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G.R. No.

185758 March 9, 2011

LINDA M. CHAN KENT, represented by ROSITA MANALANG, Petitioner, vs. DIONESIO C. MICAREZ,
SPOUSES ALVARO E. MICAREZ & PAZ MICAREZ, and THE REGISTRY OF DEEDS, DAVAO DEL NORTE,
Respondents.

DECISION

MENDOZA, J.:

This is a petition for review on certiorari seeking to reverse and set aside the July 17, 2008 Order1 of the
Regional Trial Court of Panabo City, Branch 34 (RTC), dismissing the complaint for recovery of property
filed by petitioner Linda M. Chan Kent (petitioner), docketed as Civil Case No. 13-2007, and its November
21, 2008, Order2 denying her motion for reconsideration.

The Facts

This petition draws its origin from a complaint for recovery of real property and annulment of title filed
by petitioner, through her younger sister and authorized representative, Rosita Micarez-Manalang
(Manalang), before the RTC. Petitioner is of Filipino descent who became a naturalized American citizen
after marrying an American national in 1981. She is now a permanent resident of the United States of
America (USA).

In her complaint, petitioner claimed that the residential lot in Panabo City, which she purchased in 1982,
was clandestinely and fraudulently conveyed and transferred by her parents, respondent spouses Alvaro
and Paz Micarez (Spouses Micarez), in favor of her youngest brother, respondent Dionesio Micarez
(Dionesio), to her prejudice and detriment. She alleged that sometime in 1982, she asked her parents to
look for a residential lot somewhere in Poblacion Panabo where the Spouses Micarez would build their
new home. Aware that there would be difficulty in registering a real property in her name, she being
married to an American citizen, she arranged to pay for the purchase price of the residential lot and
register it, in the meantime, in the names of Spouses Micarez under an implied trust. The title thereto
shall be transferred in her name in due time.

Thus, on October 20, 1982, a deed of absolute sale was executed between Spouses Micarez and the
owner, Abundio Panganiban, for the 328 square meter residential lot covered by Transfer Certificate of
Title (TCT) No. T-25833. Petitioner sent the money which was used for the payment of the lot. TCT No. T-
25833 was cancelled upon the registration of the deed of sale before the Registry of Deeds of Davao del
Norte. In lieu thereof, TCT No. T-38635 was issued in the names of Spouses Micarez on January 31, 1983.

Sometime in 2005, she learned from Manalang that Spouses Micarez sold the subject lot to Dionesio on
November 22, 2001 and that consequently, TCT T-172286 was issued in her brother’s name on January
21, 2002.

At the end, petitioner prayed that she be declared as the true and real owner of the subject lot; that TCT
No. T-172286 be cancelled; and that a new one be issued in her name.3

Considering that all the respondents are now also permanent residents of the USA, summons was served
upon them by publication per RTC Order4 dated May 17, 2007. Meanwhile, the respondents executed
two special powers of attorney5 both dated August 3, 2007 before the Consulate General of the
Philippines in Los Angeles, California, U.S.A., authorizing their counsel, Atty. Richard C. Miguel (Atty.
Miguel), to file their answer in Civil Case No. 13-2007 and to represent them during the pre-trial
conference and all subsequent hearings with power to enter into a compromise agreement. By virtue
thereof, Atty. Miguel timely filed his principals’ answer denying the material allegations in the complaint.

After the parties had filed their respective pre-trial briefs, and the issues in the case had been joined, the
RTC explored the possibility of an amicable settlement among the parties by ordering the referral of the
case to the Philippine Mediation Center (PMC). On March 1, 2008, Mediator Esmeraldo O. Padao, Sr.
(Padao) issued a Mediator’s Report6 and returned Civil Case No. 13-2007 to the RTC allegedly due to the
non-appearance of the respondents on the scheduled conferences before him. Acting on said Report, the
RTC issued an order on May 29, 2009 allowing petitioner to present her evidence ex parte.7

Later, Padao clarified, through a Manifestation,8 dated July 15, 2008, that it was petitioner, represented
by Atty. Benjamin Utulle (Atty. Utulle), who did not attend the mediation proceedings set on March 1,
2008, and not Atty. Miguel, counsel for the respondents and their authorized representative. Padao
explained that Atty. Miguel inadvertently affixed his signature for attendance purposes on the column
provided for the plaintiff’s counsel in the mediator’s report. In light of this development, the RTC issued
the assailed Order9 dated July 17, 2008 dismissing Civil Case No. 13-2007. The pertinent portion of said
order reads:

Being so, the Order dated May 29, 2008 is hereby corrected. For plaintiff’s and her counsel’s failure to
appear during the mediation proceeding, this instant case is hereby ordered DISMISSED.

SO ORDERED.

Petitioner, through her counsel, filed a motion for reconsideration10 to set aside the order of dismissal,
invoking the relaxation of the rule on non-appearance in the mediation proceedings in the interest of
justice and equity. Petitioner urged the trial court not to dismiss the case based merely on technicalities
contending that litigations should as much as possible be decided on the merits. Resolving the motion in
its second assailed Order11 dated November 21, 2008, the RTC ruled that it was not proper for the
petitioner to invoke liberality inasmuch as the dismissal of the civil action was due to her own fault. The
dispositive portion of said order reads:

WHEREFORE, there being no cogent reason to depart from our earlier Order, this instant motion for
reconsideration is hereby ordered DENIED.

SO ORDERED.12

The denial prompted the petitioner to file this petition directly with this Court claiming that the dismissal
of the case was not in accordance with applicable law and jurisprudence.

ISSUES

1. WITH ALL DUE RESPECT, THE HONORABLE COURT A QUO GRAVELY ERRED IN DISMISSING THE CASE
SIMPLY ON THE REASON THAT PLAINTIFF FAILED TO APPEAR DURING THE MEDIATION PROCEEDING,
ALTHOUGH PRESENT FOR TWO (2) TIMES.
2. IS THE EXCUSABLE AND EXPLAINED FAILURE TO ATTEND THE MEDIATION PROCEEDING FOR TWO (2)
TIMES OR SETTINGS, OUT OF THE FOUR (4) SCHEDULED SETTINGS, BY THE PLAINTIFF A GROUND TO
DISMISS THE CASE UNDER THE SUPREME COURT’S ADMINISTRATIVE CIRCULAR NO. 20-2002?

The pivotal issue in this case is whether the RTC erred in dismissing Civil Case No. 13-2007 due to the
failure of petitioner’s duly authorized representative, Manalang, and her counsel to attend the mediation
proceedings under the provisions of A.M. No. 01-10-5-SC-PHILJA and 1997 Rules on Civil Procedure.

Petitioner claims that the dismissal of the case was unjust because her representative, Manalang, and her
counsel, Atty. Etulle, did not deliberately snub the mediation proceedings. In fact, Manalang and Atty.
Etulle twice attended the mediation conferences on January 19, 2008 and on February 9, 2008. On both
occasions, Manalang was present but was not made to sign the attendance sheet and was merely at the
lobby waiting to be called by Atty. Etulle upon arrival of Atty. Miguel. Manalang and Atty. Etulle only left
PMC at 11:00 o’clock in the morning when Atty. Miguel had not yet arrived.13

Petitioner, however, admits that her representative and counsel indeed failed to attend the last scheduled
conference on March 1, 2008, when they had to attend some urgent matters caused by the sudden
increase in prices of commodities.14

In the interest of justice, the Court grants the petition.

A.M. No. 01-10-5-SC-PHILJA dated October 16, 2001, otherwise known as the Second Revised Guidelines
for the Implementation of Mediation Proceedings, was issued pursuant to par. (5), Section 5, Article VII of
the 1987 Constitution mandating this Court to promulgate rules providing for a simplified and inexpensive
procedure for the speedy disposition of cases. Also, Section 2(a), Rule 18 of the 1997 Rules of Civil
Procedure, as amended, requires the courts to consider the possibility of an amicable settlement or of
submission to alternative modes of resolution for the early settlement of disputes so as to put an end to
litigations. The provisions of A.M. No. 01-10-5-SC-PHILJA pertinent to the case at bench are as follows:

9. Personal appearance/Proper authorizations

Individual parties are encouraged to personally appear for mediation. In the event they cannot attend,
their representatives must be fully authorized to appear, negotiate and enter into a compromise by a
Special Power of Attorney. A corporation shall, by board resolution, fully authorize its representative to
appear, negotiate and enter into a compromise agreement.

12. Sanctions

Since mediation is part of Pre-Trial, the trial court shall impose the appropriate sanction including but not
limited to censure, reprimand, contempt and such other sanctions as are provided under the Rules of
Court for failure to appear for pre-trial, in case any or both of the parties absent himself/themselves, or
for abusive conduct during mediation proceedings. [Underscoring supplied]

To reiterate, A.M. No. 01-10-5-SC-PHILJA regards mediation as part of pre-trial where parties are
encouraged to personally attend the proceedings. The personal non-appearance, however, of a party may
be excused only when the representative, who appears in his behalf, has been duly authorized to enter
into possible amicable settlement or to submit to alternative modes of dispute resolution. To ensure the
attendance of the parties, A.M. No. 01-10-5-SC-PHILJA specifically enumerates the sanctions that the
court can impose upon a party who fails to appear in the proceedings which includes censure, reprimand,
contempt, and even dismissal of the action in relation to Section 5, Rule 18 of the Rules of Court.15 The
respective lawyers of the parties may attend the proceedings and, if they do so, they are enjoined to
cooperate with the mediator for the successful amicable settlement of disputes16 so as to effectively
reduce docket congestion.

Although the RTC has legal basis to order the dismissal of Civil Case No. 13-2007, the Court finds this
sanction too severe to be imposed on the petitioner where the records of the case is devoid of evidence
of willful or flagrant disregard of the rules on mediation proceedings. There is no clear demonstration that
the absence of petitioner’s representative during mediation proceedings on March 1, 2008 was intended
to perpetuate delay in the litigation of the case. Neither is it indicative of lack of interest on the part of
petitioner to enter into a possible amicable settlement of the case.

The Court notes that Manalang was not entirely at fault for the cancellation and resettings of the
conferences. Let it be underscored that respondents’ representative and counsel, Atty. Miguel, came late
during the January 19 and February 9, 2008 conferences which resulted in their cancellation and the final
resetting of the mediation proceedings to March 1, 2008. Considering the circumstances, it would be most
unfair to penalize petitioner for the neglect of her lawyer.1avvphi1

Assuming arguendo that the trial court correctly construed the absence of Manalang on March 1, 2008 as
a deliberate refusal to comply with its Order or to be dilatory, it cannot be said that the court was
powerless and virtually without recourse. Indeed, there are other available remedies to the court a quo
under A.M. No. 01-10-5-SC-PHILJA, apart from immediately ordering the dismissal of the case. If
Manalang’s absence upset the intention of the court a quo to promptly dispose the case, a mere censure
or reprimand would have been sufficient for petitioner’s representative and her counsel so as to be
informed of the court’s intolerance of tardiness and laxity in the observation of its order. By failing to do
so and refusing to resuscitate the case, the RTC impetuously deprived petitioner of the opportunity to
recover the land which she allegedly paid for.

Unless the conduct of the party is so negligent, irresponsible, contumacious, or dilatory as for non-
appearance to provide substantial grounds for dismissal, the courts should consider lesser sanctions which
would still achieve the desired end. The Court has written "inconsiderate dismissals, even if without
prejudice, do not constitute a panacea nor a solution to the congestion of court dockets, while they lend
a deceptive aura of efficiency to records of the individual judges, they merely postpone the ultimate
reckoning between the parties. In the absence of clear lack of merit or intention to delay, justice is better
served by a brief continuance, trial on the merits, and final disposition of the cases before the court.17

It bears emphasis that the subject matter of the complaint is a valuable parcel of land measuring 328
square meters and that petitioner had allegedly spent a lot of money not only for the payment of the
docket and other filing fees but also for the extra-territorial service of the summons to the respondents
who are now permanent residents of the U.S.A. Certainly, petitioner stands to lose heavily on account of
technicality. Even if the dismissal is without prejudice, the refiling of the case would still be injurious to
petitioner because she would have to pay again all the litigation expenses which she previously paid for.
The Court should afford party-litigants the amplest opportunity to enable them to have their cases justly
determined, free from constraints of technicalities.18 Technicalities should take a backseat against
substantive rights and should give way to the realities of the situation. Besides, the petitioner has
manifested her interest to pursue the case through the present petition. At any rate, it has not been
shown that a remand of the case for trial would cause undue prejudice to respondents
In the light of the foregoing, the Court finds it just and proper that petitioner be allowed to present her
cause of action during trial on the merits to obviate jeopardizing substantive justice. Verily, the better and
more prudent course of action in a judicial proceeding is to hear both sides and decide the case on the
merits instead of disposing the case by technicalities. What should guide judicial action is the principle
that a party-litigant is to be given the fullest opportunity to establish the merits of his complaint or defense
rather than for him to lose life, liberty or property on technicalities.19 The ends of justice and fairness
would best be served if the issues involved in the case are threshed out in a full-blown trial. Trial courts
are reminded to exert efforts to resolve the matters before them on the merits and to adjudge them
accordingly to the satisfaction of the parties, lest in hastening the proceedings, they further delay the
resolution of the cases.

WHEREFORE, the petition is GRANTED. Civil Case No. 13-2007 is hereby REINSTATED and REMANDED to
the Regional Trial Court of Panobo City, Branch 34 for referral back to the Philippine Mediation Center for
possible amicable settlement or for other proceedings.

SO ORDERED.
DIVISION [ GR No. 194560, Jun 11, 2014 ]

NESTOR T. GADRINAB v. NORA T. SALAMANCA +

DECISION

LEONEN, J.:

A judgment on compromise agreement is a judgment on the merits. It has the effect of res judicata, and
is immediately final and executory unless set aside because of falsity or vices of consent. The doctrine of
immutability of judgments bars courts from modifying decisions that have already attained finality, even
if the purpose of the modification is to correct errors of fact or law.

This Rule 45 petition seeks the review of the Court of Appeals' decision[1] dated July 22, 2010 and its
resolution[2] dated November 19, 2010. The Court of Appeals dismissed petitioner's appeal and affirmed
the Regional Trial Court's decision granting respondent Salamanca's motion for physical partition pending
the execution of a judgment on compromise agreement between the parties.

