appropriately
referred to as resolution is on the breach of faith by the METRO CONSTRUCTION, INC., petitioner,
defendant which is violative of the reciprocity between the vs.
parties.[44] The right to rescind, however, may be waived, CHATHAM PROPERTIES, INC., respondent.
expressly or impliedly.[45]
DAVIDE, JR., C.J.:
While the right to rescind reciprocal obligations is implied, that
is, that such right need not be expressly provided in the
contract, nevertheless the contracting parties may waive the The core issue in this case is whether under existing law and
same.[46] rules the Court of Appeals can also review findings of facts of
the Construction Industry Arbitration Commission (CIAC).
Contrary to the respective dispositions of the CIAC and the CA,
we find that HRCC had no right to rescind the Subcontract
Respondent Chatham Properties, Inc. (CHATHAM) and petitioner
Agreement in the guise of a work stoppage, the latter having
Metro Construction, Inc. (MCI) entered into a contract for the
waived such right. Apropos is Article 11.2 of the Subcontract
construction of a multi-storey building known as the Chatham
Agreement, which reads:
House located at the corner of Herrera and Valero Streets,
Salcedo Village, Makati City, Metro Manila. In April 1998, MCI
11.2 Effects of Disputes and Continuing
sought to collect from CHATHAM a sum of money for unpaid
Obligations
progress billings and other charges and instituted a request for
adjudication of its claims with the CIAC. The case was docketed
Notwithstanding any dispute,
as CIAC Case No. 10-98. The arbitral tribunal was composed of
controversy, differences or arbitration
Joven B. Joaquin as Chairman, and Beda G. Fajardo and Loreto C.
proceedings relating directly or indirectly
Aquino as members.
to this SUBCONTRACT Agreement and
without prejudice to the eventual outcome
thereof, [HRCC] shall at all times proceed The preliminary conference before the CIAC started in June 1998
with the prompt performance of the and was concluded a month after with the signing of the Terms
Works in accordance with the directives of Reference (TOR) of the Case.1 The hearings immediately
of FFCCI and this SUBCONTRACT started with the presentation of MCI's witnesses, namely: Ms.
Agreement.[47] (Emphasis supplied) Ma. Suzette S. Nucum, Chief Accountant; Ms. Isabela Redito,
Office Engineer; Mr. John Romulo, Field Manager; and Dr. John Y.
Lai, President. CHATHAM's witnesses were: Engr. Ruperto
Hence, in spite of the existence of dispute or Kapunan III, Managing Director of RK Development and
controversy between the parties during the course of the Construction Co., Inc. (RKDCCI), which was the Construction
Subcontract Agreement, HRCC had agreed to continue the Manager firm hired by CHATHAM to oversee the construction
performance of its obligations pursuant to the Subcontract work of the Chatham House; Engr. Alex Bautista, Area Manager
Agreement. In view of the provision of the Subcontract of RKDCCI; Mr. Avelino M. Mercado, CHATHAM's Project Manager;
Agreement quoted above, HRCC is deemed to have effectively and Engr. Jose T. Infante.
waived its right to effect extrajudicial rescission of its contract
with FFCCI. Accordingly, HRCC, in the guise of rescinding the
In the meantime, the TOR was amended and finalized on 19
Subcontract Agreement, was not justified in implementing a
August 1998.2
work stoppage.

The costs of arbitration should be shared by the parties The facts, as admitted by the parties before the CIAC and
equally. incorporated in the original TOR, are as follows:
48
1. On 21 April 1994, the parties formally entered into 10. Whether or not CHATHAM is entitled to claim x x x
a . . . contract for the construction of the "Chatham actual damages? If so, to what extent and how much?
House" . . . for the contract price of price of
P50,000,000.00 inclusive of value-added tax, subject to
11. Whether or not CHATHAM is entitled to x x x
adjustments in accordance with Article 9 of the
additional counterclaims as follows:
contract. Construction of the project, however,
commenced on 15 April 1994 upon the release by
CHATHAM of the down payment 11.1. Core testing expenses and penalty for
concrete strength failure P3,630,587.38.
2. On 12 July 1994, a Supplemental Contract was
executed by and between the parties whereby 11.2. Expenses to rectify structural steel works
CHATHAM authorized MCI to procure in behalf of the for the foundation P1,331,139.74.
former materials, equipment, tools, fixtures,
refurbishing, furniture, and accessories necessary for
11.3. Cost of additional materials (concrete &
the completion of the project.
rebars) supplied by CPI P5,761,457.91.

3. Under Section I.04 of the Supplemental Contract, the


12. Are the parties entitled to their respective claims
total amount of procurement and transportation cost[s]
for attorney's fees and cost of litigation? If so, how
and expenses which may be reimbursed by MCI from
much?3
CHATHAM shall not exceed the amount of P75,
000,000.00.
In the resolution of these issues, the CIAC discovered significant
data, which were not evident or explicit in the documents and
4. In the course of the construction, Change Orders No.
records but otherwise revealed or elicited during the hearings,
1, 4, 8A, 11, 12 and 13 were implemented, payment of
which the CIAC deemed material and relevant to the complete
which were recommended by x x x RKDCCI and
adjudication of the case. In its decision of 19 October 1998, 4
approved by one of CHATHAM's Project Managers,
the CIAC made the following findings and conclusions:
Romulo F. Sugay.

It was established during the hearing that the contract was


5. On 15 September 1995, CHATHAM through its Project
awarded to MCI through negotiation as no bidding was
Manager, Romulo F. Sugay, agreed to give P20,000 per
conducted, x x x It was also revealed that two agreements
floor for five (5) floors, or a total of P100,000.00 as
were entered into, one is labeled Construction Contract for the
bonus/incentive pay to MCI's construction workers for
total fixed amount of P50,000,000.00 and the other a
the completion of each floor on schedule. CHATHAM
Supplemental Contract for an amount not to exceed
reimbursed MCI the amount of P60,000.00
P75,000,000.00. The latter is supposed to cover the
corresponding to bonuses advanced to its workers by
procurement of materials for the project. The Construction
the latter for the 14th, 16th, and 17th floors.
Contract provides for monthly progress billings and payments
based on actual accomplishments of the various phases of
6. CHATHAM's payments to MCI totaled work. The Supplemental Contract provides for; reimbursement
P104,875,792.37, representing payments for portions of [the] total amount of procurement and transportation costs
of MCI's progress billings and x x x additional charges. and expenses, upon MCI's presentation of suppliers'
invoices/receipts.
The parties then stipulated on the following issues, again, as set
forth in the TOR: However, from testimonies of witnesses from both parties, it
was revealed that the two distinct manner(s) of payment to
MCI was set aside. The earlier attempt by CHATHAM to prove
1. Is MCI entitled to its claims for unpaid progress
that MCI was remiss in submitting suppliers' invoices and/or
billings amounting to P21,062,339.76?
receipts in support of its billings against the Supplemental
Contract was in fact later on abandoned when CHATHAM's
2. Were the approved Change Orders 1, 4, 8a, 11, 12 witness Mercado admitted that the matter of adherence to the
and 13 fully paid by CHATHAM? If not, is MCI entitled to payment provision of the Supplemental Contract is a 'non-
its claim for the unpaid balance? issue.' This was borne out by the fact that progress billings
and payments under both contracts were made on the basis
of percentage of project completion.
3. Is CHATHAM liable for Change Orders 7a, 7b, 10, 14,
15, 16, 17, 19 and 20?
Both documentary and testimonial evidence prove that,
effectively, the construction contract and supplemental
4. Were the CHB works from the 8th to the 31st floors
contract is but one agreement for a lump sum contract
part of the original contract or in the nature of
amount of P125,000,000.00.
extra/additional works? Is CHATHAM liable for the
same? If so, how much?
xxx xxx xxx
5. Is MCI entitled to an additional reimbursement of
P40,000.00 for bonuses granted to workers as an There was also the admitted fact that the contract was
incentive for the early completion of each floor? negotiated and awarded in the absence of a complete
construction plan. In any case, in support of the total contract
amount of P125 million, is a Cost Breakdown (Exh. 17-L),
6. Were the deductions in the amount of P1,393,458.84
where the estimated quantities of owner furnished materials
made by CHATHAM in MCI's progress billing
(OFM) are indicated. It is however, understood that these
reasonable?
quantities are estimates, based on (an) incomplete set of
construction plans. It is likewise understood that except for
7. Is MCI's claim of P1,646,502.00 for labor escalation the OFM, all the other costs in the Cost Breakdown form the
valid? basis for the lump-sum agreement under the contract, subject
to adjustment only if there are any significant changes in the
contract plans.
8. Is MCI entitled to payment of attendance fee? To
what extent and how much?
RKDCCI in its letter to MCI dated 15 Feb. 1995 (Exh. 4),
informed MCI that it was confirming the agreement allegedly
9. Did MCI fail to complete and/or deliver the project
accepted by Dr. Lai that the Building Committee will take over
within the approved completion period? If so, is MCI
the management of the construction operations (of the
liable for liquidated damages and how much?
project) albeit under certain conditions. Specifically, the take
49
over was for an interim period and will extend only after 1. That indeed 'special friendly relations' were present
concreting of up to basement level 5 or up to 30 May 1995 between the parties in this case, although decisions by either
whichever is later. The letter also stated that the Building party on any particular issue were made not purely on the
Committee . . . will be responsible for management and basis of such special relations. For example, this Tribunal
direction including management of MCI engineers at the site, believes that, contrary to the allegation of (CHATHAM's)
sequencing of work, additional labor, additional equipment witnesses, the decision not to terminate the contract was not
and management of the yard and staging area. The letter, due to the admitted 'special relations' only, but also due to
however, emphasized that the intent is not a take over of the the greater problems the project would be faced with by
contract or take over of the entire work and in fact, it was terminating the MCI contract and mobilizing another
mentioned that MCI will still be responsible for earth contractor.
anchoring and steel fabrication work.
2. That while there was no official termination of the contract,
CHATHAM claims that the interim take-over was necessitated the manner by which CHATHAM had taken upon themselves
by MCI's delay in the progress of its work, due allegedly to the procurement of materials, the fielding of labor, the control
MCI's lack of manpower and equipment. During the hearings over MCI's engineers, and the subcontracting of various
of this case, this claim of MCI's lack of manpower, necessary phases of work on its own, is considered by this Tribunal as
equipment, qualified engineers and inefficient construction implied termination of the contract. The idea of allowing MCI
management was testified to by both Mr. Mercado [of to remain on the project in spite of what CHATHAM claims. (to
CHATHAM] and Engr. Kapunan of RKDCCI. CHATHAM's be) MCI's shortcomings, and MCI's agreement to stay on the
witnesses, however, testified that in spite of these alleged project under conditions set by CHATHAM, is believed a
deficiencies, MCI was nevertheless allowed to continue to take matter of mutual benefit to both parties.
full control of the operations. When asked why termination of
the contract was not resorted to if truly, MCI was not
3. That CHATHAM's invoking its rights under the provisions of
performing its contracted obligations, witnesses Mercado and
Article 27 of the construction contract is believed out of place,
Kapunan cited "special relations" between the owner of MCI
as it failed to observe the required antecedent acts before it
(Dr. John Lai) and the president of CHATHAM (Mr. Lamberto
can exercise its prerogative under the said contract provision.
Ocampo) as the reason.

4. That there is no reason to believe, either party was in any


On the other hand, Dr. Lai contends that, as explained in his
way guilty of bad faith in acting as it did on certain relevant
letter to CHATHAM dated 17 February 1995, (Exh. 4-A) MCI's
matters. However, this Tribunal is of the belief that due
work was on schedule. During the hearings, Dr. Lai also
perhaps to the eagerness on the part particularly of
insisted that beginning 15 February 1995, MCI was relieved of
CHATHAM's representatives to take such steps it considered
full control of the construction operations, that it was
necessary to insure completion of the project within the
relegated to (be) a mere supplier of labor, materials and
period desired by CHATHAM, it deviated from some generally
equipment, and that the alleged interim takeover actually
accepted procedures in the construction industry in dealing
extended through the completion of the project. Dr. Lai cited
with MCI. One example was not giving MCI the opportunity to
CHATHAM's purchases of materials, fielding labor force and
rectify some of what CHATHAM considered as construction
sub-contracting works allegedly for the project without his
deficiencies and instead engaging the services of other
knowledge and consent as proof that CHATHAM had taken full
parties to undertake the corrective works and later on
control of the project.
charging the costs thereof to MCI.

To the above allegation of MCI that CHATHAM went ahead and


In addition to the above conclusions resulting from what this
procured materials, hired labor and entered into sub-contract
Tribunal considered peculiar of circumstances surrounding the
agreements with the intention of eventually charging the
implementation of the project that were revealed during the
costs thereof to MCI, witness Mercado countered, that
proceedings of this case, this Tribunal finds the necessity of
CHATHAM has the right to do this under the provisions of
establishing a cut-off date with regard to the fiscal liability of
Article 27 of the contract, dealing with 'Recision, Cancellation,
one party towards the other.
Termination of Contract.'

Mr. Avelino Mercado of CHATHAM presented a list of what he


By way of responding to the various counterclaims of
claims as its Payments to MCI (Exhibit 7) summarized as
CHATHAM, MCI referred to a letter of the former addressed to
follows:
MCI dated 18 January 1997 (Exhibit E-1) the first paragraph of
which reads as follows:

After evaluating all the documents issued and received from


both Chatham Properties Inc. and Metro Construction, Inc., the a. Down payment (Paid in two equal trances
Building Committee of Chatham Properties, Inc. evaluated
them. The Building Committee finds the total receivable of
Metro Construction is in the amount of EIGHT MILLION PESOS
(P8,000,000.00) only.
b. Cash Advance for Mobilization

When queried by the Tribunal if the said amount already took


into account the costs and expenses, (Chatham) claims to
have incurred for the account of MCI, Mr. Mercado answered in
the affirmative. When queried further how the amount was c. Payments of Progress Billings up to Billing No. 19
arrived at, Mr. Mercado replied that it was the sum the
Building Committee figured it was willing to pay MCI simply to
close the issue.
d. Other Payments (Mar 1994 to Apr. 1996)
Mr. Mercado even added that while MCI is not actually entitled
to this amount, it was out of a friendship" that CHATHAM
offered this sum to MCI as final settlement under the contract.
e. Advances on MCI Payrolls (April 1996 to March
It is with the above attendant circumstances that this Tribunal 1997)
will be guided in the resolution of issues brought before it for
adjudication. From what this Tribunal finds as peculiar
circumstances surrounding the contracting and
implementation of the CHATHAM House Project. it arrived at Total
the following fundamental conclusions:
50
In consideration of the above facts, this Tribunal's conclusion
that there was in fact an implied take over of the project is
further confirmed. Furthermore, this Tribunal additionally
concludes that the cut-off date for purposes of delineating the
financial obligations of the parties between them should be 23
May 1996, the date when CHATHAM evaluated MCI's
The records of this case show that the last progress payment accomplishment at 94.10% but nevertheless suspended all
to MCI was in January 1996 representing payment of Progress further progress payments to MCI.
Billing No. 19 for the period ending 31 December 1995. The
percentage of completion claimed then by MCI was 80.02%,
MCI presented further documentary evidence (Exhibit E-6) the
the amount evaluated and eventually paid to MCI was the
subject of which is a PUNCHLISTING-CIVIL STRUCTURAL." In
equivalent of 77.15% work accomplishment. No further
this particular document which bears the signatures of
progress payments were made thereafter, other than for
representatives of both MCI and RKDCCI, MCI tried to prove
advances to cover MCI payrolls from April 1996 to March 1997
that as of 30 August 1996 it had actually attained 99.16%
in the amount of P8,196,755.51 and for various advances and
work accomplishment. While it may be true that as of that
payments of approved change orders in the amount of
date the project had reached 99.16% completion, there is no
P5,474,419.67.
incontrovertible evidence showing that MCI was responsible
for such accomplishment. This was in fact actually testified to
In the meantime, up to Billing No. 23 for the period ending 30 by Engr. Alex Bautista of RKDCCI, when he said that it was an
April 1996, MCI billed CHATHAM a total accomplishment of evaluation of the project's completion stage, not necessarily
95.29%. This billing was however, evaluated by CHATHAM, MCI's work accomplishment. This Tribunal therefore stands
and in its letter to MCI dated 27 May 1996 (Exhibit E) it firm on its conclusion that MCI's accomplishment is only up to
confirmed that MCI's remaining balance of work stands at the extent of 94.10%.5
P7,374,201.15 as of 23 May 1996. This amount, percentage-
wise, equals roughly 5.88% of the contract amount as testified
With those findings, the CIAC disposed of the specific money
to by Engr. Jose Infante. (Exhibit 22-B). Therefore, what was
claims by either granting or reducing them. On Issue No. 9, i.e.,
computed as MCI's work accomplishment as of 23 May 1996
whether CHATHAM failed to complete and/or deliver the project
was 94.12% and it is this evaluation which this Tribunal
within the approved completion period and, if so, whether
believes MCI is entitled to as of said date.
CHATHAM is liable for liquidated damages and how much, the
CIAC ruled in this wise:
Applying this percentage of completion of 94.12% to the
P125,000,000.00 contract amount gives a total
This Tribunal holds that the provision of the contract insofar as
accomplishment equivalent to P117,650,000.00 as of 23 May
the Overall Schedule is concerned cannot justifiably be
1996. Add to this amount the sum of P5,353,091.08
applied in the instant case in view of the implied take-over of
representing the total of approved Change Orders as of 31
the Chatham House project by CHATHAM. Accordingly, this
December 1995 gives a total MCI accomplishment of
Tribunal finds no necessity to resolve whether or not MCI
P123,003,091.08, as CHATHAM saw it. Of this amount,
complete[d] and/or deliver[ed] the project within the
CHATHAM admitted having paid MCI the total sum of
approved completion period. In fact, Mr. Mercado testified that
P104,752,358.42 only (Exhibit 7) up to March 15, 1997,
it was CHATHAM who ultimately completed the project, with
leaving a balance of P18,250,732.66. It should be noted that
assistance of the construction managers.
of the total payment of P104,752,358.42, the sum of
P5,750,000.00 was paid after May 1996 so that as of 25 May
1996, CHATHAM's total payment to MCI was P99,002,358.42. In any case, this Tribunal finds merit in RKDCCI's claim that
MCI was in delay in the concreting milestone and that [it] is
liable for liquidated damages therefor. This, notwithstanding
Effectively, therefore, the amount due MCI as of 23 May 1996
MCI's invoking that Chatham is estopped from claiming
amounted to P24,005,732.66 computed as follows:
liquidated damages after it failed to deduct the alleged
liquidated damages from MCI's progress billings. This Tribunal
holds that such failure to deduct, which CHATHAM claims it did
in order not to hamper progress of work in the project, is an
Total accomplishment as of 23 May 1996 at option which [it] may or may not exercise.
94.12%

However, this Tribunal finds that CHATHAM's Exh. 11-A where


the liquidated damages on delays in concreting milestone was
applied is not consistent with [its] own Exhibit 3-I. This
Add approved change orders Tribunal notes that in Exh. 11-A, CHATHAM included a
projected delay of 85 days for the Helipad Concreting works,
while no such projected delay was included in Exh. 3-I as it
should be.
Total
This Tribunal holds that Exh. 3-I showing a delay of 294 days
in concreting milestones should rightfully be used in
computing liquidated damages. Accordingly, this Tribunal
Less payments up to 23 May 1996 holds that MCI is liable for liquidated damages in the amount
of P3,062,498.78 as follows:

1/4 x 1/3[(1/10 x P125,000,000.00) 1%] x 294 =


Balance due MCI as of 23 May 1996 P3,062,498.78.6

The CIAC then decreed:

Of the above balance of P24,005,732.66 as of 23 May 1996,


the only payments made by CHATHAM to MCI is the sum of Accordingly, as presented below, all the amounts due MCI are
P5,750,000.00 from June 1996 onwards, allegedly to cover first listed and added up and the total payment is deducted
MCI payrolls. It is of course noted that CHATHAM's suspension therefrom. The admitted total payment figure as reflected in
of further payments to MCI was because it had been the Terms of Reference is the amount applied instead of the
undertaking on its own, the further procurement of materials total reflected in CHATHAM's Summary of Payments which
and sub-contracting of various phases of works on the project. incidentally reflected a lesser amount. From the 'Balance Due
MCI' the 'Amounts CPI is Held Entitled To' is deducted and the
'Net Amount Due MCI' is arrived at.
51

A. AMOUNTS HELD CPI IS ENTITLED TO: C. NET AMOUNT DUE MCI (A minus B)

A.1. From the original contract: WHEREFORE, judgment is hereby rendered in favor of the
94.12% of P125,000,000.00 Claimant [MCI] directing Respondent [CHATHAM] to pay
Claimant [MCI] the net sum of SIXTEEN MILLION ONE
HUNDRED TWENTY SIX THOUSAND NINE HUNDRED TWENTY
TWO & 91/100 (16,126,922.91) PESOS.

A.2. Approved Change Orders


SO ORDERED.7

Impugning the decision of the CIAC, CHATHAM instituted a


A.3 Pending Change Orders petition for review with the Court of Appeals, which was
docketed as CA-G.R. SP No. 49429. In its petition, CHATHAM
alleged that:

A.4 CHB Works The Arbitral Tribunal grossly erred in failing to indicate
specific reference to the evidence presented or to the
transcript of stenographic notes in arriving at its
questioned Decision, in violation of the cardinal rule
under Section 1, Rule 36 of the Revised Rules of Civil
A.5 Workers Bonus Procedure that a judgment must state clearly and
definitely the facts and the law on which it is based.

The Tribunal's conclusions are grounded entirely on


A.6 Disputed Deductions speculations, surmises and conjectures.

The Arbitral Tribunal grossly erred in failing to consider


the evidence presented by CHATHAM and the
A.7 Labor Escalation testimony of its witnesses.

The Arbitral Tribunal gravely abused its discretion in


considering arbitrarily that there was an implied
A.8 Attendance Fee takeover contrary to the facts and evidence submitted.

The Arbitral Tribunal committed grave error and gross


misapprehension of facts in holding that CHATHAM is
Total
not entitled to liquidated damages despite failure of
MCI to meet the over-all schedule of completion.

The Arbitral Tribunal manifestly erred in holding that


Less: Total payments - Item 11-6 of TOR
MCI is entitled to its claim for unpaid progress billings.

The Arbitral Tribunal committed gross and reversible


error in equating the percentage of MCI's work
Balance Due MCI
accomplishment with the entire work in place, despite
evidence to the contrary.

The Arbitral Tribunal gravely erred in making 23 May


B. AMOUNTS HELD CPI IS ENTITLED TO:
1996 as the cut-off date for purposes of delineating the
financial obligations of the parties.

The Arbitral Tribunal erred in denying CHATHAM its


B.1. liquidated Damages
claim for actual damages pursuant to Article 27.8 of the
Construction Contract.

The facts set forth in CHATHAM's Answer with


B.2. Actual Damages
Compulsory Counterclaim as well as its documentary
and testamentary evidence were not overturned or
controverted by any contrary evidence.8

B.3. Penalties
In its decision of 30 September 1999, 9 the Court of Appeals
simplified the assigned errors into one core issue, namely, the
"propriety" of the CIAC's factual findings and conclusions. In
upholding the decision of the CIAC, the Court of Appeals
B.4. Cash Payments in Behalf of MCI confirmed the jurisprudential principle that absent any showing
of arbitrariness, the CIAC's findings as an administrative agency
and quasi judicial body should not only be accorded great
respect but also given the stamp of finality. However, the Court
Total Amount Due CPI of Appeals found exception in the CIAC's disquisition of Issue
No.9on the matter of liquidated damages.

The Court of Appeals disagreed with the CIAC's finding that


there was an implied takeover by CHATHAM of the project and
52
that it was unnecessary for the CIAC to rule on whether MCI Exhibit "4-D" Letter dated 4 January 1996
completed and/or delivered the project within the approved indicating that Mr. H.T. Go offered Dr Lai an
completion schedule of the project since CHATHAM failed to incentive of P1,800,000 on the condition that
observe the antecedent acts required for the termination of the MCI meets the new schedule/milestones. MCI's
contract, as set forth in the Construction Agreement. acceptance of the incentive offer likewise
shows that MCI was in control of the Project.
The Court of Appeals ascertained that the evidence
overwhelmingly proved that there was no takeover by CHATHAM Exhibits "5," "3-1," "3-M," "3-N," "3-W-1," 3-X,"
and that MCI exercised complete control, authority and "3-Y," and "3-Z" among others containing
responsibility over the construction. In support of this reminders to MCI of its duties and
conclusion, the appellate court pointed to the following shortcomings, likewise attest to the fact that
evidentiary bases:10 MCI was in control (of) and responsible for the
Project, although markedly deficient.
1. Testimony of CHATHAM's Engr. Kapunan that the
interim takeover for the works on the basement was Exhibits "5," "5-A," "5-B," "5-C," "5-D," "5-E,"
triggered by lack of manpower and delays as early as "5-F," "5-O," "C-7," and "E-9" evidencing
February 1995, as evidenced by their assessment 11and that MCI continued to manage other works on
that the interim takeover was only with respect to the the project even during the time of the interim
direction or management of the field operations and takeover of the basement works, as seen in
was limited only to works on the basement and the series of communications between
intended to assist MCI to catch up with the schedule of CHATHAM or RKDCCI and MCI within the period
completion, since at that time the project was very beginning February 1995 to 30 May 1995.
much delayed; thereafter, the MCI was back in full
control of the project.12
5. Respondent's Request for Adjudication, Annex G,
Records, Folder No. 6 which incorporated Change
2. Testimony of Engr. Bautista that the takeover was Order No. 12, among others, dated 28 August 1995,
only partial and temporary and limited to the recommended by the RKDCCI and accepted by Dr. Lai,
management portion on the basement only and that and which request for an extension of 25 days readily
MCI was always in control of the project.13 showed that even after 30 May 1995, after the close of
the supposed takeover period, MCI was still the
contractor in complete control of the project for it
3. Testimony of Engr. Infante that MCI personnel were
would not have otherwise accepted the said change
constantly present in the project and the "intervention"
order if it (were) no longer the Contractor of the project
(not takeover) by CHATHAM was justified to ensure
due to the termination of the Construction agreement
completion of the project on time.14
as of said date on account of the alleged takeover.

4. Documentary exhibits evincing the nature and


6. Exhibits "3-J," "3-M," "3-Q," "3-R," "3-V," "3- W-1," "3-
extent of MCI's work during the takeover period which
W-2," "5-F," "5-1," "6," "12-II," "12-JJ," "12-MM," and
belied its claims that it was not in control of the project
"12-NN" tending to prove that RKDCCI monitored the
because of the takeover thus:
work from start to finish and had zealously pointed out
to MCI the defects or improper execution of the
Exhibit "4" Letter dated 15 February 1995 of construction works, and gave MCI all the opportunity to
Engr. Kapunan of RKDCCI to John Lai of MCI rectify the construction deficiencies and complete the
stating that the takeover of directions or works of the project.
management of the field operations is interim,
i.e. while the takeover is effective immediately
The Court of Appeals concluded that the interim takeover was
it will extend only after concreting Level B-1 or
necessitated by CHATHAM's insistence to meet its own turnover
approximately until 30 May 1995 which ever is
dates with the buyers of the project's units. Thus, CHATHAM was
later.
constrained to hire subcontractors with sufficient manpower and
supervision and incur various expenses to facilitate the
Exhibit "4-A" Letter dated 17 February 1995 completion of the project and/or assist MCI in making up for its
written by Dr. Lai of MCI to Engr. Kapunan in delay.
response to the latter's 15 February 1995
letter stating that "[Also we were assured that
The Court of Appeals then considered it imperative to determine
we will not be responsible for any errors or
whether MCI failed to complete the project on time for which it
accidents that may occur during this INTERIM
may be held liable for liquidated damages based on the delays
period," indicating that Dr. Lai was very much
in the overall schedule of completion pursuant to Art. 13.5 of the
aware of the interim period.
Construction Agreement, to wit:

Exhibit "4-C" Letter dated 18 February 1995


13.5. Over-All Schedule For not meeting the final
written by Engr. Ben C. Ruiz of RKDCCI to Dr.
completion date of the PROJECT, the OWNER will
Lai containing the reasons for the takeover.
deduct from the Contract Sum or amounts due the
CONTRACTOR, the amount equivalent to 1/10 of 1% of
Exhibit "8A" Letter dated 5 September 1995 the Contract Sum for every calendar day of delay,
written by Dr. E.G. Tabujara to Dr. Lai/Romy provided, however, that the maximum penalty should
Laron (Project Manager of MCI) requesting for not exceed 25% of the fee payable to the CONTRACTOR
an engineer of MCI to accompany the as stipulated in the Bill of Quantities. Penalties from
inspector of RKDCCI to witness batching concreting milestones shall be deducted from the
procedures. By so doing, Dr. E.G. Tabujara penalty of Over-All Schedule.15
acknowledged that Dr. Lai was in control of the
project.
The Court of Appeals disposed of the controversy in this wise:

Exhibit "8" Letter dated 4 September 1995


As is extant from the records, the completion date of
by Engr. Romulo R Sugay to Dr. Lai offering an
the Project under the Construction Contract or under
incentive to the workers of MCI to exert (their)
the revised construction schedule was never met by
best effort for topping off by the end of
reason of [MCI's] lack of manpower, necessary
December; another clear indication that Dr. Lai
equipment, qualified engineers and inefficient
was in control of the project.
management of construction works on the Project.
Thus, under the Contract (Exhibit '1'), [MCI] had 780
53
days, or until 22 January 1996, from starting date, or
April 12, 1994, to finish the project. The completion
date, however, was not followed and was revised as
early as December 17, 1994, extending the milestone
dates up to March 15, 1996 (Exhibits '3-G' and '3-H').
As of December 25, 1995, the number of days delayed
was already 294 days. Thus, on February 22, 1996, the
contract milestones were again revised, inclusive of 53 A.7 Labor Escalation
days extension, to May 23, 1996 (Exhibits '3-I' and '3-
O'). The May 23, 1996 turnover milestone nor the July
22, 1996 turnover of the whole project were neither
met (Exhibits '3-P', '3-R', '3-S' and '3-T' but [CHATHAM] A.8 Attendance Fee
was again constrained to allow [MCI] to continue
working on the Project to complete the balance of the
works (Exhibit 'M'). And all throughout the construction
of the Project, [CHATHAM] had to assist [MCI] along the
Total
way to expedite the execution and completion of the
Project (Exhibits '3-K' and '3-V').

