On February 3, 1998, petitioners as heirs of Salas, Jr.
HEIRS OF AUGUSTO L. SALAS, JR., namely: TERESITA D.
SALAS for herself and as legal guardian of the
minor FABRICE CYRILL D. SALAS, MA. CRISTINA
S. LESACA, and KARINA TERESA D.
SALAS, petitioners, vs. LAPERAL REALTY
CORPORATION, ROCKWAY REAL ESTATE
CORPORATION, SOUTH RIDGE VILLAGE, INC.,
MAHARAMI DEVELOPMENT CORPORATION,
Spouses THELMA D. ABRAJANO and GREGORIO
ABRAJANO, OSCAR DACILLO, Spouses
VIRGINIA D. LAVA and RODEL LAVA, EDUARDO
A. VACUNA, FLORANTE DE LA CRUZ, JESUS
VICENTE B. CAPELLAN, and the REGISTER OF
DEEDS FOR LIPA CITY, respondents.
DECISION
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the
Order[1] of Branch 85 of the Regional Trial Court of Lipa
City[2] dismissing petitioners complaint[3] for rescission of
several sale transactions involving land owned by Augusto L.
Salas, Jr., their predecessor-in-interest, on the ground that
they failed to first resort to arbitration.
Salas, Jr. was the registered owner of a vast tract of land
in Lipa City, Batangas spanning 1,484,354 square meters.
On May 15, 1987, he entered into an Owner-Contractor
Agreement[4] (hereinafter referred to as the Agreement) with
respondent Laperal Realty Corporation (hereinafter referred to
as Laperal Realty) to render and provide complete (horizontal)
construction services on his land.
On September 23, 1988, Salas, Jr. executed a Special
Power of Attorney in favor of respondent Laperal Realty to
exercise general control, supervision and management of the
sale of his land, for cash or on installment basis.
On June 10, 1989, Salas, Jr. left his home in the morning
for a business trip to Nueva Ecija. He never returned.
On August 6, 1996, Teresita Diaz Salas filed with the
Regional Trial Court of Makati City a verified petition for the
declaration of presumptive death of her husband, Salas, Jr.,
who had then been missing for more than seven (7) years. It
was granted on December 12, 1996.[5]
Meantime, respondent Laperal Realty subdivided the
land of Salas, Jr. and sold subdivided portions thereof to
respondents Rockway Real Estate Corporation and South
Ridge Village, Inc. on February 22, 1990; to respondent
spouses Abrajano and Lava and Oscar Dacillo on June 27,
1991; and to respondents Eduardo Vacuna, Florante de la
Cruz and Jesus Vicente Capalan on June 4, 1996 (all of whom
are hereinafter referred to as respondent lot buyers).
filed in the Regional Trial Court of Lipa City a Complaint[6] for
declaration of nullity of sale, reconveyance, cancellation of
contract, accounting and damages against herein respondents
which was docketed as Civil Case No. 98-0047.
On April 24, 1998, respondent Laperal Realty filed a
Motion to Dismiss[7]on the ground that petitioners failed to
submit their grievance to arbitration as required under Article
VI of the Agreement which provides:
ARTICLE VI. ARBITRATION.
All cases of dispute between CONTRACTOR and OWNERS
representative shall be referred to the committee represented
by:
a. One representative of the OWNER;
b. One representative of the CONTRACTOR;
c. One representative acceptable to both OWNER
and CONTRACTOR.[8]
On May 5, 1998, respondent spouses Abrajano and Lava
and respondent Dacillo filed a Joint Answer with Counterclaim
and Crossclaim[9] praying for dismissal of petitioners Complaint
for the same reason.
On August 9, 1998, the trial court issued the herein
assailed Order dismissing petitioners Complaint for non-
compliance with the foregoing arbitration clause.
Hence this petition.
Petitioners argue, thus:
The petitioners causes of action did not emanate from the
Owner-Contractor Agreement.
The petitioners causes of action for cancellation of contract
and accounting are covered by the exception under the
Arbitration Law.
Failure to arbitrate is not a ground for dismissal.[10]
In a catena of cases[11] inspired by Justice Malcolms
provocative dissent in Vega v. San Carlos Milling Co.[12], this
Court has recognized arbitration agreements as valid, binding,
enforceable and not contrary to public policy so much so that
when there obtains a written provision for arbitration which is
not complied with, the trial court should suspend the
proceedings and order the parties to proceed to arbitration in
accordance with the terms of their agreement[13] Arbitration is
the wave of the future in dispute resolution.[14] To brush aside a
contractual agreement calling for arbitration in case of
disagreement between parties would be a step backward.[15]
Nonetheless, we grant the petition.
 A submission to arbitration is a contract.[16] As such, the
Agreement, containing the stipulation on arbitration, binds the
parties thereto, as well as their assigns and heirs.[17] But only
they. Petitioners, as heirs of Salas, Jr., and respondent Laperal
Realty are certainly bound by the Agreement. If respondent
Laperal Realty, had assigned its rights under the Agreement to
a third party, making the former, the assignor, and the latter,
the assignee, such assignee would also be bound by the
arbitration provision since assignment involves such transfer of
rights as to vest in the assignee the power to enforce them to
the same extent as the assignor could have enforced them
against the debtor[18] or in this case, against the heirs of the
original party to the Agreement. However, respondents
Rockway Real Estate Corporation, South Ridge Village, Inc.,
Maharami Development Corporation, spouses Abrajano,
spouses Lava, Oscar Dacillo, Eduardo Vacuna, Florante de la
Cruz and Jesus Vicente Capellan are not assignees of the
rights of respondent Laperal Realty under the Agreement to
develop Salas, Jr.s land and sell the same. They are, rather,
buyers of the land that respondent Laperal Realty was given
the authority to develop and sell under the Agreement. As
such, they are not assigns contemplated in Art. 1311 of the
New Civil Code which provides that contracts take effect only
between the parties, their assigns and heirs.
Petitioners claim that they suffered lesion of more than
one-fourth (1/4) of the value of Salas, Jr.s land when
respondent Laperal Realty subdivided it and sold portions
thereof to respondent lot buyers.Thus, they instituted
action[19]against both respondent Laperal Realty and
respondent lot buyers for rescission of the sale transactions
and reconveyance to them of the subdivided lots. They argue
that rescission, being their cause of action, falls under the
exception clause in Sec. 2 of Republic Act No. 876 which
provides that such submission [to] or contract [of arbitration]
shall be valid, enforceable and irrevocable, save upon such
grounds as exist at law for the revocation of any contract.
The petitioners contention is without merit. For while
rescission, as a general rule, is an arbitrable
issue,[20] they impleaded in the suit for rescission the
respondent lot buyers who are neither parties to the
Agreement nor the latters assigns or heirs. Consequently, the
right to arbitrate as provided in Article VI of the Agreement was
never vested in respondent lot buyers.
Respondent Laperal Realty, as a contracting party to the
Agreement, has the right to compel petitioners to first arbitrate
before seeking judicial relief. However, to split the proceedings
into arbitration for respondent Laperal Realty and trial for the
respondent lot buyers, or to hold trial in abeyance pending
arbitration between petitioners and respondent Laperal Realty,
would in effect result in multiplicity of suits, duplicitous
procedure and unnecessary delay. On the other hand, it would
be in the interest of justice if the trial court hears the complaint
against all herein respondents and adjudicates petitioners
rights as against theirs in a single and complete proceeding.
WHEREFORE, the instant petition is hereby
GRANTED. The Order dated August 19, 1998 of Branch 85 of
the Regional Trial Court of Lipa City is hereby NULLIFIED and
SET ASIDE. Said court is hereby ordered to proceed with the
hearing of Civil Case No. 98-0047.
Costs against private respondents.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Quisumbing, and
Buena, JJ., concur.
G.R. No. 110434 December 13, 1993
HI-PRECISION STEEL CENTER, INC., petitioner,
vs.
LIM KIM STEEL BUILDERS, INC., and CONSTRUCTION
INDUSTRY ARBITRATION COMMISSION, respondents.
Felix Q. Vinluan and Siguion Reyna, Montecillo & Ongsiako for
petitioner.
De Castro & Cagampang Law Offices for Lim Kim teel
Builders, Inc.
RESOLUTION
FELICIANO, J.:
On 18 June 1993, a "Petition for Extension to File Petition for
Review" 1 was filed before the Court, petitioner Hi-Precision
Steel Center, Inc. ("Hi-Precision") stating that it intended to file
a Petition for Review on Certiorari in respect of the 13
November 1992 Award 2 and 13 May 1993 Order 3 of public
respondent Construction Industry Arbitration Commission
("CIAC") in Arbitration Case No. 13-90. The Petition (really a
Motion) prayed for an extension of thirty (30) days or until 21
July 1993 within which to file a Petition for Review.
An opposition 4 to the Motion was filed by private respondent
Lim Kim Steel Builders, Inc. ("Steel Builders") on 5 July 1993.