Respondents, together with Adoracion Gadrinab and Arsenia Talao, are siblings and heirs of the late
Spouses Talao, Nicolas and Aurelia.[3] The Spouses Talao died intestate, leaving a parcel of land in Sta.
Ana, Manila.[4]

The five Talao children divided the property among themselves through an extrajudicial settlement.[5]
Subsequently, Arsenia Talao waived her share over the property in favor of her siblings.[6]

Respondent Salamanca filed a complaint for partition against her siblings, Antonio, Elena (deceased, now
represented by her husband, Jose Lopez), and Adoracion (deceased, now represented by heirs, petitioner
Nestor and Francisco Gadrinab) before the Regional Trial Court of Manila.[7]

All parties claimed their respective shares in the property.[8] They also claimed shares in the rentals
collected from one of the units of a duplex apartment on the property.[9] The total amount of rental
collection in the possession of Jose Lopez was P528,623.00.[10] The amount, according to Jose's counsel,
was ready for distribution.[11]

Upon being referred to mediation, the parties entered into a compromise agreement and stipulated the
following:

1) That the subject property (land with all the improvements) situated at 2370 Nacar Street, San Andres,
Sta. Ana, Manila will be subject for sale and the amount will be divided among the four (plaintiff and
defendants);

2) That the subject property will be appraised by independent appraiser and the appraised value will be
divided into four. Mr. Antonio Talao will pay in advance the share of Francisco Gadrinab immediately after
the report of the said appraisal;

3) That Cuervo Appraiser will be the one who appraised [sic] the property on or before March 21, 2003
and any appraised value shall binding [sic] on all parties;

4) That the rental collection in its total amount of Five Hundred Twenty Eight Thousand and Six Hundred
Twenty Three Pesos (?528,623.00) and the uncollected amount up to February 2003 once collected will
be divided among the parties;
5) That the amount of ?528,623.00 divided by four be distributed among the parties will be given to all
parties on or before March 12, 2003 by Mr. Antonio Talao;

6) That upon payment of the appraised value to Francisco Gadrinab, Mr. Nestor Gadrinab is given forty-
five (45) days within which to leave the premises in question;

7) That the parties agreed to waive all their claims and counter-claims arising from this case; and

8) That the parties agreed to request this Honorable Court that a decision be issued base [sic] on this
Compromise Agreement or this Compromise Agreement be submitted before this Honorable Court for
approval.[12]

On April 10, 2003, the Regional Trial Court approved the compromise agreement.[13] Based on the entry
of judgment, the case became final and executory on April 10, 2003.[14]

Nestor Gadrinab filed a motion for execution of the compromise agreement.[15] He demanded his one-
fourth share in the accumulated rentals.[16] During the hearing on the motion for execution, the parties
agreed that the rentals shall be divided only into three since Nestor had already been occupying one of
the duplex units.[17] The parties also agreed that Antonio Talao would shoulder Nestor's share, equivalent
to one-fourth of the rental amount.[18]

Pursuant to the compromise agreement, Cuervo Appraiser appraised the property.[19] Unsatisfied with
the appraisal, Antonio Talao moved for the property's reappraisal.[20] This was denied by the Regional
Trial Court.[21]

The portion of the duplex that Nestor refused to vacate,[22] remained unsold.[23]

Because of the attitude of her co-heirs, respondent Salamanca moved for the physical partition of the
property before the Regional Trial Court of Manila.[24] She prayed for the physical partition of the
property instead of having it sold.[25]

Nestor and Francisco Gadrinab opposed the motion.[26] They contended that the judgment on the
compromise agreement had already become final and executory and had the effect of res judicata.[27]
Antonio Talao and Jose Lopez did not object to the motion for physical partition.[28]

On December 29, 2005, the Regional Trial Court of Manila granted the motion for physical partition.[29]

Nestor and Francisco Gadrinab appealed to the Court of Appeals. They assailed the grant of Salamanca's
motion for physical partition after the issuance of the judgment on compromise agreement.[30]

In a decision promulgated on July 22, 2010,[31] the Court of Appeals dismissed the appeal. The Court of
Appeals ruled that the exception to the immutability of judgments, that is, "whenever circumstances
transpire after the finality of the decision rendering its execution unjust and inequitable,"[32] applies in
this case. The Court of Appeals specifically noted that the "parties' seemingly endless disagreements on
matters involving the disposition of the subject property"[33] were such circumstances that rendered the
compromise agreement's execution unjust and inequitable. The Court of Appeals agreed with the
Regional Trial Court's ruling that "the proposed physical partition of the subject lot . . . is just another way
of enforcing the [c]ourt's decision and will not in anyway vary the parties' agreement nor affect their right
over the property."[34]
On November 19, 2010, the Court of Appeals denied petitioner's motion for reconsideration.[35]

Hence, this petition was filed.

Petitioner argued that the Court of Appeals erred in affirming the Regional Trial Court's order granting
respondent Salamanca's motion for physical partition.[36] A judgment on the compromise agreement had
already been rendered and had attained finality.[37] Petitioner also argued that the Court of Appeals
failed to consider the following terms of the compromise agreement:

2. That the subject property will be appraised by independent appraiser and the appraised value will be
divided into four (4). Mr. Antonio Talao will pay in advance the share of Francisco Gadrinab immediately
after the report of the said appraisal;

4. That the rental collection in its total amount of FIVE HUNDRED TWENTY EIGHT THOUSAND SIX
HUNDRED TWENTY THREE PESOS (Php528,623.00) and the uncollected amount up to February 2003 once
collected [sic] will be divided among the parties;

5. That the amount of FIVE HUNDRED TWENTY EIGHT THOUSAND SIX HUNDRED TWENTY THREE PESOS
Php528,623.00 divided by four (4) among the parties will be given to all parties on or [sic] March 12, 2003
by Mr. Antonio Talao at Greenbelt, Mc Donald at 9:00 o'clock in the morning;

6. That upon payment of the appraised value to Mr. Francisco Gadrinab, Mr. Nestor Gadrinab is given
forty five (45) days within which to leave the premises in question[.][38] (Emphasis in the original)

Petitioner alleged that the judgment on the compromise agreement had already been partially complied
with, as respondent Salamanca had already been paid her share in the accrued rentals.[39] On the other
hand, petitioner still had not been paid his share,[40] prompting him to file the motion for execution.[41]

Petitioner pointed out that there was no agreement that he must vacate the property before it could be
sold.[42]

Moreover, petitioner argued that the Court of Appeals' decision violated his right to due process.[43]
According to him, had there been a full-blown trial on the action for partition, he would have been able
to present evidence of exclusive possession of half of the property.[44]

In their separate comments, respondents Salamanca and Talao argued that this case fell under the
exception of the rule on immutability of judgments.[45] The non-compliance of some of the parties with
the compromise agreement constituted an event that "[makes] it difficult if not totally impossible to
enforce the compromise agreement."[46]

Respondents Salamanca and Talao also argued that the physical partition of the property would not
prejudice the parties.[47] The order granting the motion for physical partition was a mere enforcement
of the compromise agreement, which entitled the parties to their shares in the proceeds of the sale.[48]
Respondent Salamanca pointed out that the grant of the motion for physical partition would still be
consistent with the intent of the compromise agreement since it would result in the proceeds being
divided equally among the parties.[49] "The Order granting the physical partition was within the inherent
power and authority of the court having jurisdiction to render a particular judgment to enforce it and to
exercise equitable control over such enforcement."[50]
Moreover, petitioner's refusal to vacate the property prevented it from being sold so that the proceeds
could already be distributed among the parties.[51]

On the violation of due process, respondents Salamanca and Talao argued that it was only before this
court that this issue was raised.

The issue in this case is whether the Court of Appeals erred in affirming the Regional Trial Court's decision
allowing the physical partition of the property despite finality of a previous judgment on compromise
agreement involving the division of the same property.

The petition is meritorious.

The Court of Appeals erred in affirming the Regional Trial Court's decision allowing the physical partition
of the property. Respondent Salamanca filed two actions for physical partition. The two parties settled
the first action through a judicial compromise agreement. The same respondent filed the second action
after she had determined that her co-heirs were not being cooperative in complying with the compromise
agreement.

In a compromise agreement, the parties freely enter into stipulations. "[A] judgment based on a
compromise agreement is a judgment on the merits"[52] of the case. It has the effect of res judicata.
These principles are impressed both in our law and jurisprudence.

Thus, Article 2037 of the Civil Code provides:

Article 2037. A compromise has upon the parties the effect and authority of res judicata; but there shall
be no execution except in compliance with a judicial compromise.

In Spouses Romero v. Tan,[53] this court said:

It is well settled that a judicial compromise has the effect of res judicata and is immediately executory and
not appealable unless set aside [by mistake, fraud, violence, intimidation, undue influence, or falsity of
documents that vitiated the compromise agreement].[54]

There is res judicata when the following concur:

Previous final judgment;

By a court having jurisdiction over the parties and the subject matter; On the merits of the case;Between
identical parties, on the same subject matter, and cause of action[55]

There are two rules that embody the principle of res judicata. The first rule refers to "bar by prior
judgment,"[56] which means that actions on the same claim or cause of action cannot be relitigated.[57]
This rule is embodied in Rule 39, Section 47, paragraph (b) of the Rules of Court, which provides:

Section 47. Effect of judgments or final orders. The effect of a judgment or final order rendered by a court
of the Philippines, having jurisdiction to pronounce the judgment or final order, may be as follows:

(b) In other cases, the judgment or final order is, with respect to the matter directly adjudged or as to any
other matter that could have been raised in relation thereto, conclusive between the parties and their
successors in interest by title subsequent to the commencement of the action or special proceeding,
litigating for the same thing and under the same title and in the same capacity[.]
The second rule refers to "conclusiveness of judgment."[58] This means that facts already tried and
determined in another action involving a different claim or cause of action cannot anymore be
relitigated.[59] This rule is embodied in Rule 39, Section 47, paragraph (c) of the Rules of Court, which
provides:

Section 47. Effect of judgments or final orders. The effect of a judgment or final order rendered by a court
of the Philippines, having jurisdiction to pronounce the judgment or final order, may be as follows:

(c) In any other litigation between the same parties or their successors in interest, that only is deemed to
have been adjudged in a former judgment or final order which appears upon its face to have been so
adjudged, or which was actually and necessarily included therein or necessary thereto. (49a)

This case involves "bar by prior judgment." Respondents cannot file another action for partition after final
judgment on compromise had already been rendered in a previous action for partition involving the same
parties and property.

This court explained in FGU Insurance Corporation v. Regional Trial Court[60] the doctrine of finality of
judgment:

Under the doctrine of finality of judgment or immutability of judgment, a decision that has acquired
finality becomes immutable and unalterable, and may no longer be modified in any respect, even if the
modification is meant to correct erroneous conclusions of fact and law, and whether it be made by the
court that rendered it or by the Highest Court of the land. Any act which violates this principle must
immediately be struck down.[61]

This doctrine admits a few exceptions, usually applied to serve substantial justice:"The correction of
clerical errors;the so-called nunc pro tunc entries which cause no prejudice to any party; void judgments;
and whenever circumstances transpire after the finality of the decision rendering its execution unjust and
inequitable."[62]

Doctrines on bar by prior judgment and immutability of judgment apply whether judgment is rendered
after a full-blown trial or after the parties voluntarily execute a compromise agreement duly approved by
the court.

Because a judicial compromise agreement is in the nature of both an agreement between the parties and
a judgment on the merits, it is covered by the Civil Code provisions on contracts. It can be avoided on
grounds that may avoid an ordinary contract, e.g., it is not in accord with the law;[63] lack of consent by
a party; and existence of fraud or duress. Further, the pertinent Civil Code provisions on compromise
agreements provide:

Article 2038. A compromise in which there is mistake, fraud, violence, intimidation, undue influence, or
falsity of documents is subject to the provisions of Article 1330 of this Code.

Article 1330. A contract where consent is given through mistake, violence, intimidation, undue influence,
or fraud is voidable.

Therefore, courts cannot entertain actions involving the same cause of action, parties, and subject matter
without violating the doctrines on bar by prior judgment and immutability of judgments, unless there is
evidence that the agreement was void, obtained through fraud, mistake or any vice of consent, or would
disrupt substantial justice.

In this case, there was no issue as to the fact that the parties freely entered into the compromise
agreement. There was also no dispute about the clarity of its terms. Some of the parties simply do not
wish to abide by the compromise agreement's terms.

This court does not see how substantial justice will be served by disturbing a previous final judgment on
compromise when failure of its execution was caused by the parties themselves.

Likewise, respondents' argument that a supervening event, i.e. disagreement among the parties, was
present to justify disturbance of the final judgment on compromise fails to persuade. A supervening event
may justify the disturbance of a final judgment on compromise if it "brought about a material change in
[the] situation"[64] between the parties. The material change contemplated must render the execution
of the final judgment unjust and inequitable. Otherwise, a party to the compromise agreement has a "right
to have the compromise agreement executed, according to its terms."[65]

The subsequent disagreement among the parties did not cause any material change in the situation or in
the relations among the parties. The situation and relations among the parties remained the same as the
situation and their relations prior to the compromise agreement. They remained co-owners of the
property, which they desired to partition.

Moreover, the parties voluntarily agreed to the compromise agreement, which was already stamped with
judicial approval. The agreement's execution would bring about the effects desired by all parties and the
most just and equitable situation for all. On the other hand, the judgment granting the second action for
partition filed by respondent Salamanca was obtained with opposition.

Judges "have the ministerial and mandatory duty to implement and enforce [a compromise
agreement]."[66] Absent appeal or motion to set aside the judgment, courts cannot modify, impose terms
different from the terms of a compromise agreement, or set aside the compromises and reciprocal
concessions made in good faith by the parties without gravely abusing their discretion.[67]

"[They cannot] relieve parties from [their] obligations . . . simply because [the agreements are] . . .
unwise."[68] Further, "[t]he mere fact that the Compromise Agreement favors one party does not render
it invalid."[69] Courts do not have power to "alter contracts in order to save [one party] from [the effects
of] adverse stipulations. . . ."[70]

Respondents have remedies if parties to the compromise agreement refuse to abide by its terms

The issue in this case involves the non-compliance of some of the parties with the terms of the
compromise agreement. The law affords complying parties with remedies in case one of the parties to an
agreement fails to abide by its terms.

A party may file a motion for execution of judgment. Execution is a matter of right on final judgments.
Section 1, Rule 39 of the Rules of Court provides:

Section 1. Execution upon judgments or final orders. Execution shall issue as a matter of right, on motion,
upon a judgment or order that disposes of the action or proceeding upon the expiration of the period to
appeal therefrom if no appeal has been duly perfected. (1a)
If the appeal has been duly perfected and finally resolved, the execution may forthwith be applied for in
the court of origin, on motion of the judgment obligee, submitting therewith certified true copies of the
judgment or judgments or final order or orders sought to be enforced and of the entry thereof, with notice
to the adverse party.

The appellate court may, on motion in the same case, when the interest of justice so requires, direct the
court of origin to issue the writ of execution. (n)

If a party refuses to comply with the terms of the judgment or resists the enforcement of a lawful writ
issued, an action for indirect contempt may be filed in accordance with Rule 71 of the Rules of Court:

Section 3. Indirect contempt to be punished after charge and hearing. After a charge in writing has been
filed, and an opportunity given to the respondent to comment thereon within such period as may be fixed
by the court and to be heard by himself or counsel, a person guilty of any of the following acts may be
punished for indirect contempt;

(b) Disobedience of or resistance to a lawful writ, process, order, or judgment of a court, including the act
of a person who, after being dispossessed or ejected from any real property by the judgment or process
of any court of competent jurisdiction, enters or attempts or induces another to enter into or upon such
real property, for the purpose of executing acts of ownership or possession, or in any manner disturbs the
possession given to the person adjudged to be entitled thereto[.]

Since a judgment on compromise agreement is effectively a judgment on the case, proper remedies
against ordinary judgments may be used against judgments on a compromise agreement. Provided these
are availed on time and the appropriate grounds exist, remedies may include the following: a) motion for

reconsideration; b) motion for new trial; c) appeal; d) petition for relief from judgment; e) petition for
certiorari; and f) petition for annulment of judgment.[71]

Respondent Salamanca knew that the only reason for the failed compromise agreement was the non-
compliance with the agreement's terms of some of her co-heirs. Particularly, it was stipulated that
petitioner's removal from the property was conditioned upon payment of an amount equivalent to his
share. Respondent Talao refused to abide by his own undertaking to shoulder respondent Salamanca's
share. He also refused to acknowledge the appraisal of the appraiser appointed in the compromise
agreement. This refusal caused the failure of the compromise agreement.

Instead of availing herself of the proper remedies so the compromise could be enforced and the partition
could be effected, respondent Salamanca chose to move again for the partition of the property and set
aside a valid and final judgment on compromise. This court cannot allow such motion to prosper without
going against law and established jurisprudence on judgments.

WHEREFORE, the Court of Appeals' decision is REVERSED and SET ASIDE. The judgment on the
compromise agreement is REINSTATED.