From the foregoing disquisitions, it is clear that [MCI] is


Less: Total payments-item 11-6 of TOR
liable for liquidated damages, as per Article 13.5 of the
Construction Contract, for its failure to complete the
project within the period stipulated in the Construction
Contract and even despite an extension of 53 days
from the original schedule or of the overall schedule of Balance Due Respondent
completion. [MCI] should therefore pay [CHATHAM] the
amount of liquidated damages equivalent to
P24,125,000.00 for 193 days of delay in the overall
schedule of completion counted from overall
B. AMOUNTS [CHATHAM] IS ENTITLED TO:
completion date on July 22, 1996 up to the date of
completion on February 15, 1997, as stated in the
Certificate of Occupancy, computed as follows, to wit:

B.1. liquidated Damages


1/10[1%(P125,000,000.00)] per day x 193
days

= [1/10 (P1,250,000.00)] per day x 193 days B.2. Actual Damages

= P125,000.00 per day x 193 days

= P24,125,000.00 B.3. Penalties

IN VIEW OF ALL THE FOREGOING, judgment is hereby


rendered partially granting [CHATHAM's] claim for
liquidated damages. The Tribunal's Decision dated 19 B.4. Cash Payments in behalf of MCI
October 1998 is hereby AFFIRMED with the modification
on [MCI's] liability for liquidated damages in the
amount of P24,125,000.00. Thus,
Total Amount Due CPI

A. AMOUNT [MCI] IS ENTITLED TO:


C. NET AMOUNT DUE [CHATHAM] (B minus A)

A.1. From the original contract:


94.12% of P125,000,000.00 Correspondingly, Respondent [MCI] is hereby directed
to pay the Petitioner [CHATHAM] the net sum of FOUR
MILLION NINE HUNDRED THIRTY-FIVE THOUSAND FIVE
HUNDRED SEVENTY-EIGHT & 31/100 (P4,935,578.31)
A.2 Approved Change Orders PESOS.16

MCI promptly filed on 25 October 1999 a motion for


reconsideration. In its Resolution of 4 February 2000, the Court
A.3 Pending Change Orders of Appeals denied MCI's motion for reconsideration for lack of
merit, as well as CHATHAM's Motion to Lift Garnishment and
Levy Pending Appeal, filed on 13 October 1999, for being
premature.17
A.4 CHB Works
Thus, MCI filed the instant petition for review to challenge the
decision of the Court of Appeals. MCI alleges that the Court of
Appeals erred in reviewing and reversing the CIAC's factual
findings, that there was an implied takeover by CHATHAM of the
A.5 Workers Bonus
project, and that MCI was not in delay in the overall schedule. In
so doing, the Court of Appeals contravened Section 19 of
Executive Order (E.O.) No. 1008,18 which limits the review of an
Arbitral Award to only questions of law, thus:
A.6 Disputed Deductions
54
SECTION 19. Finality of Awards The arbitral award in Section 19 of E.O. No. 1008 and vested the same in the Court
shall be binding upon the parties. It shall be final and of Appeals, and whether appeals from CISC awards are no
inappealable (sic), except on questions of law which longer confined to questions of law.
shall be appealable to the Supreme Court.
On 27 February 1991, this Court issued Circular No. 1-91, which
MCI then asserts that as signatories to the contract, it and prescribes the Rules Governing Appeals to the Court of Appeals
CHATHAM complied with this legal provision when they included from Final Orders or Decisions of the Court of Tax Appeals and
as part of their TOR the stipulation that "[t]he decision of the Quasi-Judicial Agencies. Pertinent portions thereof read as
Arbitral Tribunal shall be final and non-appealable except on follows:
questions of law." Accordingly, the binding character of this
provision upon the parties is conclusive and final.
1. Scope. These rules shall apply to appeals from
final orders or decisions of the Court of Tax Appeals.
MCI also contends that while it may be argued that recent (1) They shall also apply to appeals from final orders or
issuances by the Supreme Court, specifically, Circular No. 1-91, decisions of any quasi-judicial agency from which an
which eventually became Revised Administrative Circular No. 1- appeal is now allowed by statute to the Court of
95; (2) legislation in particular, Republic Act No. 7902, which Appeals or the Supreme Court. Among these agencies
amended Batas Pambansa Blg. 129; and (3) amendments to the are the Securities and Exchange Commission, Land
Rules on Civil Procedure, modifying E.O. No. 1008 in the sense Registration Authority, Social Security Commission,
that "questions of facts, of law, or mixed questions of facts and Civil Aeronautics Board, Bureau of Patents, Trademarks
law may be the subject of an appeal of the CIAC's decision to and Technology Transfer, National Electrification
the Court of Appeals," it is still E.O. No. 1008 which remains to Administration, Energy Regulatory Board, National
be the fundamental and substantive law that endows parties to Telecommunications Commission, Secretary of Agrarian
an arbitral controversy the right to appeal. Hence, the provisions Reform and Special Agrarian Courts under RA. No.
on appeal of E.O. No. 1008 should be controlling, i.e., only 6657, Government Service Insurance System,
questions of law should be entertained. Therefore, the only Employees Compensation Commission, Agricultural
effect of these rules on E.O. No. 1008 is the transfer of the Inventions Board, Insurance Commission and Philippine
appeal forum from the Supreme Court to the Court of Appeals. Atomic Energy Commission.

MCI further asserts that, even assuming that the CIAC's findings 2. Cases not Covered. These rules shall not apply to
of facts are reviewable on appeal, the Court of Appeals gravely decisions and interlocutory orders of the National Labor
abused its discretion when it accepted "hook, line and sinker" Relations Commission or the Secretary of Labor and
CHATHAM's contention that MCI was in delay, and ignored Employment under the Labor Code of the Philippines,
competent, clear and substantial evidence that prove the the Central Board of Assessment Appeals, and other
contrary, and that CHATHAM is not entitled to liquidated quasi-judicial agencies from which no appeal to the
damages. courts is prescribed or allowed by statute.

For its part, CHATHAM avers that the evolution on the rules 3. Who may appeal and where to appeal. The appeal
governing appeals from judgments, decisions, resolutions, of a party affected by a final order, decision, or
orders or awards of the CIAC convincingly discloses that E.O. No. judgment of the Court of Tax Appeals or a quasi judicial
1008 has already been superseded. With the power of the agency shall be taken to the Court of Appeals within
Supreme Court to promulgate rules concerning the protection the period and in the manner herein provided, whether
and enforcement of constitutional rights, pleadings, practice, the appeal involves questions of fact or of law or mixed
and procedure in all courts, its issuances and amendments to questions of fact and law. From final judgments or
the Rules on Civil Procedure, not to mention R A. No. 7902, as decisions of the Court of Appeals, the aggrieved party
enacted by Congress, effectively modified E.O. No. 1008. may appeal by certiorari to the Supreme Court as
Accordingly, the judgments, awards, decisions, resolutions, provided in Rule 45 of the Rules of Court.
orders or awards of the CIAC are now appealable to the Court of
Appeals on questions of facts, mixed questions of facts and law,
Subsequently, on 23 February 1995, RA. No. 7902 was enacted.
and questions of law, and no longer with the Supreme Court on
It expanded the jurisdiction of the Court of Appeals and
exclusively questions of law. Further, the TOR cannot limit the
amended for that purpose Section 9 of B.P. Blg. 129, otherwise
expanded jurisdiction of the Court of Appeals based on the
known as the Judiciary Reorganization Act of 1980.20
latest rules. Thus, the Court of Appeals did not err in reviewing
the factual findings of the CIAC.
Section 9(3) thereof reads:
CHATHAM also contends that, even if the Court of Appeals can
only review questions of law, said court did not err in rendering SECTION 9. Jurisdiction. The Court of Appeals shall
the questioned decision as the conclusions therein, drawn as exercise:
they were from factual determinations, can be considered
questions of law. .
xxx xxx xxx

Finally, CHATHAM asseverates that the Court of Appeals did not


(3) Exclusive appellate jurisdiction over all final
commit grave abuse of discretion in reversing the CIAC's
judgments, decisions, resolutions, orders or awards of
ascertainment on the implied take-over and liquidated damages.
Regional Trial Courts and quasi-judicial agencies,
instrumentalities, boards or commissions, including the
This Court shall now resolve the primary issue raised in this Securities and Exchange Commission, the Social
case. Security Commission, the Employees Compensation
Commission and the Civil Service Commission, except
those falling within the appellate jurisdiction of the
EO. No. 1008 vest upon the CIAC original and exclusive
Supreme Court in accordance with the Constitution, the
jurisdiction over disputes arising from, or connected with,
Labor Code of the Philippines under Presidential Decree
contracts entered into by parties involved in construction in the
No. 442, as amended, the provisions of this Act, and of
Philippines, whether the dispute arises before or after the
subparagraph (1) of the third paragraph and
completion of the contract, or after the abandonment or breach
subparagraph (4) of the fourth paragraph of Section 17
thereof.19 By express provision of Section 19 thereof, the arbitral
of the Judiciary Act of 1948.
award of the CIAC is final and unappealable, except on questions
of law, which are appealable to the Supreme Court.
The Court of Appeals shall have the power to try cases
and conduct hearings, receive evidence and perform
The parties, however, disagree on whether the subsequent
any and all acts necessary to resolve factual issues
Supreme Court issuances on appellate procedure and R.A. No.
raised in cases falling within its original and appellate
7902 removed from the Supreme Court its appellate jurisdiction
55
jurisdiction, including the power to grant and conduct the reviewing body to resolve questions of fact or of law or
new trials or further proceedings. x x x mixed questions of fact and law.

Then this Court issued Administrative Circular No. 1-95, 21 which It is clear that Circular No. 1-91 covers the CIAC. In the first
revised Circular No. 1-91. Relevant portions of the former reads place, it is a quasi judicial agency. A quasi-judicial agency or
as follows: body has been defined as an organ of government other than a
court and other than a legislature, which affects the rights of
private parties through either adjudication or rule-making. 22 The
1. Scope. These rules shall apply to appeals from
very definition of an administrative agency includes its being
judgments or final orders of the Court of Tax Appeals
vested with quasi judicial powers. The ever increasing variety of
and from awards, judgments, final orders or resolutions
powers and functions given to administrative agencies
of any quasi-judicial agency from which an appeal is
recognizes the need for the active intervention of administrative
authorized to be taken to the Court of Appeals or the
agencies in matters calling for technical knowledge and speed in
Supreme Court. Among these agencies are the
countless controversies which cannot possibly be handled by
Securities and Exchange Commission, Land
regular courts.23 The CIAC's primary function is that of a quasi-
Registration Authority, Social Security Commission,
judicial agency, which is to adjudicate claims and/or determine
Civil Aeronautics Board, Bureau of Patents, Trademarks
rights in accordance with procedures set forth in E.O. No. 1008.
and Technology Transfer, National Electrification
Administration, Energy Regulatory Board, National
Telecommunication Commission, Department of In the second place, the language of Section 1 of Circular No. 1-
Agrarian Reform under Republic Act No. 6657, 91 emphasizes the obvious inclusion of the CIAC even if it is not
Government Service Insurance System, Employees named in the enumeration of quasi-judicial agencies. The
Compensation Commission, Agricultural Inventions introductory words "[a] among these agencies are" preceding
Board, Insurance Commission, Philippine Atomic Energy the enumeration of specific quasi-judicial agencies only highlight
Commission, Board of Investments, and Construction the fact that the list is not exclusive or conclusive. Further, the
Industry Arbitration Commission. overture stresses and acknowledges the existence of other
quasi-judicial agencies not included in the enumeration but
should be deemed included. In addition, the CIAC is obviously
SECTION 2. Cases Not Covered. These rules shall not
excluded in the catalogue of cases not covered by the Circular
apply to judgments or final orders issued under the
and mentioned in Section 2 thereof for the reason that at the
Labor Code of the Philippines, Central Board of
time the Circular took effect, E.O. No. 1008 allows appeals to the
Assessment Appeals, and by other quasi-judicial
Supreme Court on questions of law.
agencies from which no appeal to the court is
prescribed or allowed.
In sum, under Circular No. 1-91, appeals from the arbitral
awards of the CIAC may be brought to the Court of Appeals, and
SECTION 3. Where to Appeal. An appeal under these
not to the Supreme Court alone. The grounds for the appeal are
rules may be taken to the Court of Appeals within the
likewise broadened to include appeals on questions of facts and
period and in the manner herein provided, whether the
appeals involving mixed questions of fact and law.
appeal involves questions of fact, of law, or mixed
questions of fact and law.
The jurisdiction of the Court of Appeals over appeals from final
orders or decisions of the CIAC is further fortified by the
Thereafter, this Court promulgated the 1997 Rules on Civil
amendments to B.P. Blg. 129, as introduced by RA. No. 7902.
Procedure. Sections 1, 2 and 3 of Rule 43 thereof provides:
With the amendments, the Court of Appeals is vested with
appellate jurisdiction over all final judgments, decisions,
SECTION 1. Scope. This Rule shall apply to appeals resolutions, orders or awards of Regional Trial Courts and quasi-
from judgments or final orders of the Court of Tax judicial agencies, instrumentalities, boards or commissions,
Appeals and from awards, judgments, final orders or except "those within the appellate jurisdiction of the Supreme
resolutions of or authorized by any quasi-judicial Court in accordance with the Constitution, the Labor Code of the
agency in the exercise of its quasi-judicial functions. Philippines under Presidential Decree No. 442, as amended, the
Among these agencies are the Civil Service provisions of this Act, and of subparagraph (1) of the third
Commission, Central Board of Assessment Appeals, paragraph and subparagraph (4) of the fourth paragraph of
Securities and Exchange Commission, Office of the Section 17 of the Judiciary Act of 1948."
President, Land Registration Authority, Social Security
Commission, Civil Aeronautics Board, Bureau of
While, again, the CIAC was not specifically named in said
Patents, Trademarks and Technology Transfer, National
provision, its inclusion therein is irrefutable. The CIAC was not
Electrification Administration, Energy Regulatory Board,
expressly covered in the exclusion. Further, it is a quasi-judicial
National Telecommunications Commission, Department
agency or instrumentality. The decision in Luzon Development
of Agrarian Reform under Republic Act No. 6657,
Bank v. Luzon Development Bank Employees 24 sheds light on
Government Service Insurance System, Employees
the matter, thus:
Compensation Commission, Agricultural Inventions
Board, Insurance Commission, Philippine Atomic Energy
Commission, Board of Investments, Construction Assuming arguendo that the voluntary arbitrator or the
Industry Arbitration Commission, and voluntary panel of voluntary arbitrators may not strictly be
arbitrators authorized by law. considered as a quasi-judicial agency, board or
commission, still both he and the panel are
comprehended within the concept of a 'quasi-judicial
SECTION 2. Cases Not Covered. This Rule shall not
instrumentality.' It may even be stated that it was to
apply to judgments or final orders issued under the
meet the very situation presented by the quasi-judicial
Labor Code of the Philippines.
functions of the voluntary arbitrators here, as well as
the subsequent arbitrator/arbitral tribunal operating
SECTION 3. Were to Appeal. An appeal under this under the Construction Industry Arbitration
Rule may be taken to the Court of Appeals within the Commission, that the broader term 'instrumentalities'
period and in the manner herein provided, whether the was purposely included in [Section 9 of B.P. Blg. 129 as
appeal involves question of fact, of law, or mixed amended by RA. No. 7902].
questions of fact and law.
An instrumentality' is anything used as a means or
Through Circular No. 1-91, the Supreme Court intended to agency. Thus, the terms governmental 'agency' or
establish a uniform procedure for the review of the final orders 'instrumentality' are synonymous in the sense that
or decisions of the Court of Tax Appeals and other quasi judicial either of them is a means by which a government acts,
agencies provided that an appeal therefrom is then allowed or by which a certain government act or function is
under existing statutes to either the Court of Appeals or the performed. The word 'instrumentality,' with respect to a
Supreme Court. The Circular designated the Court of Appeals as state, contemplates an authority to which the state
56
delegates governmental power for the performance of The CIAC is certain that the evidence overwhelmingly tended to
a state function. prove that the manner by which CHATHAM took charge in the
procurement of materials, fielding of labor, control of MCI
engineers and the subcontracting of various phases of the work,
Any remaining doubt on the procedural mutation of the
constituted an implied takeover of the project. The CIAC then
provisions on appeal in E.O. No. 1008, vis-a-vis Circular No. 1-91
concludes that the cut-off date for delineating the fiscal
and R A. No. 7902, was completely removed with the issuance
liabilities of the parties is 23 May 1996 when CHATHAM
by the Supreme Court of Revised Administrative Circular No. 1-
evaluated MCI's work accomplishment at 94.12% and then
95 and the 1997 Rules of Civil Procedure. Both categorically
suspended all further progress payments to MCI. For these
include the CIAC in the enumeration of quasi-judicial agencies
reasons, the CIAC found it trifling to determine whether MCI was
comprehended therein. Section 3 of the former and Section 3,
in delay based on the Overall Schedule. However, the CIAC
Rule 43 of the latter, explicitly expand the issues that may be
discovered that MCI was in delay for 294 days in the concreting
raised in an appeal from quasi judicial agencies or
milestone and held the latter liable for liquidated damages in
instrumentalities to the Court of Appeals within the period and in
the amount of P3,062,498.78.
the manner therein provided. Indisputably, the review of the
CIAC award may involve either questions of fact, of law, or of
fact and law. The Court of Appeals made a contrary conclusion and declared
that MCI was in delay for 193 days based on the overall
schedule of completion of the project and should incur
In view of all the foregoing, we reject MCI's submission that
liquidated damages in the amount of P24,125,000.00.
Circular No. 1-91, B.P. Blg. 129, as amended by RA. 7902,
Revised Administrative Circular 1-95, and Rule 43 of the 1997
Rules of Civil Procedure failed to efficaciously modify the It is undisputed that the CIAC and the Court of Appeals found
provision on appeals in E.O. No. 1008. We further discard MCI's MCI liable for liquidated damages but on different premises.
claim that these amendments have the effect of merely Based on the CIAC's assessment, MCI's responsibility was
changing the forum for appeal from the Supreme Court to the anchored on its delay in the concreting milestone, while the
Court of Appeals. Court of Appeal's evaluation concentrated on MCI's delay in
completing the project based on the overall schedule of work.
The variance in the evaluation spells a staggering difference in
There is no controversy on the principle that the right to appeal
the party who should ultimately be held liable and the net
is statutory. However, the mode or manner by which this right
amount involved.
may be exercised is a question of procedure which may be
altered and modified provided that vested rights are not
impaired. The Supreme Court is bestowed by the Constitution A study of the final computation of the net amount due in both
with the power and prerogative, inter alia, to promulgate rules the final disquisition of the CIAC and the Court of Appeals shows
concerning pleadings, practice and procedure in all courts, as that all the other figures therein are constant, save for the
well as to review rules of procedure of special courts and quasi- amount of liquidated damages for which MCI should be
judicial bodies, which, however, shall remain in force until accountable. If this Court concurs with the CIAC's conclusions,
disapproved by the Supreme Court. 25 This power is MCI's responsibility for liquidated damages is, as already stated,
constitutionally enshrined to enhance the independence of the P3,062,498.78. Setting this off against CHATHAM's overall fiscal
26
Supreme Court. accountability would bring the latter's total liability to MCI to
P16,126,922.91. If the Court of Appeals is correct, MCI would be
held liable for a much higher P24,125,000 liquidated damages.
The right to appeal from judgments, awards, or final orders of
Setting this off against CHATHAM's monetary responsibilities,
the CIAC is granted in E.O. No. 1008. The procedure for the
MCI would still have to pay CHATHAM P4,935,578.31.
exercise or application of this right was initially outlined in E.O.
No. 1008. While R. A. No. 7902 and circulars subsequently
issued by the Supreme Court and its amendments to the 1997 After painstakingly combing through the voluminous records, we
Rules on Procedure effectively modified the manner by which affirm the findings of the CIAC. The evidence taken as a whole or
the right to appeal ought to be exercised, nothing in these in their totality reveals that there was an implied takeover by
changes impaired vested rights. The new rules do not take away CHATHAM on the completion of the project. The evidence that
the right to appeal allowed in E.O. No. 1008. They only prescribe appears to accentuate the Court of Appeals' decision ironically
a new procedure to enforce the right. 27 No litigant has a vested bolstered the CIAC's conclusion. The testimonies of Engr.
right in a particular remedy, which may be changed by Kapunan, Engr. Bautista, Dr. Lai, and the letter of Engr.
substitution without impairing vested rights; hence, he can have Ruiz,31acknowledging the "temporary takeover" by CHATHAM of
none in rules of procedure which relate to remedy."28 the project, underscore the palpable fact that there was indeed
a takeover. We confer particular credit to Dr. Lai's testimony that
as of 15 February 1995, MCI was relieved of full control of the
The foregoing discussion renders academic MCI's assertion on
construction operations, that it was relegated to a mere supplier
the binding effect of its stipulation with CHATHAM in the TOR
of labor, materials and equipment, and that the alleged interim
that the decision of the CIAC shall be final and non-appealable
takeover actually extended through the completion of the
except on questions of law. The agreement merely adopted
project. Even CHATHAM admits the takeover but sugarcoated
Section 19 of E.O. No. 1008, which, as shown above, had been
the same with words like "interim" did "charging the costs to
modified.
MCI." With these glaring admissions, we can even consider that
the takeover was not implied but blatant.
The TOR, any contract or agreement of the parties cannot
amend, modify, limit, restrict or circumscribe legal remedies or
Exhibits "4," "4-A," "4-C," "8A," "8," "4-D," '43," "3-I," "3-M," "3-
the jurisdiction of courts. Rules of procedure are matters of
N," "3-W-1," "3-X," "3-Y," "3-Z," "5,""5-A," "5-B," "5-C," "5-D," "5-
public order and interest and unless the rules themselves so
E," "5-F," "5-O," "C-7," "E-9," etc., 32 relied upon by the Court of
allow, they cannot be altered, changed or regulated by
Appeals when considered by themselves and singly, seemingly
agreements between or stipulations of the parties for their
and initially evince MCI's control over the project. However, they
singular convenience.29
eventually lose evidentiary puissance to support the Court of
Appeals' conclusion when reckoned against the totality of the
Having resolved the existence of the authority of the Court of evidence that CHATHAM took charge of the completion of the
Appeals to review the decisions, awards, or final orders of the project, particularly, the fact that CHATHAM suspended all
CIAC, the Court shall now determine whether the Court of progress billing payments to MCI. The continued presence and
Appeals erred in rendering the questioned decision participation of MCI in the project was, as found by the CIAC, a
of30 September 1999. matter of mutual benefit to and convenience of the parties.

Settled is the general rule that the findings of facts of the Court WHEREFORE, IN VIEW OF ALL THE FOREGOING, the assailed 30
of Appeals are binding on us. There are recognized exceptions to September 1999 decision of the Court of Appeals in CA-G.R SP
the rule, such as when the findings are contrary to those of the No. 49429 is hereby PARTIALLY MODIFIED by setting aside the
trial court 30 as in this case. Hence, we have to take a closer order directing Metro Construction, Inc. to pay Chatham
reexamination of this case. Properties, Inc. the amount of P4,935,578.31. The arbitral award
of the Construction Industry Arbitration Commission in CIAC
57
Case 10-98, promulgated on 19 October 1998, directing was appointed by the CIAC as a common nominee of the two (2)
Chatham Properties, Inc. to pay Metro Construction, Inc. the sum parties. On the Chairman was a lawyer. After the arbitration
of SIXTEEN MILLION ONE HUNDRED TWENTY-SIX THOUSAND proceeding, the Arbitral Tribunal rendered a unanimous Award
NINE HUNDRED TWENTY-TWO & 91/100 (P16,126,922.91) dated 13 November 1992, the dispositive portion of which reads
PESOS, is accordingly REINSTATED. as follows:

No pronouncement as to costs.SO ORDERED. WHEREFORE, premises considered, the Owner


[petitioner Hi-Precision] is ordered to pay the
THIRD DIVISION.R. No. 110434 December 13, 1993 Contractor [private respondent Steel Builders]
the amount of P6,400,717.83 and all other
claims of the parties against each other are
HI-PRECISION STEEL CENTER, INC., petitioner,
deemed compensated and offset. No
vs.
pronouncement as to costs.
LIM KIM STEEL BUILDERS, INC., and CONSTRUCTION
INDUSTRY ARBITRATION COMMISSION, respondents.
The Parties are enjoined to abide by the
award. 11
FELICIANO, J.:

Upon motions for reconsideration filed, respectively, by


On 18 June 1993, a "Petition for Extension to File Petition for
Hi-Precision and Steel Builders, the Arbitral Tribunal
Review" 1 was filed before the Court, petitioner Hi-Precision Steel
issued an Order dated 13 May 1993 which reduced the
Center, Inc. ("Hi-Precision") stating that it intended to file a
net amount due to contractor Steel Builders to
Petition for Review on Certiorari in respect of the 13 November
P6,115,285.83. 12
1992 Award 2 and 13 May 1993 Order 3 of public respondent
Construction Industry Arbitration Commission ("CIAC") in
Arbitration Case No. 13-90. The Petition (really a Motion) prayed In its Award, the Arbitral Tribunal stated that it was guided by
for an extension of thirty (30) days or until 21 July 1993 within Articles 1169, 1192 and 2215 of the Civil Code. With such
which to file a Petition for Review. guidance, the arbitrators concluded that (a) both parties were at
fault, though the Tribunal could not point out which of the
parties was the first infractor; and (b) the breaches by one party
An opposition 4 to the Motion was filed by private respondent
affected the discharge of the reciprocal obligations of the other
Lim Kim Steel Builders, Inc. ("Steel Builders") on 5 July 1993. On
party. With mutual fault as a principal premise, the Arbitral
the same day, however, the Court issued a Resolution 5 granting
Tribunal denied (a) petitioner's claims for the additional costs
the Motion with a warning that no further extension would be
allegedly incurred to complete the project; and (b) private
given.
respondent's claim for profit it had failed to earn because of
petitioner's take over of the project.
The Opposition, the subsequent Reply 6 of petitioner filed on 20
July 1993 and the Petition for Review 7 dated 21 July 1993, were
The Tribunal then proceeded to resolve the remaining specific
noted by the Court in its Resolution 8 of 28 July 1993. The Court
claims of the parties. In disposing of these multiple, detailed
also required private respondent Steel Builders to file a
claims the Arbitral Tribunal, in respect of one or more of the
Comment on the Petition for Review and Steel Builders
respective claims of the parties: (a) averaged out the conflicting
complied.
amounts and percentages claimed by the parties; 13 (b) found
neither basis nor justification for a particular claim; 14 (c) found
The Petition prays for issuance of a temporary restraining the evidence submitted in support of particular claims either
order 9 to stay the execution of the assailed Order and Award in weak or non-existent; 15 (d) took account of the admissions of
favor of Steel Builders, which application the Court merely liability in respect of particular claims; 16 (e) relied on its own
noted, as it did subsequent Urgent Motions for a temporary expertise in resolving particular claims; 17 and (f) applied a
restraining order. 10 "principle of equity" in requiring each party to bear its own loss
resulting or arising from mutual fault or delay (compensation
Petitioner Hi-Precision entered into a contract with private morae). 18
respondent Steel Builders under which the latter as Contractor
was to complete a P21 Million construction project owned by the Petitioner Hi-Precision now asks this Court to set aside the
former within a period of 153 days, i.e. from 8 May 1990 to 8 Award, contending basically that it was the contractor Steel
October 1990. The project completion date was first moved to 4 Builders who had defaulted on its contractual undertakings and
November 1990. On that date, however, only 75.8674% of the so could not be the injured party and should not be allowed to
project was actually completed. Petitioner attributed this non- recover any losses it may have incurred in the project. Petitioner
completion to Steel Builders which allegedly had frequently Hi-Precision insists it is still entitled to damages, and claims that
incurred delays during the the Arbitral Tribunal committed grave abuse of discretion when
original contract period and the extension period. Upon the it allowed certain claims by Steel Builders and offset them
other hand, Steel Builders insisted that the delays in the project against claims of Hi-Precision.
were either excusable or due to Hi-Precision's own fault and
issuance of change orders. The project was taken over on 7
A preliminary point needs to be made. We note that the Arbitral
November 1990, and eventually completed on February 1991,
Tribunal has not been impleaded as a respondent in the Petition
by Hi-Precision.
at bar. The CIAC has indeed been impleaded; however, the
Arbitral Award was not rendered by the CIAC, but rather by the
Steel Builders filed a "Request for Adjudication" with public Arbitral Tribunal. Moreover, under Section 20 of Executive Order
respondent CIAC. In its Complaint filed with the CIAC, Steel No. 1008, dated 4 February 1985, as amended, it is the Arbitral
Builders sought payment of its unpaid progress buildings, Tribunal, or the single Arbitrator, with the concurrence of the
alleged unearned profits and other receivables. Hi-Precision, CIAC, which issues the writ of execution requiring any sheriff or
upon the other hand, in its Answer and Amended Answer, other proper officer to execute the award. We consider that the
claimed actual and liquidated damages, reimbursement of Arbitral Tribunal which rendered the Award sought to be
alleged additional costs it had incurred in order to complete the reviewed and set aside, should be impleaded even though the
project and attorney's fees. defense of its Award would presumably have to be carried by
the prevailing party.
The CIAC formed an Arbitral Tribunal with three (3) members,
two (2) being appointed upon nomination of Hi-Precision and Petitioner Hi-Precision apparently seeks review of both under
Steel Builders, respectively; the third member (the Chairman) Rule 45 and Rule 65 of the Rules of Court. 19 We do not find it
58
necessary to rule which of the two: a petition for review under From the foregoing, petitioner Hi-Precision may be seen to be
Rule 45 or a petition for certiorari under Rule 65 is necessary making two (2) basic arguments:
under Executive Order No. 1008, as amended; this issue was, in
any case, not squarely raised by either party and has not been (a) Petitioner asks this Court to correct legal errors committed
properly and adequately litigated. by the Arbitral Tribunal, which at the same time constitute
grave abuse of discretion amounting to lack of jurisdiction on
In its Petition, Hi-Precision purports to raise "legal issues," and in the part of the Arbitral Tribunal; and
presenting these issues, prefaced each with a creative formula:
(b) Should the supposed errors petitioner asks us to correct be
(1) characterized as errors of fact, such factual errors should
nonetheless be reviewed because there was "grave abuse of
discretion" in the misapprehension of facts on the part of the
The public respondent [should be the "Arbitral
Arbitral Tribunal.
Tribunal'] committed serious error in law, if not grave abuse of
discretion, when it failed to strictly apply Article 1191, New
Civil Code, against the Executive Order No. 1008, as amended, provides, in its
contractor . . .; Section 19, as follows:

(2) Sec. 19. Finality of Awards. The arbitral award shall be


binding upon the parties. It shall be final and inappealable
except on questions of law which shall be appealable to the
The public respondent committee serious error in law, if not
Supreme Court.
grave abuse of discretion, when it failed to rule in favor of the
owner, now petitioner herein, all the awards it claimed on
arbitration, and when it nonetheless persisted in its awards of Section 19 makes it crystal clear that questions of fact cannot
damages in favor of the be raised in proceedings before the Supreme Court which is
respondent. . . .; not a trier of facts in respect of an arbitral award rendered
under the aegis of the CIAC. Consideration of the animating
purpose of voluntary arbitration in general, and arbitration
(3)
under the aegis of the CIAC in particular, requires us to apply
rigorously the above principle embodied in Section 19 that the
The public respondent committed serious error in law, if not Arbitral Tribunal's findings of fact shall be final and
grave abuse of discretion, for its abject failure to apply the inappealable.
doctrine of waiver, estoppel against the contractor, the
private respondent herein, when it agreed on November 16,
Voluntary arbitration involves the reference of a dispute to an
1990 to award termination of the contract and the owner's
impartial body, the members of which are chosen by the parties
takeover of the project . . .;
themselves, which parties freely consent in advance to abide by
the arbitral award issued after proceedings where both parties
(4) had the opportunity to be heard. The basic objective is to
provide a speedy and inexpensive method of settling disputes
The public respondent committed serious error in law, if not by allowing the parties to avoid the formalities, delay, expense
grave abuse of discretion, when it did not enforce the law and aggravation which commonly accompany ordinary litigation,
between the parties, the "technical specification[s]" which is especially litigation which goes through the entire hierarchy of
one of the contract documents, particularly to par. (a), sub- courts. Executive Order No. 1008 created an arbitration facility
part 3.01, part 3, Sec. 2b, which expressly requires that major to which the construction industry in the Philippines can have
site work activities like stripping, removal and stockpiling of recourse. The Executive Order was enacted to encourage the
top soil shall be done "prior to the start of regular excavation early and expeditious settlement of disputes in the construction
or backfiling work", the principal issue in arbitration being industry, a public policy the implementation of which is
non-compliance with the contract documents; necessary and important for the realization of national
development goals. 21

(5)
Aware of the objective of voluntary arbitration in the labor field,
in the construction industry, and in any other area for that
The public respondent committed serious error in law, if not matter, the Court will not assist one or the other or even both
grave abuse of discretion, when it found, in the May 13, 1993 parties in any effort to subvert or defeat that objective for their
Order, the petitioner "guilty of estoppel" although it is claimed private purposes. The Court will not review the factual findings
that the legal doctrine of estoppel does not apply with respect of an arbitral tribunal upon the artful allegation that such body
to the required written formalities in the issuance of change had "misapprehended the facts" and will not pass upon issues
order . . .; which are, at bottom, issues of fact, no matter how cleverly
disguised they might be as "legal questions." The parties here
(6) had recourse to arbitration and chose the arbitrators
themselves; they must have had confidence in such arbitrators.
The Court will not, therefore, permit the parties to relitigate
The exceptional circumstances in Remalante vs. Tibe, 158
before it the issues of facts previously presented and argued
SCRA 138, where the Honorable Supreme Court may review
before the Arbitral Tribunal, save only where a very clear
findings of facts, are present in the instant case, namely; (a)
showing is made that, in reaching its factual conclusions, the
when the inference made is manifestly absurd, mistaken or
Arbitral Tribunal committed an error so egregious and hurtful to
impossible (Luna vs. Linatoc, 74 Phil. 15); (2) when there is
one party as to constitute a grave abuse of discretion resulting
grave abuse of discretion in the appreciation of facts (Buyco
in lack or loss of jurisdiction. 22 Prototypical examples would be
vs. People, 95 Phil. 253); (3) when the judgment is premised
factual conclusions of the Tribunal which resulted in deprivation
on a misapprehension of facts (De la Cruz v. Sosing, 94 Phil.
of one or the other party of a fair opportunity to present its
26 and Castillo vs. CA, 124 SCRA 808); (4) when the findings
position before the Arbitral Tribunal, and an award obtained
of fact are conflicting (Casica v. Villaseca, 101 Phil. 1205); (5)
through fraud or the corruption of arbitrators. 23 Any other, more
when the findings are contrary to the admissions of the
relaxed, rule would result in setting at naught the basic
parties (Evangelista v. Alto Surety, 103 Phil. 401), and
objective of a voluntary arbitration and would reduce arbitration
therefore, the findings of facts of the public respondent in the
to a largely inutile institution.
instant case may be reviewed by the Honorable Supreme
Court. 20 (Emphasis partly applied and partly in the original)
59
Examination of the Petition at bar reveals that it is essentially an Conditions of Contract forming part of the Contract Documents.
attempt to re-assert and re-litigate before this Court the detailed Petitioner Hi-Precision's argument is that a written Agreement
or itemized factual claims made before the Arbitral Tribunal dated 16 November 1990 with Steel Builders concerning the
under a general averment that the Arbitral Tribunal had take over of the project by Hi-Precision, constituted waiver on
"misapprehended the facts" submitted to it. In the present the part of the latter of its right to a 15-day notice of contract
Petition, too, Hi-Precision claims that the Arbitral Tribunal had termination. Whether or not that Agreement dated 16 November
committed grave abuse of discretion amounting to lack of 1990 (a document not submitted to this Court) is properly
jurisdiction in reaching its factual and legal conclusions. characterized as constituting waiver on the part of Steel
Builders, may be conceded to be prima facie a question of law;
but, if it is, and assuming arguendo that the Arbitral Tribunal had
The first "legal issue" submitted by the Petition is the claimed
erred in resolving it, that error clearly did not constitute a grave
misapplication by the Arbitral Tribunal of the first and second
abuse of discretion resulting in lack or loss of jurisdiction on the
paragraphs of Article 1911 of the Civil Code. 24 Article 1191
part of the Tribunal.
reads:

A third "legal issue" posed by Hi-Precision relates to the


Art. 1191. The power to rescind obligations is implied in
supposed failure on the part of the Arbitral Tribunal "to uphold
reciprocal ones, in case one of the obligors should not comply
the supremacy of 'the
with what is incumbent upon him.
law between the parties' and enforce it against private
respondent [Steel Builders]." 27 The "law between that parties"
The injured party may choose between the fulfillment and the here involved is the "Technical Specifications" forming part of
rescission of the obligation, with the payment of damages in the Contract Documents. Hi-Precision asserts that the Arbitral
either case. He may also seek rescission, even after he has Tribunal did not uphold the "law between the parties," but
chosen fulfillment, if the latter should become impossible. instead substituted the same with "its [own] absurd inference
and 'opinion' on mud." Here again, petitioner is merely
The court shall decree the rescission claimed, unless there be disguising a factual question as a "legal issue," since petitioner
just cause authorizing the fixing of a period. is in reality asking this Court to review the physical operations
relating, e.g., to site preparation carried out by the contractor
Steel Builders and to determine whether such operations were in
This is understood to be without prejudice to the rights of third accordance with the Technical Specifications of the project. The
persons who have acquired the thing, in accordance with Arbitral Tribunal resolved Hi-Precision's claim by finding that
articles 1385 and 1388 and the Mortgage Law. Steel Builders had complied substantially with the Technical
Specifications. This Court will not pretend that it has the
Hi-Precision contends energetically that it is the injured party technical and engineering capability to review the resolution of
and that Steel Builders was the obligor who did not comply with that factual issue by the Arbitral Tribunal.
what was incumbent upon it, such that Steel Builders was the
party in default and the entity guilty of negligence and delay. As Finally, the Petition asks this Court to "review serious errors in
the injured party, Hi-Precision maintains that it may choose the findings of fact of the [Arbitral Tribunal]." 28 In this section of
between the fulfillment or rescission of the obligation in its Petition,
accordance with Article 1191, and is entitled to damages in Hi-Precision asks us to examine each item of its own claims
either case. Thus, Hi-Precision continues, when the contractor which the Arbitral Tribunal had rejected in its Award, and each
Steel Builders defaulted on the 153rd day of the original claim of the contractor Steel Builders which the Tribunal had
contract period, Hi-Precision opted for specific performance and granted. In respect of each item of the owner's claims and each
gave Steel Builders a 30-day extension period with which to item of the contractor's claims, Hi-Precision sets out its
complete the project. arguments, to all appearances the same arguments it had raised
before the Tribunal. As summarized in the Arbitral Award,
What petitioner Hi-Precision, in its above argument, disregards is Contractor's Claims were as follows:
that the determination of whether Hi-Precision or Steel Builders
was the "injured party" is not to be resolved by an application of 12.1. Unpaid Progress Billing 1,812,706.95
Article 1191. That determination is eminently a question of fact,
for it requires ascertainment and identification of which the two
(2) contending parties had first failed to comply with what is 12.2. Change Order 1 0.00
incumbent upon it. In other words, the supposed misapplication 12.3. -do- 2 10,014.00
of Article 1191, while ostensibly a "legal issue," is ultimately a 12.4. -do- 3 320,000.00
question of fact, i.e., the determination of the existence or non- 12.5. -do- 4 112,300.70
existence of a fact or set of facts in respect of which Article 1191 12.6. -do- 5 398,398.00
may be properly applied. Thus, to ask this Court to correct a 12.7. -do- 6 353,050.38
claimed misapplication or non-application of Article 1191 is to 12.8. -do- 7 503,836.53
compel this Court to determine which of the two (2) contending 12.9. -do- 8 216,138.75
parties was the "injured party" or the "first infractor." As noted 12.10. -do- 9 101,621.40
earlier, the Arbitral Tribunal after the prolonged arbitration 12.11. -do- 10 7,200.00
proceeding, was unable to make that factual determination and 12.12. -do- 11 0.00
instead concluded that both parties had committed breaches of 12.13. -do- 12 7,800.00
their respective obligations. We will not review, and much less 12.14. -do- 13 49,250.00
reverse, that basic factual finding of the Arbitral Tribunal. 12.15. -do- 14 167,952.00
12.16. -do- 15 445,600.00
12.17. -do- 16 92,457.30
A second "legal issue" sought to be raised by petitioner Hi- 12.18. -do- 17 1,500.00
Precision relates to the supposed failure of the Arbitral Tribunal 12.19. 20,240.00
to apply the doctrines of estoppel and waiver as against Steel 12.20. 63,518.00
Builders. 25 The Arbitral Tribunal, after declaring that the parties 12.21. 0.00
were mutually at fault, proceeded to enumerate the faults of 12.22. 0.00
each of the parties. One of the faults attributed to petitioner Hi- 12.23. 0.00
Precision is that it had failed to give the contractor Steel 12.24. 0.00
Builders the required 15-day notice for termination of the 12.25. 0.00
contract. 26 This was clearly a finding of fact on the part of the 12.26. 730,201.57
Tribunal, supported by the circumstance that per the record, 12.27. 1,130,722.70
petitioner had offered no proof that it had complied with such 12.28. 0.00
15-day notice required under Article 28.01 of the General
60
12.29. 273,991.00 a. Foreign exchange loss 4,155,982.18
12.30. 0.00 b. Cost of money (a) 821,242.72
c. Additional import levy of 5% 886,513.33
d. Cost of money (c) 170,284.44

e. Cost of money on marginal


deposit on Letter of Credit 561,195.25
29
12.31. 7,318,499.28

IF Cost of money on holding to CRC INTY 3,319,609.63


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

Total Actual Damages 35,295,927.32


Upon the other hand, the petitioner's claims we are asked to
review and grant are summarized as follows:
2. Liquidated Damages 2,436,000.00

1. Actual Damages
3. Attorney's Fees 500,000.00

Advance Downpayment

[at] signing of Contract
which is subject to 40%
deduction every progress P38,231,927.32 30
billing (40% of Contract Price) P8,406,000.00
=============
Progress Billings 5,582,585.55
We consider that in asking this Court to go over each individual
Advances made to Lim Kim claim submitted by it and each individual countering claim
submitted by Steel Builders to the Arbitral Tribunal, petitioner Hi-
Precision is asking this Court to pass upon claims which are
a) prior to take-over 392,781.45
either clearly and directly factual in nature or require previous
b) after the take-over
determination of factual issues. This upon the one hand. Upon
the other hand, the Court considers that petitioner Hi-Precision
Civil Works 1,158,513.88 has failed to show any serious errors of law amounting to grave
Materials 4,213,318.72 abuse of discretion resulting in lack of jurisdiction on the part of
Labor 2,155,774.79 the Arbitral Tribunal, in either the methods employed or the
Equipment Rental 1,448,208.90 results reached by the Arbitral Tribunal, in disposing of the
detailed claims of the respective parties.

WHEREFORE, for all the foregoing, the Petition is hereby


P8,974,816.45 DISMISSED for lack of merit. Costs against petitioner.SO
ORDERED.

Total Amount Paid for Construction 23,650,183.00


Less: Contract Price (21,000,000.00) SECOND DIVISION G.R. No. 175404 January 31, 2011
CARGILL PHILIPPINES, INC.,Petitioner, - versus - SAN
FERNANDO REGALA TRADING, INC., Respondent.
IA Excess of amount paid
over contract price 2,650,163.29 PERALTA, J.:

Before us is a petition for review on certiorari seeking to reverse


IB Other items due from Lim and set aside the Decision [1] dated July 31, 2006and the
Kim Steel Builders Resolution[2] dated November 13, 2006 of the Court of Appeals
(CA) in CA G.R. SP No. 50304.
a. Amount not yet deducted
The factual antecedents are as follows:
from Downpayment due
to non-completion of Project
(P24.1326%) 2,027,138.40

b. Due to Huey Commercial On June 18, 1998, respondent San Fernando Regala Trading, Inc.
used for HSCI Project 51,110.40 filed with the Regional Trial Court (RTC) of Makati City a
Complaint for Rescission of Contract with Damages [3] against
IC Additional construction expenses petitioner Cargill Philippines, Inc. In its Complaint, respondent
alleged that it was engaged in buying and selling of molasses
and petitioner was one of its various sources from whom it
a. Increases in prices since Oct. 5,272,096.81 purchased molasses. Respondent alleged that it entered into a
contract dated July 11, 1996 with petitioner, wherein it was
agreed upon that respondent would purchase from petitioner
b. Cost of money of (a) 873,535.49
12,000 metric tons of Thailand origin cane blackstrap molasses
at the price of US$192 per metric ton; that the delivery of the
ID Installation of machinery molasses was to be made in January/February 1997 and
payment was to be made by means of an Irrevocable Letter of
Credit payable at sight, to be opened by September 15, 1996;
a. Foreign exchange loss 11,565,048.37 that sometime prior to September 15, 1996, the parties agreed
that instead of January/February 1997, the delivery would be
b. Cost of money (a) 2,871,987.01 made in April/May 1997 and that payment would be by an
Irrevocable Letter of Credit payable at sight, to be opened upon
petitioner's advice. Petitioner, as seller, failed to comply with its
I[E] Raw Materials obligations under the contract, despite demands from
respondent, thus, the latter prayed for rescission of the contract
and payment of damages.
61
On July 24, 1998, petitioner filed a Motion to Dismiss/Suspend suspension of the proceedings warranted, since the Arbitration
Proceedings and To Refer Controversy to Voluntary Arbitration, Law contemplates an arbitration proceeding that must be
[4]
wherein it argued that the alleged contract between the conducted in the Philippines under the jurisdiction and control of
parties, dated July 11, 1996, was never consummated because the RTC; and before an arbitrator who resides in the country;
respondent never returned the proposed agreement bearing its and that the arbitral award is subject to court approval,
written acceptance or conformity nor did respondent open the disapproval and modification, and that there must be an appeal
Irrevocable Letter of Credit at sight. Petitioner contended that from the judgment of the RTC. The RTC found that the arbitration
the controversy between the parties was whether or not the clause in question contravened these procedures, i.e., the
alleged contract between the parties was legally in existence arbitration clause contemplated an arbitration proceeding
and the RTC was not the proper forum to ventilate such issue. It in New York before a non-resident arbitrator (American
claimed that the contract contained an arbitration clause, to wit: Arbitration Association); that the arbitral award shall be final and
binding on both parties. The RTC said that to apply Section 7 of
the Arbitration Law to such an agreement would result in
disregarding the other sections of the same law and rendered
them useless and mere surplusages.

Petitioner filed its Motion for Reconsideration, which the RTC


ARBITRATION denied in an Order[10] dated November 25, 1998.

Petitioner filed a petition for certiorari with the CA raising the


sole issue that the RTC acted in excess of jurisdiction or with
Any dispute which the Buyer and Seller may not be grave abuse of discretion in refusing to dismiss or at least
able to settle by mutual agreement shall be settled by suspend the proceedings a quo, despite the fact that the party's
arbitration in the City of New York before the American agreement to arbitrate had not been complied with.
Arbitration Association. The Arbitration Award shall be
final and binding on both parties.[5] Respondent filed its Comment and Reply. The parties were then
required to file their respective Memoranda.
that respondent must first comply with the arbitration clause
before resorting to court, thus, the RTC must either dismiss the On July 31, 2006, the CA rendered its assailed Decision denying
case or suspend the proceedings and direct the parties to the petition and affirming the RTC Orders.
proceed with arbitration, pursuant to Sections 6 [6] and
7[7] of Republic Act (R.A.) No. 876, or the Arbitration Law. In denying the petition, the CA found that stipulation providing
for arbitration in contractual obligation is both valid and
constitutional; that arbitration as an alternative mode of dispute
resolution has long been accepted in our jurisdiction and
Respondent filed an Opposition, wherein it argued that the RTC expressly provided for in the Civil Code; that R.A. No. 876 (the
has jurisdiction over the action for rescission of contract and Arbitration Law) also expressly authorized the arbitration of
could not be changed by the subject arbitration clause. It cited domestic disputes. The CA found error in the RTC's holding that
cases wherein arbitration clauses, such as the subject clause in Section 7 of R.A. No. 876 was inapplicable to arbitration clause
the contract, had been struck down as void for being contrary to simply because the clause failed to comply with the
public policy since it provided that the arbitration award shall be requirements prescribed by the law. The CA found that there
final and binding on both parties, thus, ousting the courts of was nothing in the Civil Code, or R.A. No. 876, that require that
jurisdiction. arbitration proceedings must be conducted only in
the Philippines and the arbitrators should be Philippine
In its Reply, petitioner maintained that the cited decisions were residents. It also found that the RTC ruling effectively invalidated
already inapplicable, having been rendered prior to the not only the disputed arbitration clause, but all other
effectivity of the New Civil Code in 1950 and the Arbitration Law agreements which provide for foreign arbitration. The CA did not
in 1953. find illegal or against public policy the arbitration clause so as to
render it null and void or ineffectual.
In its Rejoinder, respondent argued that the arbitration clause
relied upon by petitioner is invalid and unenforceable, Notwithstanding such findings, the CA still held that the case
considering that the requirements imposed by the provisions of cannot be brought under the Arbitration Law for the purpose of
the Arbitration Law had not been complied with. suspending the proceedings before the RTC, since in its Motion
to Dismiss/Suspend proceedings, petitioner alleged, as one of
the grounds thereof, that the subject contract between the
parties did not exist or it was invalid; that the said contract
By way of Sur-Rejoinder, petitioner contended that respondent
bearing the arbitration clause was never consummated by the
had even clarified that the issue boiled down to whether the
parties, thus, it was proper that such issue be first resolved by
arbitration clause contained in the contract subject of the
the court through an appropriate trial; that the issue involved a
complaint is valid and enforceable; that the arbitration clause
question of fact that the RTC should first resolve. Arbitration is
did not violate any of the cited provisions of the Arbitration Law.
not proper when one of the parties repudiated the existence or
On September 17, 1998, the RTC rendered an Order, [8] the validity of the contract.
dispositive portion of which reads:

Petitioner's motion for reconsideration was denied in a


Resolution dated November 13, 2006.

Premises considered, defendant's Motion To


Dismiss/Suspend Proceedings and To Refer Controversy
Hence, this petition.
To Voluntary Arbitration is hereby DENIED. Defendant is
directed to file its answer within ten (10) days from
receipt of a copy of this order.[9]
Petitioner alleges that the CA committed an error of law
in ruling that arbitration cannot proceed despite the fact that:
(a) it had ruled, in its assailed decision, that the arbitration
clause is valid, enforceable and binding on the parties; (b) the
In denying the motion, the RTC found that there was no clear case of Gonzales v. Climax Mining Ltd. [11] is inapplicable here; (c)
basis for petitioner's plea to dismiss the case, pursuant to parties are generally allowed, under the Rules of Court, to adopt
Section 7 of the Arbitration Law. The RTC said that the provision several defenses, alternatively or hypothetically, even if such
directed the court concerned only to stay the action or
proceeding brought upon an issue arising out of an agreement
providing for the arbitration thereof, but did not impose the
sanction of dismissal. However, the RTC did not find the
62
defenses are inconsistent with each other; and (d) the complaint In its Reply, petitioner insists that respondent filed an action for
filed by respondent with the trial court is premature. rescission and damages on the basis of the contract, thus,
respondent admitted the existence of all the provisions
contained thereunder, including the arbitration clause; that if
respondent relies on said contract for its cause of action against
Petitioner alleges that the CA adopted inconsistent positions petitioner, it must also consider itself bound by the rest of the
when it found the arbitration clause between the parties as valid terms and conditions contained thereunder notwithstanding that
and enforceable and yet in the same breath decreed that the respondent may find some provisions to be adverse to its
arbitration cannot proceed because petitioner assailed the position; that respondents citation of the Gonzales case, decided
existence of the entire agreement containing the arbitration in 2005, to show that the validity of the contract cannot be the
clause. Petitioner claims the inapplicability of the subject of the arbitration proceeding and that it is the RTC which
cited Gonzales case decided in 2005, because in the present has the jurisdiction to resolve the situation between the parties
case, it was respondent who had filed the complaint for herein, is not correct since in the resolution of the Gonzales'
rescission and damages with the RTC, which based its cause of motion for reconsideration in 2007, it had been ruled that an
action against petitioner on the alleged agreement dated July arbitration agreement is effective notwithstanding the fact that
11, 2006 between the parties; and that the same agreement one of the parties thereto repudiated the main contract which
contained the arbitration clause sought to be enforced by contained it.
petitioner in this case. Thus, whether petitioner assails the
genuineness and due execution of the agreement, the fact We first address the procedural issue raised by respondent that
remains that the agreement sued upon provides for an petitioners petition for certiorari under Rule 65 filed in the CA
arbitration clause; that respondent cannot use the provisions against an RTC Order denying a Motion to Dismiss/Suspend
favorable to him and completely disregard those that are Proceedings and to Refer Controversy to Voluntary Arbitration
unfavorable, such as the arbitration clause. was a wrong remedy invoking Section 29 of R.A. No. 876, which
provides:

Petitioner contends that as the defendant in the RTC, it


presented two alternative defenses, i.e., the parties had not
entered into any agreement upon which respondent as plaintiff Section 29.
can sue upon; and, assuming that such agreement existed,
there was an arbitration clause that should be enforced, thus,
the dispute must first be submitted to arbitration before an
action can be instituted in court. Petitioner argues that under
Section 1(j) of Rule 16 of the Rules of Court, included as a x x x An appeal may be taken from an order made in a
ground to dismiss a complaint is when a condition precedent for proceeding under this Act, or from a judgment entered
filing the complaint has not been complied with; and that upon an award through certiorari proceedings, but such
submission to arbitration when such has been agreed upon is appeals shall be limited to question of law. x x x.
one such condition precedent. Petitioner submits that the
proceedings in the RTC must be dismissed, or at least
suspended, and the parties be ordered to proceed with
arbitration.