On the same day, however, the Court issued a
Resolution 5 granting the Motion with a warning that no further
extension would be given.
The Opposition, the subsequent Reply 6 of petitioner filed on
20 July 1993 and the Petition for Review 7 dated 21 July 1993,
were noted by the Court in its Resolution 8 of 28 July 1993.
The Court also required private respondent Steel Builders to
file a Comment on the Petition for Review and Steel Builders
complied.
The Petition prays for issuance of a temporary restraining
order 9 to stay the execution of the assailed Order and Award
in favor of Steel Builders, which application the Court merely
noted, as it did subsequent Urgent Motions for a temporary
restraining order. 10
Petitioner Hi-Precision entered into a contract with private
respondent Steel Builders under which the latter as Contractor
was to complete a P21 Million construction project owned by
the former within a period of 153 days, i.e. from 8 May 1990 to
8 October 1990. The project completion date was first moved
to 4 November 1990. On that date, however, only 75.8674% of
the project was actually completed. Petitioner attributed this
non-completion to Steel Builders which allegedly had
frequently incurred delays during the
original contract period and the extension period. Upon the
other hand, Steel Builders insisted that the delays in the
project were either excusable or due to Hi-Precision's own fault
and issuance of change orders. The project was taken over on
7 November 1990, and eventually completed on February
1991, by Hi-Precision.
Steel Builders filed a "Request for Adjudication" with public
respondent CIAC. In its Complaint filed with the CIAC, Steel
Builders sought payment of its unpaid progress buildings,
alleged unearned profits and other receivables. Hi-Precision,
upon the other hand, in its Answer and Amended Answer,
claimed actual and liquidated damages, reimbursement of
alleged additional costs it had incurred in order to complete the
project and attorney's fees.
The CIAC formed an Arbitral Tribunal with three (3) members,
two (2) being appointed upon nomination of Hi-Precision and
Steel Builders, respectively; the third member (the Chairman)
was appointed by the CIAC as a common nominee of the two
(2) parties. On the Chairman was a lawyer. After the arbitration
proceeding, the Arbitral Tribunal rendered a unanimous Award
dated 13 November 1992, the dispositive portion of which
reads as follows:
WHEREFORE, premises considered, the
Owner [petitioner Hi-Precision] is ordered to
pay the Contractor [private respondent Steel
Builders] the amount of P6,400,717.83 and
all other claims of the parties against each
other are deemed compensated and offset.
No pronouncement as to costs.
The Parties are enjoined to abide by the
award. 11
Upon motions for reconsideration filed, respectively,
by Hi-Precision and Steel Builders, the Arbitral
Tribunal issued an Order dated 13 May 1993 which
reduced the net amount due to contractor Steel
Builders to P6,115,285.83. 12
In its Award, the Arbitral Tribunal stated that it was guided by
Articles 1169, 1192 and 2215 of the Civil Code. With such
guidance, the arbitrators concluded that (a) both parties were
at fault, though the Tribunal could not point out which of the
parties was the first infractor; and (b) the breaches by one
party affected the discharge of the reciprocal obligations of the
other party. With mutual fault as a principal premise, the
Arbitral Tribunal denied (a) petitioner's claims for the additional
costs allegedly incurred to complete the project; and (b) private
respondent's claim for profit it had failed to earn because of
petitioner's take over of the project.
The Tribunal then proceeded to resolve the remaining specific
claims of the parties. In disposing of these multiple, detailed
claims the Arbitral Tribunal, in respect of one or more of the
respective claims of the parties: (a) averaged out the
conflicting amounts and percentages claimed by the
parties; 13 (b) found neither basis nor justification for a
particular claim; 14 (c) found the evidence submitted in support
of particular claims either weak or non-existent; 15 (d) took
account of the admissions of liability in respect of particular
claims; 16 (e) relied on its own expertise in resolving particular
claims; 17 and (f) applied a "principle of equity" in requiring
each party to bear its own loss resulting or arising from mutual
fault or delay (compensation morae). 18
Petitioner Hi-Precision now asks this Court to set aside the
Award, contending basically that it was the contractor Steel
Builders who had defaulted on its contractual undertakings and
so could not be the injured party and should not be allowed to
recover any losses it may have incurred in the project.
Petitioner Hi-Precision insists it is still entitled to damages, and
claims that the Arbitral Tribunal committed grave abuse of
discretion when it allowed certain claims by Steel Builders and
offset them against claims of Hi-Precision.
A preliminary point needs to be made. We note that the Arbitral
Tribunal has not been impleaded as a respondent in the
Petition at bar. The CIAC has indeed been impleaded;
however, the Arbitral Award was not rendered by the CIAC, but
rather by the Arbitral Tribunal. Moreover, under Section 20 of
Executive Order No. 1008, dated 4 February 1985, as
amended, it is the Arbitral Tribunal, or the single Arbitrator,
with the concurrence of the CIAC, which issues the writ of
execution requiring any sheriff or other proper officer to
execute the award. We consider that the Arbitral Tribunal
which rendered the Award sought to be reviewed and set
aside, should be impleaded even though the defense of its
Award would presumably have to be carried by the prevailing
party.
Petitioner Hi-Precision apparently seeks review of both under
Rule 45 and Rule 65 of the Rules of Court. 19 We do not find it
necessary to rule which of the two: a petition for review under
Rule 45 or a petition for certiorari under Rule 65 is
necessary under Executive Order No. 1008, as amended; this
issue was, in any case, not squarely raised by either party and
has not been properly and adequately litigated.
In its Petition, Hi-Precision purports to raise "legal issues," and
in presenting these issues, prefaced each with a creative
formula:
(1)
The public respondent [should be the
"Arbitral Tribunal'] committed serious error in
law, if not grave abuse of discretion, when it
failed to strictly apply Article 1191, New Civil
Code, against the
contractor . . .;
(2)
The public respondent committee serious
error in law, if not grave abuse of discretion,
when it failed to rule in favor of the owner,
now petitioner herein, all the awards it
claimed on arbitration, and when it
nonetheless persisted in its awards of
damages in favor of the
respondent. . . .;
(3)
The public respondent committed serious
error in law, if not grave abuse of discretion,
for its abject failure to apply the doctrine of
waiver, estoppel against the contractor, the
private respondent herein, when it agreed on
November 16, 1990 to award termination of
the contract and the owner's takeover of the
project . . .;
(4)
The public respondent committed serious
error in law, if not grave abuse of discretion,
when it did not enforce the law between the
parties, the "technical specification[s]" which
is one of the contract documents, particularly
to par. (a), sub-part 3.01, part 3, Sec. 2b,
which expressly requires that major site work
activities like stripping, removal and
stockpiling of top soil shall be done "prior to
the start of regular excavation or backfiling
work", the principal issue in arbitration being
non-compliance with the contract
documents;
(5)
The public respondent committed serious
error in law, if not grave abuse of discretion,
when it found, in the May 13, 1993 Order,
the petitioner "guilty of estoppel" although it
is claimed that the legal doctrine of estoppel
does not apply with respect to the required
written formalities in the issuance of change
order . . .;
(6)
The exceptional circumstances in Remalante
vs. Tibe, 158 SCRA 138, where the
Honorable Supreme Court may review
findings of facts, are present in the instant
case, namely; (a) when the inference made
is manifestly absurd, mistaken or impossible
(Luna vs. Linatoc, 74 Phil. 15); (2) when
there is grave abuse of discretion in the
appreciation of facts (Buyco vs. People, 95
Phil. 253); (3) when the judgment is
premised on a misapprehension of facts (De
la Cruz v. Sosing, 94 Phil. 26 and Castillo vs.
CA, 124 SCRA 808); (4) when the findings of
fact are conflicting (Casica v. Villaseca, 101
Phil. 1205); (5) when the findings are
contrary to the admissions of the parties
(Evangelista v. Alto Surety, 103 Phil. 401),
and therefore, the findings of facts of the
public respondent in the instant case may be
reviewed by the Honorable Supreme
Court. 20 (Emphasis partly applied and partly
in the original)
From the foregoing, petitioner Hi-Precision may be seen to be
making two (2) basic arguments:
(a) Petitioner asks this Court to correct legal
errors committed by the Arbitral Tribunal,
which at the same time constitute grave
abuse of discretion amounting to lack of
jurisdiction on the part of the Arbitral
Tribunal; and
(b) Should the supposed errors petitioner
asks us to correct be characterized as errors
of fact, such factual errors should
nonetheless be reviewed because there was
"grave abuse of discretion" in the
misapprehension of facts on the part of the
Arbitral Tribunal.
Executive Order No. 1008, as amended, provides, in its
Section 19, as follows:
 Sec. 19. Finality of Awards. The arbitral
award shall be binding upon the parties. It
shall be final and inappealable except on
questions of law which shall be appealable
to the Supreme Court.