SO ORDERED.
G.R. No. 212081, February 23, 2015

DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES (DENR), Petitioner, v. UNITED PLANNERS


CONSULTANTS, INC. (UPCI), Respondent.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1 is the Decision2 dated March 26, 2014 of the Court of
Appeals (CA) in CA-G.R. SP No. 126458 which dismissed the petition for certiorari filed by petitioner the
Department of Environment and Natural Resources (petitioner).chanroblesvirtuallawlibrary

The Facts

On July 26, 1993, petitioner, through the Land Management Bureau (LMB), entered into an Agreement
for Consultancy Services3 (Consultancy Agreement) with respondent United Planners Consultants, Inc.
(respondent) in connection with the LMB’s Land Resource Management Master Plan Project (LRMMP).4
Under the Consultancy Agreement, petitioner committed to pay a total contract price of P4,337,141.00,
based on a predetermined percentage corresponding to the particular stage of work accomplished.5 In
December 1994, respondent completed the work required, which petitioner formally accepted on
December 27, 1994.6 However, petitioner was able to pay only 47% of the total contract price in the
amount of P2,038,456.30.7cralawred

On October 25, 1994, the Commission on Audit (COA) released the Technical Services Office Report8 (TSO)
finding the contract price of the Agreement to be 84.14% excessive.9 This notwithstanding, petitioner, in
a letter dated December 10, 1998, acknowledged its liability to respondent in the amount of
P2,239,479.60 and assured payment at the soonest possible time.10cralawred

For failure to pay its obligation under the Consultancy Agreement despite repeated demands, respondent
instituted a Complaint11 against petitioner before the Regional Trial Court of Quezon City, Branch 222
(RTC), docketed as Case No. Q-07-60321.12cralawred

Upon motion of respondent, the case was subsequently referred to arbitration pursuant to the arbitration
clause of the Consultancy Agreement,13 which petitioner did not oppose.14 As a result, Atty. Alfredo F.
Tadiar, Architect Armando N. Alli, and Construction Industry Arbitration Commission (CIAC) Accredited
Arbitrator Engr. Ricardo B. San Juan were appointed as members of the Arbitral Tribunal. The court-
referred arbitration was then docketed as Arbitration Case No. A-001.15cralawred

During the preliminary conference, the parties agreed to adopt the CIAC Revised Rules Governing
Construction Arbitration16 (CIAC Rules) to govern the arbitration proceedings.17 They further agreed to
submit their respective draft decisions in lieu of memoranda of arguments on or before April 21, 2010,
among others.18cralawred

On the due date for submission of the draft decisions, however, only respondent complied with the given
deadline,19 while petitioner moved for the deferment of the deadline which it followed with another
motion for extension of time, asking that it be given until May 11, 2010 to submit its draft
decision.20cralawred
In an Order21 dated April 30, 2010, the Arbitral Tribunal denied petitioner’s motions and deemed its non-
submission as a waiver, but declared that it would still consider petitioner’s draft decision if submitted
before May 7, 2010, or the expected date of the final award’s promulgation.22 Petitioner filed its draft
decision23 only on May 7, 2010.

The Arbitral Tribunal rendered its Award24 dated May 7, 2010 (Arbitral Award) in favor of respondent,
directing petitioner to pay the latter the amount of (a) P2,285,089.89 representing the unpaid progress
billings, with interest at the rate of 12% per annum from the date of finality of the Arbitral Award upon
confirmation by the RTC until fully paid; (b) P2,033,034.59 as accrued interest thereon; (c) ?500,000.00 as
exemplary damages; and (d) P150,000.00 as attorney’s fees.25 It also ordered petitioner to reimburse
respondent its proportionate share in the arbitration costs as agreed upon in the amount of
P182,119.44.26cralawred

Unconvinced, petitioner filed a motion for reconsideration,27 which the Arbitral Tribunal merely noted
without any action, claiming that it had already lost jurisdiction over the case after it had submitted to the
RTC its Report together with a copy of the Arbitral Award.28cralawred

Consequently, petitioner filed before the RTC a Motion for Reconsideration29 dated May 19, 2010 (May
19, 2010 Motion for Reconsideration) and a Manifestation and Motion30 dated June 1, 2010 (June 1, 2010
Manifestation and Motion), asserting that it was denied the opportunity to be heard when the Arbitral
Tribunal failed to consider its draft decision and merely noted its motion for reconsideration.31 It also
denied receiving a copy of the Arbitral Award by either electronic or registered mail.32 For its part,
respondent filed an opposition thereto and moved for the confirmation33 of the Arbitral Award in
accordance with the Special Rules of Court on Alternative Dispute Resolution (Special ADR
Rules).34cralawred

In an Order35 dated March 30, 2011, the RTC merely noted petitioner’s aforesaid motions, finding that
copies of the Arbitral Award appear to have been sent to the parties by the Arbitral Tribunal, including
the OSG, contrary to petitioner’s claim. On the other hand, the RTC confirmed the Arbitral Award pursuant
to Rule 11.2 (A)36 of the Special ADR Rules and ordered petitioner to pay respondent the costs of
confirming the award, as prayed for, in the total amount of P50,000.00. From this order, petitioner did
not file a motion for reconsideration.

Thus, on June 15, 2011, respondent moved for the issuance of a writ of execution, to which no
comment/opposition was filed by petitioner despite the RTC’s directive therefor. In an Order37 dated
September 12, 2011, the RTC granted respondent’s motion.38cralawred

Petitioner moved to quash39 the writ of execution, positing that respondent was not entitled to its
monetary claims. It also claimed that the issuance of said writ was premature since the RTC should have
first resolved its May 19, 2010 Motion for Reconsideration and June 1, 2010 Manifestation and Motion,
and not merely noted them, thereby violating its right to due process.40cralawred

The RTC Ruling

In an Order41 dated July 9, 2012, the RTC denied petitioner’s motion to quash.

It found no merit in petitioner’s contention that it was denied due process, ruling that its May 19, 2010
Motion for Reconsideration was a prohibited pleading under Section 17.2,42 Rule 17 of the CIAC Rules. It
explained that the available remedy to assail an arbitral award was to file a motion for correction of final
award pursuant to Section 17.143 of the CIAC Rules, and not a motion for reconsideration of the said
award itself.44 On the other hand, the RTC found petitioner’s June 1, 2010 Manifestation and Motion
seeking the resolution of its May 19, 2010 Motion for Reconsideration to be defective for petitioner’s
failure to observe the three-day notice rule.45 Having then failed to avail of the remedies attendant to an
order of confirmation, the Arbitral Award had become final and executory.46cralawred

On July 12, 2012, petitioner received the RTC’s Order dated July 9, 2012 denying its motion to
quash.47cralawred

Dissatisfied, it filed on September 10, 2012 a petition for certiorari48 before the CA, docketed as CA-G.R.
SP No. 126458, averring in the main that the RTC acted with grave abuse of discretion in confirming and
ordering the execution of the Arbitral Award.chanroblesvirtuallawlibrary

The CA Ruling

In a Decision49 dated March 26, 2014, the CA dismissed the certiorari petition on two (2) grounds, namely:
(a) the petition essentially assailed the merits of the Arbitral Award which is prohibited under Rule 19.750
of the Special ADR Rules;51 and (b) the petition was filed out of time, having been filed way beyond 15
days from notice of the RTC’s July 9, 2012 Order, in violation of Rule 19.2852 in relation to Rule 19.853 of
said Rules which provide that a special civil action for certiorari must be filed before the CA within 15 days
from notice of the judgment, order, or resolution sought to be annulled or set aside (or until July 27, 2012).

Aggrieved, petitioner filed the instant petition.

The Issue Before the Court

The core issue for the Court’s resolution is whether or not the CA erred in applying the provisions of the
Special ADR Rules, resulting in the dismissal of petitioner’s special civil action for certiorari.

The Court’s Ruling

The petition lacks merit.

I.

Republic Act No. (RA) 9285,54 otherwise known as the Alternative Dispute Resolution Act of 2004,”
institutionalized the use of an Alternative Dispute Resolution System (ADR System)55 in the Philippines.
The Act, however, was without prejudice to the adoption by the Supreme Court of any ADR system as a
means of achieving speedy and efficient means of resolving cases pending before all courts in the
Philippines.56cralawred

Accordingly, A.M. No. 07-11-08-SC was created setting forth the Special Rules of Court on Alternative
Dispute Resolution (referred herein as Special ADR Rules) that shall govern the procedure to be followed
by the courts whenever judicial intervention is sought in ADR proceedings in the specific cases where it is
allowed.57cralawred

Rule 1.1 of the Special ADR Rules lists down the instances when the said rules shall apply, namely: “(a)
Relief on the issue of Existence, Validity, or Enforceability of the Arbitration Agreement; (b) Referral to
Alternative Dispute Resolution (“ADR”); (c) Interim Measures of Protection; (d) Appointment of Arbitrator;
(e) Challenge to Appointment of Arbitrator; (f) Termination of Mandate of Arbitrator; (g) Assistance in
Taking Evidence; (h) Confirmation, Correction or Vacation of Award in Domestic Arbitration; (i)
Recognition and Enforcement or Setting Aside of an Award in International Commercial Arbitration; (j)
Recognition and Enforcement of a Foreign Arbitral Award; (k) Confidentiality/Protective Orders; and (l)
Deposit and Enforcement of Mediated Settlement Agreements.”58cralawred

Notably, the Special ADR Rules do not automatically govern the arbitration proceedings itself. A pivotal
feature of arbitration as an alternative mode of dispute resolution is that it is a product of party autonomy
or the freedom of the parties to make their own arrangements to resolve their own disputes.59 Thus, Rule
2.3 of the Special ADR Rules explicitly provides that “parties are free to agree on the procedure to be
followed in the conduct of arbitral proceedings. Failing such agreement, the arbitral tribunal may conduct
arbitration in the manner it considers appropriate.”60cralawred

In the case at bar, the Consultancy Agreement contained an arbitration clause.61 Hence, respondent,
after it filed its complaint, moved for its referral to arbitration62 which was not objected to by
petitioner.63 By its referral to arbitration, the case fell within the coverage of the Special ADR Rules.
However, with respect to the arbitration proceedings itself, the parties had agreed to adopt the CIAC Rules
before the Arbitral Tribunal in accordance with Rule 2.3 of the Special ADR Rules.

On May 7, 2010, the Arbitral Tribunal rendered the Arbitral Award in favor of respondent. Under Section
17.2, Rule 17 of the CIAC Rules, no motion for reconsideration or new trial may be sought, but any of the
parties may file a motion for correction64 of the final award, which shall interrupt the running of the
period for appeal,65 based on any of the following grounds, to wit:

An evident miscalculation of figures, a typographical or arithmetical error;

An evident mistake in the description of any party, person, date, amount, thing or property referred to in
the award; where the arbitrators have awarded upon a matter not submitted to them, not affecting the
merits of the decision upon the matter submitted; where the arbitrators have failed or omitted to resolve
certain issue/s formulated by the parties in the Terms of Reference (TOR) and submitted to them for
resolution, and where the award is imperfect in a matter of form not affecting the merits of the
controversy.

The motion shall be acted upon by the Arbitral Tribunal or the surviving/remaining
members.66cralawlawlibrary

Moreover, the parties may appeal the final award to the CA through a petition for review under Rule 43
of the Rules of Court.67cralawred

Records do not show that any of the foregoing remedies were availed of by petitioner. Instead, it filed the
May 19, 2010 Motion for Reconsideration of the Arbitral Award, which was a prohibited pleading under
the Section 17.2,68 Rule 17 of the CIAC Rules, thus rendering the same final and executory.

Accordingly, the case was remanded to the RTC for confirmation proceedings pursuant to Rule 11 of the
Special ADR Rules which requires confirmation by the court of the final arbitral award. This is consistent
with Section 40, Chapter 7 (A) of RA 9285 which similarly requires a judicial confirmation of a domestic
award to make the same enforceable:
SEC. 40. Confirmation of Award. – The confirmation of a domestic arbitral award shall be governed by
Section 2369 of R.A. 876.70cralawred

A domestic arbitral award when confirmed shall be enforced in the same manner as final and executory
decisions of the regional trial court.

The confirmation of a domestic award shall be made by the regional trial court in accordance with the
Rules of Procedure to be promulgated by the Supreme Court.

A CIAC arbitral award need not be confirmed by the regional trial court to be executory as provided under
E.O. No. 1008. (Emphases supplied)

During the confirmation proceedings, petitioners did not oppose the RTC’s confirmation by filing a petition
to vacate the Arbitral Award under Rule 11.2 (D)71 of the Special ADR Rules. Neither did it seek
reconsideration of the confirmation order in accordance with Rule 19.1 (h) thereof. Instead, petitioner
filed only on September 10, 2012 a special civil action for certiorari before the CA questioning the
propriety of (a) the RTC Order dated September 12, 2011 granting respondent’s motion for issuance of a
writ of execution, and (b) Order dated July 9, 2012 denying its motion to quash. Under Rule 19.26 of the
Special ADR Rules, “[w]hen the Regional Trial Court, in making a ruling under the Special ADR Rules, has
acted without or in excess of its jurisdiction, or with grave abuse of discretion amounting to lack or excess
of jurisdiction, and there is no appeal or any plain, speedy, and adequate remedy in the ordinary course
of law, a party may file a special civil action for certiorari to annul or set aside a ruling of the Regional Trial
Court.” Thus, for failing to avail of the foregoing remedies before resorting to certiorari, the CA correctly
dismissed its petition.

II. Note that the special civil action for certiorari described in Rule 19.26 above may be filed to annul
or set aside the following orders of the Regional Trial Court.

Holding that the arbitration agreement is inexistent, invalid or unenforceable;

Reversing the arbitral tribunal’s preliminary determination upholding its jurisdiction;

Denying the request to refer the dispute to arbitration;

Granting or refusing an interim relief;

Denying a petition for the appointment of an arbitrator; Confirming, vacating or correcting a domestic
arbitral award;

Suspending the proceedings to set aside an international commercial arbitral award and referring the case
back to the arbitral tribunal;

Allowing a party to enforce an international commercial arbitral award pending appeal;

Adjourning or deferring a ruling on whether to set aside, recognize and or enforce an international
commercial arbitral award;

Allowing a party to enforce a foreign arbitral award pending appeal; and

Denying a petition for assistance in taking evidence. (Emphasis supplied)


Further, Rule 19.772 of the Special ADR Rules precludes a party to an arbitration from filing a petition for
certiorari questioning the merits of an arbitral award.

If so falling under the above-stated enumeration, Rule 19.28 of the Special ADR Rules provide that said
certiorari petition should be filed “with the [CA] within fifteen (15) days from notice of the judgment,
order or resolution sought to be annulled or set aside. No extension of time to file the petition shall be
allowed.”

In this case, petitioner asserts that its petition is not covered by the Special ADR Rules (particularly, Rule
19.28 on the 15-day reglementary period to file a petition for certiorari) but by Rule 65 of the Rules of
Court (particularly, Section 4 thereof on the 60-day reglementary period to file a petition for certiorari),
which it claimed to have suppletory application in arbitration proceedings since the Special ADR Rules do
not explicitly provide for a procedure on execution.

The position is untenable.