On March 12, 2007, petitioner filed a Manifestation [12] saying


that the CA's rationale in declining to order arbitration based on
the 2005 Gonzales ruling had been modified upon a motion for
reconsideration decided in 2007; that the CA decision lost its
legal basis, because it had been ruled that the arbitration
agreement can be implemented notwithstanding that one of the
parties thereto repudiated the contract which contained such
agreement based on the doctrine of separability. To support its argument, respondent cites the case of Gonzales
v. Climax Mining Ltd.[13] (Gonzales case), wherein we ruled the
In its Comment, respondent argues that certiorari under
impropriety of a petition for certiorari under Rule 65 as a mode
Rule 65 is not the remedy against an order denying a Motion to
of appeal from an RTC Order directing the parties to arbitration.
Dismiss/Suspend Proceedings and To Refer Controversy to
Voluntary Arbitration. It claims that the Arbitration Law which We find the cited case not in point.
petitioner invoked as basis for its Motion prescribed, under its
Section 29, a remedy, i.e., appeal by a petition for review
on certiorari under Rule 45. Respondent contends that
the Gonzales case, which was decided in 2007, is inapplicable in In the Gonzales case, Climax-Arimco filed before the RTC of
this case, especially as to the doctrine of separability enunciated Makati a petition to compel arbitration under R.A. No. 876,
therein.Respondent argues that even if the existence of the pursuant to the arbitration clause found in the Addendum
contract and the arbitration clause is conceded, the decisions of Contract it entered with Gonzales. Judge Oscar Pimentel of the
the RTC and the CA declining referral of the dispute between the RTC of Makati then directed the parties to arbitration
parties to arbitration would still be correct. This is so because proceedings. Gonzales filed a petition for certiorari with
respondent's complaint filed in Civil Case No. 98-1376 presents Us contending that Judge Pimentel acted with grave abuse of
the principal issue of whether under the facts alleged in the discretion in immediately ordering the parties to proceed with
complaint, respondent is entitled to rescind its contract with arbitration despite the proper, valid and timely raised argument
petitioner and for the latter to pay damages; that such issue in his Answer with counterclaim that the Addendum Contract
constitutes a judicial question or one that requires the exercise containing the arbitration clause was null and void. Climax-
of judicial function and cannot be the subject of arbitration. Arimco assailed the mode of review availed of by Gonzales,
citing Section 29 of R.A. No. 876 contending that certiorariunder
Rule 65 can be availed of only if there was no appeal or any
adequate remedy in the ordinary course of law; that R.A. No.
Respondent contends that Section 8 of the Rules of Court, which 876 provides for an appeal from such order. We then ruled that
allowed a defendant to adopt in the same action several Gonzales' petition for certiorarishould be dismissed as it was
defenses, alternatively or hypothetically, even if such defenses filed in lieu of an appeal by certiorari which was the prescribed
are inconsistent with each other refers to allegations in the remedy under R.A. No. 876 and the petition was filed far beyond
pleadings, such as complaint, counterclaim, cross-claim, third- the reglementary period.
party complaint, answer, but not to a motion to dismiss. Finally,
respondent claims that petitioner's argument is premised on the We found that Gonzales petition for certiorari raises a question
existence of a contract with respondent containing a provision of law, but not a question of jurisdiction; that Judge Pimentel
for arbitration. However, its reliance on the contract, which it acted in accordance with the procedure prescribed in R.A. No.
repudiates, is inappropriate. 876 when he ordered Gonzales to proceed with arbitration and
appointed a sole arbitrator after making the determination that
there was indeed an arbitration agreement. It had been held
63
that as long as a court acts within its jurisdiction and does not The CA ruled that arbitration cannot be ordered in this case,
gravely abuse its discretion in the exercise thereof, any since petitioner alleged that the contract between the parties
supposed error committed by it will amount to nothing more did not exist or was invalid and arbitration is not proper when
than an error of judgment reviewable by a timely appeal and not one of the parties repudiates the existence or validity of the
assailable by a special civil action of certiorari.[14] contract. Thus, said the CA:

In this case, petitioner raises before the CA the issue that the Notwithstanding our ruling on the validity and
respondent Judge acted in excess of jurisdiction or with grave enforceability of the assailed arbitration clause
abuse of discretion in refusing to dismiss, or at least suspend, providing for foreign arbitration, it is our considered
the proceedings a quo, despite the fact that the partys opinion that the case at bench still cannot be brought
agreement to arbitrate had not been complied with. Notably, the under the Arbitration Law for the purpose of
RTC found the existence of the arbitration clause, since it said in suspending the proceedings before the trial court. We
its decision that hardly disputed is the fact that the arbitration note that in its Motion to Dismiss/Suspend Proceedings,
clause in question contravenes several provisions of the etc, petitioner Cargill alleged, as one of the grounds
Arbitration Law x x x and to apply Section 7 of the Arbitration thereof, that the alleged contract between the parties
Law to such an agreement would result in the disregard of the do not legally exist or is invalid. As posited by
afore-cited sections of the Arbitration Law and render them petitioner, it is their contention that the said contract,
useless and mere surplusages. However, notwithstanding the bearing the arbitration clause, was never consummated
finding that an arbitration agreement existed, the RTC denied by the parties. That being the case, it is but proper that
petitioner's motion and directed petitioner to file an answer. such issue be first resolved by the court through an
appropriate trial. The issue involves a question of fact
In La Naval Drug Corporation v. Court of Appeals,[15] it that the trial court should first resolve.
was held that R.A. No. 876 explicitly confines the courts
authority only to the determination of whether or not there is an
agreement in writing providing for arbitration. In the affirmative,
the statute ordains that the court shall issue an order summarily Arbitration is not proper when one of the parties
directing the parties to proceed with the arbitration in repudiates the existence or validity of the contract.
accordance with the terms thereof. If the court, upon the other Apropos is Gonzales v. Climax Mining Ltd., 452 SCRA
hand, finds that no such agreement exists, the proceedings shall 607, (G.R.No.161957), where the Supreme Court held
be dismissed. that:

In issuing the Order which denied petitioner's Motion to


Dismiss/Suspend Proceedings and to Refer Controversy to
Voluntary Arbitration, the RTC went beyond its authority of The question of validity of the
determining only the issue of whether or not there is an contract containing the agreement to
agreement in writing providing for arbitration by directing submit to arbitration will affect the
petitioner to file an answer, instead of ordering the parties to applicability of the arbitration clause
proceed to arbitration. In so doing, it acted in excess of its itself. A party cannot rely on the contract
jurisdiction and since there is no plain, speedy, and adequate and claim rights or obligations under it
remedy in the ordinary course of law, petitioners resort to a and at the same time impugn its
petition for certiorari is the proper remedy. existence or validity. Indeed, litigants are
enjoined from taking inconsistent
We now proceed to the substantive issue of whether positions....
the CA erred in finding that this case cannot be brought under
the arbitration law for the purpose of suspending the
proceedings in the RTC.
Consequently, the petitioner herein cannot claim that
We find merit in the petition. the contract was never consummated and, at the same
time, invokes the arbitration clause provided for under
Arbitration, as an alternative mode of settling disputes, the contract which it alleges to be non-existent or
has long been recognized and accepted in our jurisdiction. invalid. Petitioner claims that private respondent's
[16]
R.A. No. 876[17] authorizes arbitration of domestic complaint lacks a cause of action due to the absence of
disputes. Foreign arbitration, as a system of settling commercial any valid contract between the parties. Apparently, the
disputes of an international character, is likewise recognized. arbitration clause is being invoked merely as a fallback
[18]
The enactment of R.A. No. 9285 on April 2, 2004 further position. The petitioner must first adduce evidence in
institutionalized the use of alternative dispute resolution support of its claim that there is no valid contract
systems, including arbitration, in the settlement of disputes.[19] between them and should the court a quo find the
claim to be meritorious, the parties may then be spared
the rigors and expenses that arbitration in a foreign
land would surely entail.[24]
A contract is required for arbitration to take place and
to be binding.[20] Submission to arbitration is a contract [21] and a
clause in a contract providing that all matters in dispute
between the parties shall be referred to arbitration is a contract.
[22]
The provision to submit to arbitration any dispute arising
therefrom and the relationship of the parties is part of the However, the Gonzales case,[25] which the CA relied upon for not
contract and is itself a contract.[23] ordering arbitration, had been modified upon a motion for
reconsideration in this wise:
In this case, the contract sued upon by respondent
provides for an arbitration clause, to wit:
x x x The adjudication of the petition in G.R. No.
167994 effectively modifies part of the Decision
dated 28 February 2005 in G.R. No. 161957.
Hence, we now hold that the validity of the
ARBITRATION contract containing the agreement to submit to
arbitration does not affect the applicability of the
arbitration clause itself. A contrary ruling would
suggest that a party's mere repudiation of the
Any dispute which the Buyer and Seller may not be main contract is sufficient to avoid arbitration.
able to settle by mutual agreement shall be settled by That is exactly the situation that the separability
arbitration in the City of New York before the American doctrine, as well as jurisprudence applying it,
Arbitration Association, The Arbitration Award shall be seeks to avoid. We add that when it was declared in
final and binding on both parties. G.R. No. 161957 that the case should not be brought
for arbitration, it should be clarified that the case
64
referred to is the case actually filed by Gonzales before the contract with damages; and that issue constitutes a judicial
the DENR Panel of Arbitrators, which was for the question or one that requires the exercise of judicial function
nullification of the main contract on the ground of and cannot be the subject of an arbitration proceeding.
fraud, as it had already been determined that the case Respondent cites our ruling in Gonzales, wherein we held that a
should have been brought before the regular courts panel of arbitrator is bereft of jurisdiction over the complaint for
involving as it did judicial issues.[26] declaration of nullity/or termination of the subject contracts on
the grounds of fraud and oppression attendant to the execution
of the addendum contract and the other contracts emanating
from it, and that the complaint should have been filed with the
In so ruling that the validity of the contract containing the regular courts as it involved issues which are judicial in nature.
arbitration agreement does not affect the applicability of the
arbitration clause itself, we then applied the doctrine of Such argument is misplaced and respondent cannot rely on
separability, thus: the Gonzales case to support its argument.

In Gonzales, petitioner Gonzales filed a complaint before the


The doctrine of separability, or severability as
Panel of Arbitrators, Region II, Mines and Geosciences Bureau, of
other writers call it, enunciates that an arbitration
the Department of Environment and Natural Resources (DENR)
agreement is independent of the main contract. The against respondents Climax- Mining Ltd, Climax-Arimco and
arbitration agreement is to be treated as a separate Australasian Philippines Mining Inc, seeking the declaration of
agreement and the arbitration agreement does not nullity or termination of the addendum contract and the other
automatically terminate when the contract of which it is contracts emanating from it on the grounds of fraud and
a part comes to an end. oppression. The Panel dismissed the complaint for lack of
jurisdiction. However, the Panel, upon petitioner's motion for
The separability of the arbitration agreement is reconsideration, ruled that it had jurisdiction over the dispute
especially significant to the determination of whether maintaining that it was a mining dispute, since the subject
the invalidity of the main contract also nullifies the complaint arose from a contract between the parties which
arbitration clause. Indeed, the doctrine denotes that involved the exploration and exploitation of minerals over the
the invalidity of the main contract, also referred to as disputed area. Respondents assailed the order of the Panel of
the "container" contract, does not affect the validity of Arbitrators via a petition for certiorari before the CA. The CA
granted the petition and declared that the Panel of Arbitrators
the arbitration agreement. Irrespective of the fact that
did not have jurisdiction over the complaint, since its jurisdiction
the main contract is invalid, the arbitration
was limited to the resolution of mining disputes, such as those
clause/agreement still remains valid and enforceable. [27] which raised a question of fact or matter requiring the technical
knowledge and experience of mining authorities and not when
the complaint alleged fraud and oppression which called for the
interpretation and application of laws. The CA further ruled that
the petition should have been settled through arbitration under
Respondent argues that the separability doctrine is not R.A. No. 876 the Arbitration Law as provided under the
applicable in petitioner's case, since in the Gonzalescase, addendum contract.
Climax-Arimco sought to enforce the arbitration clause of its
contract with Gonzales and the former's move was premised on On a review on certiorari, we affirmed the CAs finding that the
the existence of a valid contract; while Gonzales, who resisted Panel of Arbitrators who, under R.A. No. 7942 of the Philippine
the move of Climax-Arimco for arbitration, did not deny the Mining Act of 1995, has exclusive and original jurisdiction to
existence of the contract but merely assailed the validity thereof hear and decide mining disputes, such as mining areas, mineral
on the ground of fraud and oppression. Respondent claims that agreements, FTAAs or permits and surface owners, occupants
in the case before Us, petitioner who is the party insistent on and claimholders/concessionaires, is bereft of jurisdiction over
arbitration also claimed in their Motion to Dismiss/Suspend the complaint for declaration of nullity of the addendum
Proceedings that the contract sought by respondent to be contract; thus, the Panels' jurisdiction is limited only to those
rescinded did not exist or was not consummated; thus, there is mining disputes which raised question of facts or matters
no room for the application of the separability doctrine, since requiring the technical knowledge and experience of mining
there is no container or main contract or an arbitration clause to authorities. We then said:
speak of.
In Pearson v. Intermediate Appellate Court, this
We are not persuaded. Court observed that the trend has been to make the
adjudication of mining cases a purely administrative
Applying the Gonzales ruling, an arbitration agreement matter. Decisions of the Supreme Court on mining
which forms part of the main contract shall not be regarded as disputes have recognized a distinction between (1) the
invalid or non-existent just because the main contract is invalid primary powers granted by pertinent provisions of law
or did not come into existence, since the arbitration agreement to the then Secretary of Agriculture and Natural
shall be treated as a separate agreement independent of the Resources (and the bureau directors) of an executive or
main contract. To reiterate. a contrary ruling would suggest that administrative nature, such as granting of license,
a party's mere repudiation of the main contract is sufficient to permits, lease and contracts, or approving, rejecting,
avoid arbitration and that is exactly the situation that the reinstating or canceling applications, or deciding
separability doctrine sought to avoid. Thus, we find that even conflicting applications, and (2) controversies or
the party who has repudiated the main contract is not prevented disagreements of civil or contractual nature between
from enforcing its arbitration clause. litigants which are questions of a judicial nature that
may be adjudicated only by the courts of justice. This
Moreover, it is worthy to note that respondent filed a distinction is carried on even in Rep. Act No. 7942. [28]
complaint for rescission of contract and damages with the RTC.
In so doing, respondent alleged that a contract exists between
respondent and petitioner. It is that contract which provides for
an arbitration clause which states that any dispute which the We found that since the complaint filed before the
Buyer and Seller may not be able to settle by mutual agreement DENR Panel of Arbitrators charged respondents with
shall be settled before the City of New York by the American disregarding and ignoring the addendum contract, and acting in
Arbitration Association. The arbitration agreement clearly a fraudulent and oppressive manner against petitioner, the
expressed the parties' intention that any dispute between them complaint filed before the Panel was not a dispute involving
as buyer and seller should be referred to arbitration. It is for the rights to mining areas, or was it a dispute involving claimholders
arbitrator and not the courts to decide whether a contract or concessionaires, but essentially judicial issues. We then said
between the parties exists or is valid. that the Panel of Arbitrators did not have jurisdiction over such
issue, since it does not involve the application of technical
Respondent contends that assuming that the existence of the knowledge and expertise relating to mining. It is in this context
contract and the arbitration clause is conceded, the CA's that we said that:
decision declining referral of the parties' dispute to arbitration is
still correct. It claims that its complaint in the RTC presents the
issue of whether under the facts alleged, it is entitled to rescind
65
Arbitration before the Panel of Arbitrators is proper only had fully mobilized its manpower and equipment, and had
when there is a disagreement between the parties as to ordered the delivery of steel bars. FSI also asked for the
some provisions of the contract between them, which payment of accomplished work amounting to P3,627,818.00.[7] A
needs the interpretation and the application of that series of correspondence between LICOMCEN and FSI then
particular knowledge and expertise possessed by followed.
members of that Panel. It is not proper when one of the
parties repudiates the existence or validity of such ESCA wrote FSI on January 6, 1998, stating that the revised
contract or agreement on the ground of fraud or design necessitated a change in the bored piles requirement
oppression as in this case. The validity of the contract and a substantial reduction in the number of piles. Thus, ESCA
cannot be subject of arbitration proceedings. proposed to FSI that only 50% of the steel bars be delivered to
Allegations of fraud and duress in the execution of a the jobsite and the rest be shipped back to Manila.
[8]
contract are matters within the jurisdiction of the Notwithstanding this instruction, all the ordered steel bars
ordinary courts of law. These questions are legal in arrived in Legaspi City on January 14, 1998.[9]
nature and require the application and interpretation of
laws and jurisprudence which is necessarily a judicial On January 15, 1998, LICOMCEN instructed FSI to hold all
function.[29] construction activities on the project, [10] 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).[11] On January 19, 1998, ESCA formalized the
In fact, We even clarified in our resolution on Gonzales motion suspension of construction activities and ordered the
for reconsideration that when we declared that the case should constructions demobilization until the case was resolved. [12] In
not be brought for arbitration, it should be clarified that the case response, FSI sent ESCA a letter, dated February 3, 1998,
referred to is the case actually filed by Gonzales before the requesting payment of costs incurred on account of the
DENR Panel of Arbitrators, which was for the nullification of the suspension which totaled P22,667,026.97.[13] FSI repeated its
main contract on the ground of fraud, as it had already been demand for payment on March 3, 1998.[14]
determined that the case should have been brought before the
regular courts involving as it did judicial issues. We made such ESCA replied to FSIs demands for payment on March 24,
clarification in our resolution of the motion for reconsideration 1998, objecting to some of the claims. [15] It denied the claim
after ruling that the parties in that case can proceed to for the cost of the steel bars that were delivered, since the
arbitration under the Arbitration Law, as provided under the delivery was done in complete disregard of its instructions. It
Arbitration Clause in their Addendum Contract. further disclaimed liability for the other FSI claims based on the
suspension, as its cause was not due to LICOMCENs fault. FSI
rejected ESCAs evaluation of its claims in its April 15,
1998 letter.[16]
WHEREFORE, the petition is GRANTED. The Decision
dated July 31, 2006 and the Resolution dated November 13,
On March 14, 2001, FSI sent a final demand
2006 of the Court of Appeals in CA-G.R. SP No. 50304
are REVERSED and SET ASIDE. The parties are letter to LICOMCEN for payment of P29,232,672.83.
[17]
Since LICOMCEN took no positive action on FSIs demand for
hereby ORDERED to SUBMIT themselves to the arbitration of
their dispute, pursuant to their July 11, 1996 agreement. payment,[18] FSI filed a petition for arbitration with the
Construction Industry Arbitration Commission (CIAC) on October
SO ORDERED. a. Unpaid accomplished work billings. P 1,264,404.12
b. Material costs at site.. 15,143,638.51
THIRD DIVISION April c. Equipment and labor standby costs.. 3,058,984.34
4, 2011 G.R. d. Unrealized gross profit.. 9,023,575.29
No. 167022 e. Attorneys fees.. 300,000.00
f. Interest expenses ... equivalent to 15% of the total claim
LICOMCEN
INCORPORATED,Petitioner,- versus -FOUNDATION 2, 2002, docketed as CIAC Case No. 37-2002. [19] In the
SPECIALISTS, INC.,Respondent. arbitration petition, FSI demanded payment of the following
amounts:

THE FACTS LICOMCEN again denied liability for the amounts


claimed by FSI. It justified its decision to indefinitely suspend the
Citimall project due to the cases filed against it involving its
The petitioner, LICOMCEN Incorporated (LICOMCEN), is a Lease Contract with the City Government of Legaspi. LICOMCEN
domestic corporation engaged in the business of operating also assailed the CIACs jurisdiction, contending that FSIs claims
shopping malls in the country. were matters not subject to arbitration under GC-61 of the GCC,
but one that should have been filed before the regular courts
In March 1997, the City Government of Legaspi awarded to of Legaspi City pursuant to GC-05.[20]
LICOMCEN, after a public bidding, a lease contract over a lot
located in the central business district of the city. Under the During the preliminary conference of January 28, 2003,
contract, LICOMCEN was obliged to finance the construction of a LICOMCEN reiterated its objections to the CIACs jurisdiction,
commercial complex/mall to be known as the LCC Citimall which the arbitrators simply noted. Both FSI and LICOMCEN then
(Citimall). It was also granted the right to operate and manage proceeded to draft the Terms of Reference. [21]
Citimall for 50 years, and was, thereafter, required to turn over
the ownership and operation to the City Government.[1] On February 4, 2003, LICOMCEN, through a collaborating
counsel, filed its Ex Abundati Ad Cautela Omnibus Motion,
For the Citimall project, LICOMCEN hired E.S. de Castro and insisting that FSIs petition before the CIAC should be dismissed
Associates (ESCA) to act as its engineering consultant. Since the for lack of jurisdiction; thus, it prayed for the suspension of the
Citimall was envisioned to be a high-rise structure, LICOMCEN arbitration proceedings until the issue of jurisdiction was finally
contracted respondent Foundation Specialists, Inc. (FSI) to do settled. The CIAC denied LICOMCENs motion in its February 20,
initial construction works, specifically, the construction and 2003 order,[22] finding that the question of jurisdiction depends
installation of bored piles foundation. [2] LICOMCEN and FSI on certain factual conditions that have yet to be established by
signed the Construction Agreement,[3] and the accompanying ample evidence. As the CIACs February 20, 2003order stood
Bid Documents[4] and General Conditions of Contract [5] (GCC) uncontested, the arbitration proceedings continued, with both
on September 1, 1997. Immediately thereafter, FSI purchased parties actively participating.
the materials needed for the Citimall[6] project and began
working in order to meet the 90-day deadline set by LICOMCEN. The CIAC issued its decision on July 7, 2003,[23] ruling in favor of
FSI and awarding the following amounts:
On December 16, 1997, LICOMCEN sent word to FSI that it was
considering major design revisions and the suspension of work
on the Citimall project. FSI replied on December 18, 1997,
expressing concern over the revisions and the suspension, as it
66
a. Unpaid accomplished work billings. P 1,264,404.12 with the
b. Material costs at site 14,643,638.51 Contract, or
c. Equipment and labor standby costs 2,957,989.94 breach
d. Unrealized gross profit 5,120,000.00 thereof,
shall be litigated in the courts of Legaspi City except
LICOMCEN was also required to bear the costs of arbitration in where otherwise specifically stated or except when
the total amount of P474,407.95. such question is submitted for settlement thru
arbitration as provided herein.[28]
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 by (a) LICOMCEN also contends that FSI failed to comply with the
reducing LICOMCENs liability for material costs at site condition precedent for arbitration laid down in GC-61 of the
to P5,694,939.87, and (b) deleting its liability for equipment and GCC. An arbitrable dispute under GC-61 must first be referred to
labor standby costs and unrealized gross profit; all the other and settled by LICOMCEN, which has 30 days to resolve it. If
awards were affirmed.[24] Both parties moved for the within a period of 30 days from receipt of LICOMCENs decision
reconsideration of the CAs Decision; LICOMCENs motion was on the dispute, either party does not officially give notice to
denied in the CAs February 4, 2005 Resolution, while FSIs contest such decision through arbitration, the said decision shall
motion was denied in the CAs September 13, remain final and binding. However, should any party, within 30
2005 Resolution. Hence, the parties filed their own petition for days from receipt of LICOMCENs decision, contest said decision,
review on certiorari before the Court.[25] the dispute shall be submitted for arbitration under the
Construction Industry Arbitration Law.

LICOMCEN considers its March 24, 1998 letter as its final


LICOMCENs Arguments decision on FSIs claims, but declares that FSIs reply letter
of April 15, 1998 is not the notice to contest required by GC-61
LICOMCEM principally raises the question of the CIACs that authorizes resort to arbitration before the CIAC. It posits
jurisdiction, insisting that FSIs claims are non-arbitrable. In that nothing in FSIs April 15, 1998 letter states that FSI will avail
support of its position, LICOMCEN cites GC-61 of the GCC: of arbitration as a mode to settle its dispute with
LICOMCEN. While FSIs final demand letter of March 14,
GC-61. DISPUTES AND ARBITRATION 2001 mentioned its intention to refer the matter to arbitration,
LICOMCEN declares that the letter was made three years after
Should any dispute of any kind arise its March 24, 1998letter, hence, long after the 30-day period
between the LICOMCEN INCORPORATED and the provided in GC-61. Indeed, FSI filed the petition for arbitration
Contractor [referring to FSI] or the Engineer [referring with the CIAC only on October 2, 2002.[29] Considering FSIs
to ESCA] and the Contractor in connection with, or delays in asserting its claims, LICOMCEN also contends that FSIs
arising out of the execution of the Works, such action is barred by laches.
dispute shall first be referred to and settled by the
LICOMCEN, INCORPORATED who shall within a period of With respect to the monetary claims of FSI, LICOMCEM alleges
thirty (30) days after being formally requested by that the CA erred in upholding its liability for material costs at
either party to resolve the dispute, issue a written site for the reinforcing steel bars in the amount
decision to the Engineer and Contractor. of P5,694,939.87, computed as follows[30]:

Such decision shall be final and binding upon 2nd initial rebar requirements purchased from Pag-Asa Steel Wo
the parties and the Contractor shall proceed with the Inc..
execution of the Works with due diligence Reinforcing steel bars purchased from ARCA Industrial Sales (t
notwithstanding any Contractor's objection to the net weight of 744,197.66 kilograms) 50% of net amount due.
decision of the Engineer. If within a period of thirty (30)
days from receipt of the LICOMCEN, INCORPORATED's Subtotal.
decision on the dispute, either party does not officially Less
give notice to contest such decision through arbitration, Purchase cost of steel bars by Ramon Quinquileria..
the said decision shall remain final and binding.
However, should any party, within thirty (30) days from TOTAL LIABILITY OF LICOMCEN TO FSI FOR MATER
receipt of the LICOMCEN, INCORPORATED's decision, COSTS AT SITE...
contest said decision, the dispute shall be submitted for
arbitration under the Construction Industry Arbitration Citing GC-42(2) of the GCC, LICOMCEN says it shall be liable to
Law, Executive Order 1008. The arbitrators appointed pay FSI [t]he cost of materials or goods reasonably ordered
under said rules and regulations shall have full power for the Permanent or Temporary Works which have
to open up, revise and review any decision, opinion, been delivered to the Contractor but not yet used, and which
direction, certificate or valuation of the LICOMCEN, delivery has been certified by the Engineer.[31] None of these
INCORPORATED. Neither party shall be limited to the requisites were allegedly complied with. It contends that FSI
evidence or arguments put before the LICOMCEN, failed to establish that the steel bars delivered in Legaspi City,
INCORPORATED for the purpose of obtaining his said on January 14, 1998, were for the Citimall project. In fact, the
decision. No decision given by the LICOMCEN, steel bars were delivered not at the site of the Citimall project,
INCORPORATED shall disqualify him from being called but at FSIs batching plant called Tuanzon compound, a few
as a witness and giving evidence in the arbitration. It is hundred meters from the site. Even if delivery to Tuanzon was
understood that the obligations of the LICOMCEN, allowed, the delivery was done in violation of ESCAs instruction
INCORPORATED, the Engineer and the Contractor shall to ship only 50% of the materials. Advised as early as December
not be altered by reason of the arbitration being 1997 to suspend the works, FSI proceeded with the delivery of
conducted during the progress of the Works.[26] the steel bars in January 1998. LICOMCEN declared that it should
not be made to pay for costs that FSI willingly incurred for itself.
LICOMCEN posits that only disputes in connection with or arising [32]

out of the execution of the Works are subject to


arbitration. LICOMCEN construes the phrase execution of the Assuming that LICOMCEN is liable for the costs of the
Works as referring to the physical construction activities, since steel bars, it argues that its liability should be minimized by the
Works under the GCC specifically refer to the structures and fact that FSI incurred no actual damage from the purchase and
facilities required to be constructed and completed for the delivery of the steel bars. During the suspension of the works,
Citimall project.[27] It considers FSIs claims as mere contractual FSI sold 125,000 kg of steel bars for P500,000.00 to a third
monetary claims that should be litigated before the courts person (a certain Ramon Quinquileria). LICOMCEN alleges that
of Legaspi City, as provided in GC-05 of the GCC: FSI sold the steel bars for a ridiculously low price of P 4.00/kilo,
when the prevailing rate was P20.00/kilo. The sale could have
GC-05. JURISDICTION garnered a higher price that would offset LICOMCENs
liability. LICOMCEN also wants FSI to account for and deliver to it
Any question between the contracting the remaining 744 metric tons of steel bars not sold. Otherwise,
parties that may arise out of or in connection
67
FSI would be unjustly enriched at LICOMCENs expense, receiving The CIAC was created through Executive Order No.
payment for materials not delivered to LICOMCEN.[33] 1008 (E.O. 1008), in recognition of the need to establish an
arbitral machinery that would expeditiously settle construction
LICOMCEN also disagrees with the CA ruling that declared it industry disputes. The prompt resolution of problems arising
solely liable to pay the costs of arbitration. The ruling was from or connected with the construction industry was
apparently based on the finding that LICOMCENs failure or considered of necessary and vital for the fulfillment of national
refusal to meet its obligations, legal, financial, and moral, development goals, as the construction industry provides
caused FSI to bring the dispute to arbitration. [34] LICOMCEN employment to a large segment of the national labor force and
asserts that it was FSIs decision to proceed with the delivery of is a leading contributor to the gross national product. [43] Section
the steel bars that actually caused the dispute; it insists that it is 4 of E.O. 1008 states:
not the party at fault which should bear the arbitration costs. [35]
FSIs Arguments Sec. 4. Jurisdiction. The CIAC shall have
original and exclusive jurisdiction over disputes
FSI takes exception to the CA ruling that modified the arising from, or connected with, contracts
amount for material costs at site, and deleted the awards for entered into by parties involved in
equipment and labor standby costs and unrealized profits. construction in the Philippines, whether the
dispute arises before or after the completion of
Proof of damage to FSI is not required for LICOMCEN to the contract, or after the abandonment or breach
be liable for the material costs of the steel bars. Under GC-42, it thereof. These disputes may involve government or
is enough that the materials were delivered to the contractor, private contracts. For the Board to acquire jurisdiction,
although not used. FSI said that the 744 metric tons of steel the parties to a dispute must agree to submit the same
bars were ordered and paid for by it for the Citimall project as to voluntary arbitration.
early as November 1997. If LICOMCEN contends that these were
procured for other projects FSI also had in Legaspi City, it should The jurisdiction of the CIAC may include but is
have presented proof of this claim, but it failed to do so. [36] not limited to violation of specifications for materials
and workmanship; violation of the terms of agreement;
ESCAs January 6, 1998 letter simply suggested that interpretation and/or application of contractual time
only 50% of the steel bars be shipped to Legaspi City; it was not and delays; maintenance and defects; payment, default
a clear and specific directive. Even if it was, the steel bars were of employer or contractor and changes in contract cost.
ordered and paid for long before the notice to suspend was
given; by then, it was too late to stop the delivery. FSI also Excluded from the coverage of this law are
claims that since it believed in good faith that the Citimall disputes arising from employer-employee relationships
project was simply suspended, it expected work to resume soon which shall continue to be covered by the Labor Code
after and decided to proceed with the shipment.[37] of the Philippines.

Contrary to LICOMCENs arguments, GC-42 of the GCC The jurisdiction of courts and quasi-judicial bodies is determined
does not require delivery of the materials at the site of the by the Constitution and the law.[44] It cannot be fixed by the will
Citimall project; it only requires delivery to the contractor, which of the parties to a dispute;[45] the parties can neither expand nor
is FSI. Moreover, the Tuanzon compound, where the steel bars diminish a tribunals jurisdiction by stipulation or agreement. The
were actually delivered, is very close to the Citimall project text of Section 4 of E.O. 1008 is broad enough to cover any
site. FSI contends that it is a normal construction practice for dispute arising from, or connected with construction contracts,
contractors to set up a staging site, to prepare the materials and whether these involve mere contractual money claims or
equipment to be used, rather than stock them in the crowded execution of the works.[46] Considering the intent behind the law
job/project site. FSI also asserts that it was useless to have the and the broad language adopted, LICOMCEN erred in insisting on
delivery certified by ESCA because by then the Citimall project its restrictive interpretation of GC-61. The CIACs jurisdiction
had been suspended. It would be unfair to demand FSI to cannot be limited by the parties stipulation that only disputes in
perform an act that ESCA and LICOMCEN themselves had connection with or arising out of the physical construction
prevented from happening.[38] activities (execution of the works) are arbitrable before it.