Section 19 makes it crystal clear that questions of fact
cannot be raised in proceedings before the Supreme
Court which is not a trier of facts in respect of
an arbitral award rendered under the aegis of the
CIAC. Consideration of the animating purpose of
voluntary arbitration in general, and arbitration under
the aegis of the CIAC in particular, requires us to
apply rigorously the above principle embodied in
Section 19 that the Arbitral Tribunal's findings of fact
shall be final and inappealable.
Voluntary arbitration involves the reference of a dispute to an
impartial body, the members of which are chosen by the
parties themselves, which parties freely consent in advance to
abide by the arbitral award issued after proceedings where
both parties had the opportunity to be heard. The basic
objective is to provide a speedy and inexpensive method of
settling disputes by allowing the parties to avoid the formalities,
delay, expense and aggravation which commonly accompany
ordinary litigation, especially litigation which goes through the
entire hierarchy of courts. Executive Order No. 1008 created
an arbitration facility to which the construction industry in the
Philippines can have recourse. The Executive Order was
enacted to encourage the early and expeditious settlement of
disputes in the construction industry, a public policy the
implementation of which is necessary and important for the
realization of national development goals. 21
Aware of the objective of voluntary arbitration in the labor field,
in the construction industry, and in any other area for that
matter, the Court will not assist one or the other or even both
parties in any effort to subvert or defeat that objective for their
private purposes. The Court will not review the factual findings
of an arbitral tribunal upon the artful allegation that such body
had "misapprehended the facts" and will not pass upon issues
which are, at bottom, issues of fact, no matter how cleverly
disguised they might be as "legal questions." The parties here
had recourse to arbitration and chose the arbitrators
themselves; they must have had confidence in such
arbitrators. The Court will not, therefore, permit the parties to
relitigate before it the issues of facts previously presented and
argued before the Arbitral Tribunal, save only where a very
clear showing is made that, in reaching its factual conclusions,
the Arbitral Tribunal committed an error so egregious and
hurtful to one party as to constitute a grave abuse of discretion
resulting in lack or loss of jurisdiction. 22 Prototypical examples
would be factual conclusions of the Tribunal which resulted in
deprivation of one or the other party of a fair opportunity to
present its position before the Arbitral Tribunal, and an award
obtained through fraud or the corruption of arbitrators. 23 Any
other, more relaxed, rule would result in setting at naught the
basic objective of a voluntary arbitration and would reduce
arbitration to a largely inutile institution.
Examination of the Petition at bar reveals that it is essentially
an attempt to re-assert and re-litigate before this Court the
detailed or itemized factual claims made before the Arbitral
Tribunal under a general averment that the Arbitral Tribunal
had "misapprehended the facts" submitted to it. In the present
Petition, too, Hi-Precision claims that the Arbitral Tribunal had
committed grave abuse of discretion amounting to lack of
jurisdiction in reaching its factual and legal conclusions.
The first "legal issue" submitted by the Petition is the claimed
misapplication by the Arbitral Tribunal of the first and second
paragraphs of Article 1911 of the Civil Code. 24 Article 1191
reads:
Art. 1191. The power to rescind obligations
is implied in reciprocal ones, in case one of
the obligors should not comply with what is
incumbent upon him.
The injured party may choose between the
fulfillment and the rescission of the
obligation, with the payment of damages in
either case. He may also seek rescission,
even after he has chosen fulfillment, if the
latter should become impossible.
The court shall decree the rescission
claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice to
the rights of third persons who have
acquired the thing, in accordance with
articles 1385 and 1388 and the Mortgage
Law.
Hi-Precision contends energetically that it is the injured party
and that Steel Builders was the obligor who did not comply
with what was incumbent upon it, such that Steel Builders was
the party in default and the entity guilty of negligence and
delay. As the injured party, Hi-Precision maintains that it may
choose between the fulfillment or rescission of the obligation in
accordance with Article 1191, and is entitled to damages in
either case. Thus, Hi-Precision continues, when the contractor
Steel Builders defaulted on the 153rd day of the original
contract period, Hi-Precision opted for specific performance
and gave Steel Builders a 30-day extension period with which
to complete the project.
What petitioner Hi-Precision, in its above argument, disregards
is that the determination of whether Hi-Precision or Steel
Builders was the "injured party" is not to be resolved by an
application of Article 1191. That determination is eminently a is in reality asking this Court to review the physical operations
question of fact, for it requires ascertainment and identification relating, e.g., to site preparation carried out by the contractor
of which the two (2) contending parties had first failed to Steel Builders and to determine whether such operations were
comply with what is incumbent upon it. In other words, the in accordance with the Technical Specifications of the project.
supposed misapplication of Article 1191, while ostensibly a The Arbitral Tribunal resolved Hi-Precision's claim by finding
"legal issue," is ultimately a question of fact, i.e., the that Steel Builders had complied substantially with the
determination of the existence or non-existence of a fact or set Technical Specifications. This Court will not pretend that it has
of facts in respect of which Article 1191 may be properly the technical and engineering capability to review the
applied. Thus, to ask this Court to correct a claimed resolution of that factual issue by the Arbitral Tribunal.
misapplication or non-application of Article 1191 is to compel
this Court to determine which of the two (2) contending parties Finally, the Petition asks this Court to "review serious errors in
was the "injured party" or the "first infractor." As noted earlier, the findings of fact of the [Arbitral Tribunal]." 28 In this section of
the Arbitral Tribunal after the prolonged arbitration proceeding, its Petition,
was unable to make that factual determination and instead Hi-Precision asks us to examine each item of its own claims
concluded that both parties had committed breaches of their which the Arbitral Tribunal had rejected in its Award, and each
respective obligations. We will not review, and much less claim of the contractor Steel Builders which the Tribunal had
reverse, that basic factual finding of the Arbitral Tribunal. granted. In respect of each item of the owner's claims and
each item of the contractor's claims, Hi-Precision sets out its
A second "legal issue" sought to be raised by petitioner Hi- arguments, to all appearances the same arguments it had
Precision relates to the supposed failure of the Arbitral Tribunal raised before the Tribunal. As summarized in the Arbitral
to apply the doctrines of estoppel and waiver as against Steel Award, Contractor's Claims were as follows:
Builders. 25 The Arbitral Tribunal, after declaring that the
parties were mutually at fault, proceeded to enumerate the 12.1. Unpaid Progress Billing 1,812,706.95
faults of each of the parties. One of the faults attributed to
petitioner Hi-Precision is that it had failed to give the contractor 12.2. Change Order 1 0.00
Steel Builders the required 15-day notice for termination of the 12.3. -do- 2 10,014.00
contract. 26 This was clearly a finding of fact on the part of the 12.4. -do- 3 320,000.00
Tribunal, supported by the circumstance that per the record, 12.5. -do- 4 112,300.70
petitioner had offered no proof that it had complied with such 12.6. -do- 5 398,398.00
15-day notice required under Article 28.01 of the General 12.7. -do- 6 353,050.38
Conditions of Contract forming part of the Contract 12.8. -do- 7 503,836.53
Documents. Petitioner Hi-Precision's argument is that a written 12.9. -do- 8 216,138.75
Agreement dated 16 November 1990 with Steel Builders 12.10. -do- 9 101,621.40
concerning the take over of the project by Hi-Precision, 12.11. -do- 10 7,200.00
constituted waiver on the part of the latter of its right to a 15- 12.12. -do- 11 0.00
day notice of contract termination. Whether or not that 12.13. -do- 12 7,800.00
Agreement dated 16 November 1990 (a document not 12.14. -do- 13 49,250.00
submitted to this Court) is properly characterized as 12.15. -do- 14 167,952.00
constituting waiver on the part of Steel Builders, may be 12.16. -do- 15 445,600.00
conceded to be prima facie a question of law; but, if it is, and 12.17. -do- 16 92,457.30
assuming arguendo that the Arbitral Tribunal had erred in 12.18. -do- 17 1,500.00
resolving it, that error clearly did not constitute a grave abuse 12.19. 20,240.00
of discretion resulting in lack or loss of jurisdiction on the part 12.20. 63,518.00
of the Tribunal. 12.21. 0.00
12.22. 0.00
A third "legal issue" posed by Hi-Precision relates to the 12.23. 0.00
supposed failure on the part of the Arbitral Tribunal "to uphold 12.24. 0.00
the supremacy of 'the 12.25. 0.00
law between the parties' and enforce it against private 12.26. 730,201.57
respondent [Steel Builders]." 27 The "law between that parties" 12.27. 1,130,722.70
here involved is the "Technical Specifications" forming part of 12.28. 0.00
the Contract Documents. Hi-Precision asserts that the Arbitral 12.29. 273,991.00
Tribunal did not uphold the "law between the parties," but 12.30. 0.00
instead substituted the same with "its [own] absurd inference
and 'opinion' on mud." Here again, petitioner is merely
disguising a factual question as a "legal issue," since petitioner
 12.31. 7,318,499.28 29
=============
Upon the other hand, the petitioner's claims we are asked to
review and grant are summarized as follows:
1. Actual Damages
Advance Downpayment
[at] signing of Contract
which is subject to 40%
deduction every progress
billing (40% of Contract Price)
P8,406,000.00
Progress Billings 5,582,585.55
Advances made to Lim Kim
a) prior to take-over 392,781.45
b) after the take-over
Civil Works 1,158,513.88
Materials 4,213,318.72
Labor 2,155,774.79
Equipment Rental 1,448,208.90
P8,974,816.45
Total Amount Paid for Construction
23,650,183.00
Less: Contract Price (21,000,000.00)
IA Excess of amount paid
over contract price 2,650,163.29
IB Other items due from Lim
Kim Steel Builders
a. Amount not yet deducted
from Downpayment due
to non-completion of Project
(P24.1326%) 2,027,138.40
b. Due to Huey Commercial
used for HSCI Project 51,110.40
IC Additional construction expenses
a. Increases in prices since Oct.