Execution is fittingly called the fruit and end of suit and the life of the law. A judgment, if left unexecuted,
would be nothing but an empty victory for the prevailing party.73cralawred

While it appears that the Special ADR Rules remain silent on the procedure for the execution of a
confirmed arbitral award, it is the Court’s considered view that the Rules’ procedural mechanisms cover
not only aspects of confirmation but necessarily extend to a confirmed award’s execution in light of the
doctrine of necessary implication which states that every statutory grant of power, right or privilege is
deemed to include all incidental power, right or privilege. In Atienza v. Villarosa,74 the doctrine was
explained, thus:

No statute can be enacted that can provide all the details involved in its application. There is always an
omission that may not meet a particular situation. What is thought, at the time of enactment, to be an
all-embracing legislation may be inadequate to provide for the unfolding of events of the future. So-called
gaps in the law develop as the law is enforced. One of the rules of statutory construction used to fill in the
gap is the doctrine of necessary implication. The doctrine states that what is implied in a statute is as
much a part thereof as that which is expressed. Every statute is understood, by implication, to contain all
such provisions as may be necessary to effectuate its object and purpose, or to make effective rights,
powers, privileges or jurisdiction which it grants, including all such collateral and subsidiary consequences
as may be fairly and logically inferred from its terms. Ex necessitate legis. And every statutory grant of
power, right or privilege is deemed to include all incidental power, right or privilege. This is so because
the greater includes the lesser, expressed in the maxim, in eo plus sit, simper inest et minus.75 (Emphases
supplied)

As the Court sees it, execution is but a necessary incident to the Court’s confirmation of an arbitral award.
To construe it otherwise would result in an absurd situation whereby the confirming court previously
applying the Special ADR Rules in its confirmation of the arbitral award would later shift to the regular
Rules of Procedure come execution. Irrefragably, a court’s power to confirm a judgment award under the
Special ADR Rules should be deemed to include the power to order its execution for such is but a collateral
and subsidiary consequence that may be fairly and logically inferred from the statutory grant to regional
trial courts of the power to confirm domestic arbitral awards.
All the more is such interpretation warranted under the principle of ratio legis est anima which provides
that a statute must be read according to its spirit or intent,76 for what is within the spirit is within the
statute although it is not within its letter, and that which is within the letter but not within the spirit is not
within the statute.77 Accordingly, since the Special ADR Rules are intended to achieve speedy and efficient
resolution of disputes and curb a litigious culture,78 every interpretation thereof should be made
consistent with these objectives.

Thus, with these principles in mind, the Court so concludes that the Special ADR Rules, as far as
practicable, should be made to apply not only to the proceedings on confirmation but also to the
confirmed award’s execution.

Further, let it be clarified that – contrary to petitioner’s stance – resort to the Rules of Court even in a
suppletory capacity is not allowed. Rule 22.1 of the Special ADR Rules explicitly provides that “[t]he
provisions of the Rules of Court that are applicable to the proceedings enumerated in Rule 1.1 of these
Special ADR Rules have either been included and incorporated in these Special ADR Rules or specifically
referred to herein.”79 Besides, Rule 1.13 thereof provides that “[i]n situations where no specific rule is
provided under the Special ADR Rules, the court shall resolve such matter summarily and be guided by
the spirit and intent of the Special ADR Rules and the ADR Laws.”

As above-mentioned, the petition for certiorari permitted under the Special ADR Rules must be filed
within a period of fifteen (15) days from notice of the judgment, order or resolution sought to be annulled
or set aside.80 Hence, since petitioner’s filing of its certiorari petition in CA-G.R. SP No. 126458 was made
nearly two months after its receipt of the RTC’s Order dated July 9, 2012, or on September 10, 2012,81
said petition was clearly dismissible.82cralawred

III. Discounting the above-discussed procedural considerations, the Court still finds that the certiorari
petition had no merit.

Indeed, petitioner cannot be said to have been denied due process as the records undeniably show that
it was accorded ample opportunity to ventilate its position. There was clearly nothing out of line when
the Arbitral Tribunal denied petitioner’s motions for extension to file its submissions having failed to show
a valid reason to justify the same or in rendering the Arbitral Award sans petitioner’s draft decision which
was filed only on the day of the scheduled promulgation of final award on May 7, 2010.83 The touchstone
of due process is basically the opportunity to be heard. Having been given such opportunity, petitioner
should only blame itself for its own procedural blunder.

On this score, the petition for certiorari in CA-G.R. SP No. 126458 was likewise properly dismissed.

IV.

Nevertheless, while the Court sanctions the dismissal by the CA of the petition for certiorari due to
procedural infirmities, there is a need to explicate the matter of execution of the confirmed Arbitral Award
against the petitioner, a government agency, in the light of Presidential Decree No. (PD) 144584 otherwise
known as the “Government Auditing Code of the Philippines.”

Section 26 of PD 1445 expressly provides that execution of money judgment against the Government or
any of its subdivisions, agencies and instrumentalities is within the primary jurisdiction of the COA, to wit:
SEC. 26. General jurisdiction. The authority and powers of the Commission shall extend to and
comprehend all matters relating to auditing procedures, systems and controls, the keeping of the general
accounts of the Government, the preservation of vouchers pertaining thereto for a period of ten years,
the examination and inspection of the books, records, and papers relating to those accounts; and the
audit and settlement of the accounts of all persons respecting funds or property received or held by them
in an accountable capacity, as well as the examination, audit, and settlement of all debts and claims of
any sort due from or owing to the Government or any of its subdivisions, agencies and instrumentalities.
The said jurisdiction extends to all government-owned or controlled corporations, including their
subsidiaries, and other self-governing boards, commissions, or agencies of the Government, and as herein
prescribed, including non-governmental entities subsidized by the government, those funded by donation
through the government, those required to pay levies or government share, and those for which the
government has put up a counterpart fund or those partly funded by the government. (Emphases
supplied)

From the foregoing, the settlement of respondent’s money claim is still subject to the primary jurisdiction
of the COA despite finality of the confirmed arbitral award by the RTC pursuant to the Special ADR Rules.85
Hence, the respondent has to first seek the approval of the COA of their monetary claim. This appears to
have been complied with by the latter when it filed a “Petition for Enforcement and Payment of Final and
Executory Arbitral Award”86 before the COA. Accordingly, it is now the COA which has the authority to
rule on this latter petition.

WHEREFORE, the petition is DENIED. The Decision dated March 26, 2014 of the Court of Appeals in CA-
G.R. SP No. 126458 which dismissed the petition for certiorari filed by petitioner the Department of
Environment and Natural Resources is hereby AFFIRMED.

SO ORDERED.
G.R. No. 204197, November 23, 2016

FRUEHAUF ELECTRONICS PHILIPPINES CORPORATION, Petitioner, v. TECHNOLOGY ELECTRONICS


ASSEMBLY AND MANAGEMENT PACIFIC CORPORATION, Respondent.

DECISION

BRION, J.:

The fundamental importance of this case lies in its delineation of the extent of permissible judicial review
over arbitral awards. We make this determination from the prism of our existing laws on the subject and
the prevailing state policy to uphold the autonomy of arbitration proceedings.

This is a petition for review on certiorari of the Court of Appeals' (CA) decision in CA-G.R. SP. No. 112384
that reversed an arbitral award and dismissed the arbitral complaint for lack of merit.1 The CA breached
the bounds of its jurisdiction when it reviewed the substance of the arbitral award outside of the
permitted grounds under the Arbitration Law.2chanroblesvirtuallawlibrary

Brief Factual Antecedents

In 1978, Fruehauf Electronics Philippines Corp. (Fruehauf) leased several parcels of land in Pasig City to
Signetics Filipinas Corporation (Signetics) for a period of 25 years (until May 28, 2003). Signetics
constructed a semiconductor assembly factory on the land on its own account.

In 1983, Signetics ceased its operations after the Board of Investments (BOI) withdrew the investment
incentives granted to electronic industries based in Metro Manila.

In 1986, Team Holdings Limited (THL) bought Signetics. THL later changed its name to Technology
Electronics Assembly and Management Pacific Corp. (TEAM).

In March 1987, Fruehauf filed an unlawful detainer case against TEAM. In an effort to amicably settle the
dispute, both parties executed a Memorandum of Agreement (MOA) on June 9, 1988.3 Under the MOA,
TEAM undertook to pay Fruehauf 14.7 million pesos as unpaid rent (for the period of December 1986 to
June 1988).

They also entered a 15-year lease contract4 (expiring on June 9, 2003) that was renewable for another 25
years upon mutual agreement. The contract included an arbitration agreement:5

17. ARBITRATION

In the event of any dispute or disagreement between the parties hereto involving the interpretation or
implementation of any provision of this Contract of Lease, the dispute or disagreement shall be referred
to arbitration by a three (3) member arbitration committee, one member to be appointed by the LESSOR,
another member to be appointed by the LESSEE, and the third member to be appointed by these two
members. The arbitration shall be conducted in accordance with the Arbitration Law (R.A. No.
876).ChanRoblesVirtualawlibrary

The contract also authorized TEAM to sublease the property. TEAM subleased the property to Capitol
Publishing House (Capitol) on December 2, 1996 after notifying Fruehauf.

On May 2003, TEAM informed Fruehauf that it would not be renewing the lease.6
On May 31, 2003, the sublease between TEAM and Capitol expired. However, Capitol only vacated the
premises on March 5, 2005. In the meantime, the master lease between TEAM and Fruehauf expired on
June 9, 2003.

On March 9, 2004, Fruehauf instituted SP Proc. No. 11449 before the Regional Trial Court (RTC) for
"Submission of an Existing Controversy for Arbitration."7 It alleged: (1) that when the lease expired, the
property suffered from damage that required extensive renovation; (2) that when the lease expired, TEAM
failed to turn over the premises and pay rent; and (3) that TEAM did not restore the property to its original
condition as required in the contract. Accordingly, the parties are obliged to submit the dispute to
arbitration pursuant to the stipulation in the lease contract.

The RTC granted the petition and directed the parties to comply with the arbitration clause of the
contract.8

Pursuant to the arbitration agreement, the dispute was referred to a three-member arbitration tribunal.
TEAM and Fruehauf appointed one member each while the Chairman was appointed by the first two
members. The tribunal was formally constituted on September 27, 2004 with retired CA Justice Hector L.
Hofileña, as chairman, retired CA Justice Mariano M. Umali and Atty. Maria Clara B. Tankeh Asuncion as
members.9

The parties initially submitted the following issues to the tribunal for resolution:10

Whether or not TEAM had complied with its obligation to return the leased premises to Fruehauf after
the expiration of the lease on June 9, 2003.

1.1. What properties should be returned and in what condition?

Is TEAM liable for payment of rentals after June 9, 2003?

2.1. If so, how much and for what period?

Is TEAM liable for payment of real estate taxes, insurance, and other expenses on the leased premises
after June 9, 2003?

Who is liable for payment of damages and how much?

Who is liable for payment of attorney's fees and how much?

Subsequently, the following issues were also submitted for resolution after TEAM proposed11 their
inclusion:

Who is liable for the expenses of arbitration, including arbitration fees?

Whether or not TEAM has the obligation to return the premises to Fruehauf as a "complete, rentable, and
fully facilitized electronic plant."

The Arbitral Award12

On December 3, 2008, the arbitral tribunal awarded Fruehauf: (1) 8.2 million pesos as (the balance of)
unpaid rent from June 9, 2003 until March 5, 2005; and (2) 46.8 million pesos as damages.13
The tribunal found that Fruehauf made several demands for the return of the leased premises before and
after the expiration of the lease14 and that there was no express or implied renewal of the lease after
June 9, 2003. It recognized that the sub-lessor, Capitol, remained in possession of the lease. However,
relying on the commentaries of Arturo Tolentino on the subject, the tribunal held that it was not enough
for lessor to simply vacate the leased property; it is necessary that he place the thing at the disposal of
the lessor, so that the latter can receive it without any obstacle.15

For failing to return the property to Fruehauf, TEAM remained liable for the payment of rents. However,
if it can prove that Fruehauf received rentals from Capitol, TEAM can deduct these from its liability.16
Nevertheless, the award of rent and damages was without prejudice to TEAM's right to seek redress from
its sub-lessee, Capitol.17

With respect to the improvements on the land, the tribunal viewed the situation from two perspectives:

First, while the Contract admitted that Fruehauf was only leasing the land and not the buildings and
improvements thereon, it nevertheless obliged TEAM to deliver the buildings, installations and other
improvements existing at the inception of the lease upon its expiration.18

The other view, is that the MOA and the Contract recognized that TEAM owned the existing improvements
on the property and considered them as separate from the land for the initial 15-year term of the lease.19
However, Fruehauf had a vested right to become the owner of these improvements at the end of the 15-
year term. Consequently, the contract specifically obligated TEAM not to remove, transfer, destroy, or in
any way alienate or encumber these improvements without prior written consent from Fruehauf.20

Either way, TEAM had the obligation to deliver the existing improvements on the land upon the expiration
of the lease. However, there was no obligation under the lease to return the premises as a "complete,
rentable, and fully facilitized electronis plant."21 Thus, TEAM's obligation was to vacate the leased
property and deliver to Fruehauf the buildings, improvements, and installations (including the
machineries and equipment existing thereon) in the same condition as when the lease commenced, save
for what had been lost or impaired by the lapse of time, ordinary wear and tear, or any other inevitable
cause.22

The tribunal found TEAM negligent in the maintenance of the premises, machineries, and equipment it
was obliged to deliver to Fruehauf.23 For this failure to conduct the necessary repairs or to notify Fruehauf
of their necessity, the tribunal held TEAM accountable for damages representing the value of the repairs
necessary to restore the premises to a condition "suitable for the use to which it has been devoted" less
their depreciation expense.24

On the other issues, the tribunal held that TEAM had no obligation to pay real estate taxes, insurance, and
other expenses on the leased premises considering these obligations can only arise from a renewal of the
contract.25cralawred Further, the tribunal refused to award attorney's fees, finding no evidence that
either party acted in bad faith.26 For the same reason, it held both parties equally liable for the expenses
of litigation, including the arbitrators' fees.27

TEAM moved for reconsideration28 which the tribunal denied.29 Thus, TEAM petitioned the RTC to
partially vacate or modify the arbitral award.30 It argued that the tribunal failed to properly appreciate
the facts and the terms of the lease contract.
The RTC Ruling

On April 29, 2009, the RTC31 found insufficient legal grounds under Sections 24 and 25 of the Arbitration
Law to modify or vacate the award.32 It denied the petition and CONFIRMED, the arbitral award.33 TEAM
filed a Notice of Appeal.

On July 3, 2009,34 the RTC refused to give due course to the Notice of Appeal because according to Section
2935 of the Arbitration Law, an ordinary appeal under Rule 41 is not the proper mode of appeal against
an order confirming an arbitral award.36

TEAM moved for reconsideration but the RTC denied the motion on November 15, 2009.37 Thus, TEAM
led a petition for certiorari38 before the CA arguing that the RTC gravely abused its discretion in: (1)
denying due course to its notice of appeal; and (2) denying the motion to partially vacate and/or modify
the arbitral award.39

TEAM argued that an ordinary appeal under Rule 41 was the proper remedy against the RTC's order
confirming, modifying, correcting, or vacating an arbitral award.40 It argued that Rule 42 was not available
because the order denying its motion to vacate was not rendered in the exercise of the RTC's appellate
jurisdiction. Further, Rule 43 only applies to decisions of quasi-judicial bodies. Finally, an appeal under
Rule 45 to the Supreme Court would preclude it from raising questions of fact or mixed questions of fact
and law.41

TEAM maintained that it was appealing the RTC's order denying its petition to partially vacate/modify the
award, not the arbitral award itself.42 Citing Rule 41, Section 13 of the Rules of Court, the RTC's authority
to dismiss the appeal is limited to instances when it was filed out of time or when the appellant fails to
pay the docket fees within the reglementary period.43

TEAM further maintained that the RTC gravely abused its discretion by confirming the Arbitral Tribunal's
award when it evidently had legal and factual errors, miscalculations, and ambiguities.44

The petition was docketed as CA-G.R. SP. No. 112384.

The CA decision45

The CA initially dismissed the petition.46 As the RTC did, it cited Section 29 of the Arbitration Law:

Section 29. Appeals. - An appeal may be taken from an order made in a proceeding under this Act, or from
a judgment entered upon an award through certiorari proceedings, but such appeals shall be limited to
questions of law. The proceedings upon such appeal, including the judgment thereon shall be governed
by the Rules of Court in so far as they are applicable.