The CA deleted the awards for equipment and labor In fact, all that is required for the CIAC to acquire
standby costs on the ground that FSIs documentary evidence jurisdiction is for the parties to a construction contract
was inadequate. FSI finds the ruling erroneous, since LICOMCEN to agree to submit their dispute to arbitration. Section 1,
never questioned the list of employees and equipments Article III of the 1988 CIAC Rules of Procedure (as amended by
employed and rented by FSI for the duration of the suspension. CIAC Resolution Nos. 2-91 and 3-93) states:
[39]

Section 1. Submission to CIAC Jurisdiction. An


FSI also alleges that LICOMCEN maliciously and arbitration clause in a construction contract or a
unlawfully suspended the Citimall project. While LICOMCEN cited submission to arbitration of a construction
several other cases in its petition for review on certiorari as dispute shall be deemed an agreement to submit
grounds for suspending the works, its letters/notices of an existing or future controversy to CIAC
suspension only referred to one case, OMB-ADM-1-97-0622, an jurisdiction, notwithstanding the reference to a
administrative case before the Ombudsman that was dismissed different arbitration institution or arbitral body
as early as October 12, 1998. LICOMCEN never notified FSI of in such contract or submission. When a contract
the dismissal of this case. More importantly, no restraining order contains a clause for the submission of a future
or injunction was issued in any of these cases to justify the controversy to arbitration, it is not necessary for the
suspension of the Citimall project.[40] FSI posits that LICOMCENs parties to enter into a submission agreement before
true intent was to terminate its contract with it, but, to avoid the claimant may invoke the jurisdiction of CIAC.
paying damages for breach of contract, simply declared it as
indefinitely suspended. That LICOMCEN conducted another An arbitration agreement or a submission to arbitration
public bidding for the new designs is a telling indication of shall be in writing, but it need not be signed by the
LICOMCENs intent to ease out FSI.[41] Thus, FSI states that parties, as long as the intent is clear that the parties
LICOMCENs bad faith in indefinitely suspending the Citimall agree to submit a present or future controversy arising
project entitles it to claim unrealized profit. The restriction under from a construction contract to arbitration.
GC-41 that [t]he contractor shall have no claim for anticipated
profits on the work thus terminated,[42] will not apply because
the stipulation refers to a contract lawfully and properly In HUTAMA-RSEA Joint Operations, Inc. v. Citra Metro Manila
terminated. FSI seeks to recover unrealized profits under Articles Tollways Corporation,[47] the Court declared that the bare fact
1170 and 2201 of the Civil Code. that the parties x x x incorporated an arbitration clause in [their
contract] is sufficient to vest the CIAC with jurisdiction over any
THE COURTS RULING construction controversy or claim between the parties. The
arbitration clause in the construction contract ipso
The jurisdiction of the CIAC facto vested the CIAC with jurisdiction.
68
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 Before the Court rules on each of FSIs contractual
activities. monetary claims, we deem it important to discuss the validity of
LICOMCENs indefinite suspension of the works on the Citimall
First, consistent with the intent of the law, an project. We quote below two contractual stipulations relevant to
arbitration clause pursuant to E.O. 1008 should be interpreted at this issue:
its widest signification. Under GC-61, the voluntary arbitration
clause covers any dispute of any kind, not only arising of out the GC-38. SUSPENSION OF WORKS
execution of the works but also in connection therewith. The
payments, demand and disputed issues in this case namely, The Engineer [ESCA] through the
work billings, material costs, equipment and labor standby LICOMCEN, INCORPORATED shall have the
costs, unrealized profits all arose because of the construction authority to suspend the Works wholly or partly
activities and/or are connected or related to these activities. In by written order for such period as may be
other words, they are there because of the construction deemed necessary, due to unfavorable weather or
activities. Attorneys fees and interests payment, on the other other conditions considered unfavorable for the
hand, are costs directly incidental to the dispute. Hence, the prosecution of the Works, or for failure on the part of
scope of the arbitration clause, as worded, covers all the the Contractor to correct work conditions which are
disputed items. unsafe for workers or the general public, or failure or
refusal to carry out valid orders, or due to change of
Second and more importantly, in insisting that plans to suit field conditions as found necessary during
contractual money claims can be resolved only through court construction, or to other factors or causes which,
action, LICOMCEN deliberately ignores one of the exceptions to in the opinion of the Engineer, is necessary in the
the general rule stated in GC-05: interest of the Works and to the LICOMCEN,
INCORPORATED. The Contractor [FSI] shall
immediately comply with such order to suspend
GC-05. JURISDICTION the work wholly or partly directed.

Any question between the contracting parties In case of total suspension or suspension of
that may arise out of or in connection with the activities along the critical path of the approved
Contract, or breach thereof, shall be litigated in the PERT/CPM network and the cause of which is not due to
courts of Legaspi City except where otherwise any fault of the Contractor, the elapsed time
specifically stated or except when such question is between the effective order for suspending work
submitted for settlement thru arbitration as and the order to resume work shall be allowed
provided herein. the Contractor by adjusting the time allowed for
his execution of the Contract Works.
The second exception clause authorizes the submission to
arbitration of any dispute between LICOMCEM and FSI, even if The Engineer through LICOMCEN,
the dispute does not directly involve the execution of physical INCORPORATED shall issue the order lifting the
construction works. This was precisely the avenue taken by FSI suspension of work when conditions to resume work
when it filed its petition for arbitration with the CIAC. shall have become favorable or the reasons for the
suspension have been duly corrected.[50]
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 GC-41 LICOMCEN, INCORPORATED's RIGHT TO
decision to officially give notice to contest such SUSPEND WORK OR TERMINATE THE CONTRACT
decision through arbitration within 30 days from receipt of
the decision. However, FSIs April 15, 1998 letter is not the notice xxxx
contemplated by GC-61; it never mentioned FSIs plan to submit
the dispute to arbitration and instead requested LICOMCEN to 2. For Convenience of LICOMCEN,
reevaluate its claims. Notwithstanding FSIs failure to make a INCORPORATED
proper and timely notice, LICOMCENs decision (embodied in
its March 24, 1998 letter) cannot become final and binding so as If any time before completion of work
to preclude resort to the CIAC arbitration. To reiterate, all that is under the Contract it shall be found by the
required for the CIAC to acquire jurisdiction is for the parties to LICOMCEN, INCORPORATED that reasons beyond
agree to submit their dispute to voluntary arbitration: the control of the parties render it impossible
or against the interest of the LICOMCEN,
[T]he mere existence of an arbitration clause in INCORPORATED to complete the work, the
the construction contract is considered by law as LICOMCEN, INCORPORATED at any time, by
an agreement by the parties to submit existing written notice to the Contractor, may discontinue
or future controversies between them to CIAC the work and terminate the Contract in whole or in
jurisdiction, without any qualification or part. Upon the issuance of such notice of termination,
condition precedent. To affirm a condition precedent the Contractor shall discontinue to work in such
in the construction contract, which would effectively manner, sequence and at such time as the LICOMCEN,
suspend the jurisdiction of the CIAC until compliance INCORPORATED/Engineer may direct, continuing and
therewith, would be in conflict with the recognized doing after said notice only such work and only until
intention of the law and rules to automatically vest such time or times as the LICOMCEN,
CIAC with jurisdiction over a dispute should the INCORPORATED/Engineer may direct.[51]
construction contract contain an arbitration clause.[48]

The CIAC is given the original and exclusive Under these stipulations, we consider LICOMCENs initial
jurisdiction over disputes arising from, or connected with, suspension of the works valid. GC-38 authorizes the
contracts entered into by parties involved in construction in suspension of the works for factors or causes which ESCA deems
the Philippines.[49] This jurisdiction cannot be altered by necessary in the interests of the works and LICOMCEN. The
stipulations restricting the nature of construction disputes, factors or causes of suspension may pertain to a change or
appointing another arbitral body, or making that bodys decision revision of works, as cited in the December 16, 1997 and
final and binding. January 6, 1998 letters of ESCA, or to the pendency of a case
before the Ombudsman (OMB-ADM-1-97-0622), as cited in
The jurisdiction of the CIAC to resolve the dispute LICOMCENs January 15, 1998 letter and ESCAs January 19, 1998
between LICOMCEN and FSI is, therefore, affirmed. and February 17, 1998 letters. It was not necessary for
ESCA/LICOMCEN to wait for a restraining or injunctive order to
The validity of the indefinite be issued in any of the cases filed against LICOMCEN before it
suspension of the works on the can suspend the works. The language of GC-38 gives
Citimall project ESCA/LICOMCEN sufficient discretion to determine whether the
69
existence of a particular situation or condition necessitates the shall deduct any outstanding balance due from the
suspension of the works and serves the interests of LICOMCEN. Contractor for advances in respect to mobilization and
materials, and any other sum the LICOMCEN,
Although we consider the initial suspension of the works INCORPORATED is entitled to be credited.[56]
as valid, we find that LICOMCEN wrongfully prolonged
the suspension of the works (or indefinite suspension as For LICOMCEN to be liable for the cost of materials or goods,
LICOMCEN calls it). GC-38 requires ESCA/LICOMCEN to issue an item two of GC-42 requires that
order lifting the suspension of work when conditions to resume
work shall have become favorable or the reasons for the a. the materials or goods were reasonably ordered for the
suspension have been duly corrected. The Ombudsman case Permanent or Temporary Works;
(OMB-ADM-1-97-0622), which ESCA and LICOMCEN cited in their b. the materials or goods were delivered to the
letters to FSI as a ground for the suspension, was dismissed as Contractor but not yet used; and
early as October 12, 1998, but neither ESCA nor LICOMCEN c. the delivery was certified by the Engineer.
informed FSI of this development.The pendency of the other
cases[52] may justify the continued suspension of the works, but Both the CIAC and the CA agreed that these requisites were met
LICOMCEN never bothered to inform FSI of the existence of by FSI to make LICOMCEN liable for the cost of the steel bars
these cases until the arbitration proceedings ordered for the Citimall project; the two tribunals differed only to
commenced. By May 28, 2002, the City Government of Legaspi the extent of LICOMCENs liability because the CA opined that it
sent LICOMCEN a notice instructing it to proceed with the should be limited only to 50% of the cost of the steel bars. A
Citimall project;[53] again, LICOMCEN failed to relay this review of the records compels us to uphold the CAs finding.
information to FSI. Instead, LICOMCEN conducted a rebidding of
the Citimall project based on the new design. [54] LICOMCENs Prior to the delivery of the steel bars, ESCA informed
claim that the rebidding was conducted merely to get cost FSI of the suspension of the works; ESCAs January 6, 1998 letter
estimates for the new design goes against the established reads:
practice in the construction industry. We find the CIACs
discussion on this matter relevant: As per our information to you on December 16,
1997, a major revision in the design of the Legaspi
But what is more appalling and disgusting is the Citimall necessitated a change in the bored piles
allegation x x x that the x x x invitation to bid was requirement of the project. The change involved a
issued x x x solely to gather cost estimates on the substantial reduction in the number and length
redesigned [Citimall project] x x x. This Arbitral Tribunal of piles.
finds said act of asking for bids, without any
intention of awarding the project to the lowest We expected that you would have suspended the
and qualified bidder, if true, to be extremely deliveries of the steel bars until the new design
irresponsible and highly unprofessional. It might has been approved.
even be branded as fraudulent x x x [since] the invited
bidders [were required] to pay P2,000.00 each for a set According to you[,] the steel bars had already
of the new plans, which amount was non- been paid and loaded and out of Manila on said
refundable. The presence of x x x deceit makes the date.
whole story repugnant and unacceptable.[55]
In order to avoid double handling, storage,
LICOMCENs omissions and the imprudent rebidding of security problems, we suggest that only 50% of
the Citimall project are telling indications of LICOMCENs the total requirement of steel bars be delivered
intent to ease out FSI and terminate their contract. As at jobsite. The balance should be returned
with GC-31, GC-42(2) grants LICOMCEN ample discretion to to Manila where storage and security is better.
determine what reasons render it against its interest to
complete the work in this case, the pendency of the other cases In order for us to consider additional cost due to the shi
and the revised designs for the Citimall project. Given this pping of the excess steel bars, we need to know the
authority, the Court fails to the see the logic why LICOMCEN had actual dates of purchase, payments and loading of the
to resort to an indefinite suspension of the works, instead of steel bars. Obviously, we cannot consider the additional
outrightly terminating the contract in exercise of its rights under cost if you have had the chance to delay the shipping
GC-42(2). of the steel bars.[57]

We now proceed to discuss the effects of these findings with From the above, it appears that FSI was informed of the
regard to FSIs monetary claims against LICOMCEN. necessity of suspending the works as early as December 16,
1997. Pursuant to GC-38 of the GCC, FSI was expected
The claim for material costs at site to immediately comply with the order to suspend the work.
[58]
Though ESCAs December 16, 1997 notice may not have been
GC-42 of the GCC states: categorical in ordering the suspension of the works, FSIs reply
GC-42 PAYMENT FOR TERMINATED CONTRACT letter of December 18, 1997 indicated that it actually complied
with the notice to suspend, as it said, We hope for the early
If the Contract is terminated as aforesaid, the resolution of the new foundation plan and the resumption of
Contractor will be paid for all items of work executed, work.[59] Despite the suspension, FSI claimed that it could not
satisfactorily completed and accepted by the stop the delivery of the steel bars (nor found the need to do so)
LICOMCEN, INCORPORATED up to the date of because (a) the steel bars were ordered as early as November
termination, at the rates and prices provided for in the 1997 and were already loaded in Manila and expected to arrive
Contract and in addition: in Legaspi City by December 23, 1997, and (b) it expected
immediate resumption of work to meet the 90-day deadline.[60]
1. The cost of partially accomplished items of
additional or extra work agreed upon by the Records, however, disclose that these claims are not
LICOMCEN, INCORPORATED and the entirely accurate. The memorandum of agreement and sale
Contractor. covering the steel bars specifically stated that these would be
withdrawn from the Cagayan de Oro depot, not Manila[61];
2. The cost of materials or goods indeed, the bill of lading stated that the steel bars were loaded
reasonably ordered for the Permanent or in Cagayan de Oro on January 11, 1998, and arrived
Temporary Works which have been in Legaspi City within three days, on January 14, 1998.[62] The
delivered to the Contractor but not yet loading and delivery of the steel bar thus happened after FSI
used and which delivery has been received ESCAs December 16, 1997 and January 6, 1998 letters
certified by the Engineer. days after the instruction to suspend the works. Also, the same
stipulation that authorizes LICOMCEN to suspend the works
3. The reasonable cost of demobilization allows the extension of the period to complete the works. The
relevant portion of
For any payment due the Contractor under the above GC-38 states:
conditions, the LICOMCEN, INCORPORATED, however,
70
In case of total suspension x x x and the cause nor differentiated the two terms. [A] contract must be
of which is not due to any fault of the Contractor interpreted from the language of the contract itself, according to
[FSI], the elapsed time between the effective its plain and ordinary meaning. [66] If the terms of a contract are
order for suspending work and the order to clear and leave no doubt upon the intention of the contracting
resume work shall be allowed the Contractor by parties, the literal meaning of the stipulations shall control. [67]
adjusting the time allowed for his execution of Nonetheless, on account of our earlier discussion of
the Contract Works.[63] LICOMCENs failure to observe the proper procedure in
terminating the contract by declaring that it was merely
The above stipulation, coupled indefinitely suspended, we deem that FSI is entitled to the
with the short period it took to ship the payment of nominal damages. Nominal damages may be
steel bars from Cagayan de Oro to Legaspi City, thus negates awarded to a plaintiff whose right has been violated or invaded
both FSIs by the defendant, for the purpose of vindicating or recognizing
argument and the CIACs ruling[64] that there was no necessity to that right, and not for indemnifying the plaintiff for any loss
stop the shipment so as to meet the 90-day deadline. These suffered by him.[68] Its award is, thus, not for the purpose of
circumstances prove that FSI acted imprudently in proceeding indemnification for a loss but for the recognition and vindication
with the delivery, contrary to LICOMCENs instructions. The CA of a right. A violation of the plaintiffs right, even if only
was correct in holding LICOMCEN liable for only 50% of the costs technical, is sufficient to support an award of nominal damages.
[69]
of the steel bars delivered. FSI is entitled to recover the amount of P100,000.00 as
nominal damages.
The claim for equipment and
labor standby costs The liability for costs of arbitration

The Court upholds the CAs ruling deleting the award for Under the parties Terms of Reference, executed before the CIAC,
equipment and labor standby costs. We quote in agreement the costs of arbitration shall be equally divided between them,
pertinent portions of the CA decision: subject to the CIACs determination of which of the parties shall
eventually shoulder the amount. [70] The CIAC eventually ruled
The CIAC relied solely on the list of 37 pieces that since LICOMCEN was the party at fault, it should bear the
of equipment respondent allegedly rented and costs. As the CA did, we agree with this finding. Ultimately, it
maintained at the construction site during the was LICOMCENs imprudent declaration of indefinitely
suspension of the project with the prorated rentals suspending the works that caused the dispute between it and
incurred x x x. To the mind of this Court, these lists FSI. LICOMCEN should bear the costs of arbitration.
are not sufficient to establish the fact that
indeed [FSI] incurred the said expenses. Reliance WHEREFORE, premises considered, the petition for review
on said lists is purely speculative x x x the list of on certiorari of LICOMCEN INCORPORATED, docketed as G.R. No.
equipments is a mere index or catalog of the 167022, and the petition for review on certiorari of FOUNDATION
equipments, which may be utilized at the SPECIALISTS, INC., docketed as G.R. No. 169678, are DENIED.
construction site. It is not the best evidence to The November 23, 2004 Decision of the Court of Appeals in CA-
prove that said equipment were in fact G.R. SP No. 78218 is MODIFIED to include the award of
rented and maintained at the construction site during nominal damages in favor of FOUNDATION SPECIALISTS, INC.
the suspension of the work. x x x [FSI] should have Thus, LICOMCEN INCORPORATED is ordered to pay FOUNDATION
presented the lease contracts or any similar SPECIALISTS, INC. the following amounts:
documents such as receipts of payments x x
x. Likewise, the list of employees does not in a. P1,264,404.12 for unpaid balance on FOUNDATION
anyway prove that those employees in the list SPECIALISTS, INC. billings;
were indeed at the construction site or were required to b. P5,694,939.87 for material costs at site; and
be on call should their services be needed and were c. P100,000.00 for nominal damages.
being paid their salaries during the suspension
of the project.Thus, in the absence of sufficient LICOMCEN INCORPORATED is also ordered to pay the costs of
evidence, We deny the claim for equipment and arbitration. No costs.SO ORDERED.
labor standby costs.[65] THIRD DIVISION July 4, 2012 G.R. No. 172438
METROPOLITAN CEBU WATER DISTRICT,Petitioner,- versus
-MACTAN ROCK INDUSTRIES, INC.,Respondent.
The claim for unrealized profit

FSI contends that it is not barred from recovering unrealized MENDOZA, J.:
profit under GC-41(2), which states:
GC-41. LICOMCEN, INCORPORATEDs RIGHT TO
SUSPEND WORK OR TERMINATE THE CONTRACT This is a petition for review on certiorari under Rule 45
xxxx assailing the February 20, 2006 Decision[1] and the March 30,
2006 Resolution[2] of the Court of Appeals (CA) in CAG.R. CEB SP.
2. For Convenience of the LICOMCEN, INCORPORATED No. 00623.

x x x. The Contractor [FSI] shall not claim


damages for such discontinuance or termination
of the Contract, but the Contractor shall receive THE FACTS
compensation for reasonable expenses incurred in
good faith for the performance of the Contract and for Petitioner Metropolitan Cebu Water District (MCWD) is a
reasonable expenses associated with termination of the government-owned and controlled corporation (GOCC) created
Contract. The LICOMCEN, INCORPORATED will pursuant to Presidential Decree (PD) No. 198,[3] as amended,
determine the reasonableness of such expenses. The with its principal office address at the MCWD Building,
Contractor [FSI] shall have no claim for Magallanes corner Lapu-Lapu Streets, Cebu City. [4] It is
anticipated profits on the work thus terminated, mandated to supply water within its service area in the cities
nor any other claim, except for the work actually of Cebu, Talisay, Mandaue, and Lapu-Lapu and the municipalities
performed at the time of complete discontinuance, of Compostela, Liloan, Consolacion, and Cordova in
including any variations authorized by the LICOMCEN, the Province of Cebu.[5]
INCORPORATED/Engineer to be done.
Respondent Metro Rock Industries, Inc. (MRII) is a
The prohibition, FSI posits, applies only where the contract was domestic corporation with principal office address at the
properly and lawfully terminated, which was not the case at 2nd Level of the Waterfront Cebu Hotel and Casino,
bar. FSI also took pains in differentiating its claim for unrealized Lahug, Cebu City.[6]
profit from the prohibited claim for anticipated profits;
supposedly, unrealized profit is one that is built-in in the On May 19, 1997, MCWD entered into a Water Supply
contract price, while anticipated profit is not. We fail to see the Contract[7] (the Contract) with MRII wherein it was agreed that
distinction, considering that the contract itself neither defined the latter would supply MCWD with potable water, in accordance
71
with the World Health Organization (WHO) standard or the Exchange Rate and the Base Power Rate shall be the
Philippine national standard, with a minimum guaranteed annual prevailing rate in January 1999, while the Base Selling Price
volume.[8] of water shall mean the 1996 rate per cubic meter of water
as provided for in the Water Supply Contract.
On March 15, 2004, MRII filed a Complaint[9] against
MCWD with the Construction Industry Arbitration 2. Ordering Respondent Metropolitan Cebu Water
Commission (CIAC), citing the arbitration clause (Clause 18) [10] of District to pay Claimant, Mactan Rock Industries, Inc[.] under
the Contract. The case was docketed as CIAC Case No. 12-2004. the reformed Clause 17 of the Water Supply Contract, the net
In the said complaint, MRII sought the reformation of Clause 17 amount of Php12,126,296.70 plus legal interest of six
of the Contract, or the Price Escalation/De-Escalation Clause, in percent (6%) per annum from the (sic) March 15, 2004, the
order to include Capital Cost Recovery in the price escalation date of filling (sic) of the case with the Construction Industry
formula, and to have such revised formula applied from 1996 Arbitration Commission, the rate increased to twelve percent
when the bidding was conducted, instead of from the first day (12%) per annum from the date the herein Decision have
when MRII started selling water to MCWD. It also sought the (sic) become final and executory until the foregoing amounts
payment of the unpaid price escalation/adjustment, and the shall have been fully paid[.]
payment of unpaid variation/extra work order and interest/cost
of money up to December 31, 2003.[11] 3. Claimant Mactan Rock Industries, Inc. and
Metropolitan Cebu Water District shall share equally the cost
On May 7, 2002, MCWD filed its Answer [12] dated April of arbitration.
27, 2004, which included a motion to dismiss the complaint on
the ground that the CIAC had no jurisdiction over the case, as SO ORDERED.[19]
the Contract was not one for construction or infrastructure.
Decision of the CA in CA-G.R. SP No. 85579 - Petition for
The CIAC thereafter issued an order [13] denying MCWDs certiorari under Rule 65 with the Court of Appeals questioning
motion to dismiss, and calling the parties to a preliminary the jurisdiction of the CIAC
conference for the review and signing of the Terms of Reference.
[14]
Meanwhile, on October 28, 2005, the CA in its
decision[20] in the First Petition upheld the jurisdiction of the CIAC
MCWD, thus, filed a petition for certiorari[15] under Rule over the case. The CA held that when parties agree to settle
65 with the CA, questioning the jurisdiction of the CIAC. The their disputes arising from or connected with construction
petition was docketed as CA-G.R. SP. No. 85579 (First Petition). contracts, the CIAC acquires primary jurisdiction.
[21]
Citing Philrock Inc. v. Construction Industry Arbitration
Meanwhile, the CIAC proceeded with the preliminary Commission,[22] the CA stated that the CIAC may resolve not only
conference scheduled on June 10 and July 22, 2004 which MWCD the merits of such controversies, but may also award damages,
opted not to attend. MRII and the CIAC both signed the Terms of interest, attorneys fees, and expenses of litigation, when
Reference. Pursuant to the Terms of Reference and the CIAC appropriate.[23]
Order dated July 22, 2004, MRII submitted its documentary
evidence and affidavits of its witnesses.[16]
Second, the CA held that the claims in question fall
under the jurisdiction of the CIAC. Thus:
On August 27, 2004, MRII submitted its Formal Offer of
Evidence and its memorandum of arguments in the form of a Xxx Section 4 of Executive Order No. 1008,
proposed/draft decision. MCWD did not attend the hearings. It otherwise known as the Construction Industry
did not submit evidence other than those annexed to its Answer. Arbitration Law delineates CIACs jurisdiction as original
Neither did it file a formal offer of evidence, or a memorandum and exclusive jurisdiction over disputes arising from, or
of legal arguments.[17] connected with, contracts entered into by parties
involved in construction in the Philippines, whether the
Decision of the CIAC disputes arise before or after the completion of the
contract, or after abandonment thereof. Moreover,
The CIAC promulgated its Decision [18] on April 14, 2005, Section 5 (k) of Republic Act No. 9184 otherwise known
the dispositive portion of which reads: as [the] Government Procurement Reform Act expressly
defines infrastructure project as including water
WHEREFORE[,] premises considered, judgment is hereby supply[,] construction, rehabilitation[,] demolition,
rendered as follows: repair, restoration and maintenance.

1. Ordering the reformation of Clause 17 of the Consistent with the above-mentioned policy of
Water Supply Contract to read: encouraging alternative dispute resolution methods,
courts should liberally construe arbitration clauses.
17[.] Price Escalation and/or De-Escalation shall be based on Provided such clause is susceptible of an interpretation
the parametric formula: that covers the asserted dispute, an order to arbitrate
should be granted. Any doubt should be resolved in
17.1 Power Rate Price Adjustment/Power Cost favor of arbitration. It is to be highlighted that the
Adjustment dispute in the case at bar arose from the parties
incongruent positions with regard to clause 17 of the
Current Power Rate - Base Power Rate x 30% of base selling Water Supply Contract[,] specifically the price
price of water escalation/adjustment. The instant case involves
Base Power Rate technical discrepancies that are better left to an arbitral
body that has expertise in those areas. Nevertheless, in
17.2 Consumer Price Index (CPI) Adjustment/Operating Cost any event, the inclusion of an arbitration clause in a
Adjustment: contract does not ipso facto divest the courts of
jurisdiction to pass upon the findings of arbitral bodies,
Current CPI Base CPI x 40% of base selling price of water because the awards are still judicially reviewable under
Base CPI certain conditions.[24] (Citations omitted.)

17.3 Capital Cost Recovery Adjustment: MCWDs motion for reconsideration of the decision in the First
Petition was still pending when it filed the petition for
Current Peso to Base Peso to US$ review[25] under Rule 43 (Second Petition) appealing the decision
US$ Exchange Rate Exchange Rate x 30% of base selling of the CIAC. The motion for reconsideration was eventually
price of water denied in a Resolution[26] dated May 3, 2006. MCWD did not
Base Peso to US $ Exchange Rate appeal from the denial of the motion. It, thus, became final and
executory.[27]
Price escalation shall be reckoned from January 1999 when
the water was first delivered by Mactan Rock Industries, Inc.
to the MCWD facilities in Mactan. The base CPI, base US$
72
The Construction Industry Arbitration
Decision of the CA in CA-G.R. CEB SP. No. 00623 Petition Commission (CIAC) was created in 1985 under Executive
for review under Rule 43 appealing the decision of the CIAC Order (E.O.) No. 1008 (Creating an Arbitration Machinery for the
Philippine Construction Industry), in recognition of the need to
Aggrieved by the CIAC Decision, MCWD filed a petition establish an arbitral machinery that would expeditiously settle
for review under Rule 43 with the CA which was docketed as CA- construction industry disputes. The prompt resolution of
G.R. CEB SP. No. 00623. problems arising from, or connected to, the construction
industry was considered necessary and vital for the fulfillment of
The CA, however, dismissed the petition in its Decision national development goals, as the construction industry
dated February 20, 2006. The Court therein stated that the issue provided employment to a large segment of the national labor
of jurisdiction had already been resolved by the 18 th Division in force, and was a leading contributor to the gross national
the First Petition, where the CA upheld the jurisdiction of the product. [31]
CIAC over Arbitration Case No. 12-2004.
Under Section 4 of E.O. No. 1008, the CIACs jurisdiction
Citing jurisprudence, the CA also ruled that there being was specifically delineated as follows:
an arbitration clause in the Contract, the action for reformation
of contract instituted by MRII in this case fell squarely within the SECTION 4. Jurisdiction - The CIAC shall
jurisdiction of the CIAC, not the courts. In relation to this, the CA have original and exclusive jurisdiction over disputes
noted that the present rule is that courts will look with favor arising from, or connected with, contracts entered into
upon amicable agreements to settle disputes through by parties involved in construction in the Philippines,
arbitration, and will only interfere with great reluctance to whether the disputes arise before or after the
anticipate or nullify the action of the arbitrator. MCWD being a completion of the contract, or after the abandonment
signatory and a party to the Water Supply Contract, it cannot or breach thereof. These disputes may involve
escape its obligation under the arbitration clause. [28] government or private contracts. For the Board to
acquire jurisdiction, the parties to a dispute must agree
The CA also held that the CIAC did not err in finding to submit the same to voluntary arbitration.
that the Water Supply Contract is clear on the matter of the
reckoning period for the computation of the escalation cost The jurisdiction of the CIAC may include but is
from January 9, 1999, or the first day of delivery of water. not limited to violation of specifications for materials
Moreover, the CA found that the CIAC did not err in ruling that and workmanship; violation of the terms of agreement;
the contract be reformed to include Capital Cost Recovery in the interpretation and/or application of contractual
parametric formula for price escalation. Neither did it err in provisions; amount of damages and penalties;
holding that the Capital Cost Recovery shall be 30% of the Base commencement time and delays; maintenance and
Selling Price of water as a consequence of the reformation of defects; payment default of employer or contractor and
Clause 17. changes in contract cost.