5,272,096.81
b. Cost of money of (a) 873,535.49
ID Installation of machinery
a. Foreign exchange loss 11,565,048.37
b. Cost of money (a) 2,871,987.01
I[E] Raw Materials
a. Foreign exchange loss 4,155,982.18
b. Cost of money (a) 821,242.72
c. Additional import levy of 5% 886,513.33
d. Cost of money (c) 170,284.44
e. Cost of money on marginal
deposit on Letter of Credit 561,195.25
IF Cost of money on holding to CRC INTY
3,319,609.63
Total Actual Damages 35,295,927.32
2. Liquidated Damages 2,436,000.00
3. Attorney's Fees 500,000.00
P38,231,927.32 30
=============
We consider that in asking this Court to go over each individual
claim submitted by it and each individual countering claim
submitted by Steel Builders to the Arbitral Tribunal, petitioner
Hi-Precision is asking this Court to pass upon claims which are
either clearly and directly factual in nature or require previous
determination of factual issues. This upon the one hand. Upon
the other hand, the Court considers that petitioner Hi-Precision
has failed to show any serious errors of law amounting to
grave abuse of discretion resulting in lack of jurisdiction on the
part of the Arbitral Tribunal, in either the methods employed or
the results reached by the Arbitral Tribunal, in disposing of the
detailed claims of the respective parties.
WHEREFORE, for all the foregoing, the Petition is hereby
DISMISSED for lack of merit. Costs against petitioner.
SO ORDERED.
Bidin, Romero, Melo and Vitug, JJ., concur
HOME BANKERS SAVINGS AND TRUST COMPANY V. CA
(G.R. NO. 115412)
Facts:
Victor Tancuan issued Petitioner Home Bankers Savings and
Trust Company a check while Eugene Arriesgado issued
Private Respondent Far East Bank and Trust Company three
checks; both checks totaling the amount of P25,250,000.00.
Tancuan and Arriesgado exchanged each others checks and
deposited them with their respective banks for collection.
When FEBTC presented Tancuans HBSTC check for clearing,
it was dishonored for being DAIF. Meanwhile, HBSTC sent
Arriesgados 3 FEBTC checks through the Philippine Clearing
House Corporation (PCHC) to FEBTC but was returned for
being DAIF. HBSTC receive the notice of dishonor but refused
to accept the checks and returned them to FEBTC through the
PCHC for the reason Beyond Reglementary Period, implying
that HBSTC already treated the 3 checks as cleared and
allowed the proceeds thereof to be withdrawn. FEBTC
demanded reimbursement for the returned checks and
inquired from HBSTC whether it had permitted any withdrawal
of funds against the unfunded checks. HBSTC, however
refused to make any reimbursement and to provide FEBTC
with the needed information. Thus, FEBTC submitted the
dispute for arbitration before the PCHC Arbitration Committee,
under its Supplementary Rules on Regional Clearing to which
FEBTC and HBSTC are bound as participants in the regional
clearing operations administered by the PCHC. While the
arbitration proceeding was still pending, FEBTC filed an action
for sum of money and damages with preliminary attachment
against HBSTC. HBSTC moved to dismiss on the ground that
there is no cause of action and because it seeks to enforce an
arbitral award which as yet does not exist. The trial court
denied the motion to dismiss and the motion for
reconsideration. Petitioner then filed a petition for certiorari
with respondent CA to which it had dismissed.
Issue:
Whether or not private respondent which commenced an
arbitration proceeding under the auspices of the PCHC may
subsequently file a separate case in court over the same
subject matter despite the pendency of that arbitration, simply
to obtain the provisional remedy of attachment against the
adverse party in the arbitration proceeding.
Ruling:
We find no merit in the petition. Section 14 of Republic Act
876, otherwise known as the Arbitration Law, allows any party
to the arbitration proceeding to petition the court to take
measures to safeguard and/or conserve any matter which is
the subject of the dispute in arbitration.
Petitioners exposition of the foregoing provision deserves
scant consideration. Section 14 simply grants an arbitrator the
power to issue subpoena and subpoena duces tecum at any
time before rendering the award. The exercise of such power
is without prejudice to the right of a party to file a petition in
court to safeguard any matter which is the subject of the
dispute in arbitration. In the case at bar, private respondent
filed an action for a sum of money with prayer for a writ of
preliminary attachment. Undoubtedly, such action involved the
same subject matter as that in arbitration, i.e., the sum of
P25,200,000.00 which was allegedly deprived from private
respondent in what is known in banking as a kiting scheme.
However, the civil action was not a simple case of a money
claim since private respondent has included a prayer for a writ
of preliminary attachment, which is sanctioned by section 14 of
the Arbitration Law.
Simply put, participants in the regional clearing operations of
the Philippine Clearing House Corporation cannot bypass the
arbitration process laid out by the body and seek relief directly
from the courts. In the case at bar, undeniably, private
respondent has initiated arbitration proceedings as required by
the PCHC rules and regulations, and pending arbitration has
sought relief from the trial court for measures to safeguard
and/or conserve the subject of the dispute under arbitration, as
sanctioned by section 14 of the Arbitration Law, and otherwise
not shown to be contrary to the PCHC rules and regulations.
At this point, we emphasize that arbitration, as an alternative
method of dispute resolution, is encouraged by this Court.
Aside from unclogging judicial dockets, it also hastens
solutions especially of commercial disputes. The Court looks
with favor upon such amicable arrangement and will only
interfere with great reluctance to anticipate or nullify the action
of the arbitrator. Wherefore, premises considered, the petition
is hereby dismissed and the decision of the court a quo is
affirmed.
LM POWER ENGINEERING CORPORATION, petitioner,
vs. CAPITOL INDUSTRIAL CONSTRUCTION GROUPS,
INC., respondent.
DECISION
PANGANIBAN, J.:
Alternative dispute resolution methods or ADRs -- like
arbitration, mediation, negotiation and conciliation -- are
encouraged by the Supreme Court. By enabling parties to
resolve their disputes amicably, they provide solutions that are
less time-consuming, less tedious, less confrontational, and
more productive of goodwill and lasting relationships.[1]
The Case
Before us is a Petition for Review on Certiorari[2] under
Rule 45 of the Rules of Court, seeking to set aside the January
28, 2000 Decision of the Court of Appeals[3] (CA) in CA-GR CV
No. 54232. The dispositive portion of the Decision reads as
follows:
WHEREFORE, the judgment appealed from is REVERSED
and SET ASIDE. The parties are ORDERED to present their
dispute to arbitration in accordance with their Sub-contract
Agreement. The surety bond posted by [respondent] is
[d]ischarged.[4]
The Facts
On February 22, 1983, Petitioner LM Power Engineering
Corporation and Respondent Capitol Industrial Construction
Groups Inc. entered into a Subcontract Agreement involving
electrical work at the Third Port of Zamboanga.[5]
On April 25, 1985, respondent took over some of the
work contracted to petitioner.[6] Allegedly, the latter had failed
to finish it because of its inability to procure materials.[7]
Upon completing its task under the Contract, petitioner
billed respondent in the amount of P6,711,813.90.[8] Contesting
the accuracy of the amount of advances and billable
accomplishments listed by the former, the latter refused to
pay. Respondent also took refuge in the termination clause of
the Agreement.[9] That clause allowed it to set off the cost of
the work that petitioner had failed to undertake -- due to
termination or take-over -- against the amount it owed the
latter.
Because of the dispute, petitioner filed with the Regional
Trial Court (RTC) of Makati (Branch 141) a Complaint[10] for the
collection of the amount representing the alleged balance due
it under the Subcontract. Instead of submitting an Answer,
respondent filed a Motion to Dismiss,[11] alleging that the
Complaint was premature, because there was no prior
recourse to arbitration.
In its Order[12] dated September 15, 1987, the RTC
denied the Motion on the ground that the dispute did not
involve the interpretation or the implementation of the
Agreement and was, therefore, not covered by the arbitral
clause.[13]
After trial on the merits, the RTC[14] ruled that the take-
over of some work items by respondent was not equivalent to
a termination, but a mere modification, of the Subcontract. The
latter was ordered to give full payment for the work completed
by petitioner.