It concluded that the appeal contemplated under the law is an appeal by certiorari limited only to
questions flaw.47

The CA continued that TEAM failed to substantiate its claim as to the "evident miscalculation of figures."
It further held that disagreement with the arbitrators' factual determinations and legal conclusions does
not empower courts to amend or overrule arbitral judgments.48

However, the CA amended its decision on October 25, 2012 upon a motion for reconsideration.49
The CA held that Section 29 of the Arbitration Law does not preclude the aggrieved party from resorting
to other judicial remedies.50 Citing Asset Privatization Trust v. Court of Appeals,51 the CA held that the
aggrieved party may resort to a petition for certiorari when the RTC to which the award was submitted
for confirmation has acted without jurisdiction, or with grave abuse of discretion and there is no appeal,
nor any plain, speedy remedy in the course of law.52

The CA further held that the mere filing of a notice of appeal is sufficient as the issues raised in the appeal
were not purely questions of law.53 It further cited Section 46 of the Alternative Dispute Resolution (ADR)
Law:54

SEC. 46. Appeal from Court Decisions on Arbitral Awards. - A decision of the regional trial court confirming,
vacating, setting aside, modifying or correcting an arbitral award may be appealed to the Court of Appeals
in accordance with the rules of procedure to be promulgated by the Supreme Court.

The losing party who appeals from the judgment of the court confirming an arbitral award shall be
required by the appellant court to post counterbond executed in favor of the prevailing party equal to the
amount of the award in accordance with the rules to be promulgated by the Supreme
Court.55ChanRoblesVirtualawlibrary

However, the CA made no further reference to A.M. No. 07-11-08-SC, the Special Rules of Court on
Alternative Dispute Resolution (Special ADR Rules) which govern the appeal procedure.

The CA further revisited the merits of the arbitral award and found several errors in law and in fact. It
held: (1) that TEAM was not obliged to pay rent because it was Capitol, not TEAM, that remained in
possession of the property upon the expiration of the lease;56 and (2) that Fruehauf was not entitled to
compensation for the repairs on the buildings because it did not become the owner of the building until
after the expiration of the lease.57

Also citing Tolentino, the CA opined: (1) that a statement by the lessee that he has abandoned the
premises should, as a general rule, constitute sufficient compliance with his duty to return the leased
premises; and (2) that any new arrangement made by the lessor with another person, such as the sub-
lessor, operates as a resumption of his possession.58

On the issue of damages, the CA held that TEAM can never be liable for the damages for the repairs of the
improvements on the premises because they were owned by TEAM itself (through its predecessor,
Signetics) when the lease commenced.59

The CA REVERSED AND SET ASIDE the arbitral award and DISMISSED the arbitral complaint for lack of
merit.60

This CA action prompted Fruehauf to file the present petition for review.

The Arguments

Fruehauf argues that courts do not have the power to substitute their judgment for that of the
arbitrators.61 It also insists that an ordinary appeal is not the proper remedy against an RTC's order
confirming, vacating, correcting or modifying an arbitral ward but a petition for review on certiorari under
Rule 45.62
Furthermore, TEAM's petition before the CA went beyond the permissible scope of certiorari the existence
of grave abuse of discretion or errors jurisdiction - by including questions of fact and law that challenged
the merits of the arbitral award.63

However, Fruehauf inconsistently argues that the remedies against an arbitral award are (1) a petition to
vacate the award, (2) a petition for review under Rule 43 raising questions of fact, of law, or mixed
questions of fact and law, or (3) a petition for certiorari under Rule 65.64 Fruehauf cites an article from
the Philippine Dispute Resolution Center65 and Insular Savings Bank v. Far East Bank and Trust, Co.66

TEAM counters that the CA correctly resolved the substantive issues of the case and that the arbitral
tribunal's errors were sufficient grounds to vacate or modify the award.67 It insists that the RTC's
misappreciation of the facts from a patently erroneous award warranted an appeal under Rule 41.68

TEAM reiterates that it "disagreed with the arbitral award mainly on questions of fact and not only on
questions of law," specifically, "on factual matters relating to specific provisions in the contract on
ownership of structures and improvements thereon, and the improper award of rentals and penalties."69
Even assuming that it availed of the wrong mode of appeal, TEAM posits that its appeal should still have
been given due course in the interest of substantial justice.70

TEAM assails the inconsistencies of Fruehauf's position as to the available legal remedies against an
arbitral award.71 However, it maintains that Section 29 of the Arbitration Law does not foreclose other
legal remedies (aside from an appeal by certiorari) against the RTC's order confirming or vacating an
arbitral award pursuant to Insular Savings Bank and ABS-CBN Broadcasting Corporation v. World
Interactive Network Systems (WINS) Japan Co., Ltd.72chanroblesvirtuallawlibrary

The Issues

This case raises the following questions:

What are the remedies or the modes of appeal against an unfavorable arbitral award?

What are the available remedies from an RTC decision confirming, vacating, modifying, or correcting an
arbitral award?

Did the arbitral tribunal err in awarding Fruehauf damages for the repairs of the building and rental fees
from the expiration of the lease?

Our Ruling

The petition is meritorious.

Arbitration is an alternative mode of dispute resolution outside of the regular court system. Although
adversarial in character, arbitration is technically not litigation. It is a voluntary process in which one or
more arbitrators - appointed according to the parties' agreement or according to the applicable rules of
the Alternative Dispute Resolution (ADR) Law - resolve a dispute by rendering an award.73 While
arbitration carries many advantages over court litigation, in many ways these advantages also translate
into its disadvantages.

Resort to arbitration is voluntary. It requires consent from both parties in the form of an arbitration clause
that pre-existed the dispute or a subsequent submission agreement. This written arbitration agreement
is an independent and legally enforceable contract that must be complied with in good faith. By entering
into an arbitration agreement, the parties agree to submit their dispute to an arbitrator (or tribunal) of
their own choosing and be bound by the latter's resolution.

However, this contractual and consensual character means that the parties cannot implead a third-party
the proceedings even if the latter's participation is necessary for a complete settlement of the dispute.
The tribunal does not have the power to compel a person to participate in the arbitration proceedings
without that person's consent. It also has no authority to decide on issues that the parties did not submit
(or agree to submit) for its resolution.

As a purely private mode of dispute resolution, arbitration proceedings, including the records, the
evidence, and the arbitral award, are confidential74 unlike court proceedings which are generally public.
This allows the parties to avoid negative publicity and protect their privacy. Our law highly regards the
confidentiality of arbitration proceedings that it devised a judicial remedy to prevent or prohibit the
unauthorized disclosure of confidential information obtained therefrom.75

The contractual nature of arbitral proceedings affords the parties substantial autonomy over the
proceedings. The parties are free to agree on the procedure to be observed during the proceedings.76
This lends considerable flexibility to arbitration proceedings as compared to court litigation governed by
the Rules of Court.

The parties likewise appoint the arbitrators based on agreement. There are no other legal requirements
as to the competence or technical qualifications of an arbitrator. Their only legal qualifications are: (1)
being of legal age; (2) full-enjoyment of their civil rights; and (3) the ability to read and write.77 The parties
can tailor-fit the tribunal's composition to the nature of their dispute. Thus, a specialized dispute can be
resolved by experts on the subject.

However, because arbitrators do not necessarily have a background in law, they cannot be expected to
have the legal mastery of a magistrate. There is a greater risk that an arbitrator might misapply the law or
misappreciate the facts en route to an erroneous decision.

This risk of error is compounded by the absence of an effective appeal mechanism. The errors of an arbitral
tribunal are not subject to correction by the judiciary. As a private alternative to court proceedings,
arbitration is meant to be an end, not the beginning, of litigation.78 Thus, the arbitral award is final and
binding on the parties by reason of their contract the arbitration agreement.79

An Arbitral Tribunal does not exercise quasi-judicial powers

Quasi-judicial or administrative adjudicatory power is the power: (1) to hear and determine questions of
fact to which legislative policy is to apply, and (2) to decide in accordance with the standards laid down
by the law itself in enforcing and administering the same law.80 Quasi-judicial power is only exercised by
administrative agencies - legal organs of the government.

Quasi-judicial bodies can only exercise such powers and jurisdiction as are expressly or by necessary
implication conferred upon them by their enabling statutes.81 Like courts, a quasi-judicial body's
jurisdiction over a subject matter is conferred by law and exists independently from the will of the parties.
As government organs necessary for an effective legal system, a quasi-judicial tribunal's legal existence.
Continues beyond the resolution of a specific dispute. In other words, quasi-judicial bodies are creatures
of law.

As a contractual and consensual body, the arbitral tribunal does not have any inherent powers over the
parties. It has no power to issue coercive writs or compulsory processes. Thus, there is a need to resort to
the regular courts for interim measures of protection82 and for the recognition or enforcement of the
arbitral award.83

The arbitral tribunal acquires jurisdiction over the parties and the subject matter through stipulation.
Upon the rendition of the final award, the tribunal becomes functus officio and - save for a few
exceptions84 - ceases to have any further jurisdiction over the dispute.85 The tribunal's powers (or in the
case of ad hoc tribunals, their very existence) stem from the obligatory force of the arbitration agreement
and its ancillary stipulations.86 Simply put, an arbitral tribunal is a creature of contract.

Deconstructing the view that arbitral tribunals are quasi-judicial agencies

We are aware of the contrary view expressed by the late Chief Justice Renato Corona in ABS-CBN
Broadcasting Corporation v. World Interactive Network Systems (WINS) Japan Co., Ltd..87

The ABS-CBN Case opined that a voluntary arbitrator is a "quasi--judicial instrumentality" of the
government88 pursuant to Luzon Development Bank v. Association of Luzon Development Bank
Employees,89Sevilla Trading Company v. Semana,90Manila Midtown Hotel v. Borromeo,91 and Nippon
Paint Employees Union-Olalia v. Court of Appeals.92 Hence, voluntary arbitrators are included in the Rule
43 jurisdiction of the Court of Appeals:

SECTION 1. Scope. - This Rule shall apply to appeals from judgments or final orders of the Court of Tax
Appeals and from awards, judgments, final orders or resolutions of or authorized by any quasi-judicial
agency in the exercise of its quasi-judicial functions. Among these agencies are the Civil Service
Commission, Central Board of Assessment Appeals, Securities and Exchange Commission, Office of the
President, Land Registration Authority, Social Security Commission, Civil Aeronautics Board, Bureau of
Patents, Trademarks and Technology Transfer, National Electrification Administration, Energy Regulatory
Board, National Telecommunications Commission, Department of Agrarian Reform under Republic Act
No. 6657, Government Service Insurance System, Employees Compensation Commission, Agricultural
Inventions Board, Insurance Commission, Philippine Atomic Energy Commission, Board of Investments,
Construction Industry Arbitration Commission, and voluntary arbitrators authorized by law.93 (emphasis
supplied)

Citing Insular Savings Bank v. Far East Bank and Trust Co.,94 the ABS-CBN Case pronounced that the losing
party in an arbitration proceeding may avail of three alternative remedies: (1) a petition to vacate the
arbitral award before the RTC; (2) a petition for review with the CA under Rule 43 of the Rules of Court
raising questions, of fact, of law, or of both; and (3) a petition for certiorari under Rule 65 should the
arbitrator act beyond its jurisdiction or with grave abuse of discretion.95

At first glance, the logic of this position appears to be sound. However, a critical examination of the
supporting authorities would show that the conclusion is wrong.

First, the pronouncements mad in the ABS-CBN Case and in the Insular Savings Bank Case (which served
as the authority for the ABS-CBN Case) were both obiter dicta.
In the ABS-CBN Case, we sustained the CA's dismissal of the petition because it was filed as an "alternative
petition for review under Rule 43 or petition for certiorari under Rule 65."96 We held that it was an
inappropriate mode of appeal because, a petition for review and a petition for certiorari are mutually
exclusive and not alternative or successive.

In the Insular Savings Bank case, the lis mota of the case was the RTC's jurisdiction over an appeal from
an arbitral award. The parties to the arbitration agreement agreed that the rules of the arbitration
provider97 - which stipulated that the RTC shall have jurisdiction to review arbitral awards - will govern
the proceedings.98 The Court ultimately held that the RTC does not have jurisdiction to review the merits
of the award because legal jurisdiction is conferred by law, not by mere agreement of the parties.

In both cases, the pronouncements as to the remedies against an arbitral award were unnecessary for
their resolution. Therefore, these are obiter dicta - judicial comments made in passing which are not
essential to the resolution of the case and cannot therefore serve as precedents.99

Second, even if we disregard the obiter dicta character of both pronouncements, a more careful scrutiny
deconstructs their legal authority.

The ABS-CBN Case committed the classic fallacy of equivocation. It equated the term "voluntary
arbitrator" used in Rule 43, Section 1 and in the cases of Luzon Development Bank v. Association of Luzon
Development Bank Employees, Sevilla Trading Company v. Semana, Manila Midtown Hotel v. Borromeo,
and Nippon Paint Employees Union-Olalia v. Court of Appeals with the term "arbitrator/arbitration
tribunal."

The first rule of legal construction, verba legis, requires that, wherever possible, the words used in the
Constitution or in the statute must be given their ordinary meaning except where technical terms are
employed.100 Notably, all of the cases cited in the ABS-CBN Case involved labor disputes.

The term "Voluntary Arbitrator" does not refer to an ordinary "arbitrator" who voluntarily agreed to
resolve a dispute. It is a technical term with a specific definition under the Labor Code:

Art. 212 Definitions. xxx

14. "Voluntary Arbitrator" means any person accredited by the Board as such or any person named or
designated in the Collective Bargaining Agreement by the parties to act as their Voluntary Arbitrator, or
one chosen with or without the assistance of the National Conciliation and Mediation Board, pursuant to
a selection procedure agreed upon in the Collective Bargaining Agreement, or any official that may be
authorized by the Secretary of Labor and Employment to act as Voluntary Arbitrator upon the written
request and agreement of the parties to a labor dispute.101

Voluntary Arbitrators resolve labor disputes and grievances arising from the interpretation of Collective
Bargaining Agreements.102 These disputes were specifically excluded from the coverage of both the
Arbitration Law103 and the ADR Law.104

Unlike purely commercial relationships, the relationship between capital and labor are heavily impressed
with public interest.105 Because of this, Voluntary Arbitrators authorized to resolve labor disputes have
been clothed with quasi-judicial authority.
On the other hand, commercial relationships covered by our commercial arbitration laws are purely
private and contractual in nature. Unlike labor relationships, they do not possess the same compelling
state interest that would justify state interference into the autonomy of contracts. Hence, commercial
arbitration is a purely private system of adjudication facilitated by private citizens instead of government
instrumentalities wielding quasi-judicial powers.

Moreover, judicial or quasi-judicial jurisdiction cannot be conferred upon a tribunal by the parties alone.
The Labor Code itself confers subject-matter jurisdiction to Voluntary Arbitrators.106

Notably, the other arbitration, body listed in Rule 43 the Construction Industry Arbitration Commission
(CIAC) - is also a government agency107 attached to the Department of Trade and Industry.108 Its
jurisdiction is likewise conferred by statute.109 By contrast, the subject--matter jurisdiction of commercial
arbitrators is stipulated by the parties.

These account for the legal differences between "ordinary" or "commercial" arbitrators under the
Arbitration Law and the ADR Law, and "voluntary arbitrators" under the Labor Code. The two terms are
not synonymous with each other. Interchanging them with one another results in the logical fallacy of
equivocation - using the same word with different meanings.

Further, Rule 43, Section 1 enumerates quasi-judicial tribunals whose decisions are appealable to the CA
instead of the RTC. But where legislation provides for an appeal from decisions of certain administrative
bodies to the CA, it means that such bodies are co-equal with the RTC in terms of rank and stature, logically
placing them beyond the control of the latter.110

However, arbitral tribunals and the RTC are not co-equal bodies because the RTC is authorized to confirm
or to vacate (but not reverse) arbitral awards.111 If we were to deem arbitrators as included in the scope
of Rule 43, we would effectively place it on equal footing with the RTC and remove arbitral awards from
the scope of RTC review.

All things considered, there is no legal authority supporting the position that commercial arbitrators are
quasi-judicial bodies.

What are remedies from a final domestic arbitral award?

The right to an appeal is neither a natural right nor an indispensable component of due process; it is a
mere statutory privilege that cannot be invoked in the absence of an enabling statute. Neither the
Arbitration Law nor the ADR Law allows a losing party to appeal from the arbitral award. The statutory
absence of an appeal mechanism reflects the State's policy of upholding the autonomy of arbitration
proceedings and their corresponding arbitral awards.