Finally, the CA stressed that factual findings of


administrative agencies which are deemed to have acquired
expertise in matters within their respective jurisdictions are
generally accorded not only respect but even finality when
supported by substantial evidence.[29]
Excluded from the coverage of this law are
MCWD filed a motion for reconsideration but it was disputes arising from employer-employee relationships
denied in the CA Resolution dated March 30, 2006. which shall continue to be covered by the Labor Code
of the Philippines. (Underscoring supplied)
Thus, this petition.
The jurisdiction of the CIAC as a quasi-judicial body is
ISSUES confined to construction disputes,[32] that is, those arising from,
or connected to, contracts involving all on-site works on
MCWD raises the following issues in its petition for buildings or altering structures from land clearance through
review: completion including excavation, erection and assembly and
installation of components and equipment.[33] The CIAC has
MAY THE CONSTRUCTION INDUSTRY jurisdiction over all such disputes whether the dispute arises
[ARBITRATION] COMMISSION EXERCISE before or after the completion of the contract.[34]
JURISDICTION OVER DISPUTES ARISING FROM A
WATER SUPPLY CONTRACT? Whether the CIAC has jurisdiction over the dispute

MAY A PARTY, WHO IS A SIGNATORY TO THE As earlier stated, following the denial of its motion to dismiss by
WATER SUPPLY CONTRACT[,] IN EFFECT CIAC, MCWD filed the First Petition with the CA, which decided in
SUBMITTING ITSELF TO THE JURISDICTION OF favor of MRII and upheld the jurisdiction of the CIAC.
THE CONSTRUCTION INDUSTRY ARBITRATION
COMMISSION, QUESTION THE JURISDICTION OF Not being in conformity, MCWD filed a motion for
[THE] CIAC? reconsideration.

DOES THE CONSTRUCTION INDUSTRY While the said motion was pending with the CA, MCWD filed the
ARBITRATION COMMISSION HAVE THE (SIC) Second Petition with the same court. Eventually, the motion was
JURISDICTION OVER A COMPLAINT PRAYING FOR denied, and MCWD never appealed the case. Thus, the decision
A REFORMATION OF A WATER SUPPLY CONTRACT? of the CA in the First Petition became final and executory.

MAY THE COURT OF APPEALS REFUSE TO RENDER


A [SIC] JUDGMENT ON AN ISSUE BECAUSE THIS The question now is whether such final and executory
HAS BEEN ALREADY SETTLED IN A DECISION decision is binding such that courts are generally precluded from
RENDERED BY ANOTHER DIVISION OF THE COURT passing judgment on the issue of jurisdiction in the present
OF APPEALS IN A PETITION FOR CERTIORARI, petition.
EVEN IF THE SAID DECISION HAS NOT YET BEEN
(SIC) FINAL DUE TO A TIMELY FILING OF A The Court finds in the affirmative.
MOTION FOR RECONSIDERATION?[30] This Court has held time and again that a final and
executory judgment, no matter how erroneous, cannot be
changed, even by this Court. Nothing is more settled in law than
RULING OF THE COURT that once a judgment attains finality, it thereby becomes
immutable and unalterable. It may no longer be modified in any
Creation of the CIAC respect, even if such modification is meant to correct what is
perceived to be an erroneous conclusion of fact or law, and
73
regardless of whether the modification is attempted to be made from the Water Supply Contract between the petitioner and
by the court rendering it or by the highest court of the land.[35] respondent.

In its Decision in the First Petition, the CA affirmed the arbitral To determine whether there is identity of the rights
bodys finding in CIAC Case No. 12-2004 that the case was within asserted and reliefs prayed for, grounded on the same facts and
its jurisdiction. Such decision having become final, it is beyond bases, the following tests may be utilized: (1) whether the same
the jurisdiction of this Court, or any court or body, for that evidence would support and sustain both the first and the
matter, to review or modify, even supposing for the sake of second causes of action, also known as the same evidence test;
argument, that it is indeed erroneous. or (2) whether the defenses in one case may be used to
substantiate the complaint in the other.[39] Also fundamental is
Also, the parties apparently characterized the Contract the test of determiningwhether the cause of action in the
as one involving construction, as its arbitration clause second case existed at the time of the filing of the first case. [40]
specifically refers disputes, controversies or claims arising out of
or relating to the Contract or the breach, termination or validity In the First Petition, MCWD argued that the CIACs
thereof, if the same cannot be settled amicably, to an arbitration issuance of its Order[41] dated May 28, 2004 was tainted with
tribunal, in accordance with E.O. No. 1008, or the Construction grave abuse of discretion amounting to excess or lack of
Industry Arbitration Law: jurisdiction. Thus, MCWD stated in its prayer:

WHEREFORE, in light of the premises laid


down, petitioner most respectfully prays:
V. DISPUTES AND JURISDICTION:
1. Upon the filing of this Petition, a Writ of
18. Any dispute, controversy or claim arising Preliminary Injunction or restraining order be
out of or relating to this contract or the breach, issued forthwith, enjoining the respondent
termination or invalidity thereof, if the same cannot be from proceeding with the hearing of the case
settled amicably, may be submitted for arbitration to until further orders from the Honorable Court
an Arbitration Tribunal in accordance with Executive of Appeals;
Order No. 1008 dated 4 February 1985, otherwise
known as the Construction Industry Arbitration Law and 2. After consideration, petitioner also prays
the place of arbitration shall be the City of Cebu, that the Order dated May 28, 2004, denying
Philippines, otherwise said dispute or controversy petitioners motion to dismiss be declared
arising out of the contract or breach thereof shall be without force and effect;
submitted to the court of law having jurisdiction thereof
in the city where MCWD is located.[36] 3. Petitioner also prays that the Construction
Industry Arbitration Commission be barred
Had the parties been of the mutual understanding that from hearing the case filed by Mactan Rock
the Contract was not of construction, they could have instead Industries, Inc., private respondent herein.
referred the matter to arbitration citing Republic Act (R.A.) No.
876, or The Arbitration Law. Having been passed into law in Other measures of relief, which are just and
1953, the said statute was already in existence at the time the equitable under the foregoing premise are also prayed
contract was entered into, and could have been applied to for.[42]
arbitration proceedings other than those specifically within the
arbitral jurisdiction of the CIAC. The Second Petition, on the other hand, raised the
following issues:
Whether the CA erred in refusing to render judgment on
the issue of jurisdiction ___________ a. Whether or not the Arbitral Tribunal of CIAC gravely
erred in taking and exercising jurisdiction over the
On a related matter, MWCD also raises the issue of complaint filed by the respondent;
whether the 19th Division of the CA, Cebu City, erred in refusing
to render judgment on the issue of jurisdiction raised in the b. Whether or not the Arbitral
Second Petition on the ground that it had already been settled Tribunal of CIAC gravely erred in reforming Clause 17 of
by the 18th Division in its decision in the First Petition, even if the the Contract;
18th Division decision had not yet become final due to a timely
filing of a motion for reconsideration. c. Whether or not the same
tribunal gravely committed an error in considering
The Court rules in the negative. Capital Cost Recovery Adjustment in awarding in favor
of the complainant, when the same is extraneous to the
The 19th Division was correct in refusing to render provisions of the contract;[43]
judgment on the issue of jurisdiction as, at that time, the issue
was still pending before another division of the CA. Thus, it prayed:

Litis pendentia is predicated on the principle that a WHEREFORE, PREMISES CONSIDERED, it is


party should not be allowed to vex another more than once most respectfully prayed of the Honorable Court that a
regarding the same subject matter and for the same cause of Judgment be issued reversing the findings of the
action. It is founded on the public policy that the same subject Arbitral Tribunal of the Construction Industry Arbitration
matter should not be the subject of controversy in courts more Commission in its Decision dated April 14, 2005, as far
than once, in order that possible conflicting judgments may be as the order of reformation of the water supply contract
avoided for the sake of the stability of the rights and status of and in granting the monetary award.
persons, and also to avoid the costs and expenses incident to
numerous suits. [37] It is further prayed that the decision rendered
by the Arbitral Tribunal be declared invalid for want of
With the two petitions then pending before the CA, all jurisdiction to arbitrate and to order the reformation of
the elements of litis pendentia were present, that is, identity of the water supply contract;
the parties in the two actions, substantial identity in the causes
of action and in the reliefs sought by the parties, and identity It is also prayed that the decision awarding
between the two actions such that any judgment that may be money to the respondent be strike (sic) down as
rendered in one case, regardless of which party is successful, erroneous and without legal basis for lack of jurisdiction
would amount to res judicata in the other.[38] by the Arbitral Tribunal, which rendered the Decision.

In both cases, MCWD was the petitioner and MRII, the It is also prayed that a Temporary Restraining
respondent. Although they differ in form, in essence, the two Order and a Writ of Preliminary Injunction be issued at
cases involved a common issue, that is, MCWDs challenge to the the outset, ordering the stay of execution pending the
jurisdiction of the CIAC over the arbitration proceedings arising resolution of the issues raised in the Petition.
74
Other measures of relief, which are just and Whether the CIAC had jurisdiction to order the
equitable, are also prayed for.[44] reformation of the Water Supply Contract
The jurisdiction of courts and quasi-judicial bodies is
In both cases, the parties also necessarily relied on the determined by the Constitution and the law.[50] It cannot be fixed
same laws and arguments in support of their respective by the will of the parties to the dispute, nor can it be expanded
positions on the matter of jurisdiction. or diminished by stipulation or agreement. [51] The text of Section
4 of E.O. No. 1008 is broad enough to cover any dispute arising
In the First Petition, in support of its argument, that the from, or connected with, construction contracts, whether these
CIAC had no jurisdiction to arbitrate the causes of action raised involve mere contractual money claims or execution of the
by MRII, MCWD cited the portions of the Contract on the works. This jurisdiction cannot be altered by stipulations
obligations of the water supplier, E.O. No. 1008 (specifically restricting the nature of construction disputes, appointing
Section 4 on jurisdiction), the Rules of Procedure Governing another arbitral body, or making that bodys decision final and
Construction Arbitration (Section 1, Article III). It also alleged binding.[52]
that in issuing the order denying its motion to dismiss, the CIAC
misread the provisions of LOI No. 1186 and R.A. No. 9184 on the Thus, unless specifically excluded, all incidents and
definition of an infrastructure project.[45] matters relating to construction contracts are deemed to be
within the jurisdiction of the CIAC. Based on the previously cited
MRII, however, opined that the CIAC had jurisdiction provision outlining the CIACs jurisdiction, it is clear that with
over the complaint and, therefore, correctly denied petitioners regard to contracts over which it has jurisdiction, the only
motion to dismiss. MRII argued that certiorari was not a proper matters that have been excluded by law are disputes arising
remedy in case of denial of a motion to dismiss and that the from employer-employee relationships, which continue to be
claims fell squarely under CIACs original and exclusive governed by the Labor Code of the Philippines. Moreover, this is
jurisdiction. MRII, in support of its position, cited Section 1 of LOI consistent with the policy against split jurisdiction.
No. 1186 and Section 5(k) of R.A. No. 9184. MRII further
proposed that, as shown by MCWDs pro-forma Water Supply In fact, in National Irrigation Administration v. Court of
Contract, Specifications, Invitation to Submit Proposal, Pre-Bid Appeals,[53] it was held that the CIAC had jurisdiction over the
Conference minutes, Addendum No. 1, and MRIIs Technical and dispute, and not the contract. Therefore, even if the contract
Financial Proposals, the undertaking contemplated by the preceded the existence of the CIAC, since the dispute arose
parties is one of infrastructure and of works, rather than one of when the CIAC had already been constituted, the arbitral board
supply or mere services.[46] was exercising current, and not retroactive, jurisdiction. In the
same case, it was held that as long as the parties agree to
In the Second Petition, in support of the issue of submit to voluntary arbitration, regardless of what forum they
jurisdiction, MCWD again relied on Section 4 of E.O. No. 1008 may choose, their agreement will fall within the jurisdiction of
and Section 1, Article III of the Rules of Procedure Governing the CIAC, such that, even if they specifically choose another
Construction Arbitration. It also brought to fore the alleged forum, the parties will not be precluded from electing to submit
faulty conclusion of MRII that a water supply contract is their dispute to the CIAC because this right has been vested
subsumed under the definition of an infrastructure project under upon each party by law.
LOI 1186.[47]
This is consistent with the principle that when an
In its Comment, MRII reiterated and adopted its administrative agency or body is conferred quasi-judicial
arguments before the CIAC, and insisted that the undertaking functions, all controversies relating to the subject matter
contemplated by the parties was one of infrastructure and of pertaining to its specialization are deemed to be included within
works, as distinguished from mere supply from off-the-shelf or its jurisdiction since the law does not sanction a split of
from mere services.[48] Section 1 of LOI No. 1186, to define jurisdiction, as stated in Pea v. Government Service Insurance
infrastructure and Section 5(k) of R.A. No. 9184 to include water System.[54]
supply, were again cited. In support of its arguments, MRII cited
anew MCWDs pro-forma Water Supply Contract, Specifications In Pea, the Court held that although the complaint for
(in its Invitation to Submit Proposal), pronouncements at the Pre- specific performance, annulment of mortgage, and damages
Bid Conference, Addendum No. 1, and MRIIs Technical and filed by the petitioner against the respondent included title to,
Financial Proposals. MRII further extensively reproduced the possession of, or interest in, real estate, it was well within the
content of the joint affidavit of Messrs. Antonio P. Tompar and jurisdiction of the Housing and Land Use Regulatory
Lito R. Maderazo, MRIIs President/CEO and Financial Manager, Board (HLURB), a quasi-judicial body, as it involved a claim
respectively.[49] against the subdivision developer, Queens Row Subdivision, Inc.,
as well as the Government Service Insurance System (GSIS).
Given that the same arguments were raised on the
matter of CIAC jurisdiction, the parties thus relied on This case was later cited in Badillo v. Court of Appeals,[55] where
substantially the same evidence in both petitions. MCWD the Court concluded that the HLURB had jurisdiction over
annexed to both petitions copies of the Water Supply Contract, complaints for annulment of title. The Court also held that courts
the complaint filed by MRII with the CIAC, and its Answer to the will not determine a controversy where the issues for resolution
said complaint. On the other hand, MRII presented Addendum demand the exercise of sound administrative discretion, such as
No. 1 to the Water Supply Contract and its Technical and that of the HLURB, the sole regulatory body for housing and land
Financial Proposals. development. It was further pointed out that the extent to which
an administrative agency may exercise its powers depends on
Moreover, the first cause of action in the Second the provisions of the statute creating such agency.
Petition, that is, the CIACs having assumed jurisdiction, allegedly The ponencia further quoted from C.T. Torres
unlawfully, over the dispute arising from the Water Supply Enterprises, Inc. v. Hibionada:[56]
Contract, obviously existed at the time the First Petition was The argument that only courts of justice can adjudicate
filed, as the latter case dealt with the jurisdiction of the CIAC claims resoluble under the provisions of the Civil Code
over the complaint filed. is out of step with the fast-changing times. There are
hundreds of administrative bodies now performing this
Finally, any judgment that may be rendered in the First function by virtue of a valid authorization from the
Petition on the matter of whether the CIAC has jurisdiction over legislature. This quasi-judicial function, as it is called, is
the arbitration proceedings, regardless of which party was exercised by them as an incident of the principal power
successful, would amount to res judicata in the Second Petition, entrusted to them of regulating certain activities falling
insofar as the issue of jurisdiction is concerned. In fact, what under their particular expertise.
MCWD should have done was to appeal to the Court after the
denial of its motion for reconsideration in the First Petition. For In the Solid Homes case for example the Court affirmed
not having done so, the decision therein became final and, the competence of the Housing and Land Use
therefore, immutable. Regulatory Board to award damages although this is an
essentially judicial power exercisable ordinarily only by
Thus, following the above discussion, the 19th Division the courts of justice. This departure from the traditional
was correct in refusing to render judgment on the issue of allocation of governmental powers is justified by
jurisdiction in the Second Petition. expediency, or the need of the government to respond
75
swiftly and competently to the pressing problems of Thus, under the CIAC Rules, even without the
the modern world. participation of one of the parties in the proceedings, the CIAC is
still required to proceed with the hearing of the construction
In Bagunu v. Spouses Aggabao,[57] the Court ruled dispute.[61]
that the RTC must defer the exercise of its jurisdiction on related
issues involving the same subject matter properly within its This Court has held that the CIAC has jurisdiction over a
jurisdiction, such as the distinct cause of action for reformation dispute arising from a construction contract even though only
of contracts involving the same property, since the DENR one of the parties requested for arbitration. [62] In fact,
assumed jurisdiction over the lot in question, pursuant to its in Philrock, Inc. v. Construction Industry Arbitration Commission,
[63]
mandate. the Court held that the CIAC retained jurisdiction even if both
parties had withdrawn their consent to arbitrate.
In National Housing Authority v. First United Constructors
Corporation,[58] the Court held that there was no basis for the In this case, there being a valid arbitration clause
exclusion of claims for business losses from the jurisdiction of mutually stipulated
the CIAC because E.O. No. 1008 excludes from the coverage of by the parties, they are bothcontractually bound to settle their d
the law only those disputes arising from employer-employee ispute
relationships which are covered by the Labor Code, conveying through arbitration before the CIAC. MCWD refused to
an intention to encompass a broad range of arbitrable issues participate, but this should not affect the authority of the CIAC
within the jurisdiction of CIAC.[59] Section 4 provides that (t)he to conduct the proceedings, and, thereafter, issue an arbitral
jurisdiction of the CIAC may include but is not limited to xx x, award.
underscoring the expansive character of the CIACs jurisdiction.
Very clearly, the CIAC has jurisdiction over a broad range of Now, with the CIAC decision being questioned by
issues and claims arising from construction disputes, including MCWD, the Court takes a cursory reading of the said decision. It
but not limited to claims for unrealized profits and opportunity reveals that the conclusions arrived at by CIAC are supported by
or business losses. What E.O. No. 1008 emphatically excludes is facts and the law. Article 1359 of the Civil Code states that when
only disputes arising from employer-employee relationships.[60] there has been a meeting of the minds of the parties to a
contract, but their true intention is not expressed in the
Where the law does not delineate, neither should we. instrument purporting to embody the agreement by reason of
Neither the provisions of the Civil Code on reformation of mistake, fraud, inequitable conduct or accident, one of the
contracts nor the law creating the CIAC exclude the reformation parties may ask for the reformation of the instrument to the end
of contracts from its jurisdiction. Jurisprudence further dictates that such true intention may be expressed. The CIAC, in this
that the grant of jurisdiction over related and incidental matters case, found that the parametric formula for price escalation
is implied by law. Therefore, because the CIAC has been held to reflected in the Water Supply Contract involved two items:
have jurisdiction over the Contract, it follows that it has Power Rate Price Adjustment (30% of the base selling price of
jurisdiction to order the reformation of the Contract as well. water) and Consumer Price Index Adjustment (40% of the base
selling price of water). The remaining 30% of the selling price of
Whether MCWD can validly refuse to participate in the water, which should have been for Capital Cost Recovery, was
arbitration proceedings inadvertently left out in this parametric formula. Thus, the
Contract should be reformed accordingly to reflect the intention
In light of the finality of the CA decision on the matter of of the parties to include in the price escalation formula the
jurisdiction, the only remaining issue to be disposed of is Capital Cost Recovery Adjustment. These conclusions were
whether the CIAC could proceed with the case even if the MCWD affirmed by the CA in the assailed decision of February 20, 2006.
refused to participate in the arbitration proceedings.
As noted by MCWD in its reply, however, the dispositive
The Court rules in the affirmative. Though one party portion of the CIAC decision reforming the price escalation
can refuse to participate in the arbitration proceedings, formula is inconsistent with what was stated in the body of the
this cannot prevent the CIAC from proceeding with the case and decision. The formula contained in the body of the decision is as
issuing an award in favor of one of the parties. follows:

Section 4.2 of the Revised Rules of Procedure PRICE ADJUSTMENT COMPUTATION


Governing Construction Arbitration (CIAC Rules) specifically Based on Reformed Clause 17 of the Water
provides that where the jurisdiction of the CIAC is properly Supply Contract
invoked by the filing of a Request for Arbitration in accordance
with CIAC Rules, the failure of a respondent to appear, which 1. Power Cost Adjustment:
amounts to refusal to arbitrate, will not stay the proceedings, xxx
notwithstanding the absence of the respondent or the lack of
participation of such party. In such cases, the CIAC is mandated Current Power Rate Base Power Rate x 30% of Base Selling
to appoint the arbitrator/s in accordance with the Rules, and the Price of water
arbitration proceedings shall continue. The award shall then be Base Power Rate
made after receiving the evidence of the claimant.
xxx
In such a case, all is not lost for the party who did not
participate. Even after failing to appear, a respondent is still 2. Operating Cost Adjustment - Local
given the opportunity, under the CIAC Rules, to have the
proceedings reopened and be allowed to present evidence, xxx
although with the qualification that this is done before an award
is issued: Current CPI Base CPI x 30% of 40% of Base Selling Price of
Water
4.2.1 In the event that, before award, the Base CPI
Respondent who had not earlier questioned the
jurisdiction of the Tribunal, appears and offers to xxx
present his evidence, the Arbitral Tribunal may, for
reasons that justifies (sic) the failure to appear, reopen 3. Operating Cost Adjustment Foreign
the proceedings, require him to file his answer with or
without counterclaims, pay the fees, where required xxx
under these Rules, and allow him to present his
evidence, with limited right to cross examine witnesses Current Forex Base Forex x 70% of 40% of Base Selling Price
already in the discretion of the Tribunal. Evidence of Water
already admitted shall remain. The Tribunal shall decide Base Forex
the effect of such controverting evidence presented by
the Respondent on evidence already admitted prior to xxx
such belated appearance.
Capital Cost Adjustment Local
76
xxx water, and not just 70% of the Capital Cost Recovery
Adjustment. The omission of the marked portions of the formula
Current CPI Base CPI x 30% of 30% of Base Selling as stated in the body of the CIAC decision represents substantial
Price of Water changes to the formula for price escalation. It is thus clear that
Base CPI the formula as stated in the body of the decision should govern.

xxx WHEREFORE, the petition is DENIED. The Decision


and Resolution of the Court of Appeals in C.A.-G.R. CEB SP. No.
Capital Cost Adjustment Foreign 00623 are AFFIRMED with the modification that the formula for
the computation of the Capital Cost Recovery Adjustment in the
xxx fallo of the CIAC decision should be amended to read as follows:

Current Forex Base Forex x 70% of 30% of Base WHEREFORE, premises considered, judgment is hereby
Selling Price of Water rendered as follows:
Base Forex
1. Ordering the reformation of Clause 17 of the Water
xxx[64] Supply Contract to read:

The dispositive portion of the decision, however, 17. Price Escalation and/or De-Escalation shall be based on
reads: the parametric formula:
WHEREFORE[,] premises considered, judgment is
hereby rendered as follows: 17.1. Power Rate Price Adjustment/Power Cost
Adjustment
1. Ordering the reformation of Clause 17 of the Water Supply
Contract to read:
Current Power Rate - Base Power Rate x 30% of base selling
17[.] Price Escalation and/or De-Escalation shall be based on price of water
the parametric formula: Base Power Rate

17.1 Power Rate Price Adjustment/Power Cost 17.2 Consumer Price Index (CPI) Adjustment/Operating Cost
Adjustment Adjustment:

Current Power Rate Base Power Rate x 30% of Base Selling Current CPI Base CPI x 30% of 40% of base selling price of
Price of water water
Base Power Rate Base CPI

17.2 Consumer Price Index (CPI) Adjustment/Operatiing 17.3 Capital Cost Recovery Adjustment:
(sic) Cost Adjustment:
Current Peso to Base Peso to US$
Current CPI Base CPI x 40% of Base Selling Price of Water US$ Exchange Rate Exchange Rate x 70% of 30% of base
Base CPI selling price of water
Base Peso to US $ Exchange Rate
17.3 Capital Cost Recovery Adjustment:
Price escalation shall be reckoned from January 1999 when
Current Peso to Base Peso to US$ the water was first delivered by Mactan Rock Industries, Inc.
US$ Exchange Rate Exchange Rate x 30% of base selling price to the MCWD facilities in Mactan. The base CPI, base US$
of water Exchange Rate and the Base Power Rate shall be the
Base Peso to US $ Exchange Rate prevailing rate in January 1999, while the Base Selling Price
of water shall mean the 1996 rate per cubic meter of water
The general rule is that where there is a conflict as provided for in the Water Supply Contract.
between the fallo, or the dispositive part, and the body of the
decision or order, the fallo prevails on the theory that the fallo is 2. Ordering Respondent Metropolitan Cebu Water District
the final order and becomes the subject of execution, while the to pay Claimant, Mactan Rock Industries, Inc. under the
body of the decision merely contains the reasons or conclusions reformed Clause 17 of the Water Supply Contract, the net
of the court ordering nothing. However, where one can clearly amount of Php12,126,296.70 plus legal interest of six
and unquestionably conclude from the body of the decision that percent (6%) per annum from March 15, 2004, the date of
there was a mistake in the dispositive portion, the body of the filing of the case with the Construction Industry Arbitration
decision will prevail.[65] Commission, and twelve percent (12%) per annum from the
date this Decision becomes final and executory, until the
Following the reasoning of the CIAC in this case, there foregoing amounts shall have been fully paid.
are three components to price adjustment: (1) Power Cost
Adjustment (30% of the base selling price of water); (2) 3. Claimant Mactan Rock Industries, Inc. and Metropolitan
Operating Cost Adjustment (40% of the base selling price of Cebu Water District shall share the cost of arbitration equally.
water); and (3) Capital Cost Adjustment (30% of the base selling
price of water). SO ORDERED.
SECOND DIVISIONG.R. No. 179628 January 16,
In turn, the second componentOperating Cost 2013
Adjustmentis computed based on Local Operating Cost
Adjustment (30%), and Foreign Operating Cost Adjustment
(70%). THE MANILA INSURANCE COMPANY, INC., Petitioner,
vs.
Capital Cost Adjustment, on the other hand, is SPOUSES ROBERTO and AIDA AMURAO, Respondents.
composed of Local Capital Cost Adjustment (30%), and Foreign
Capital Cost Adjustment (70%). DEL CASTILLO, J.:
This is consistent with the formula set forth in the body
of the CIAC decision. If the formula in the dispositive portion The jurisdiction of the Construction Industry Arbitration
were to be followed, Operating Cost Adjustment would be Commission (CIAC) is conferred by law. Section 4 1 of Executive
computed with the Local Operating Cost Adjustment Order (E.O.) No. I 008, otherwise known as the Construction
representing the entire 40% of the base selling price of water Industry Arbitration Law, "is broad enough to cover any dispute
instead of just 30% of the Operating Cost Adjustment. Moreover, arising from, or connected with construction contracts, whether
if the Capital Cost Recovery Adjustment were to be computed these involve mere contractual money claims or execution of
based solely on Foreign Capital Cost Recovery Adjustment, it the works."2
would represent the entire 30% of the base selling price of
77
This Petition for Review on Certiorari 3 under Rule 45 of the Rules each contract becomes completed at the same time, and the
of Court assails the Decision 4 dated June 7, 2007 and the consideration which supports the principal contract likewise
Resolution5 dated September 7, 2007 of the Court of Appeals supports the subsidiary one." 30 The CA likewise said that,
(CA) in CA-G.R. SP No. 96815. although the contract of surety is only an accessory to the
principal contract, the suretys liability is direct, primary and
absolute.31 Thus:
Factual Antecedents

WHEREFORE, we resolve to DISMISS the petition as we find that


On March 7, 2000, respondent-spouses Roberto and Aida
no grave abuse of discretion attended the issuance of the order
Amurao entered into a Construction Contract Agreement
of the public respondent denying the petitioners motion to
(CCA)6 with Aegean Construction and Development Corporation
dismiss.
(Aegean) for the construction of a six-storey commercial building
in Tomas Morato corner E. Rodriguez Avenue, Quezon City.7 To
guarantee its full and faithful compliance with the terms and IT IS SO ORDERED.32
conditions of the CCA, Aegean posted performance bonds
secured by petitioner The Manila Insurance Company, Petitioner moved for reconsideration but the CA denied the
Inc.8 (petitioner) and Intra Strata Assurance Corporation (Intra same in a Resolution33 dated September 7, 2007.
Strata).9

Issues
On November 15, 2001, due to the failure of Aegean to
complete the project, respondent spouses filed with the Regional
Trial Court (RTC) of Quezon City, Branch 217, a Hence, this petition raising the following issues:
Complaint,10 docketed as Civil Case No. Q-01-45573, against
petitioner and Intra Strata to collect on the performance bonds A.THE HONORABLE CA ERRED WHEN IT HELD THAT IT IS ONLY
they issued in the amounts of P2,760,000.00 WHEN THERE ARE DIFFERENCES IN THE INTERPRETATION OF
and P4,440,000.00, respectively.11 ARTICLE I OF THE CONSTRUCTION AGREEMENT THAT THE
PARTIES MAY RESORT TO ARBITRATION BY THE CIAC.
Intra Strata, for its part, filed an Answer 12 and later, a Motion to
Admit Third Party Complaint,13 with attached Third Party B.THE HONORABLE CA ERRED IN TREATING PETITIONER AS A
Complaint14 against Aegean, Ronald D. Nicdao, and Arnel A. SOLIDARY DEBTOR INSTEAD OF A SOLIDARY GUARANTOR.
Mariano.