Ruling of the Court of Appeals
On appeal, the CA reversed the RTC and ordered the
referral of the case to arbitration. The appellate court held as
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 two other issues: whether petitioner was liable
under the warranty clause of the Agreement, and whether it
should reimburse respondent for the work the latter had taken
over.[15]
Hence, this Petition.[16]
The Issues
In its Memorandum, petitioner raises the following issues
for the Courts consideration:
A
Whether or not there exist[s] a controversy/dispute between
petitioner and respondent regarding the interpretation and
implementation of the Sub-Contract Agreement dated
February 22, 1983 that requires prior recourse to voluntary
arbitration;
B
In the affirmative, whether or not the requirements provided in
Article III [1] of CIAC Arbitration Rules regarding request for
arbitration ha[ve] been complied with[.][17]
The Courts Ruling
The Petition is unmeritorious.
First Issue:
Whether Dispute Is Arbitrable
Petitioner claims that there is no conflict regarding the
interpretation or the implementation of the Agreement. Thus,
without having to resort to prior arbitration, it is entitled to
collect the value of the services it rendered through an ordinary
action for the collection of a sum of money from
respondent. On the other hand, the latter contends that there is
a need for prior arbitration as provided in the Agreement. This
is because there are some disparities between the parties
positions regarding the extent of the work done, the amount of
advances and billable accomplishments, and the set off of
expenses incurred by respondent in its take-over of petitioners
work.
We side with respondent. Essentially, the dispute arose
from the parties ncongruent positions on whether certain
provisions of their Agreement could be applied to the
facts. The instant case involves technical discrepancies that
are better left to an arbitral body that has expertise in those
areas. In any event, the inclusion of an arbitration clause in a
contract does not ipso facto divest the courts of jurisdiction to
pass upon the findings of arbitral bodies, because the awards
are still judicially reviewable under certain conditions.[18]
In the case before us, the Subcontract has the following
arbitral clause:
6. The Parties hereto agree that any dispute or
conflict as regards to interpretation and
implementation of this Agreement which cannot be
settled between [respondent] and [petitioner]
amicably shall be settled by means of arbitration x x
x.[19]
Clearly, the resolution of the dispute between the parties
herein requires a referral to the provisions of their
Agreement. Within the scope of the arbitration clause are
discrepancies as to the amount of advances and billable
accomplishments, the application of the provision on
termination, and the consequent set-off of expenses.
A review of the factual allegations of the parties reveals
that they differ on the following questions: (1) Did a take-
over/termination occur? (2) May the expenses incurred by
respondent in the take-over be set off against the amounts it
owed petitioner? (3) How much were the advances and billable
accomplishments?
The resolution of the foregoing issues lies in the
interpretation of the provisions of the Agreement. According to
respondent, the take-over was caused by petitioners delay in
completing the work. Such delay was in violation of the
provision in the Agreement as to time schedule:
G. TIME SCHEDULE
[Petitioner] shall adhere strictly to the schedule
related to the WORK and complete the WORK within
the period set forth in Annex C hereof. NO time
extension shall be granted by [respondent] to
[petitioner] unless a corresponding time extension is
granted by [the Ministry of Public Works and
Highways] to the CONSORTIUM.[20]
Because of the delay, respondent alleges that it took over
some of the work contracted to petitioner, pursuant to the
following provision in the Agreement:
K. TERMINATION OF AGREEMENT
[Respondent] has the right to terminate and/or take
over this Agreement for any of the following
causes:
xxxxxxxxx
6. If despite previous warnings by
[respondent], [petitioner] does not execute the
WORK in accordance with this Agreement,
or persistently or flagrantly neglects to carry
out [its] obligations under this Agreement.[21]
Supposedly, as a result of the take-over, respondent
incurred expenses in excess of the contracted price. It sought
to set off those expenses against the amount claimed by
petitioner for the work the latter accomplished, pursuant to the
following provision:
If the total direct and indirect cost of completing the remaining
part of the WORK exceed the sum which would have been
payable to [petitioner] had it completed the WORK, the amount
of such excess [may be] claimed by [respondent] from either of
the following:
1. Any amount due [petitioner] from [respondent] at the time of
the termination of this Agreement.[22]
The issue as to the correct amount of petitioners
advances and billable accomplishments involves an evaluation
of the manner in which the parties completed the work, the
extent to which they did it, and the expenses each of them
incurred in connection therewith. Arbitrators also need to look
into the computation of foreign and local costs of materials,
foreign and local advances, retention fees and letters of credit,
and taxes and duties as set forth in the Agreement. These data
can be gathered from a review of the Agreement, pertinent
portions of which are reproduced hereunder:
C. CONTRACT PRICE AND TERMS OF PAYMENT
xxxxxxxxx
All progress payments to be made by [respondent]
to [petitioner] shall be subject to a retention sum of
ten percent (10%) of the value of the approved
quantities. Any claims by [respondent] on [petitioner]
may be deducted by [respondent] from the progress
payments and/or retained amount. Any excess from
the retained amount after deducting [respondents]
claims shall be released by [respondent] to
[petitioner] after the issuance of [the Ministry of
Public Works and Highways] of the Certificate of
Completion and final acceptance of the WORK by
[the Ministry of Public Works and Highways].
xxxxxxxxx
D. IMPORTED MATERIALS AND EQUIPMENT
[Respondent shall open the letters of credit for the
importation of equipment and materials listed in
Annex E hereof after the drawings, brochures, and
other technical data of each items in the list have
 been formally approved by [the Ministry of Public
Works and Highways]. However, petitioner will still
be fully responsible for all imported materials and
equipment.
All expenses incurred by [respondent], both in
foreign and local currencies in connection with the
opening of the letters of credit shall be deducted
from the Contract Prices.
xxxxxxxxx
N. OTHER CONDITIONS
xxxxxxxxx
2. All customs duties, import duties, contractors
taxes, income taxes, and other taxes that may be
required by any government agencies in connection
with this Agreement shall be for the sole account of
[petitioner].[23]
Being an inexpensive, speedy and amicable method of
settling disputes,[24] arbitration -- along with mediation,
conciliation and negotiation -- is encouraged by the Supreme
Court. Aside from unclogging judicial dockets, arbitration also
hastens the resolution of disputes, especially of the
commercial kind.[25] It is thus regarded as the wave of the
future in international civil and commercial
disputes. Brushing aside a contractual agreement calling for
[26]
arbitration between the parties would be a step backward.[27]
Consistent with the above-mentioned policy of
encouraging alternative dispute resolution methods, courts
should liberally construe arbitration clauses. Provided such
clause is susceptible of an interpretation that covers the
asserted dispute, an order to arbitrate should be
granted.[28] Any doubt should be resolved in favor of
arbitration.[29]
Second Issue:
Prior Request for Arbitration
According to petitioner, assuming arguendo that the
dispute is arbitrable, the failure to file a formal request for
arbitration with the Construction Industry Arbitration
Commission (CIAC) precluded the latter from acquiring
jurisdiction over the question. To bolster its position, petitioner
even cites our ruling in Tesco Services Incorporated v.
Vera.[30] We are not persuaded.
Section 1 of Article II of the old Rules of Procedure
Governing Construction Arbitration indeed required the
submission of a request for arbitration, as follows:
SECTION. 1. Submission to Arbitration -- Any party to a
construction contract wishing to have recourse to arbitration by
the Construction Industry Arbitration Commission (CIAC) shall
submit its Request for Arbitration in sufficient copies to the
Secretariat of the CIAC; PROVIDED, that in the case of
government construction contracts, all administrative remedies
available to the parties must have been exhausted within 90
days from the time the dispute arose.
Tesco was promulgated by this Court, using the
foregoing provision as reference.
On the other hand, Section 1 of Article III of
the new Rules of Procedure Governing Construction
Arbitration has dispensed with this requirement and recourse
to the CIAC may now be availed of whenever a contract
contains a clause for the submission of a future controversy to
arbitration, in this wise:
SECTION 1. Submission to CIAC Jurisdiction An arbitration
clause in a construction contract or a submission to arbitration
of a construction dispute shall be deemed an agreement to
submit an existing or future controversy to CIAC jurisdiction,
notwithstanding the reference to a different arbitration
institution or arbitral body in such contract or
submission. When a contract contains a clause for the
submission of a future controversy to arbitration, it is not
necessary for the parties to enter into a submission agreement
before the claimant may invoke the jurisdiction of CIAC.
The foregoing amendments in the Rules were formalized
by CIAC Resolution Nos. 2-91 and 3-93.[31]
The difference in the two provisions was clearly explained
in China Chang Jiang Energy Corporation (Philippines) v.