This Court recognized this when we enacted the Special Rules of Court on Alternative Dispute Resolution
in 2009:112

Rule 2.1. General policies. - It is the policy of the State to actively promote the use of various modes of
ADR and to respect party autonomy or the freedom of the parties to make their own arrangements in the
resolution of disputes with the greatest cooperation of and the least intervention from the courts. xxx

The Court shall exercise the power of judicial review as provided by these Special ADR Rules. Courts shall
intervene only in the cases allowed by law or these Special ADR Rules.113
Rule 19.7. No appeal or certiorari on the merits of an arbitral award. - An agreement to refer a dispute to
arbitration shall mean that the arbitral award shall be final and binding. Consequently, a party to an
arbitration is precluded from filing an appeal or a petition for certiorari questioning the merits of an
arbitral award.114(emphasis supplied)

More than a decade earlier in Asset Privatization Trust v. Court of Appeals, we likewise defended the
autonomy of arbitral awards through our policy of non-intervention on their substantive merits:

As a rule, the award of an arbitrator cannot be set aside for mere errors of judgment either as to the law
or as to the facts. Courts are without power to amend or overrule merely because of disagreement with
matters of law or facts determined by the arbitrators. They will not review the findings of law and fact
contained in an award, and will not undertake to substitute their judgment for that of the arbitrators,
since any other rule would make an award the commencement, not the end, of litigation. Errors of law
and fact, or an erroneous decision of matters submitted to the judgment of the arbitrators, are insufficient
to invalidate an award fairly and honestly made. Judicial review of an arbitration is, thus, more limited
than judicial review of a trial.115

Nonetheless, an arbitral award is not absolute. Rule 19.10 of the Special ADR Rules - by referring to Section
24 of the Arbitration Law and Article 34 of the 1985 United Nations Commission on International Trade
Law (UNCITRAL) Model Law - recognizes the very limited exceptions to the autonomy of arbitral awards:

Rule 19.10. Rule on judicial review on arbitration in the Philippines. - As a general rule, the court can only
vacate or set aside the decision of an arbitral tribunal upon a clear showing that the award suffers from
any of the infirmities or grounds for vacating an arbitral award under Section 24 of Republic Act No. 876
or under Rule 34 of the Model Law in a domestic arbitration, or for setting aside an award in an
international arbitration under Article 34 of the Model Law, or for such other grounds provided under
these Special Rules.

If the Regional Trial Court is asked to set aside an arbitral award in a domestic or international arbitration
on any ground other than those provided in the Special ADR Rules, the court shall entertain such ground
for the setting aside or non-recognition of the arbitral award only if the same amounts to a violation of
public policy.

The court shall not set aside or vacate the award of the arbitral tribunal merely on the ground that the
arbitral tribunal committed errors of fact, or of law, or of fact and law, as the court cannot substitute its
judgment for that of the arbitral tribunal.116

The grounds for vacating a domestic arbitral award under Section 24 of the Arbitration Law contemplate
the following scenarios:

(a) When the award is procured by corruption, fraud, or other undue means; or

(b) There was evident partiality or corruption in the arbitrators or any of them; or

(c) The arbitrators were guilty of misconduct that materially prejudiced the rights of any party; or

(d) The arbitrators exceeded their powers, or so imperfectly executed them, that a mutual, final and
definite award upon the subject matter submitted to them was not made.117
The award may also be vacated if an arbitrator who was disqualified to act willfully refrained from
disclosing his disqualification to the parties.118 Notably, none of these grounds pertain to the correctness
of the award but relate to the misconduct of arbitrators.

The RTC may also set aside the arbitral award based on Article 34 of the UNCITRAL Model Law. These
grounds are reproduced in Chapter 4 of the Implementing Rules and Regulations (IRR) of the 2004 ADR
Act:

(i) the party making the application furnishes proof that:


(aa)a party to the arbitration agreement was under some incapacity; or the said agreement is not
valid under the law to which the parties have subjected it or, failing any indication thereon, under
the law of the Philippines; or (bb) the party making the application was not given proper notice
of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to
present his case; or (cc) the award deals with a dispute not contemplated by or not falling within
the terms of the submission to arbitration, or contains decisions on matters beyond the scope of
the submission to arbitration, provided that, if the decisions on matters submitted to arbitration
can be separated from those not so submitted, only the part of the award which contains
decisions on matters not submitted to arbitration may be set aside; or (dd) the composition of
the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the
parties, unless such agreement was in conflict with a provision of ADR Act from which the parties
cannot derogate, or, failing such agreement, was not in accordance with ADR Act; or
(ii) The Court finds that:

(aa) the subject-matter of the dispute is not capable of settlement by arbitration under the law of the
Philippines; or

(bb) the award is in conflict with the public policy of the Philippines.119

Chapter 4 of the IRR of the, ADR Act applies particularly to International Commercial Arbitration. However,
the abovementioned grounds taken from the UNCITRAL. Model Law are specifically made applicable to
domestic arbitration by the Special ADR Rules.120

Notably, these grounds are not concerned with the correctness of the award; they go into the validity of
the arbitration agreement or the regularity of the arbitration proceedings.

These grounds for vacating an arbitral award are exclusive. Under the ADR Law, courts are obliged to
disregard any other grounds invoked to set aside an award:

SEC. 41. Vacation Award. - A party to a domestic arbitration may question the arbitral award with the
appropriate regional trial court in accordance with the rules of procedure to be promulgated by the
Supreme Court only on those grounds enumerated in Section 25 of Republic Act No. 876. Any other
ground raised against a domestic arbitral award shall be disregarded by the regional trial court.121

Consequently, the winning party can generally expect the enforcement of the award. This is a stricter rule
that makes Article 2044122 of the Civil Code regarding the finality of an arbitral award redundant.

As established earlier, an arbitral award is not appealable via Rule 43 because: (1) there is no statutory
basis for an appeal from the final award of arbitrators; (2) arbitrators are not quasi-judicial bodies; and (3)
the Special ADR Rules specifically prohibit the filing of an appeal to question the merits of an arbitral
award.

The Special ADR Rules allow the RTC to correct or modify an arbitral award pursuant to Section 25 of the
Arbitration Law. However, this authority cannot be interpreted as jurisdiction to review the merits of the
award. The RTC can modify or correct the award only in the following cases:

Where there was an evident miscalculation of figures or an evident mistake in the description of any
person, thing or property referred to in the award;

Where the arbitrators have awarded upon a matter not submitted to them, not affecting the merits of
the decision upon the matter submitted;

Where the arbitrators have omitted to resolve an issue submitted to them for resolution; or

Where the award is imperfect in a matter of form not affecting the merits of the controversy, and if it had
been a commissioner's report, the defect could have been amended or disregarded by the Court.123

A losing party is likewiselrecluded from resorting to certiorari under Rule 65 of the Rules of
Court.124Certiorari is a prerogative writ designed to correct errors of jurisdiction committed by a judicial
or quasi-judicial body.125 Because an arbitral tribunal is not a government organ exercising judicial or
quasi-judicial powers, it is removed from the ambit of Rule 65.

Not even the Court's expanded certiorari jurisdiction under the Constitution126 can justify judicial
intrusion into the merits of arbitral awards. While the Constitution expanded the scope of certiorari
proceedings, this power remains limited to a review of the acts of "any branch or instrumentality of the
Government." As a purely private creature of contract, an arbitral tribunal remains outside the scope of
certiorari.

Lastly, the Special ADR Rules are a self-contained body of rules. The parties cannot invoke remedies and
other provisions from the Rules of Court unless they were incorporated in the Special ADR Rules:

Rule 22.1. Applicability of Rules of Court. - The provisions of the Rules of Court that are applicable to the
proceedings enumerated in Rule 1.1 of these Special ADR Rules have either been included and
incorporated in these Special ADR Rules or specifically referred to herein.

In Connection with the above proceedings, the Rules of Evidence shall be liberally construed to achieve
the objectives of the Special ADR Rules.127

Contrary to TEAM's position, the Special ADR Rules actually forecloses against other remedies outside of
itself. Thus, a losing party cannot assail an arbitral award through, a petition for review under Rule 43 or
a petition for certiorari under Rule 65 because these remedies are not specifically permitted in the Special
ADR Rules.

In sum, the only remedy against a final domestic arbitral award is to file petition to vacate or to
modify/correct the award not later than thirty (30) days from the receipt of the award.128 Unless a ground
to vacate has been established, the RTC must confirm the arbitral award as a matter of course.

The remedies against an order confirming, vacating, correcting, or modifying an arbitral award
Once the RTC orders the confirmation, vacation, or correction/modification of a domestic arbitral award,
the aggrieved party may move for reconsideration within a non-extendible period of fifteen (15) days from
receipt of the order.129 The losing party may also opt to appeal from the RTC's ruling instead.

Under the Arbitration Law, the mode of appeal was via petition for review on certiorari:

Section 29. Appeals. - An appeal may be taken from an order made in a proceeding under this Act, or from
judgment entered upon an award through certiorari proceedings, but such appeals shall be limited to
questions of law. The proceedings upon such appeal, including the judgment thereon shall be governed
by the Rules of Court in so far as they are applicable.130

The Arbitration Law did not specify which Court had jurisdiction to entertain the appeal but left the matter
to be governed by the Rules of Court. As the appeal was limited to questions of law and was described as
"certiorari proceedings," the mode of appeal can be interpreted as an Appeal By Certiorari to this Court
under Rule 45.

When the ADR Law was enacted in 2004, it specified that the appeal shall be made to the CA in accordance
with the rules of procedure to be promulgated by this Court.131 The Special ADR Rules provided that the
mode of appeal from the RTC's order confirming, vacating, or correcting/modifying a domestic arbitral
award was through a petition for review with the CA.132 However, the Special ADR Rules only took effect
on October 30, 2009.

In the present case, the RTC disallowed TEAM's notice of appeal from the former's decision confirming
the arbitral award on July 3, 2009. TEAM moved for reconsideration which was likewise denied on
November 15, 2009. In the interim, the Special ADR Rules became effective. Notably, the Special ADR
Rules apply retroactively in light of its procedural character.133 TEAM filed its petition for certiorari soon
after.

Nevertheless, whether we apply, Section 29 of the Arbitration Law, Section 46 of the ADR Law, or Rule
19.12 of the Special ADR Rules, there is no legal basis that an ordinary appeal (via notice of appeal) is the
correct remedy from an order confirming, vacating, or correcting an arbitral award. Thus, there is no merit
in the CA's ruling that the RTC gravely abused its discretion when it refused to give due course to the
notice of appeal.

The correctness or incorrectness of the arbitral award

We have deliberately refrained from passing upon the merits of the arbitral award - not because the award
was erroneous but because it would be improper. None of the grounds to vacate an arbitral award are
present in this case and as already established, the merits of the award cannot be reviewed by the courts.

Our refusal to review the award is not a simple matter of putting procedural technicalities over the
substantive merits of a case; it goes into the very legal substance of the issues. There is no law granting
the judiciary authority to review the merits of an arbitral award. If we were to insist on reviewing the
correctness of the award (or consent to the CA's doing so), it would be tantamount to expanding our
jurisdiction without the benefit of legislation. This translates to judicial legislation - a breach of the
fundamental principle of separation of powers.

The CA reversed the arbitral award - an action that it has no power to do - because it disagreed with the
tribunal's factual findings and application of the law. However, the alleged incorrectness of the award is
insufficient cause to vacate the award, given the State's policy of upholding the autonomy of arbitral
awards.

The CA passed upon questions such as: (1) whether or not TEAM effectively returned the property upon
the expiration of the lease; (2) whether or not TEAM was liable to pay rentals after the expiration of the
lease; and (3) whether or not TEAM was liable to pay Fruehauf damages corresponding to the cost of
repairs. These were the same questions that were specifically submitted to the arbitral tribunal for its
resolution.134

The CA disagreed with the tribunal's factual determinations and legal interpretation of TEAM's obligations
under the contract - particularly, that TEAM's obligation to turn over the improvements on the land at the
end of the lease in the same condition as when the lease commenced translated to an obligation to make
ordinary repairs necessary for its preservation.135

Assuming arguendo that the tribunal's interpretation of the contract was incorrect, the errors would have
been simple errors of law. It was the tribunal - not the RTC or the CA - that had jurisdiction and authority
over the issue by virtue of the parties' submissions; the CA's substitution of its own judgment for the
arbitral award cannot be more compelling than the overriding public policy to uphold the autonomy of
arbitral awards. Courts are precluded from disturbing an arbitral tribunal's factual findings and
interpretations of law.136 The CA's ruling is an unjustified judicial intrusion in excess of its jurisdiction - a
judicial overreach.137

Upholding the CA's ruling would weaken our alternative dispute resolution mechanisms by allowing the
courts to "throw their weight around" whenever they disagree with the results. It erodes the obligatory
force of arbitration agreements by allowing the losing parties to "forum shop" for a more favorable ruling
from the judiciary.

Whether or not the arbitral tribunal correctly passed upon the issues is irrelevant. Regardless of the
amount, of the sum involved in a case, a simple error of law remains a simple error of law. Courts are
precluded from revising the award in a particular way, revisiting the tribunal's findings of fact or
conclusions of law, or otherwise encroaching upon the independence of an arbitral tribunal.138 At the
risk of redundancy, we emphasize Rule 19.10 of the Special ADR Rules promulgated by this Court en banc:

Rule 19.10. Rule on judicial review on arbitration in the Philippines. - As a general rule, the court can only
vacate or set aside the decision of an arbitral tribunal upon a clear showing that the award suffers from
any of the infirmities or grounds for vacating an arbitral award under Section 24 of Republic Act No. 876
or under Rule 34 of the Model Law in a domestic arbitration, or for setting aside an award in an
international arbitration under Article 34 of the Model Law, or for such other grounds provided under
these Special Rules.

If the Regional Trial Court is asked to set aside an arbitral award in a domestic or international arbitration
on any ground other than those provided in the Special ADR Rules, the court shall entertain such ground
for the setting aside or non-recognition of the arbitral award only if the same amounts to a violation of
public policy.

The court shall not set aside or vacate the award of the arbitral tribunal merely on the ground that the
arbitral tribunal committed errors of fact, or of law, or of fact and law, as the court cannot substitute its
judgment for that of the arbitral tribunal.
In other words, simple errors of fact, of law, or of fact and law committed by the arbitral tribunal are not
justiciable errors in this jurisdiction.139

TEAM agreed to submit their disputes to an arbitral tribunal. It understood all the risks - including the
absence of an appeal mechanism and found that its benefits (both legal and economic) outweighed the
disadvantages. Without a showing that any of the grounds to vacate the award exists or that the same
amounts to a violation of an overriding public policy, the award is subject to confirmation as a matter of
course.140

WHEREFORE, we GRANT the petition. The CA's decision in CA-G.R. SP. No. 112384 is SET ASIDE and the
RTC's order CONFIRMING the arbitral award in SP. Proc. No. 11449 is REINSTATED.

SO ORDERED.
G.R. No. 176791 : November 14, 2012

COMMUNITIES CAGAYAN, INC., Petitioner, v. SPOUSES ARSENIO (Deceased) and ANGELES NANOL AND
ANYBODY CLAIMING RIGHTS UNDER THEM, Respondents.

DECISION

DEL CASTILLO, J.:

LAWS fill the gap in a contract.

This Petition for Review on Certiorari1ςrνll under Rule 45 of the Rules of Court assails the December 29.
2006 Decision2ςrνll and the February 12, 2007 Order3ςrνll of the Regional Trial Court (RTC), Cagayan
De Oro City, Branch 18, in Civil Case No. 2005-158.