C.THE HONORABLE [CA] OVERLOOKED AND FAILED TO


Petitioner, on the other hand, filed a Motion to Dismiss 15 on the CONSIDER THE FACT THAT THERE WAS NO ACTUAL AND
grounds that the Complaint states no cause of action 16 and that EXISTING CONSTRUCTION AGREEMENT AT THE TIME THE
the filing of the Complaint is premature due to the failure of MANILA INSURANCE BOND NO. G (13) 2082 WAS ISSUED ON
respondent-spouses to implead the principal contractor, FEBRUARY 29, 2000.34
Aegean.17 The RTC, however, denied the motion in an
Order18 dated May 8, 2002. Thus, petitioner filed an Answer with
Petitioners Arguments
Counterclaim and Cross-claim,19 followed by a Third Party
Complaint20 against Aegean and spouses Ronald and Susana
Nicdao. Petitioner contends that the CA erred in ruling that the parties
may resort to arbitration only when there is difference in the
interpretation of the contract documents stated in Article I of the
During the pre-trial, petitioner and Intra Strata discovered that
CCA.35 Petitioner insists that under Section 4 of E.O. No. 1008, it
the CCA entered into by respondent-spouses and Aegean
is the CIAC that has original and exclusive jurisdiction over
contained an arbitration clause.21
construction disputes, such as the instant case.36

Hence, they filed separate Motions to Dismiss 22 on the grounds


Petitioner likewise imputes error on the part of the CA in treating
of lack of cause of action and lack of jurisdiction.
petitioner as a solidary debtor instead of a solidary
guarantor.37 Petitioner argues that while a surety is bound
Ruling of the Regional Trial Court solidarily with the obligor, this does not make the surety a
solidary co-debtor.38 A surety or guarantor is liable only if the
On May 5, 2006, the RTC denied both motions. 23 Petitioner and debtor is himself liable.39 In this case, since respondent-spouses
Intra Strata separately moved for reconsideration but their and Aegean agreed to submit any dispute for arbitration before
motions were denied by the RTC in its subsequent Order 24 dated the CIAC, it is imperative that the dispute between respondent-
September 11, 2006. spouses and Aegean must first be referred to arbitration in order
to establish the liability of Aegean.40 In other words, unless the
liability of Aegean is determined, the filing of the instant case is
Aggrieved, petitioner elevated the case to the CA by way of premature.41
special civil action for certiorari.25

Finally, petitioner puts in issue the fact that the performance


Ruling of the Court of Appeals bond was issued prior to the execution of the CCA. 42Petitioner
claims that since there was no existing contract at the time the
On June 7, 2007, the CA rendered a Decision 26 dismissing the performance bond was executed, respondent-spouses have no
petition. The CA ruled that the presence of an arbitration clause cause of action against petitioner.43 Thus, the complaint should
in the CCA does not merit a dismissal of the case because under be dismissed.44
the CCA, it is only when there are differences in the
interpretation of Article I of the construction agreement that the Respondent spouses Arguments
parties can resort to arbitration.27 The CA also found no grave
abuse of discretion on the part of the RTC when it disregarded
the fact that the CCA was not yet signed at the time petitioner Respondent-spouses, on the other hand, maintain that the CIAC
issued the performance bond on February 29, 2000.28 The CA has no jurisdiction over the case because there is no ambiguity
explained that the performance bond was intended to be in the provisions of the CCA. 45 Besides, petitioner is not a party
coterminous with the construction of the building. 29 It pointed to the CCA.46 Hence, it cannot invoke Article XVII of the CCA,
out that "if the delivery of the original contract is which provides for arbitration proceedings. 47 Respondent-
contemporaneous with the delivery of the suretys obligation, spouses also insist that petitioner as a surety is directly and
equally bound with the principal.48 The fact that the performance
78
bond was issued prior to the execution of the CCA also does not Based on the foregoing, in order for the CIAC to acquire
affect the latters validity because the performance bond is jurisdiction two requisites must concur: "first, the dispute must
coterminous with the construction of the building. 49 be somehow connected to a construction contract; and second,
the parties must have agreed to submit the dispute to
arbitration proceedings."54
Our Ruling

In this case, both requisites are present.


The petition has merit.

The parties agreed to submit to arbitration proceedings "any


Nature of the liability of the surety
dispute arising in the course of the execution and performance
of the CCA by reason of difference in interpretation of the
A contract of suretyship is defined as "an agreement whereby a Contract Documents x x x which the parties are unable to
party, called the surety, guarantees the performance by another resolve amicably between themselves."55 Article XVII of the CCA
party, called the principal or obligor, of an obligation or reads:
undertaking in favor of a third party, called the obligee. It
includes official recognizances, stipulations, bonds or
ARTICLE XVII ARBITRATION
undertakings issued by any company by virtue of and under the
provisions of Act No. 536, as amended by Act No. 2206." 50 We
have consistently held that a suretys liability is joint and 17.1 Any dispute arising in the course of the execution and
several, limited to the amount of the bond, and determined performance of this Agreement by reason of difference in
strictly by the terms of contract of suretyship in relation to the interpretation of the Contract Documents set forth in Article I
principal contract between the obligor and the obligee. 51 It bears which the OWNER and the CONTRACTOR are unable to resolve
stressing, however, that although the contract of suretyship is amicably between themselves shall be submitted by either party
secondary to the principal contract, the suretys liability to the to a board of arbitrators composed of Three (3) members
obligee is nevertheless direct, primary, and absolute.52 chosen as follows: One (1) member shall be chosen by the
CONTRACTOR AND One (1) member shall be chosen by the
OWNER. The said Two (2) members, in turn, shall select a third
In this case, respondent-spouses (obligee) filed with the RTC a
member acceptable to both of them. The decision of the Board
Complaint against petitioner (surety) to collect on the
of Arbitrators shall be rendered within Ten (10) days from the
performance bond it issued. Petitioner, however, seeks the
first meeting of the board, which decision when reached through
dismissal of the Complaint on the grounds of lack of cause of
the affirmative vote of at least Two (2) members of the board
action and lack of jurisdiction.
shall be final and binding upon the OWNER and
CONTRACTOR.1wphi1
The respondent-spouses have cause of action against the
petitioner; the performance bond is coterminous with the CCA
17.2 Matters not otherwise provided for in this Contract or by
Special Agreement of the parties shall be governed by the
Petitioner claims that respondent-spouses have no cause of provisions of the Arbitration Law, Executive Order No. 1008. 56
action against it because at the time it issued the performance
bond, the CCA was not yet signed by respondent-spouses and
In William Golangco Construction Corporation v. Ray Burton
Aegean.
Development Corporation,57 we declared that monetary claims
under a construction contract are disputes arising from
We do not agree. "differences in interpretation of the contract" because "the
matter of ascertaining the duties and obligations of the parties
A careful reading of the Performance Bond reveals that the under their contract all involve interpretation of the provisions of
"bond is coterminous with the final acceptance of the the contract."58 Following our reasoning in that case, we find
project."53 Thus, the fact that it was issued prior to the execution that the issue of whether respondent-spouses are entitled to
of the CCA does not affect its validity or effectivity. collect on the performance bond issued by petitioner is a
"dispute arising in the course of the execution and performance
of the CCA by reason of difference in the interpretation of the
But while there is a cause of action against petitioner, the contract documents."
complaint must still be dismissed for lack of jurisdiction.

The fact that petitioner is not a party to the CCA cannot remove
The CIAC has jurisdiction over the case the dispute from the jurisdiction of the CIAC because the issue
of whether respondent-spouses are entitled to collect on the
Section 4 of E.O. No. 1008 provides that: performance bond, as we have said, is a dispute arising from or
connected to the CCA.
SEC. 4. Jurisdiction. The CIAC shall have original and exclusive
jurisdiction over disputes arising from, or connected with, In fact, in Prudential Guarantee and Assurance, Inc. v. Anscor
contracts entered into by parties involved in construction in the Land, Inc.,59 we rejected the argument that the jurisdiction of
Philippines, whether the dispute arises before or after the CIAC is limited to the construction industry, and thus, cannot
completion of the contract, or after the abandonment or breach extend to surety contracts. In that case, we declared that
thereof. These disputes may involve government or private "although not the construction contract itself, the performance
contracts. For the Board to acquire jurisdiction, the parties to a bond is deemed as an associate of the main construction
dispute must agree to submit the same to voluntary arbitration. contract that it cannot be separated or severed from its
principal. The Performance Bond is significantly and
substantially connected to the construction contract that there
The jurisdiction of the CIAC may include but is not limited to
can be no doubt it is the CIAC, under Section 4 of E.O. No. 1008,
violation of specifications for materials and workmanship,
which has jurisdiction over any dispute arising from or
violation of the terms of agreement, interpretation and/or
connected with it."60
application of contractual time and delays, maintenance and
defects, payment, default of employer or contractor, and
changes in contract cost. In view of the foregoing, we agree with the petitioner that
juriisdiction over the instant case lies with the CIAC, and not
with the RTC. Thus, the Complaint filed by respondent-spouses
Excluded from the coverage of the law are disputes arising from
with the RTC must be dismissed.
employer-employee relationships which shall continue to be
covered by the Labor Code of the Philippines.
79
WHEREFORE, the petition is hereby GRANTED. The Decision and 2) that the cause of action of the third party plaintiff ha[d]
dated June 7, 2007 and the Resolution dated September 7, 2007 already prescribed.
of the Court of Appeals in CA-G.R. SP No. 96815 are hereby
ANNULLED and SET ASIDE. The Presiding Judge of the Regional On September 16, 1991, the trial court issued an order
Trial Court of Quezon City, Branch 217 1s DIRECTED to dismiss dismissing the third party complaint. Defendant-third party
Civil Case No. Q-01-45573 for lack of jurisdiction.SO ORDERED. plaintiffs motion for reconsideration of this order was
subsequently denied.[3]
FIRST DIVISION[G.R. No. 123871. August 31, 1998]
Respondent Courts Ruling

ALLIED BANKING CORPORATION, petitioner, vs. COURT OF


APPEALS and BANK OF THE PHILIPPINE ISLANDS, Respondent Court affirmed the trial court thus:
INC., respondents.

x x x Appellants submission that the cause of action of the third


DECISION party plaintiff against the third party defendant accrued only
when the complaint in the original case was filed on March 17,
PANGANIBAN, J.: 1981 is untenable. As earlier discussed, the defendant has a
separate cause of action (in respect of plaintiffs complaint)
against a third party in the original and principal
As a general rule, a trial court that has established
case. Reviewing the third-party complaint below, that cause of
jurisdiction over the main action also acquires jurisdiction over a
action is the supposed erroneous endorsement made by
third-party complaint, even if it could not have done so had the
COMTRUST for which ALLIED BANK is being held liable for
latter been filed as an independent action. This rule, however,
damages by the payee-appellee. Without COMTRUSTs warranties
does not apply to banks that have agreed to submit their
as a general endorser, ALLIED BANK allegedly would not have
disputes over check clearings to arbitration under the rules of
paid on the checks. Should such warranties prove to be false
the Philippine Clearing House Corporation. In that event, primary
and inaccurate, COMTRUST may be held liable for any damage
recourse should be to the PCHC Arbitration Committee, without
arising out of the falsity of its representation.
prejudice to an appeal to the trial courts. In other words, without
first resorting to the PCHC, the third-party complaint would be
premature. Based on the records the subject endorsement of COMTRUST
was made in August 1980[;] and in the same period, ALLIED
The Case BANK paid on the subject checks. From that moment, ALLIED
BANK could have instituted an action against COMTRUST. It is
the legal possibility of bringing the action which determines the
Before us is a petition for review on certiorari under Rule starting point for the computation of the period (Tolentino, Civil
45, assailing the Decision dated February 12, 1996 promulgated Code of the Philippines, Vol. IV, p. 41, citing Manresa). This is the
by the Court of Appeals[1] in CA-GR CV No. 44804; which moment when a cause of action may be deemed to
affirmed the trial courts Order dated September 16, 1991, accrue. Thus, considering that the third party complaint was
dismissing petitioners third-party complaint against private filed more than ten years from August 1980, specifically on
respondent.[2] January 10, 1991, the same can no longer be entertained.

Facts of the Case


Even granting arguendo that the lower court had jurisdiction
over the third party complaint and the cause of action thereof
The facts are undisputed. Reproduced hereunder is had not yet prescribed, the filing of the third party complaint
Respondent Courts narration: should nevertheless be disallowed considering that defendant
has already presented several witnesses and is about ready to
rest its case because, then, the allowance of the third party
Hyatt Terraces Baguio issued two crossed checks drawn against complaint would only delay the resolution of the original
Allied Banking Corp. (hereinafter, ALLIED) in favor of appellee case. (Firestone Tire and Rubber Co. of the Phil. vs.
Meszellen Commodities Services, Inc. (hereinafter, Tempengko, supra, p. 423).
MESZELLEN). Said checks were deposited on August 5, 1980 and
August 18, 1980, respectively, with the now defunct Commercial
Bank and Trust Company (hereinafter, COMTRUST). Upon receipt A final word. We have noted the curious situation here where,
of the above checks, COMTRUST stamped at the back thereof instead of the payee suing its bank, i.e., the collecting bank
the warranty All prior endorsements and/or lack of (which is COMTRUST), it opted to sue the drawee bank (ALLIED
endorsements guaranteed. After the checks were cleared BANK). It is, however, up to the trial court to rule on the
through the Philippine Clearing House Corporation (hereinafter, propriety of the latter complaint.[4]
PCHC), ALLIED BANK paid the proceeds of said checks to
COMTRUST as the collecting bank. Not satisfied with the above ruling, petitioner filed the
present petition before this Court.[5]
On March 17, 1981, the payee, MESZELLEN, sued the drawee,
ALLIED BANK, for damages which it allegedly suffered when the The Issues

value[s] of the checks were paid not to it but to some other


person.
Petitioner raises the following issues:[6]

Almost ten years later, or on January 10, 1991, before defendant


I. The Respondent Honorable Court of Appeals erred in holding
ALLIED BANK could finish presenting its evidence, it filed a third
that the cause of action of the third-party complaint ha[d]
party complaint against Bank of the Philippine Islands
already prescribed.
(hereinafter, BPI, appellee herein) as successor-in-interest of
COMTRUST, for reimbursement in the event that it would be
adjudged liable in the main case to pay plaintiff, II. The Respondent Honorable Court of Appeals erred in holding
MESZELLEN. The third party complaint was admitted [in] an that the filing of the third party complaint should be disallowed
Order dated May 16, 1991 issued by the Regional Trial Court of as it would only delay the resolution of the case.
Pasig, Branch 162. On July 16, 1991, BPI filed a motion to
dismiss said third party complaint grounded on the following: 1) On the other hand, private respondent argues that the trial
that the court ha[d] no jurisdiction over the nature of the action; court had no authority to admit a third-party claim that was filed
by one bank against another and involved a check cleared
80
through the Philippine Clearing House Corporation (PCHC). To concerned in its operations in effect amounts to a manifestation
the mind of the Court, this is the critical issue. of agreement by the parties to abide by its rules and
regulations. As a consequence of such participation, a party
The Courts Ruling cannot invoke the jurisdiction of the courts over disputes and
controversies which fall under the PCHC Rules and Regulations
without first going through the arbitration processes laid out by
The petition is bereft of merit. the body. Since claims relating to the regularity of checks
cleared by banking institutions are among those claims which
Critical Issue: Mandatory Recourse to PCHC should first be submitted for resolution by the PCHCs Arbitration
Committee, petitioner Associated Bank, having voluntarily
bound itself to abide by such rules and regulations, is estopped
To buttress its claim, private respondent contends that
from seeking relief from the Regional Trial Court on the coattails
petitioners remedy rests with the PCHC, of which both Allied and
of a private claim and in the guise of a third party complaint
BPI are members, in consonance with the Clearing House Rules
without first having obtained a decision adverse to its claim
and Regulations which, in part, states:
from the said body. It cannot bypass the arbitration process on
the basis of its averment that its third party complaint is
Sec. 38 - Arbitration inextricably linked to the original complaint in the Regional Trial
Court.
Any dispute or controversy between two or more clearing
participants involving any check/item cleared thru PCHC shall be xxxxxxxxx
submitted to the Arbitration Committee, upon written complaint
of any involved participant by filing the same with the PCHC
Clearly therefore, petitioner Associated Bank, by its voluntary
serving the same upon the other party or parties, who shall
participation and its consent to the arbitration rules cannot go
within fifteen (15) days after receipt thereof file with the
directly to the Regional Trial Court when it finds it convenient to
Arbitration Committee its written answer to such written
do so. The jurisdiction of the PCHC under the rules and
complaint and also within the same period serve the same upon
regulations is clear, undeniable and is particularly applicable to
the complaining participant, xxx.
all the parties in the third party complaint under their obligation
to first seek redress of their disputes and grievances [from] the
Private respondent cites Banco de Oro Savings and PCHC before going to the trial court.
Mortgage Bank v. Equitable Banking
Corporation[7] andAssociated Bank v. Court of Appeals,[8] which
Finally, the contention that the third party complaint should not
upheld the right of the PCHC to settle and adjudicate disputes
have been dismissed for being a necessary and inseparable
between member banks. In Banco de Oro, the Court ruled:
offshoot of the main case over which the court a quo had
already exercised jurisdiction misses the fundamental point
The participation of the two banks, petitioner and private about such pleading. A third party complaint is a mere
respondent, in the clearing operations of PCHC is a procedural device which under the Rules of Court is allowed only
manifestation of their submission to its jurisdiction. Secs. 3 and with the courts permission. It is an action actually independent
36.6 of the PCHC-CHRR clearing rules and regulations provide: of, separate and distinct from the plaintiffs complaint (s)uch
that, were it not for the Rules of Court, it would be necessary to
Sec. 3. AGREEMENT TO THESE RULES. - It is the general file the action separately from the original complaint by the
agreement and understanding that any participant in the defendant against the third party. (Italics supplied.)
Philippine Clearing House Corporation, MICR clearing
operations[,] by the mere fact of their participation, thereby Banco de Oro and Associated Bank are clear and
manifests its agreement to these Rules and Regulations and its unequivocal: a third-party complaint of one bank against
subsequent amendments. another involving a check cleared through the PCHC is
unavailing, unless the third-party claimant has first exhausted
Sec. 36.6. (ARBITRATION) - The fact that a bank participates in the arbitral authority of the PCHC Arbitration Committee and
the clearing operations of the PCHC shall be deemed its written obtained a decision from said body adverse to its claim.
and subscribed consent to the binding effect of this arbitration
agreement as if it had done so in accordance with section 4 of Recognizing the role of the PCHC in the arbitration of
(the) Republic Act. No. 876, otherwise known as the Arbitration disputes between participating banks, the Court in Associated
Law. Bank further held: Pursuant to its function involving the clearing
of checks and other clearing items, the PCHC has adopted rules
Further[,] Section 2 of the Arbitration Law mandates: and regulations designed to provide member banks with a
procedure whereby disputes involving the clearance of checks
and other negotiable instruments undergo a process of
Two or more persons or parties may submit to the arbitration of arbitration prior to submission to the courts below. This
one or more arbitrators any controversy existing between them procedure not only ensures a uniformity of rulings relating to
at the time of the submission and which may be the subject of factual disputes involving checks and other negotiable
any action, or the parties of any contract may in such contract instruments but also provides a mechanism for settling minor
agree to settle by arbitration a controversy thereafter arising disputes among participating and member banks which would
between them. Such submission or contract shall be valid and otherwise go directly to the trial courts.
irrevocable, save upon grounds as exist at law for the revocation
of any contract.
We defer to the primary authority of PCHC over the present
dispute, because its technical expertise in this field enables it to
Such submission or contract may include question arising out of better resolve questions of this nature. This is not prejudicial to
valuations, appraisals or other controversies which may be the interest of any party, since primary recourse to the PCHC
collateral, incidental, precedent or subsequent to any issue does not preclude an appeal to the regional trial courts on
between the parties. (Italics supplied.) questions of law. Section 13 of the PCHC Rules reads:

Associated Bank also disallowed a similar third-party Sec. 13. The findings of facts of the decision or award rendered
complaint, ruling thus: by the Arbitration Committee or by the sole Arbitrator as the
case may be shall be final and conclusive upon all the parties in
Under the rules and regulations of the Philippine Clearing House said arbitration dispute. The decision or award of the Arbitration
Corporation (PCHC), the mere act of participation of the parties Committee or of the Sole Arbitrator shall be appealable only on
81
questions of law to any of the Regional Trial Courts in the on October 18, 1991 as "Drawn Against Insufficient Funds."
National Capital Judicial Region where the Head Office of any of HBSTC received the notice of dishonor on October 21, 1991 but
the parties is located. The appellant shall perfect his appeal by refused to accept the checks and on October 22, 1991, returned
filing a notice of appeal to the Arbitration Secretariat and filing a them to FEBTC through the PCHC for the reason "Beyond
Petition with the Regional Trial Court of the National Capital Reglementary Period," implying that HBSTC already treated the
Region xxx. three (3) FEBTC checks as cleared and allowed the proceeds
thereof to be withdrawn. 4 FEBTC demanded reimbursement for
the returned checks and inquired from HBSTC whether it had
Furthermore, when the error is so patent, gross and
permitted any withdrawal of funds against the unfunded checks
prejudicial as to constitute grave abuse of discretion, courts may
and if so, on what date. HBSTC, however, refused to make any
address questions of fact already decided by the arbitrator.[9]
reimbursement and to provide FEBTC with the needed
information.
We are not unaware of the rule that a trial court, which has
jurisdiction over the main action, also has jurisdiction over the
Thus, on December 12, 1991, FEBTC submitted the dispute for
third party complaint, even if the said court would have had no
arbitration before the PCHC Arbitration Committee, 5 under the
jurisdiction over it had it been filed as an independent action.
[10] PCHC's Supplementary Rules on Regional Clearing to which
However, this doctrine does not apply in the case of banks,
FEBTC and HBSTC are bound as participants in the regional
which have given written and subscribed consentto arbitration
clearing operations administered by the PCHC. 6
under the auspices of the PCHC.

On January 17, 1992, while the arbitration proceeding was still


By participating in the clearing operations of the PCHC,
pending, FEBTC filed an action for sum of money and damages
petitioner agreed to submit disputes of this nature to
with preliminary
arbitration. Accordingly, it cannot invoke the jurisdiction of the
attachment 7 against HBSTC, Robert Young, Victor Tancuan and
trial courts without a prior recourse to the PCHC Arbitration
Eugene Arriesgado with the Regional Trial Court of Makati,
Committee. Having given its free and voluntary consent to the
Branch 133. A motion to dismiss was filed by HBSTC claiming
arbitration clause, petitioner cannot unilaterally take it back
that the complaint stated no cause of action and accordingly
according to its whim. In the world of commerce, especially in
". . . should be dismissed because it seeks to enforce an arbitral
the field of banking, the promised word is crucial. Once given, it
award which as yet does not exist." 8 The trial court issued an
may no longer be broken.
omnibus order dated April 30, 1992 denying the motion to
dismiss and an order dated October 1, 1992 denying the motion
Upon the other hand, arbitration as an alternative method for reconsideration.
of dispute-resolution is encouraged by this Court. Aside from
unclogging judicial dockets, it also hastens solutions especially
On December 16, 1992, HBSTC filed a petition for certiorari with
of commercial disputes.
the respondent Court of Appeals contending that the trial court
acted with grave abuse of discretion amounting to lack of
In view of the foregoing, a discussion of the issues raised jurisdiction in denying the motion to dismiss filed by HBSTC.
by the petitioners is unnecessary.

In a Decision 9 dated January 21, 1994, the respondent court


WHEREFORE, the petition is DENIED for lack of dismissed the petition for lack of merit and held that "FEBTC can
merit. Costs against petitioner.SO ORDERED. reiterate its cause of action before the courts which it had
already raised in the arbitration case" 10 after finding that the
SECOND DIVISIONG.R. No. 115412 November 19, 1999 complaint filed by FEBTC ". . . seeks to collect a sum of money
from HBT [HBSTC] and not to enforce or confirm an arbitral
award." 11 The respondent court observed that "[i]n the
HOME BANKERS SAVINGS AND TRUST Complaint, FEBTC applied for the issuance of a writ of
COMPANY, petitioner, preliminary attachment over HBT's [HBSTC] property" 12 and
vs.
citing section 14 of Republic Act No. 876, otherwise known as
COURT OF APPEALS and FAR EAST BANK & TRUST CO., the Arbitration Law, maintained that "[n]ecessarily, it has to
INC. respondents. reiterate its main cause of action for sum of money against HBT
[HBSTC]," 13 and that "[t]his prayer for conservatory relief [writ
BUENA, J.: of preliminary attachment] satisfies the requirement of a cause
of action which FEBTC may pursue in the courts." 14
This appeal by certiorari under Rule 45 of the Rules of Court
seeks to annul and set aside the decision 1 of the Court of Furthermore, the respondent court ruled that based on section 7
Appeals 2 dated January 21, 1994 in CA-G.R. SP No. 29725, of the Arbitration Law and the cases of National Union Fire
dismissing the petition for certiorari filed by petitioner to annul Insurance Company of Pittsburg vs. Stolt-Nielsen Philippines,
the two (2) orders issued by the Regional Trial Court of Inc., 15 and Bengson vs. Chan, 16 ". . . when there is a condition
Makati 3 in Civil Case No. 92-145, the first, dated April 30, 1992, requiring prior submission to arbitration before the institution of
denying petitioner's motion to dismiss and the second, dated a court action, the complaint is not to be dismissed but should
October 1, 1992 denying petitioner's motion for reconsideration be suspended for arbitration." 17 Finding no merit in HBSTC's
thereof. contention that section 7 of the Arbitration Law ". . .
contemplates a situation in which a party to an arbitration
agreement has filed a court action without first resorting to
The pertinent facts may be briefly stated as follows: Victor
arbitration, while in the case at bar, FEBTC has initiated
Tancuan, one of the defendants in Civil Case No. 92-145, issued
arbitration proceedings before filing a court action," the
Home Bankers Savings and Trust Company (HBSTC) check No.
respondent court held that ". . . if the absence of a prior
193498 for P25,250,000.00 while Eugene Arriesgado issued Far
arbitration may stay court action, so too and with more reason,
East Bank and Trust Company (FEBTC) check Nos. 464264,
should an arbitration already pending as obtains in this case
464272 and 464271 for P8,600,000.00, P8,500,000.00 and
stay the court action. A party to a pending arbitral proceeding
P8,100,000.00, respectively, the three checks amounting to
may go to court to obtain conservatory reliefs in connection with
P25,200,000.00. Tancuan and Arriesgado exchanged each
his cause of action although the disposal of that action on the
other's checks and deposited them with their respective banks
merits cannot as yet be obtained." 18 The respondent court
for collection. When FEBTC presented Tancuan's HBSTC check for
discarded Puromines, Inc. vs. Court of Appeals, 19 stating that ". .
clearing, HBSTC dishonored it for being "Drawn Against
. perhaps Puromines may have been decided on a different
Insufficient Funds." On October 15, 1991, HBSTC sent
factual basis." 20
Arriesgado's three (3) FEBTC checks through the Philippine
Clearing House Corporation (PCHC) to FEBTC but was returned
82
In the instant petition, 21 petitioner contends that first, "no party WHETHER OR NOT PRIVATE RESPONDENT WHICH COMMENCED
litigant can file a non-existent complaint," 22 arguing that ". . . AN ARBITRATION PROCEEDING UNDER THE AUSPICES OF THE
one cannot file a complaint in court over a subject that is PHILIPPINE CLEARING HOUSE CORPORATION (PCHC) MAY
undergoing arbitration." 23 Second, petitioner submits that SUBSEQUENTLY FILE A SEPARATE CASE IN COURT OVER THE
"[s]ince arbitration is a special proceeding by a clear provision of SAME SUBJECT MATTER OF ARBITRATION DESPITE THE
law, 24 the civil suit filed below is, without a shadow of doubt, PENDENCY OF THAT ARBITRATION, SIMPLY TO OBTAIN THE
barred by litis pendentia and should be dismissed de PROVISIONAL REMEDY OF ATTACHMENT AGAINST THE BANK THE
plano insofar as HBSTC is concerned." 25 Third, petitioner insists ADVERSE PARTY IN THE ARBITRATION PROCEEDING. 42
that "[w]hen arbitration is agreed upon and suit is filed without
arbitration having been held and terminated, the case that is We find no merit in the petition. Section 14 of Republic Act 876,
filed should be dismissed," 26 citing Associated Bank vs. Court of otherwise known as the Arbitration Law, allows any party to the
Appeals, 27 Puromines, Inc. vs. Court of Appeals, 28 as arbitration proceeding to petition the court to take measures to
and Ledesma vs. Court of Appeals. 29 Petitioner demurs that safeguard and/or conserve any matter which is the subject of
the Puromines ruling was deliberately not followed by the the dispute in arbitration, thus:
respondent court which claimed that:

Sec. 14. Subpoena and subpoena duces tecum.