Rosal Infrastructure Builders et al.[32] (an extended unsigned
Resolution) and reiterated in National Irrigation Administration
v. Court of Appeals,[33] from which we quote thus:
Under the present Rules of Procedure, for a particular
construction contract to fall within the jurisdiction of CIAC, it is
merely required that the parties agree to submit the same to
voluntary arbitration Unlike in the original version of Section 1,
as applied in the Tesco case, the law as it now stands does
not provide that the parties should agree to submit disputes
arising from their agreement specifically to the CIAC for the
latter to acquire jurisdiction over the same. Rather, it is plain
and clear that as long as the parties agree to submit to
voluntary arbitration, regardless of what forum they may
choose, their agreement will fall within the jurisdiction of the
CIAC, such that, even if they specifically choose another
forum, the parties will not be precluded from electing to submit
their dispute before the CIAC because this right has been
vested upon each party by law, i.e., E.O. No. 1008.[34]
 Clearly, there is no more need to file a request with the
CIAC in order to vest it with jurisdiction to decide a
construction dispute.
The arbitral clause in the Agreement is a commitment on
the part of the parties to submit to arbitration the disputes
covered therein. Because that clause is binding, they are
expected to abide by it in good faith.[35] And because it covers
the dispute between the parties in the present case, either of
them may compel the other to arbitrate.[36]
Since petitioner has already filed a Complaint with the RTC
without prior recourse to arbitration, the proper procedure to
enable the CIAC to decide on the dispute is to request the stay or
suspension of such action, as provided under RA 876 [the
Arbitration Law].[37]
WHEREFORE, the Petition is DENIED and the assailed
Decision AFFIRMED. Costs against petitioner.
SO ORDERED.
Puno, (Chairman), Sandoval-Gutierrez,
Corona and Carpio-Morales, JJ., concur.
BF CORPORATION, petitioner, vs. COURT OF APPEALS,
SHANGRI-LA PROPERTIES, COLAYCO, ALFREDO
C. RAMOS, INC., RUFO B.
MAXIMO G.LICAUCO III and BENJAMIN C.
RAMOS, respondents.
DECISION
ROMERO, J.:
The basic issue in this petition for review on certiorari is
whether or not the contract for the construction of the EDSA
Plaza between petitioner BF Corporation and respondent
Shangri-la Properties, Inc. embodies an arbitration clause in
case of disagreement between the parties in the
implementation of contractual provisions.
Petitioner and respondent Shangri-la Properties, Inc.
(SPI) entered into an agreement whereby the latter engaged
the former to construct the main structure of the EDSA Plaza
Project, a shopping mall complex in the City of Mandaluyong.
The construction work was in progress when SPI decided
to expand the project by engaging the services of petitioner
again. Thus, the parties entered into an agreement for the
main contract works after which construction work began.
However, petitioner incurred delay in the construction
work that SPI considered as serious and substantial.[1] On the
other hand, according to petitioner, the construction works
progressed in faithful compliance with the First Agreement until
a fire broke out on November 30, 1990 damaging Phase I of
the Project.[2] Hence, SPI proposed the re-negotiation of the
agreement between them.
Consequently, on May 30, 1991, petitioner and SPI
entered into a written agreement denominated as Agreement
for the Execution of Builders Work for the EDSA Plaza
Project. Said agreement would cover the construction work on
said project as of May 1, 1991 until its eventual completion.
According to SPI, petitioner failed to complete the
construction works and abandoned the project.[3] This resulted
in disagreements between the parties as regards their
respective liabilities under the contract. On July 12, 1993, upon
SPIs initiative, the parties respective representatives met in
conference but they failed to come to an agreement.[4]
Barely two days later or on July 14, 1993, petitioner filed
with the Regional Trial Court of Pasig a complaint for collection
of the balance due under the construction agreement. Named
defendants therein were SPI and members of its board of
directors namely, Alfredo C. Ramos, Rufo B. Colayco, Antonio
B. Olbes, Gerardo O. Lanuza, Jr., Maximo G. Licauco III and
Benjamin C. Ramos.
On August 3, 1993, SPI and its co-defendants filed a
motion to suspend proceedings instead of filing an
answer. The motion was anchored on defendants allegation
that the formal trade contract for the construction of the project
provided for a clause requiring prior resort to arbitration before
judicial intervention could be invoked in any dispute arising
from the contract.The following day, SPI submitted a copy of
the conditions of the contract containing the arbitration clause
that it failed to append to its motion to suspend proceedings.
Petitioner opposed said motion claiming that there was
no formal contract between the parties although they entered
into an agreement defining their rights and obligations in
undertaking the project. It emphasized that the agreement did
not provide for arbitration and therefore the court could not be
deprived of jurisdiction conferred by law by the mere allegation
of the existence of an arbitration clause in the agreement
between the parties.
In reply to said opposition, SPI insisted that there was
such an arbitration clause in the existing contract between
petitioner and SPI. It alleged that suspension of proceedings
would not necessarily deprive the court of its jurisdiction over
the case and that arbitration would expedite rather than delay
the settlement of the parties respective claims against each
other.
In a rejoinder to SPIs reply, petitioner reiterated that there
was no arbitration clause in the contract between the parties. It
averred that granting that such a clause indeed formed part of
the contract, suspension of the proceedings was no longer
proper. It added that defendants should be declared in default
for failure to file their answer within the reglementary period.
In its sur-rejoinder, SPI pointed out the significance of
petitioners admission of the due execution of the Articles of
Agreement. Thus, on page D/6 thereof, the signatures of Rufo
B. Colayco, SPI president, and Bayani Fernando, president of
petitioner appear, while page D/7 shows that the agreement is
a public document duly notarized on November 15, 1991 by
Notary Public Nilberto R. Briones as document No. 345, page
70, book No. LXX, Series of 1991 of his notarial register.[5]
Thereafter, upon a finding that an arbitration clause
indeed exists, the lower court[6] denied the motion to suspend
proceedings, thus:
It appears from the said document that in the letter-
agreement dated May 30, 1991 (Annex C,
Complaint), plaintiff BF and defendant Shangri-La
Properties, Inc. agreed upon the terms and
conditions of the Builders Work for the EDSA Plaza
Project (Phases I, II and Carpark), subject to the
execution by the parties of a formal trade contract.
Defendants have submitted a copy of the alleged
trade contract, which is entitled `Contract
Documents For Builders Work Trade Contractor
dated 01 May 1991, page 2 of which is entitled
`Contents of Contract Documents with a list of the
documents therein contained, and Section A thereof
consists of the abovementioned Letter-Agreement
dated May 30, 1991. Section C of the said Contract
Documents is entitled `Articles of Agreement and
Conditions of Contract which, per its Index, consists
of Part A (Articles of Agreement) and B (Conditions
of Contract). The said Articles of Agreement appears
to have been duly signed by President Rufo B.
Colayco of Shangri-La Properties, Inc. and President
Bayani F. Fernando of BF and their witnesses, and
was thereafter acknowledged before Notary Public
Nilberto R. Briones of Makati, Metro Manila on
November 15, 1991. The said Articles of Agreement
also provides that the `Contract Documents' therein
listed `shall be deemed an integral part of this
Agreement, and one of the said documents is the
`Conditions of Contract which contains the
Arbitration Clause relied upon by the defendants in
their Motion to Suspend Proceedings.
This Court notes, however, that the `Conditions of
Contract referred to, contains the following
provisions:
`3. Contract Document.
Three copies of the Contract
Documents referred to in the
Articles of Agreement shall be
signed by the parties to the
contract and distributed to the
Owner and the Contractor for
their safe keeping.
(underscoring supplied)
And it is significant to note further that the said
`Conditions of Contract is not duly signed by the
parties on any page thereof --- although it bears the
initials of BFs representatives (Bayani F. Fernando
and Reynaldo M. de la Cruz) without the initials
thereon of any representative of Shangri-La
Properties, Inc.
Considering the insistence of the plaintiff that the
said Conditions of Contract was not duly executed or
signed by the parties, and the failure of the
defendants to submit any signed copy of the said
document, this Court entertains serious doubt
whether or not the arbitration clause found in the
said Conditions of Contract is binding upon the
parties to the Articles of Agreement. (Underscoring
supplied.)
The lower court then ruled that, assuming that the
arbitration clause was valid and binding, still, it was too late in
the day for defendants to invoke arbitration. It quoted the
following provision of the arbitration clause:
Notice of the demand for arbitration of a dispute
shall be filed in writing with the other party to the
contract and a copy filed with the Project
Manager. The demand for arbitration shall be made
within a reasonable time after the dispute has arisen
and attempts to settle amicably have failed; in no
case, however, shall the demand he made be later
than the time of final payment except as otherwise
expressly stipulated in the contract.
Against the above backdrop, the lower court found that
per the May 30, 1991 agreement, the project was to be
completed by October 31, 1991. Thereafter, the contractor
would pay P80,000 for each day of delay counted from
November 1, 1991 with liquified (sic) damages up to a
maximum of 5% of the total contract price.