Factual Antecedents

Sometimes in 1994, respondent-spouses Arsenio and Angeles Nanol entered into a Contract to Sell4ςrνll
with petitioner Communities Cagayan, Inc.,5ςrνll whereby the latter agreed to sell to respondent-
spouses a house and Lots 17 and 196ςrνll located at Block 16, Camella Homes Subdivision, Cagayan de
Oro City, 7ςrνll for the price of P368,000.00.8ςrνllRespondent-spouses, however, did not avail of
petitioners inhouse financing due to its high interest rates.9ςrνll Instead, they obtained a loan from
Capitol Development Bank, a sister company of petitioner, using the property as collateral.10ςrνll To
facilitate the loan, a simulated sale over the property was executed by petitioner in favor of respondent-
spouses.11ςrνll Accordingly, titles were transferred in the names of respondent-spouses under Transfer
Certificates of Title (TCT) Nos. 105202 and 105203, and submitted to Capitol Development Bank for loan
processing.12ςrνll Unfortunately, the bank collapsed and closed before it could release the loan.13ςrνll

Thus, on November 30, 1997, respondent-spouses entered into another Contract to Sell14ςrνll with
petitioner over the same property for the same price of P368,000.00.15ςrνll This time, respondent-
spouses availed of petitioners in-house financing16thus, undertaking to pay the loan over four years, from
1997 to 2001.17ςrνll

Sometime in 2000, respondent Arsenio demolished the original house and constructed a three-story
house allegedly valued at P3.5 million, more or less.18ςrνll

In July 2001, respondent Arsenio died, leaving his wife, herein respondent Angeles, to pay for the monthly
amortizations.19ςrνll

On September 10, 2003, petitioner sent respondent-spouses a notarizedNotice of Delinquency and


Cancellation of Contract to Sell20ςrνll due to the latters failure to pay the monthly amortizations.

In December 2003, petitioner filed before Branch 3 of the Municipal Trial Court in Cities of Cagayan de
Oro City, an action for unlawful detainer, docketed as C3-Dec-2160, against respondent-spouses.21ςrνll
When the case was referred for mediation, respondent Angeles offered to pay P220,000.00 to settle the
case but petitioner refused to accept the payment.22ςrνll The case was later withdrawn and
consequently dismissed because the judge found out that the titles were already registered under the
names of respondent-spouses.23ςrνll
Unfazed by the unfortunate turn of events, petitioner, on July 27, 2005, filed before Branch 18 of the RTC,
Cagayan de Oro City, a Complaint for Cancellation of Title, Recovery of Possession, Reconveyance and
Damages,24ςrνll docketed as Civil Case No. 2005-158, against respondent-spouses and all persons
claiming rights under them. Petitioner alleged that the transfer of the titles in the names of respondent-
spouses was made only in compliance with the requirements of Capitol Development Bank and that
respondent-spouses failed to pay their monthly amortizations beginning January 2000.25ςrνll Thus,
petitioner prayed that TCT Nos. T-105202 and T-105203 be cancelled, and that respondent Angeles be
ordered to vacate the subject property and to pay petitioner reasonable monthly rentals from January
2000 plus damages.26ςrνll

In her Answer,27ςrνll respondent Angeles averred that the Deed of Absolute Sale is valid, and that
petitioner is not the proper party to file the complaint because petitioner is different from Masterplan
Properties, Inc.28ςrνll She also prayed for damages by way of compulsory counterclaim.29ςrνll

In its Reply,30ςrνll petitioner attached a copy of its Certificate of Filing of Amended Articles of
Incorporation31ςrνll showing that Masterplan Properties, Inc. and petitioner are one and the same. As
to the compulsory counterclaim for damages, petitioner denied the same on the ground of "lack of
knowledge sufficient to form a belief as to the truth or falsity of such allegation."32ςrνll

Respondent Angeles then moved for summary judgment and prayed that petitioner be ordered to return
the owners duplicate copies of the TCTs.33ςrνll

Pursuant to Administrative Order No. 59-2005, the case was referred for mediation.34ςrνll But since the
parties failed to arrive at an amicable settlement, the case was set for preliminary conference on February
23, 2006.35ςrνll

On July 7, 2006, the parties agreed to submit the case for decision based on the pleadings and exhibits
presented during the preliminary conference.36ςrνll

Ruling of the Regional Trial Court

On December 29, 2006, the RTC rendered judgment declaring the Deed of Absolute Sale invalid for lack
of consideration.37ςrνll Thus, it disposed of the case in this wise:

WHEREFORE, the Court hereby declares the Deed of Absolute Sale VOID. Accordingly, Transfer Certificates
of Title Nos. 105202 and 105203 in the names of the [respondents], Arsenio (deceased) and Angeles
Nanol, are ordered CANCELLED. The [respondents] and any person claiming rights under them are
directed to turn-over the possession of the house and lot to [petitioner], Communities Cagayan, Inc.,
subject to the latters payment of their total monthly installments and the value of the new house minus
the cost of the original house.

SO ORDERED.38ςrνll

Not satisfied, petitioner moved for reconsideration of the Decision but the Motion39ςrνll was denied in
an Order40ςrνll dated February 12, 2007.

Issue

Instead of appealing the Decision to the Court of Appeals (CA), petitioner opted to file the instant petition
directly with this Court on a pure question of law, to wit:
WHETHER X X X THE ACTION OF THE RTC BRANCH 18 X X X IN ORDERING THE RECOVERY OF POSSESSION
BY PETITIONER subject to the latters payment of their total monthly installments and the value of the new
house minus the cost of the original house IS CONTRARY TO LAW AND JURISPRUDENCE X X X.41ςrνll

Petitioners Arguments

Petitioner seeks to delete from the dispositive portion the order requiring petitioner to reimburse
respondent-spouses the total monthly installments they had paid and the value of the new house minus
the cost of the original house.42ςrνll Petitioner claims that there is no legal basis for the RTC to require
petitioner to reimburse the cost of the new house because respondent-spouses were in bad faith when
they renovated and improved the house, which was not yet their own.43ςrνll Petitioner further contends
that instead of ordering mutual restitution by the parties, the RTC should have applied Republic Act No.
6552, otherwise known as the Maceda Law,44ςrνll and that instead of awarding respondent-spouses a
refund of all their monthly amortization payments, the RTC should have ordered them to pay petitioner
monthly rentals.45ςrνll

Respondent Angeles Arguments

Instead of answering the legal issue raised by petitioner, respondent Angeles asks for a review of the
Decision of the RTC by interposing additional issues.46ςrνll She maintains that the Deed of Absolute Sale
is valid.47ςrνll Thus, the RTC erred in cancelling TCT Nos. 105202 and 105203.

Our Ruling

The petition is partly meritorious.

At the outset, we must make it clear that the issues raised by respondent Angeles may not be entertained.
For failing to file an appeal, she is bound by the Decision of the RTC. Well entrenched is the rule that "a
party who does not appeal from a judgment can no longer seek modification or reversal of the same. He
may oppose the appeal of the other party only on grounds consistent with the judgment."48ςrνll For this
reason, respondent Angeles may no longer question the propriety and correctness of the annulment of
the Deed of Absolute Sale, the cancellation of TCT Nos. 105202 and 105203, and the order to vacate the
property.

Hence, the only issue that must be resolved in this case is whether the RTC erred in ordering petitioner to
reimburse respondent-spouses the "total monthly installments and the value of the new house minus the
cost of the original house."49ςrνll Otherwise stated, the issues for our resolution are:

1) Whether petitioner is obliged to refund to respondent-spouses all the monthly installments paid; and

2) Whether petitioner is obliged to reimburse respondent-spouses the value of the new house minus the
cost of the original house.

Respondent-spouses are entitled to the cash surrender value of the payments on the property equivalent
to 50% of the total payments made. Considering that this case stemmed from a Contract to Sell executed
by the petitioner and the respondent-spouses, we agree with petitioner that the Maceda Law, which
governs sales of real estate on installment, should be applied.

Sections 3, 4, and 5 of the Maceda Law provide for the rights of a defaulting buyer, to wit:
Section 3. In all transactions or contracts involving the sale or financing of real estate on installment
payments, including residential condominium apartments but excluding industrial lots, commercial
buildings and sales to tenants under Republic Act Numbered Thirty-eight hundred forty-four, as amended
by Republic Act Numbered Sixty-three hundred eighty-nine, where the buyer has paid at least two years
of installments, the buyer is entitled to the following rights in case he defaults in the payment of
succeeding installments:

(a) To pay, without additional interest, the unpaid installments due within the total grace period earned
by him which is hereby fixed at the rate of one month grace period for every one year of installment
payments made: Provided, That this right shall be exercised by the buyer only once in every five years of
the life of the contract and its extensions, if any.

(b) If the contract is canceled, the seller shall refund to the buyer the cash surrender value of the payments
on the property equivalent to fifty percent of the total payments made, and, after five years of
installments, an additional five per cent every year but not to exceed ninety per cent of the total payments
made: Provided, That the actual cancellation of the contract shall take place after thirty days from receipt
by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act
and upon full payment of the cash surrender value to the buyer.

Down payments, deposits or options on the contract shall be included in the computation of the total
number of installment payments made. (Emphasis supplied.)

Section 4. In case where less than two years of installments were paid, the seller shall give the buyer a
grace period of not less than sixty days from the date the installment became due.

If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel
the contract after thirty days from receipt by the buyer of the notice of cancellation or the demand for
rescission of the contract by a notarial act.

Section 5. Under Sections 3 and 4, the buyer shall have the right to sell his rights or assign the same to
another person or to reinstate the contract by updating the account during the grace period and before
actual cancellation of the contract. The deed of sale or assignment shall be done by notarial act.

In this connection, we deem it necessary to point out that, under the Maceda Law, the actual cancellation
of a contract to sell takes place after 30 days from receipt by the buyer of the notarized notice of
cancellation,50ςrνll and upon full payment of the cash surrender value to the buyer.51ςrνll In other
words, before a contract to sell can be validly and effectively cancelled, the seller has (1) to send a
notarized notice of cancellation to the buyer and (2) to refund the cash surrender value.52ςrνll Until and
unless the seller complies with these twin mandatory requirements, the contract to sell between the
parties remains valid and subsisting.53ςrνll Thus, the buyer has the right to continue occupying the
property subject of the contract to sell,54ςrνll and may "still reinstate the contract by updating the
account during the grace period and before the actual cancellation"55ςrνll of the contract.

In this case, petitioner complied only with the first condition by sending a notarized notice of cancellation
to the respondent-spouses. It failed, however, to refund the cash surrender value to the respondent-
spouses. Thus, the Contract to Sell remains valid and subsisting and supposedly, respondent-spouses have
the right to continue occupying the subject property. Unfortunately, we cannot reverse the Decision of
the RTC directing respondent-spouses to vacate and turnover possession of the subject property to
petitioner because respondent-spouses never appealed the order. The RTC Decision as to respondent-
spouses is therefore considered final.

In addition, in view of respondent-spouses failure to appeal, they can no longer reinstate the contract by
updating the account. Allowing them to do so would be unfair to the other party and is offensive to the
rules of fair play, justice, and due process. Thus, based on the factual milieu of the instant case, the most
that we can do is to order the return of the cash surrender value. Since respondent-spouses paid at least
two years of installment,56ςrνll they are entitled to receive the cash surrender value of the payments
they had made which, under Section 3(b) of the Maceda Law, is equivalent to 50% of the total payments
made.

Respondent-spouses are entitled to reimbursement of the improvements made on the property.

Petitioner posits that Article 448 of the Civil Code does not apply and that respondent-spouses are not
entitled to reimbursement of the value of the improvements made on the property because they were
builders in bad faith. At the outset, we emphasize that the issue of whether respondent-spouses are
builders in good faith or bad faith is a factual question, which is beyond the scope of a petition filed under
Rule 45 of the Rules of Court.57ςrνll In fact, petitioner is deemed to have waived all factual issues since
it appealed the case directly to this Court,58ςrνll instead of elevating the matter to the CA. It has likewise
not escaped our attention that after their failed preliminary conference, the parties agreed to submit the
case for resolution based on the pleadings and exhibits presented. No trial was conducted. Thus, it is too
late for petitioner to raise at this stage of the proceedings the factual issue of whether respondent-
spouses are ilders in bad faith. Hence, in view of the special circumstances obtaining in this case, we are
constrained to rely on the presumption of good faith on the part of the respondent-spouses which the
petitioner failed to rebut. Thus, respondent-spouses being presumed builders in good faith, we now rule
on the applicability of Article 448 of the Civil Code.

As a general rule, Article 448 on builders in good faith does not apply where there is a contractual relation
between the parties,59ςrνll such as in the instant case. We went over the records of this case and we
note that the parties failed to attach a copy of the Contract to Sell. As such, we are constrained to apply
Article 448 of the Civil Code, which provides viz:

ART. 448. The owner of the land on which anything has been built, sown or planted in good faith, shall
have the right to appropriate as his own the works, sowing or planting, after payment of the indemnity
provided for in Articles 546 and 548, or to oblige the one who built or planted to pay the price of the land,
and the one who sowed, the proper rent. However, the builder or planter cannot be obliged to buy the
land if its value is considerably more than that of the building or trees. In such case, he shall pay reasonable
rent, if the owner of the land does not choose to appropriate the building or trees after proper indemnity.
The parties shall agree upon the terms of the lease and in case of disagreement, the court shall fix the
terms thereof.

Article 448 of the Civil Code applies when the builder believes that he is the owner of the land or that by
some title he has the right to build thereon,60ςrνll or that, at least, he has a claim of title thereto.61ςrνll
Concededly, this is not present in the instant case. The subject property is covered by a Contract to Sell
hence ownership still remains with petitioner being the seller. Nevertheless, there were already instances
where this Court applied Article 448 even if the builders do not have a claim of title over the property.
Thus: This Court has ruled that this provision covers only cases in which the builders, sowers or planters
believe themselves to be owners of the land or, at least, to have a claim of title thereto. It does not apply
when the interest is merely that of a holder, such as a mere tenant, agent or usufructuary. From these
pronouncements, good faith is identified by the belief that the land is owned; or that by some title one
has the right to build, plant, or sow thereon.

However, in some special cases, this Court has used Article 448 by recognizing good faith beyond this
limited definition. Thus, in Del Campo v. Abesia, this provision was applied to one whose house despite
having been built at the time he was still co-owner overlapped with the land of another. This article was
also applied to cases wherein a builder had constructed improvements with the consent of the owner.
The Court ruled that the law deemed the builder to be in good faith. In Sarmiento v. Agana, the builders
were found to be in good faith despite their reliance on the consent of another, whom they had mistakenly
believed to be the owner of the land.62ςrνll

The Court likewise applied Article 448 in Spouses Macasaet v. Spouses Macasaet63ςrνll notwithstanding
the fact that the builders therein knew they were not the owners of the land. In said case, the parents
who owned the land allowed their son and his wife to build their residence and business thereon. As found
by this Court, their occupation was not by mere tolerance but "upon the invitation of and with the
complete approval of (their parents), who desired that their children would occupy the premises. It arose
from familial love and a desire for family solidarity x x x."64ςrνll Soon after, conflict between the parties
arose. The parents demanded their son and his wife to vacate the premises. The Court thus ruled that as
owners of the property, the parents have the right to possession over it. However, they must reimburse
their son and his wife for the improvements they had introduced on the property because they were
considered builders in good faith even if they knew for a fact that they did not own the property, thus:

Based on the aforecited special cases, Article 448 applies to the present factual milieu. The established
facts of this case show that respondents fully consented to the improvements introduced by petitioners.
In fact, because the children occupied the lots upon their invitation, the parents certainly knew and
approved of the construction of the improvements introduced thereon. Thus, petitioners may be deemed
to have been in good faith when they built the structures on those lots.