xxx xxx xxx Arbitrators shall have the power to require any person to attend
a hearing as a witness. They shall have the power to subpoena
It would really be much easier for Us to rule to witnesses and documents when the relevancy of the testimony
dismiss the complaint as the petitioner here and the materiality thereof has been demonstrated to the
seeks to do, following Puromines. But with arbitrators. Arbitrators may also require the retirement of any
utmost deference to the Honorable Supreme witness during the testimony of any other witness. All of the
Court, perhaps Puromines may have been arbitrators appointed in any controversy must attend all the
decided on a different factual basis. hearings in that matter and hear all the allegations and proofs of
the parties; but an award by the majority of them is valid unless
30 the concurrence of all of them is expressly required in the
xxx xxx xxx
submission or contract to arbitrate. The arbitrator or arbitrators
shall have the power at any time, before rendering the award,
Petitioner takes exception to FEBTC's contention without prejudice to the rights of any party to petition the court
that Puromines cannot modify or reverse the rulings to take measures to safeguard and/or conserve any matter
in National Union Fire Insurance Company of Pittsburg which is the subject of the dispute in arbitration. (emphasis
vs. Stolt-Nielsen Philippines, Inc., 31 and Bengson supplied)
vs. Chan, 32 where this Court suspended the action filed
pending arbitration, and argues that "[s]ound policy
Petitioner's exposition of the foregoing provision deserves scant
requires that the conclusion of whether a Supreme
consideration. Section 14 simply grants an arbitrator the power
Court decision has or has not reversed or modified [a]
to issue subpoena and subpoena duces tecum at any time
previous doctrine, should be left to the Supreme Court
before rendering the award. The exercise of such power is
itself; until then, the latest pronouncement should
without prejudice to the right of a party to file a petition in court
prevail." 33 Fourth, petitioner alleges that the writ of
to safeguard any matter which is the subject of the dispute in
preliminary attachment issued by the trial court is void
arbitration. In the case at bar, private respondent filed an action
considering that the case filed before it "is a separate
for a sum of money with prayer for a writ of preliminary
action which cannot exist," 34 and ". . . there is even no
attachment. Undoubtedly, such action involved the same
need for the attachment as far as HBSTC is concerned
subject matter as that in arbitration, i.e., the sum of
because such automatic debit/credit procedure 35 may
P25,200,000.00 which was allegedly deprived from private
be regarded as a security for the transactions involved
respondent in what is known in banking as a "kiting scheme."
and, as jurisprudence confirms, one requirement in the
However, the civil action was not a simple case of a money
issuance of an attachment [writ of preliminary
claim since private respondent has included a prayer for a writ
attachment] is that the debtor has no sufficient
of preliminary attachment, which is sanctioned by section 14 of
security." 36 Petitioner asserts further that a writ of
the Arbitration Law.
preliminary attachment is unwarranted because no
ground exists for its issuance. According to petitioner,
". . . the only allegations against it [HBSTC] are that it Petitioner cites the cases of Associated Bank vs. Court of
refused to refund the amounts of the checks of FEBTC Appeals, 43 Puromines, Inc. vs. Court of Appeals, 44 and Ledesma
and that it knew about the fraud perpetrated by the vs. Court of Appeals 45 in contending that "[w]hen arbitration is
other defendants," 37 which, at best, constitute only agreed upon and suit is filed without arbitration having been
"incidental fraud" and not causal fraud which justifies held and terminated, the case that is filed should be
the issuance of the writ of preliminary attachment. dismissed." 46 However, the said cases are not in point.
In Associated Bank, we affirmed the dismissal of the third-party
complaint filed by Associated Bank against Philippine
Private respondent FEBTC, on the other hand, contends that ". . .
Commercial International Bank, Far East Bank & Trust Company,
the cause of action for collection [of a sum of money] can
Security Bank and Trust Company, and Citytrust Banking
coexist in the civil suit and the arbitration [proceeding]" 38 citing
Corporation for lack of jurisdiction, it being shown that the said
section 7 of the Arbitration Law which provides for the stay of
parties were bound by the Clearing House Rules and Regulations
the civil action until an arbitration has been had in accordance
on Arbitration of the Philippine Clearing House Corporation.
with the terms of the agreement providing for arbitration.
In Associated Bank, we declared that:
Private respondent further asserts that following section 4(3),
article VIII 39 of the 1987 Constitution, the subsequent case
of Puromines does not overturn the ruling in the earlier cases . . . . . .. Under the rules and regulations of the Philippine
of National Union Fire Insurance Company of Pittsburg vs. Stolt- Clearing House Corporation (PCHC), the mere act of
Nielsen Philippines, Inc., 40 and Bengson vs. Chan, 41 hence, participation of the parties concerned in its operations in
private respondent concludes that the prevailing doctrine is that effect amounts to a manifestation of agreement by the
the civil action must be stayed rather than dismissed pending parties to abide by its rules and regulations. As a
arbitration. consequence of such participation, a party cannot invoke
the jurisdiction of the courts over disputes and
controversies which fall under the PCHC Rules and
In this petition, the lone issue presented for the consideration of
Regulations without first going through the arbitration
this Court is:
processes laid out by the body. 47 (emphasis supplied)
83
And thus we concluded: been or is being committed and that it is necessary to look into
the deposit to establish such fraud or irregularity,
Clearly therefore, petitioner Associated Bank, by its
voluntary participation and its consent to the arbitration (2) In an examination made by an independent auditor
rules cannot go directly to the Regional Trial Court when it hired by the bank to conduct its regular audit provided that the
finds it convenient to do so. The jurisdiction of the PCHC examination is for audit purposes only and the results thereof
under the rules and regulations is clear, undeniable and is shall be for the exclusive use of the bank,
particularly applicable to all the parties in the third party
complaint under their obligation to first seek redress of their (3) Upon written permission of the depositor,
disputes and grievances with the PCHC before going to the
trial court. 48 (emphasis supplied)
(4) In cases of impeachment,

Simply put, participants in the regional clearing operations of


the Philippine Clearing House Corporation cannot bypass the (5) Upon order of a competent court in cases of bribery or
arbitration process laid out by the body and seek relief directly dereliction of duty of public officials, or
from the courts. In the case at bar, undeniably, private
respondent has initiated arbitration proceedings as required by (6) In cases where the money deposited or invested in the
the PCHC rules and regulations, and pending arbitration has subject matter of the litigation.
sought relief from the trial court for measures to safeguard
and/or conserve the subject of the dispute under arbitration, as
Whether or not the case at bar falls under the last
sanctioned by section 14 of the Arbitration Law, and otherwise
exception is the issue in the instant petition.
not shown to be contrary to the PCHC rules and regulations.

The facts are not disputed.


Likewise, in the case of Puromines, Inc. vs. Court of
Appeals, 49 we have ruled that:
On March 21, 1990, a check (Check No. 11669677) dated
March 31, 1990 in the amount of One Million Pesos
In any case, whether the liability of respondent should be
(P1,000,000.00) was drawn against Account No. 0111-01854-8
based on the sales contract or that of the bill of lading,
with private respondent Allied Bank payable to the order of one
the parties are nevertheless obligated to respect the
Jose Ch. Alvarez. The payee deposited the check with petitioner
arbitration provisions on the sales contract and/or bill of
Union Bank who credited the P1,000,000.00 to the account of
lading. Petitioner being a signatory and party to the sales
Mr. Alvarez. On May 21, 1990, petitioner sent the check for
contract cannot escape from his obligation under the
clearing through the Philippine Clearing House Corporation
arbitration clause as stated therein.
(PCHC). When the check was presented for payment, a clearing
discrepancy was committed by Union Banks clearing staff when
In Puromines, we found the arbitration clause stated in the amount of One Million Pesos (P1,000,000.00) was
the sales contract to be valid and applicable, thus, we erroneously under-encoded to One Thousand Pesos (P1,000.00)
ruled that the parties, being signatories to the sales only.
contract, are obligated to respect the arbitration
provisions on the contract and cannot escape from
Petitioner only discovered the under-encoding almost a
such obligation by filing an action for breach of contract
year later. Thus, on May 7, 1991, Union Bank Notified Allied
in court without resorting first to arbitration, as agreed
Bank of the discrepancy by way of a charge slip for Nine
upon by the parties.
Hundred Ninety-Nine Thousand Pesos (P999,000.00) for
automatic debiting against the account of Allied Bank. The
At this point, we emphasize that arbitration, as an alternative latter, however, refused to accept the charge slip since [the]
method of dispute resolution, is encouraged by this Court. Aside transaction was completed per your [Union Banks] original
from unclogging judicial dockets, it also hastens solutions instruction and clients account is now insufficiently funded.
especially of commercial disputes. 50 The Court looks with favor
upon such amicable arrangement and will only interfere with
Subsequently, Union Bank filed a complaint against Allied
great reluctance to anticipate or nullify the action of the
Bank before the PCHC Arbitration Committee (Arbicom), praying
arbitrator. 51
that:

WHEREFORE, premises considered, the petition is hereby


judgment be rendered in favor of plaintiff against defendant
DISMISSED and the decision of the court a quo is AFFIRMED.SO
sentencing it to pay plaintiff:
ORDERED.

1. The sum of NINE HUNDRED NINETY-NINE THOUSAND PESOS


FIRST DIVISION[G.R. No. 134699. December 23, 1999]
(P999,000.00);

UNION BANK OF THE PHILIPPINES, petitioner, vs. COURT


2. The sum of THREE HUNDRED SIXTY-ONE AND FOUR HUNDRED
OF APPEALS and ALLIED BANK
EIGHTY AND 20/XX P361,480.20 as of October 9, 1991
CORPORATION, respondents.
representing reimbursements for opportunity losses and interest
at the rate of 24% per annum arising from actual losses
DECISION sustained by plaintiff as of May 21, 1990;

KAPUNAN, J.: 3. The amount for attorneys fees at the rate of 25% of any and
all sums due;
Section 2 of the Law on Secrecy of Bank Deposits, [1] as
amended, declares bank deposits to be absolutely confidential 4. Penalty Charges at the rate of 1/8 of 1% of P999,000.00 from
except: May 22, 1990 until payment thereof.

(1) In an examination made in the course of a special or 5. Exemplary and punitive damages against the defendant in
general examination of a bank that is specifically authorized by such amounts as may be awarded by this Tribunal in order to
the Monetary Board after being satisfied that there is reasonable serve a lesson to all member-Banks under the PCHC umbrella to
ground to believe that a bank fraud or serious irregularity has striclty comply with the provisions thereof;
84
6. The costs of suit which includes filing fee in addition to result of its own employees admitted error in encoding the
litigation expenses which shall be proven in the course of check.
arbitration.
The money depositied in Account No. 0111-018548 is not the
7. Such other damages thay may be awarded by this Tribunal.[2] subject matter of the litigation in the Arbicom case for as clearly
stated by petitioner itself, it is the alleged violation by
respondent of the rules and regulations of the PCHC.[4]
Thereafter, Union Bank filed in the Regional Trial court
(RTC) of Makati a petition for the examination of Account No.
111-01854-8. Judgment on the arbitration case was held in Union Bank is now before this Court insisting that the
abeyance pending the resolution of said petition. money deposited in Account No. 0111-01854-8 is the subject
matter of the litigation Petitioner cites the case of Mathay vs.
Consolidated Bank and Trust Company,[5] where we defined
Upon motion of private respondent, the RTC dismissed
subject matter of the action, thus:
Union Banks petition. The RTC held that:

xxx By the phrase subject matter of the action is meant the


The case of the herein petitioner does not fall under any of the
physical facts, the things real or personal, the money, lands,
foregoing exceptions to warrant a disclosure of or inquiry into
chattels, and the like, in relation to which the suit is prosecuted,
the ledgers/books of account of Allied Checking Account No.
and not the delict or wrong committed by the defendant.
111-01854-8. Needless to say, the complaint filed by herein
petitioner against Allied Banking Corporation before the
Philippine Clearing House Corporation (PCHC) Arbitration Petitioner contends that the Court of Appeals confuses the cause
Committee and docketed therein as Arb[i]com Case No. 91-068 of action with the subject of the action. In Yusingco vs. Ong Hing
(Annex A, petition) is not one for bribery or dereliction of duty of Lian,[6] petitioner points out, this Court distinguished the two
public officials much less is there any showing that the subject concepts.
matter thereof is the money deposited in the account in
question. Petitioners complaint primarily hing[e]s on the alleged xxx The cause of action is the legal wrong threatened or
deliberate violation by Allied Bank Corporation of the provisions committed, while the object of the action is to prevent or
of the PCHC Rule Book, Sec. 25[.]3, and as principal reliefs, it redress the wrong by obtaining some legal relief; but the subject
seeks for [sic] the recovery of amounts of money as a of the action is neither of these since it is not the wrong or the
consequence of an alleged under-coding of check amount to relief demanded, the subject of the action is the matter or thing
P1,000,000.00 and damage[s] by way of loss of interest income.
[3]
with respect to which the controversy has arisen, concerning
which the wrong has been done, and this ordinarily is the
property, or the contract and its subject matter, or the thing in
The Court of Appeals affirmed the dismissal of the petition, dispute.
ruling that the case was not one where the money deposited is
the subject matter of the litigation. The argument is well taken. We note with approval the
difference between the subject of the action from the cause of
Petitioner collecting bank itself in its complaint filed before the action. We also find petitioners definition of the phrase subject
PCHC, Arbicom Case No. 91-068, clearly stated that its cause of matter of the action is consistent with the term subject matter
action against defendant arose from defendants deliberate of the litigation, as the latter is used in the Bank Deposits
violation of the provisions of the PCHC Rule Book, Sec. 25.3, Secrecy Act.
specifically on Under-Encoding of check amouting to
P1,000,000.00 drawn upon defendants Tondo Branch which was In Mellon Bank, N.A. vs. Magsino,[7] where the petitioner
deposited with plaintiff herein on May 20, 1990, xxx which was bank inadvertently caused the transfer of the amount of
erroneously encoded at P1,000.00 which defendant as the US$1,000,000.00 instead of only US$1,000.00, the Court
receiving bank thereof, never called nor notified the plaintiff of sanctioned the examination of the bank accounts where part of
the error committed thus causing actual losses to plaintiff in the the money was subsequently caused to be deposited:
principal amount of P999,000.00 exclusive of opportunity losses
and interest.
Section 2 of [Republic Act No. 1405] allows the disclosure of
bank deposits in cases where the money deposited is the
Furthermore, a reading of petitioner collecting banks complaint subject matter of the litigation. Inasmuch as Civil Case No.
in the Arbicom case shows that its thrust is directed against 26899 is aimed at recovering the amount converted by the
respondent drawee banks alleged failure to inform the former of Javiers for their own benefit, necessarily, an inquiry into the
the under-encoding when Sec. 25.3 of the PCHC Rule Book is wherabouts of the illegally acquired amount extends to
clear that it is receiving banks (respondent drawee bank herein) whatever is concealed by being held or recorded in the name of
duty and obligation to notify the erring bank (petitioner persons other than the one responsible for the illegal
collecting bank herein) of any such under-encoding of any check acquisition.
amount submitted for clearing within the member banks of the
PCHC not later than 10:00 a.m. of the following clearing day and
prays that respondent drawee bank be held liable to petitioner Clearly, Mellon Bank involved a case where the money
collecting bank for penalties in view of the latters violation of deposited was the subject matter of the litigation since the
the notification requirement. money so deposited was the very thing in dispute. This,
however, is not the case here.

Prescinding from the above, we see no cogent reason to depart


from the time-honored general banking rule that all deposits of Petitioners theory is that private respondent Allied Bank
whatever nature with banks are considered of absolutely should have informed petitioner of the under-encoding pursuant
confidential nature and may not be examined, inquired or looked to the provisions of Section 25.3.1 of the PCHC Handbook, which
into by any person, government official, bureau or office and states:
corollarily, that it is unlawful for any official or employee of a
bank to disclose to any person any information concerning 25.3.1. The Receiving Bank should inform the erring Bank about
deposits. the under-encoding of amount not later than 10:00 A.M. of the
following clearing day.
Nowhere in petitioner collecting banks complaint filed before the
PCHC does it mention of the amount it seeks to recover from Failing in that duty, petitioner holds private
Account No. 0111-018548 itself, but speaks of P999,000.00 only respondent directly liable for the P999,000.00 and other
as an incident of its alleged opportunity losses and interest as a
85
damages. It does not appear that petitioner is seeking Since the provisions of the PCHC Rule Book has so imposed upon
reimbursement from the account of the drawer. This much is the defendant being the Receiving Bank of a discrepant check
evident in petitioners complaint before the Arbicom. item to give that timely notification and defendant failing to
comply with such requirement, then it can be said that
defendant is guilty of negligence. He who is guilty of negligence
xxx plaintiffs cause of action against defendant arose from
in the performance of its [sic] duty is liable for damages. (Art.
defendants deliberate violation of the provisions of the PCHC
1170, New Civil Code.)
Rule Book, Sec. 25.3, specifically on Under-Encoding of check
amounting to P1,000,000.00 drawn upon defendants Tondo
Branch which was deposited with plaintiff herein sometime on Art. 1172 of the Civil Code provides that:
May 20, 1990. From the check amount of P1,000,000.00, it was
instead erroneously encoded at P1,000.00 which defendant as Responsibility arising from negligence in the performance of
the receiving bank thereof, never called nor notified the plaintiff every kind of obligation is also demandable, but such liability
of the error committed thus causing actual losses to plaintiff in may be regulated by the courts, according to the circumstances.
the principal amount of P999,000.00 exclusive of opportunity [][12]
losses and interest thereon whatsoever. xxx[8]

Petitioner points to its prayer in its complaint to show that


Petitioner even requested private respondents Branch Manager it sought reimbursement from the drawers account. The prayer,
for reimbursement from private respondents account through however, does not specifically state that it was seeking recovery
the automatic debiting system. of the amount from the depositors account. Petitioner merely
asked that judgment be rendered in favor of plaintiff against
2.7. On May 6, 1991, plaintiffs Senior Vice-President, Ms. defendant sentencing it to pay plaintiff: 1. The sum of NINE
ERLINDA V. VALENTON wrote defendants Tondo Branch Manager, HUNDRED NINETY-NINE THOUSAND PESOS (P999,000.00).[13]
Mr. RODOLFO JOSE on the incident and requested assistance in
facilitating correction of the erroneous coding with request for On the other hand, the petition before this court reveals
reimbursement thru the industrys automatic debiting of that the true purpose for the examination is to aid petitioner in
defendants account.[9] proving the extent of Allied Banks liability:

Further, petitioner rejected private respondents proposal that Hence, the amount actually debited from the subject account
the drawer issue postdated checks in favor of petitioner since becomes very material and germane to petitioners claim for
the identity and credit standing of the depositor were unknown reimbursement as it is only upon examination of subject account
to petitioner. can it be proved that indeed a discrepancy in the amount
credited to petitioner was committed, thereby, rendering
2.9. On May 23, 1991, defendants Branch Manager, the same respondent Allied Bank liable to petitioner for the deficiency. The
Mr. Rodolfo Jose wrote plaintiffs Ms. Erlinda Valenton again money deposited in aforesaid account is undeniably the subject
insisting on the execution of the Quitclaim and Release in favor matter of the litigation since the issue in the Arbicom case is
of defendant as the Branch has endeavored to negotiate with its whether respondent Bank should be held liable to petitioner for
client for the collection of such amount. Upon a reading of the reimbursement of the amount of money constituting the
terms of the Quitclaim and Release being proposed by difference between the amount of the check and the amount
defendant, the unmistakable fact lies that again defendant credited to petitioner, that is, P999,000.00, which has remained
attempts for the second time to take advantage of plaintiffs deposited in aforesaid account.
plight by indicating that the terms of the payment of the
principal amount of P999,000.00 is by way of several personal On top of the allegations in the complaint, which can be verified
postdated checks up to March 21, 1992 from a person whose only by examining the subject bank account, the defense of
identity is not even disclosed to plaintiff. respondent Allied Bank that the reimbursement cannot be made
since clients account is not sufficiently funded at the time
To an ordinary person aggrieved already by having been taken petitioner sent its Charge Slip, bolsters petitioners contention
advantage of for 620 days more or less, the proposal of that the money in subject account is the very subject matter of
defendant could not be acceptable for the reason that aside the pending Arbicom case.
from the interest lost already for the use of its money by
another party, no assurance is made as to the actual collection Indeed, to prove the allegations in its Complaint before the
thereof from a party whose credit standing, the recipient is not PCHC Arbitration Committee, and to rebut private respondents
at all aware of.[10] defense on the matter, petitioner needs to determine:

Petitioner also believed that it had no privity with the depositor: 1. how long respondent Allied Bank had willfully or negligently
allowed the difference of P999,000.00 to be maintained in the
2.12. Plaintiff then replied to defendants letter by requesting subject account without remitting the same to petitioner;
that in lieu of the post-dated checks from defendants client with
whom plaintiff has no privity whatsoever, if the defendant could 2. whether indeed the subject account was no longer sufficiently
tender the full payment of the amount of P999,000.00 in funded when petitioner sent its charge slip for reimbursement to
defendants own Managers check and that plaintiff is willing to respondent bank on May 7, 1991; and
forego its further claims for interest and losses for a period of
620 days, more or less.[11]
3. whether or not respondent Allied Banks actuations in refusing
to immediately reimburse the discrepancy was attended by
The following argument adduced by petitioner in the good or bad faith.
Arbicom case leaves no doubt that petitioner is holding private
respondent itself liable for the discrepancy:
In other words, only a disclosure of the pertinent details and
information relating to the transactions involving subject
Defendant by its acceptance thru the clearing exchange of the account will enable petitioner to prove its allegations in the
check deposit from its client cannot be said to be free from any pending Arbicom case. xxx[14]
liability for the unpaid portion of the check amount considering
that defendant as the drawee bank, is remiss in its duty of
verifying possible technicalities on the face of the check. In short, petitioner is fishing for information so it can
determine the culpability of private respondent and the amount
of damages it can recover from the latter. It does not seek
86
recovery of the very money contained in the deposit. The denied in the second assailed order dated July
subject matter of the dispute may be the amount of 20, 1994 (Emphasis and words in bracket added).
P999,000.00 that petitioner seeks from private respondent as a
result of the latters alleged failure to inform the former of the
discrepancy; but it is not the P999,000.00 deposited in the From the order denying its motion to discharge attachment by
drawers account. By the terms of R.A. No. 1405, the money counter-bond, petitioner went to the Court of Appeals on a
deposited itself should be the subject matter of the litigation. petition for certiorari thereat docketed as CA-G.R. SP No. 34876,
ascribing on the trial court the commission of grave abuse of
discretion amounting to lack of jurisdiction.
That petitioner feels a need for such information in order to
establish its case against private respondent does not, by itself, While acknowledging that [R]espondent Judge may have erred
warrant the examination of the bank deposits. The necessity of in his Order of June 13, 1994 that the counter-bond should be in
the inquiry, or the lack thereof, is immaterial since the case the amount of P27,237,700.00, in that he erroneously factored
does not come under any of the exceptions allowed by the Bank in, in arriving at such amount, unliquidated claim items, such as
Deposits Secrecy Act. actual and exemplary damages, legal interest, attorneys fees
and expenses of litigation, the CA, in the herein
assailed decision dated October 9, 1995, nonetheless denied
WHEREFORE, the petition is DENIED. due course to and dismissed the petition. For, according to the
appellate court, the RTCs order may be defended by, among
others, the provision of Section 12 of Rule 57 of the Rules of
SO ORDERED. G.R. NO. 123638 June 15, 2005
Court, infra. The CA added that, assuming that the RTC erred on
THIRD DIVISION
the matter of computing the amount of the discharging counter-
INSULAR SAVINGS BANK,Petitioner,- versus -COURT OF
bond, its error does not amount to grave abuse of discretion.
APPEALS, JUDGE OMAR U. AMIN, in his capacity as
Presiding Judge of Branch 135 of the Regional Trial Court
With its motion for reconsideration having been similarly denied,
of Makati, and FAR EAST BANK AND TRUST COMPANY,
petitioner is now with us, faulting the appellate court, as follows:
Respondents.
I. THE COURT OF APPEALS ERRED IN NOT RULING THAT
THE PRINCIPAL AMOUNT CLAIMED BY
RESPONDENT BANK SHOULD BE THE BASIS
GARCIA, J.:
FOR COMPUTING THE AMOUNT OF THE
COUNTER-BOND, FOR THE PRELIMINARY
Thru this appeal via a petition for review on certiorari under Rule
ATTACHMENT WAS ISSUED FOR THE SAID
45 of the Rules of Court, petitioner Insular Savings
AMOUNT ONLY.
Bank seeks to set aside the decision[1] dated October 9,
1995 of the Court of Appeals in CA-G.R. SP No. 34876 and
II. THE COURT OF APPEALS ERRED IN NOT RULING THAT
its resolution dated January 24, 1996, [2] denying petitioners
THE ARGUMENT THAT THE AMOUNT OF THE
motion for reconsideration.
COUNTER-BOND SHOULD BE BASED ON THE
VALUE OF THE PROPERTY ATTACHED CANNOT
The assailed decision of October 9, 1995 cleared the Regional
BE RAISED FOR THE FIRST TIME IN THE COURT
Trial Court (RTC) at Makati, Branch 135, of committing, as
OF APPEALS.
petitioner alleged, grave abuse of discretion in denying
petitioners motion to discharge attachment by counter-bond in
III. THE COURT OF APPEALS ERRED IN RULING THAT THE
Civil Case No. 92-145, while the equally assailed resolution of
AMOUNT OF THE COUNTER-BOND SHOULD BE
January 24, 1996 denied petitioners motion for reconsideration.
BASED ON THE VALUE OF THE PROPERTY
ATTACHED EVEN IF IT WILL RESULT IN MAKING
The undisputed facts are summarized in the appellate courts
THE AMOUNT OF THE COUNTER-BOND EXCEED
decision[3] under review, as follows:
THE AMOUNT FOR WHICH PRELIMINARY
ATTACHMENT WAS ISSUED.
On December 11, 1991, respondent Bank [Far East
Bank and Trust Company] instituted Arbitration Case
Simply put, the issue is whether or not the CA erred in not ruling
No. 91-069 against petitioner [Insular Savings Bank]
that the trial court committed grave abuse of discretion in
before the Arbitration Committee of the Philippine
denying petitioners motion to discharge attachment by counter-
Clearing House Corporation [PCHC]. The dispute
bond in the amount of P12,600,000.00.
between the parties involved three [unfunded] checks
with a total value of P25,200,000.00. The checks were
Says the trial court in its Order of June 13, 1994:
drawn against respondent Bank and were presented by
xxx (T)he counter-bond posted by [petitioner] Insular
petitioner for clearing. As respondent Bank returned
Savings Bank should include the unsecured portion of
the checks beyond the reglementary period, [but after
[respondents] claim of P12,600,000.00 as agreed by
petitioners account with PCHC was credited with the
means of arbitration between [respondent] and
amount of P25,200,000.00] petitioner refused to refund
[petitioner]; Actual damages at 25% percent per
the money to respondent Bank. While the dispute was
annum of unsecured amount of claim from October 21,
pending arbitration, on January 17, 1992, respondent
1991 in the amount of P7,827,500.00; Legal interest of
Bank instituted Civil Case No. 92-145 in the Regional
12% percent per annum from October 21, 1991 in the
Trial Court of Makati and prayed for the issuance of a
amount of P3,805,200.00; Exemplary damages in the
writ of preliminary attachment. On January 22, 1992,
amount of P2,000,000.00; and attorneys fees and
Branch 133 of the Regional Trial Court of Makati issued
expenses of litigation in the amount of P1,000,000.00
an Order granting the application for preliminary
with a total amount of P27,237,700.00 (Adlawan vs.
attachment upon posting by respondent Bank of an
Tomol, 184 SCRA 31 (1990).
attachment bond in the amount of P6,000,000.00.
On January 27, 1992, Branch 133 of the Regional Trial
Court of Makati issued a writ of preliminary attachment
Petitioner, on the other hand, argues that the starting point in
for the amount of P25,200,000.00. During the hearing
computing the amount of counter-bond is the amount of the
on February 11, 1992 before the Arbitration Committee
respondents demand or claim only, in this case P25,200,000.00,
of the Philippine Clearing House Corporation, petitioner
excluding contingent expenses and unliquidated amount of
and respondent Bank agreed to temporarily divide
damages. And since there was a mutual agreement between the
between them the disputed amount of P25,200,000.00
parties to temporarily, but equally, divide between themselves
while the dispute has not yet been resolved. As a
the said amount pending and subject to the final outcome of the
result, the sum of P12,600,000.00 is in the possession
arbitration, the amount of P12,600,000.00 should, so petitioner
of respondent Bank. On March 9, 1994, petitioner filed
argues, be the basis for computing the amount of the counter-
a motion to discharge attachment by counter-bond in
bond.
the amount of P12,600,000.00. On June 13, 1994,
respondent Judge issued the first assailed order
The Court rules for the petitioner.
denying the motion. On June 27, 1994, petitioner
filed a motion for reconsideration which was
87
The then pertinent provision of Rule 57 (Preliminary Attachment) writ of attachment issued on January 27, 1992, in turn, expressly
of the Rules of Court under which the appellate court issued its indicated that petitioner is justly indebted to respondent in the
assailed decision and resolution, provides as follows: amount of P25,200,000.00.[8] On February 11, 1992, before the
Arbitration Committee of the Philippine Clearing House
SEC. 12. Discharge of attachment upon giving counter- Corporation,