The lower court also found that after the project was
completed in accordance with the agreement that contained a
provision on progress payment billing, SPI took possession
and started operations thereof by opening the same to the
public in November, 1991. SPI, having failed to pay for the
works, petitioner billed SPI in the total amount
of P110,883,101.52, contained in a demand letter sent by it to
SPI on February 17, 1993. Instead of paying the amount
demanded, SPI set up its own claim of P220,000,000.00 and
scheduled a conference on that claim for July 12, 1993. The
conference took place but it proved futile.
Upon the above facts, the lower court concluded:
Considering the fact that under the supposed
Arbitration Clause invoked by defendants, it is
required that `Notice of the demand for arbitration of
a dispute shall be filed in writing with the other party
x x x x in no case x x x x later than the time of final
payment x x x x which apparently, had elapsed, not
only because defendants had taken possession of
the finished works and the plaintiffs billings for the
payment thereof had remained pending since
November, 1991 up to the filing of this case on July
 14, 1993, but also for the reason that defendants
have failed to file any written notice of any demand
for arbitration during the said long period of one year
and eight months, this Court finds that it cannot stay
the proceedings in this case as required by Sec. 7 of
Republic Act No. 876, because defendants are in
default in proceeding with such arbitration.
The lower court denied SPIs motion for reconsideration
for lack of merit and directed it and the other defendants to file
their responsive pleading or answer within fifteen (15) days
from notice.
Instead of filing an answer to the complaint, SPI filed a
petition for certiorari under Rule 65 of the Rules of Court
before the Court of Appeals. Said appellate court granted the
petition, annulled and set aside the orders and stayed the
proceedings in the lower court. In so ruling, the Court of
Appeals held:
The reasons given by the respondent Court in
denying petitioners motion to suspend proceedings
are untenable.
1. The notarized copy of the articles of agreement attached as
Annex A to petitioners reply dated August 26, 1993, has been
submitted by them to the respondent Court (Annex G, petition).
It bears the signature of petitioner Rufo B. Colayco, president
of petitioner Shangri-La Properties, Inc., and of Bayani
Fernando, president of respondent Corporation (Annex G-1,
petition). At page D/4 of said articles of agreement it is
expressly provided that the conditions of contract are `deemed
an integral part thereof (page 188, rollo). And it is at pages
D/42 to D/44 of the conditions of contract that the provisions
for arbitration are found (Annexes G-3 to G-5, petition, pp. 227-
229). Clause No. 35 on arbitration specifically provides:
Provided always that in case any dispute or difference shall
arise between the Owner or the Project Manager on his behalf
and the Contractor, either during the progress or after the
completion or abandonment of the Works as to the
construction of this Contract or as to any matter or thing of
whatsoever nature arising thereunder or in connection
therewith (including any matter or being left by this Contract to
the discretion of the Project Manager or the withholding by the
Project Manager of any certificate to which the Contractor may
claim to be entitled or the measurement and valuation
mentioned in clause 30 (5) (a) of these Conditions or the rights
and liabilities of the parties under clauses 25, 26, 32 or 33 of
these Conditions), the Owner and the Contractor hereby agree
to exert all efforts to settle their differences or dispute
amicably. Failing these efforts then such dispute or difference
shall be referred to Arbitration in accordance with the rules and
procedures of the Philippine Arbitration Law.
The fact that said conditions of contract containing the
arbitration clause bear only the initials of respondent
Corporations representatives, Bayani Fernando and Reynaldo
de la Cruz, without that of the representative of petitioner
Shangri-La Properties, Inc. does not militate against its
effectivity. Said petitioner having categorically admitted that the
document, Annex A to its reply dated August 26, 1993 (Annex
G, petition), is the agreement between the parties, the initial or
signature of said petitioners representative to signify
conformity to arbitration is no longer necessary. The parties,
therefore, should be allowed to submit their dispute to
arbitration in accordance with their agreement.
2. The respondent Court held that petitioners `are in default in
proceeding with such arbitration. It took note of `the fact that
under the supposed Arbitration Clause invoked by defendants,
it is required that Notice of the demand for arbitration of a
dispute shall be filed in writing with the other party x x x in no
case x x x later than the time of final payment, which
apparently, had elapsed, not only because defendants had
taken possession of the finished works and the plaintiffs
billings for the payment thereof had remained pending since
November, 1991 up to the filing of this case on July 14, 1993,
but also for the reason that defendants have failed to file any
written notice of any demand for arbitration during the said
long period of one year and eight months, x x x.
Respondent Court has overlooked the fact that under the
arbitration clause
Notice of the demand for arbitration dispute shall be filed in
writing with the other party to the contract and a copy filed with
the Project Manager. The demand for arbitration shall be made
within a reasonable time after the dispute has arisen and
attempts to settle amicably had failed; in no case, however,
shall the demand be made later than the time of final payment
except as otherwise expressly stipulated in the contract
(underscoring supplied)
quoted in its order (Annex A, petition). As the respondent Court
there said, after the final demand to pay the amount
of P110,883,101.52, instead of paying, petitioners set up its
own claim against respondent Corporation in the amount
of P220,000,000.00 and set a conference thereon on July 12,
1993. Said conference proved futile. The next day, July 14,
1993, respondent Corporation filed its complaint against
petitioners. On August 13, 1993, petitioners wrote to
respondent Corporation requesting arbitration. Under the
circumstances, it cannot be said that petitioners resort to
arbitration was made beyond reasonable time. Neither can
they be considered in default of their obligation to respondent
Corporation.
Hence, this petition before this Court. Petitioner assigns
the following errors:
A.
THE COURT OF APPEALS ERRED IN
ISSUING THE EXTRAORDINARY WRIT
 OF CERTIORARI ALTHOUGH THE REMEDY
OF APPEAL WAS AVAILABLE TO
RESPONDENTS.
B.
THE COURT OF APPEALS ERRED IN
FINDING GRAVE ABUSE OF DISCRETION
IN THE FACTUAL FINDINGS OF THE TRIAL
COURT THAT:
(i) THE PARTIES DID NOT ENTER
INTO AN AGREEMENT
TO ARBITRATE.
(ii) ASSUMING THAT THE
PARTIES DID ENTER
INTO THE AGREEMENT
TO ARBITRATE,
RESPONDENTS ARE
ALREADY IN DEFAULT
IN INVOKING THE
AGREEMENT TO
ARBITRATE.
On the first assigned error, petitioner contends that the
Order of the lower court denying the motion to suspend
proceedings is a resolution of an incident on the merits. As
such, upon the continuation of the proceedings, the lower court
would appreciate the evidence adduced in their totality and
thereafter render a decision on the merits that may or may not
sustain the existence of an arbitration clause. A decision
containing a finding that the contract has no arbitration clause
can then be elevated to a higher court in an ordinary appeal
where an adequate remedy could be obtained. Hence, to
petitioner, the Court of Appeals should have dismissed the
petition for certiorari because the remedy of appeal would still
be available to private respondents at the proper time.[7]
The above contention is without merit.
The rule that the special civil action of certiorari may not
be invoked as a substitute for the remedy of appeal is
succinctly reiterated in Ongsitco v. Court of Appeals[8] as
follows:
x x x. Countless times in the past, this Court has held that
`where appeal is the proper remedy, certiorari will not lie. The
writs of certiorari and prohibition are remedies to correct lack
or excess of jurisdiction or grave abuse of discretion equivalent
to lack of jurisdiction committed by a lower court. `Where the
proper remedy is appeal, the action for certiorari will not be
entertained. x x x. Certiorari is not a remedy for errors of
judgment. Errors of judgment are correctible by appeal, errors
of jurisdiction are reviewable by certiorari.
Rule 65 is very clear. The extraordinary remedies of certiorari,
prohibition and mandamus are available only when `there is no
appeal or any plain, speedy and adequate remedy in the
ordinary course of law x x x. That is why they are referred to as
`extraordinary. x x x.
The Court has likewise ruled that certiorari will not be
issued to cure errors in proceedings or correct erroneous
conclusions of law or fact. As long as a court acts within its
jurisdiction, any alleged errors committed in the exercise of its
jurisdiction will amount to nothing more than errors of judgment
which are reviewable by timely appeal and not by a special
civil action of certiorari.[9]v. Court of Appeals, 327 Phil. 1, 41-42
(1996).9
This is not exactly so in the instant case. While this Court
does not deny the eventual jurisdiction of the lower court over
the controversy, the issue posed basically is whether the lower
court prematurely assumed jurisdiction over it. If the lower
court indeed prematurely assumed jurisdiction over the case,
then it becomes an error of jurisdiction which is a proper
subject of a petition for certiorari before the Court of
Appeals. And if the lower court does not have jurisdiction over
the controversy, then any decision or order it may render may
be annulled and set aside by the appellate court.
However, the question of jurisdiction, which is a question
of law depends on the determination of the existence of the
arbitration clause, which is a question of fact. In the instant
case, the lower court found that there exists an arbitration
clause. However, it ruled that in contemplation of law, said
arbitration clause does not exist.
The issue, therefore, posed before the Court of Appeals
in a petition for certiorari is whether the Arbitration Clause does
not in fact exist. On its face, the question is one of fact which is
not proper in a petition for certiorari.
The Court of Appeals found that an Arbitration Clause
does in fact exist. In resolving said question of fact, the Court
of Appeals interpreted the construction of the subject contract
documents containing the Arbitration Clause in accordance
with Republic Act No. 876 (Arbitration Law) and existing
jurisprudence which will be extensively discussed
hereunder. In effect, the issue posed before the Court of
Appeals was likewise a question of law. Being a question of
law, the private respondents rightfully invoked the special civil
action of certiorari.
It is that mode of appeal taken by private respondents
before the Court of Appeals that is being questioned by the
petitioners before this Court. But at the heart of said issue is
the question of whether there exists an Arbitration
Clause because if an Arbitration Clause does not exist, then
private respondents took the wrong mode of appeal before the
Court of Appeals.
For this Court to be able to resolve the question of
whether private respondents took the proper mode of appeal,
which, incidentally, is a question of law, then it has to answer
the core issue of whether there exists an Arbitration Clause
which, admittedly, is a question of fact.
 Moreover, where a rigid application of the rule
that certiorari cannot be a substitute for appeal will result in a
manifest failure or miscarriage of justice, the provisions of the
Rules of Court which are technical rules may be relaxed.[10] As
we shall show hereunder, had the Court of Appeals dismissed
the petition for certiorari, the issue of whether or not an
arbitration clause exists in the contract would not have been
resolved in accordance with evidence extant in the record of
the case. Consequently, this would have resulted in a judicial
rejection of a contractual provision agreed by the parties to the
contract.
In the same vein, this Court holds that the question of the
existence of the arbitration clause in the contract between
petitioner and private respondents is a legal issue that must be
determined in this petition for review on certiorari.
Petitioner, while not denying that there exists an
arbitration clause in the contract in question, asserts that in
contemplation of law there could not have been one
considering the following points. First, the trial court found that
the conditions of contract embodying the arbitration clause is
not duly signed by the parties. Second, private respondents
misrepresented before the Court of Appeals that they
produced in the trial court a notarized duplicate original copy of
the construction agreement because what were submitted
were mere photocopies thereof. The contract(s) introduced in
court by private respondents were therefore of dubious
authenticity because: (a) the Agreement for the Execution of
Builders Work for the EDSA Plaza Project does not contain an
arbitration clause, (b) private respondents surreptitiously
attached as Annexes `G-3 to `G-5 to their petition before the
Court of Appeals but these documents are not parts of the
Agreement of the parties as there was no formal trade contract
executed, (c) if the entire compilation of documents is indeed a
formal trade contract, then it should have been duly notarized,
(d) the certification from the Records Management and
Archives Office dated August 26, 1993 merely states that the
notarial record of Nilberto Briones x x x is available in the files
of (said) office as Notarial Registry Entry only, (e) the same
certification attests that the document entered in the notarial
registry pertains to the Articles of Agreement only without any
other accompanying documents, and therefore, it is not a
formal trade contract, and (f) the compilation submitted by
respondents are a mere hodge-podge of documents and do
not constitute a single intelligible agreement.
In other words, petitioner denies the existence of the
arbitration clause primarily on the ground that the
representatives of the contracting corporations did not sign the
Conditions of Contract that contained the said clause. Its other
contentions, specifically that insinuating fraud as regards the
alleged insertion of the arbitration clause, are questions of fact
that should have been threshed out below.
This Court may as well proceed to determine whether the
arbitration clause does exist in the parties contract. Republic
Act No. 876 provides for the formal requisites of an arbitration
agreement as follows:
Section 4. Form of arbitration agreement. A contract to
arbitrate a controversy thereafter arising between the parties,
as well as a submission to arbitrate an existing
controversy, shall be in writing and subscribed by the party
sought to be charged, or by his lawful agent.
The making of a contract or submission for arbitration
described in section two hereof, providing for arbitration of any
controversy, shall be deemed a consent of the parties of the
province or city where any of the parties resides, to enforce
such contract of submission. (Underscoring supplied.)
The formal requirements of an agreement to arbitrate are
therefore the following: (a) it must be in writing and (b) it must
be subscribed by the parties or their representatives. There is
no denying that the parties entered into a written contract that
was submitted in evidence before the lower court. To
subscribe means to write underneath, as ones name; to sign at
the end of a document.[11] That word may sometimes be
construed to mean to give consent to or to attest.[12]
The Court finds that, upon a scrutiny of the records of this
case, these requisites were complied with in the contract in
question. The Articles of Agreement, which incorporates all the
other contracts and agreements between the parties, was
signed by representatives of both parties and duly
notarized. The failure of the private respondents representative
to initial the `Conditions of Contract would therefor not affect
compliance with the formal requirements for arbitration
agreements because that particular portion of the covenants
between the parties was included by reference in the Articles
of Agreement.
Petitioners contention that there was no arbitration clause
because the contract incorporating said provision is part of a
hodge-podge document, is therefore untenable. A contract
need not be contained in a single writing. It may be collected
from several different writings which do not conflict with each
other and which, when connected, show the parties, subject
matter, terms and consideration, as in contracts entered into
by correspondence.[13] A contract may be encompassed in
several instruments even though every instrument is not
signed by the parties, since it is sufficient if the unsigned
instruments are clearly identified or referred to and made part
of the signed instrument or instruments. Similarly, a written
agreement of which there are two copies, one signed by each
of the parties, is binding on both to the same extent as though
there had been only one copy of the agreement and both had
signed it.[14]
The flaw in petitioners contentions therefore lies in its
having segmented the various components of the whole
contract between the parties into several parts. This
notwithstanding, petitioner ironically admits the execution of
the Articles of Agreement. Notably, too, the lower court found
that the said Articles of Agreement also provides that the It should be noted that in this jurisdiction, arbitration has
`Contract Documents therein listed `shall be deemed an been held valid and constitutional. Even before the approval on
integral part of this Agreement, and one of the said documents June 19, 1953 of Republic Act No. 876, this Court has
is the `Conditions of Contract which contains the Arbitration countenanced the settlement of disputes through
Clause. It is this Articles of Agreement that was duly signed by arbitration.[18] Republic Act No. 876 was adopted to
Rufo B. Colayco, president of private respondent SPI, and supplement the New Civil Codes provisions on
Bayani F. Fernando, president of petitioner corporation. The arbitration.[19] Its potentials as one of the alternative dispute
same agreement was duly subscribed before notary public resolution methods that are now rightfully vaunted as the wave
Nilberto R. Briones. In other words, the subscription of the of the future in international relations, is recognized worldwide.
principal agreement effectively covered the other documents To brush aside a contractual agreement calling for arbitration
incorporated by reference therein. in case of disagreement between the parties would therefore
be a step backward.
This Court likewise does not find that the Court of
Appeals erred in ruling that private respondents were not in WHEREFORE, the questioned Decision of the Court of
default in invoking the provisions of the arbitration clause Appeals is hereby AFFIRMED and the petition
which states that (t)he demand for arbitration shall be made for certiorari DENIED. This Decision is immediately
within a reasonable time after the dispute has arisen and executory. Costs against petitioner.
attempts to settle amicably had failed. Under the factual milieu,
private respondent SPI should have paid its liabilities under the SO ORDERED.
contract in accordance with its terms. However, Narvasa, C.J., (Chairman), Kapunan, and Purisima,
misunderstandings appeared to have cropped up between the JJ., concur.
parties ostensibly brought about by either delay in the
completion of the construction work or by force majeure or the
fire that partially gutted the project. The almost two-year delay
in paying its liabilities may not therefore be wholly ascribed to
private respondent SPI.
Besides, private respondent SPIs initiative in calling for a
conference between the parties was a step towards the agreed
resort to arbitration. However, petitioner posthaste filed the
complaint before the lower court. Thus, while private
respondent SPIs request for arbitration on August 13, 1993
might appear an afterthought as it was made after it had filed
the motion to suspend proceedings, it was because petitioner
also appeared to act hastily in order to resolve the controversy
through the courts.
The arbitration clause provides for a reasonable time
within which the parties may avail of the relief under that
clause. Reasonableness is a relative term and the question of
whether the time within which an act has to be done is
reasonable depends on attendant circumstances.[15] This Court
finds that under the circumstances obtaining in this case, a
one-month period from the time the parties held a conference
on July 12, 1993 until private respondent SPI notified petitioner
that it was invoking the arbitration clause, is a reasonable time.
Indeed, petitioner may not be faulted for resorting to the court
to claim what was due it under the contract. However, we find
its denial of the existence of the arbitration clause as an
attempt to cover up its misstep in hurriedly filing the complaint
before the lower court.
In this connection, it bears stressing that the lower court
has not lost its jurisdiction over the case. Section 7 of Republic
Act No. 876 provides that proceedings therein have only been
stayed. After the special proceeding of arbitration[16] has been
pursued and completed, then the lower court may confirm the
award[17] made by the arbitrator.