The instant case is factually similar to Javier v. Javier. In that case, this Court deemed the son to be in good
faith for building the improvement (the house) with the knowledge and consent of his father, to whom
belonged the land upon which it was built. Thus, Article 448 was applied.65ςrνll

In fine, the Court applied Article 448 by construing good faith beyond its limited definition. We find no
reason not to apply the Courts ruling in Spouses Macasaet v. Spouses Macasaet in this case. We thus hold
that Article 448 is also applicable to the instant case. First, good faith is presumed on the part of the
respondent-spouses. Second, petitioner failed to rebut this presumption. Third, no evidence was
presented to show that petitioner opposed or objected to the improvements introduced by the
respondent-spouses. Consequently, we can validly presume that petitioner consented to the
improvements being constructed. This presumption is bolstered by the fact that as the subdivision
developer, petitioner must have given the respondent-spouses permits to commence and undertake the
construction. Under Article 453 of the Civil Code, "it is understood that there is bad faith on the part of
the landowner whenever the act was done with his knowledge and without opposition on his part."
In view of the foregoing, we find no error on the part of the RTC in requiring petitioner to pay respondent-
spouses the value of the new house minus the cost of the old house based on Article 448 of the Civil Code,
subject to succeeding discussions.

Petitioner has two options under Article 448 and pursuant to the ruling in

Tuatis v. Escol.66ςrνll

In Tuatis, we ruled that the seller (the owner of the land) has two options under Article 448: (1) he may
appropriate the improvements for himself after reimbursing the buyer (the builder in good faith) the
necessary and useful expenses under Articles 54667ςrνll and 54868ςrνll of the Civil Code; or (2) he may
sell the land to the buyer, unless its value is considerably more than that of the improvements, in which
case, the buyer shall pay reasonable rent.69ςrνll Quoted below are the pertinent portions of our ruling
in that case:chanroblesvirtuallawlibrary

Taking into consideration the provisions of the Deed of Sale by Installment and Article 448 of the Civil
Code, Visminda has the following options:chanroblesvirtuallawlibrary

Under the first option, Visminda may appropriate for herself the building on the subject property after
indemnifying Tuatis for the necessary and useful expenses the latter incurred for said building, as provided
in Article 546 of the Civil Code.

It is worthy to mention that in Pecson v. Court of Appeals, the Court pronounced that the amount to be
refunded to the builder under Article 546 of the Civil Code should be the current market value of the
improvement, thus:

Until Visminda appropriately indemnifies Tuatis for the building constructed by the latter, Tuatis may
retain possession of the building and the subject property.

Under the second option, Visminda may choose not to appropriate the building and, instead, oblige Tuatis
to pay the present or current fair value of the land. The P10,000.00 price of the subject property, as stated
in the Deed of Sale on Installment executed in November 1989, shall no longer apply, since Visminda will
be obliging Tuatis to pay for the price of the land in the exercise of Vismindas rights under Article 448 of
the Civil Code, and not under the said Deed. Tuatis obligation will then be statutory, and not contractual,
arising only when Visminda has chosen her option under Article 448 of the Civil Code.

Still under the second option, if the present or current value of the land, the subject property herein, turns
out to be considerably more than that of the building built thereon, Tuatis cannot be obliged to pay for
the subject property, but she must pay Visminda reasonable rent for the same. Visminda and Tuatis must
agree on the terms of the lease; otherwise, the court will fix the terms.

Necessarily, the RTC should conduct additional proceedings before ordering the execution of the
judgment in Civil Case No. S-618. Initially, the RTC should determine which of the aforementioned options
Visminda will choose. Subsequently, the RTC should ascertain: (a) under the first option, the amount of
indemnification Visminda must pay Tuatis; or (b) under the second option, the value of the subject
property vis-vis that of the building, and depending thereon, the price of, or the reasonable rent for, the
subject property, which Tuatis must pay Visminda.
The Court highlights that the options under Article 448 are available to Visminda, as the owner of the
subject property. There is no basis for Tuatis demand that, since the value of the building she constructed
is considerably higher than the subject property, she may choose between buying the subject property
from Visminda and selling the building to Visminda for P502,073.00. Again, the choice of options is for
Visminda, not Tuatis, to make. And, depending on Vismindas choice, Tuatis rights as a builder under Article
448 are limited to the following: (a) under the first option, a right to retain the building and subject
property until Visminda pays proper indemnity; and (b) under the second option, a right not to be obliged
to pay for the price of the subject property, if it is considerably higher than the value of the building, in
which case, she can only be obliged to pay reasonable rent for the same.

The rule that the choice under Article 448 of the Civil Code belongs to the owner of the land is in accord
with the principle of accession, i.e., that the accessory follows the principal and not the other way around.
Even as the option lies with the landowner, the grant to him, nevertheless, is preclusive. The landowner
cannot refuse to exercise either option and compel instead the owner of the building to remove it from
the land.

The raison detre for this provision has been enunciated thus: Where the builder, planter or sower has
acted in good faith, a conflict of rights arises between the owners, and it becomes necessary to protect
the owner of the improvements without causing injustice to the owner of the land. In view of the
impracticability of creating a state of forced co-ownership, the law has provided a just solution by giving
the owner of the land the option to acquire the improvements after payment of the proper indemnity, or
to oblige the builder or planter to pay for the land and the sower the proper rent. He cannot refuse to
exercise either option. It is the owner of the land who is authorized to exercise the option, because his
right is older, and because, by the principle of accession, he is entitled to the ownership of the accessory
thing.

Vismindas Motion for Issuance of Writ of Execution cannot be deemed as an expression of her choice to
recover possession of the subject property under the first option, since the options under Article 448 of
the Civil Code and their respective consequences were also not clearly presented to her by the 19 April
1999 Decision of the RTC. She must then be given the opportunity to make a choice between the options
available to her after being duly informed herein of her rights and obligations under both.70ςrνll
(Emphasis supplied.)

In conformity with the foregoing pronouncement, we hold that petitioner, as landowner, has two options.
It may appropriate the new house by reimbursing respondent Angeles the current market value thereof
minus the cost of the old house. Under this option, respondent Angeles would have "a right of retention
which negates the obligation to pay rent."71ςrνll In the alternative, petitioner may sell the lots to
respondent Angeles at a price equivalent to the current fair value thereof. However, if the value of the
lots is considerably more than the value of the improvement, respondent Angeles cannot be compelled
to purchase the lots. She can only be obliged to pay petitioner reasonable rent.

In view of the foregoing disquisition and in accordance with Depra v. Dumlao72ςrνll and Technogas
Philippines Manufacturing Corporation v. Court of Appeals,73ςrνll we find it necessary to remand this
case to the court of origin for the purpose of determining matters necessary for the proper application of
Article 448, in relation to Articles 546 and 548 of the Civil Code.
WHEREFORE, the petition is hereby PARTIALLY GRANTED. The assailed Decision dated December 29, 2006
and the Order dated February 12, 2007 of the Regional Trial Court, Cagayan de Oro City, Branch 18, in Civil
Case No. 2005-158 are hereby AFFIRMED with MODIFICATION that petitioner Communities Cagayan, Inc.
is hereby ordered to RETURN the cash surrender value of the payments made by respondent-spouses on
the properties, which is equivalent to 50% of the total payments made, in ccordance with Section 3(b) of
Republic Act No. 6552, otherwise known as the Maceda Law.

The case is hereby REMANDED to the Regional Trial Court, Cagayan de Oro City, Branch 18, for further
proceedings consistent with the proper application of Articles 448, 546 and 548 of the Civil Code, as
follows:chanroblesvirtuallawlibrary

1. The trial court shall determine:

a) the present or current fair value of the lots;

b) the current market value of the new house;

c) the cost of the old house; and

d) whether the value of the lots is considerably more than the current market value of the new house
minus the cost of the old house.

2. After said amounts shall have been determined by competent evidence, the trial court shall render
judgment as follows:

a) Petitioner shall be granted a period of 15 days within which to exercise its option under the law (Article
448, Civil Code), whether to appropriate the new house by paying to respondent Angeles the current
market value of the new house minus the cost of the old house, or to oblige respondent Angeles to pay
the price of the lots. The amounts to be respectively paid by the parties, in accordance with the option
thus exercised by written notice to the other party and to the court, shall be paid by the obligor within 15
days from such notice of the option by tendering the amount to the trial court in favor of the party entitled
to receive it.

b) If petitioner exercises the option to oblige respondent Angeles to pay the price of the lots but the latter
rejects such purchase because, as found by the trial court, the value of the lots is considerably more than
the value of the new house minus the cost of the old house, respondent Angeles shall give written notice
of such rejection to petitioner and to the trial court within 15 days from notice of petitioners option to
sell the land. In that event, the parties shall be given a period of 15 days from such notice of rejection
within which to agree upon the terms of the lease, and give the trial court formal written notice of the
agreement and its provisos. If no agreement is reached by the parties, the trial court, within 15 days from
and after the termination of the said period fixed for negotiation, shall then fix the period and terms of
the lease, including the monthly rental, which shall be payable within the first five days of each calendar
month. Respondent Angeles shall not make any further constructions or improvements on the building.
Upon expiration of the period, or upon default by respondent Angeles in the payment of rentals for two
consecutive months, petitioner shall be entitled to terminate the forced lease, to recover its land, and to
have the new house removed by respondent Angeles or at the latters expense.

c) In any event, respondent Angeles shall pay petitioner reasonable compensation for the occupancy of
the property for the period counted from the time the Decision dated December 29, 2006 became final
as to respondent Angeles or 15 days after she received a copy of the said Decision up to the date petitioner
serves notice of its option to appropriate the encroaching structures, otherwise up to the actual transfer
of ownership to respondent Angeles or, in case a forced lease has to be imposed, up to the
commencement date of the forced lease referred to in the preceding paragraph.

d) The periods to be fixed by the trial court in its decision shall be nonextendible, and upon failure of the
party obliged to tender to the trial court the amount due to the obligee, the party entitled to such payment
shall be entitled to an order of execution for the enforcement of payment of the amount due and for
compliance with such other acts as may be required by the prestation due the obligee.

SO ORDERED.
G.R. No. 198075 September 4, 2013

KOPPEL, INC. (formerly known as KPL AIRCON, INC.), Petitioner, vs. MAKATI ROTARY CLUB
FOUNDATION, INC., Respondent.

DECISION

PEREZ, J.:

This case is an appeal1 from the Decision2 dated 19 August 2011 of the Court of Appeals in C.A.-G.R. SP
No. 116865.

The facts:

The Donation

Fedders Koppel, Incorporated (FKI), a manufacturer of air-conditioning products, was the registered
owner of a parcel of land located at Km. 16, South Superhighway, Parañaque City (subject land).3 Within
the subject land are buildings and other improvements dedicated to the business of FKI.4

In 1975, FKI5 bequeathed the subject land (exclusive of the improvements thereon) in favor of herein
respondent Makati Rotary Club Foundation, Incorporated by way of a conditional donation.6 The
respondent accepted the donation with all of its conditions.7 On 26 May1975, FKI and the respondent
executed a Deed of Donation8 evidencing their consensus.

The Lease and the Amended Deed of Donation

One of the conditions of the donation required the respondent to lease the subject land back to FKI under
terms specified in their Deed of Donation.9 With the respondent’s acceptance of the donation, a lease
agreement between FKI and the respondent was, therefore, effectively incorporated in the Deed of
Donation.

Pertinent terms of such lease agreement, as provided in the Deed of Donation , were as follows:

1. The period of the lease is for twenty-five (25) years,10 or until the 25th of May 2000;

2. The amount of rent to be paid by FKI for the first twenty-five (25) years is ₱40,126.00 per annum .11

The Deed of Donation also stipulated that the lease over the subject property is renewable for another
period of twenty-five (25) years " upon mutual agreement" of FKI and the respondent.12 In which case,
the amount of rent shall be determined in accordance with item 2(g) of the Deed of Donation, viz:

g. The rental for the second 25 years shall be the subject of mutual agreement and in case of disagreement
the matter shall be referred to a Board of three Arbitrators appointed and with powers in accordance with
the Arbitration Law of the Philippines, Republic Act 878, whose function shall be to decide the current fair
market value of the land excluding the improvements, provided, that, any increase in the fair market value
of the land shall not exceed twenty five percent (25%) of the original value of the land donated as stated
in paragraph 2(c) of this Deed. The rental for the second 25 years shall not exceed three percent (3%) of
the fair market value of the land excluding the improvements as determined by the Board of
Arbitrators.13
In October 1976, FKI and the respondent executed an Amended Deed of Donation14 that reiterated the
provisions of the Deed of Donation , including those relating to the lease of the subject land.

Verily, by virtue of the lease agreement contained in the Deed of Donation and Amended Deed of
Donation , FKI was able to continue in its possession and use of the subject land.

2000 Lease Contract

Two (2) days before the lease incorporated in the Deed of Donation and Amended Deed of Donation was
set to expire, or on 23 May 2000, FKI and respondent executed another contract of lease ( 2000 Lease
Contract )15 covering the subject land. In this 2000 Lease Contract, FKI and respondent agreed on a new
five-year lease to take effect on the 26th of May 2000, with annual rents ranging from ₱4,000,000 for the
first year up to ₱4,900,000 for the fifth year.16 The 2000 Lease Contract also contained an arbitration
clause enforceable in the event the parties come to disagreement about the" interpretation, application
and execution" of the lease, viz :

19. Governing Law – The provisions of this 2000 Lease Contract shall be governed, interpreted and
construed in all aspects in accordance with the laws of the Republic of the Philippines.

Any disagreement as to the interpretation, application or execution of this 2000 Lease Contract shall be
submitted to a board of three (3) arbitrators constituted in accordance with the arbitration law of the
Philippines. The decision of the majority of the arbitrators shall be binding upon FKI and respondent.17
(Emphasis supplied)

2005 Lease Contract

After the 2000 Lease Contract expired, FKI and respondent agreed to renew their lease for another five
(5) years. This new lease (2005 Lease Contract )18 required FKI to pay a fixed annual rent of ₱4,200,000.19
In addition to paying the fixed rent, however, the 2005 Lease Contract also obligated FKI to make a yearly
" donation " of money to the respondent.20 Such donations ranged from ₱3,000,000 for the first year up
to ₱3,900,000for the fifth year.21 Notably, the 2005 Lease Contract contained an arbitration clause similar
to that in the 2000 Lease Contract, to wit:

19. Governing Law – The provisions of this 2005 Lease Contract shall be governed, interpreted and
construed in all aspects in accordance with the laws of the Republic of the Philippines.

Any disagreement as to the interpretation, application or execution of this 2005 Lease Contract shall be
submitted to a board of three (3) arbitrators constituted in accordance with the arbitration law of the
Philippines. The decision of the majority of the arbitrators shall be binding upon FKI and respondent.22
(Emphasis supplied)

The Assignment and Petitioner’s Refusal to Pay

From 2005 to 2008, FKI faithfully paid the rentals and " donations "due it per the 2005 Lease Contract.23
But in June of 2008, FKI sold all its rights and properties relative to its business in favor of herein petitioner
Koppel, Incorporated.24 On 29 August 2008, FKI and petitioner executed an Assignment and Assumption
of Lease and Donation25 —wherein FKI, with the conformity of the respondent, formally assigned all of
its interests and obligations under the Amended Deed of Donation and the 2005 Lease Contract in favor
of petitioner.
The following year, petitioner discontinued the payment of the rent and " donation " under the 2005
Lease Contract.

Petitioner’s refusal to pay such rent and "donation " emanated from its belief that the rental stipulations
of the 2005 Lease Contract, and even of the 2000 Lease Contract, cannot be given effect because they
violated one of the" material conditions " of the donation of the subject land, as stated in the Deed of
Donation and Amended Deed of Donation.26

According to petitioner, the Deed of Donation and Amended Deed of Donation actually established not
only one but two (2) lease agreements between FKI and respondent, i.e. , one lease for the first twenty-
five (25)years or from 1975 to 2000, and another lease for the next twenty-five (25)years thereafter or
from 2000 to 2025. 27 Both leases are material conditions of the donation of the subject land.

Petitioner points out that while a definite amount of rent for the second twenty-five (25) year lease was
not fixed in the Deed of Donation and Amended Deed of Donation , both deeds nevertheless prescribed
rules and limitations by which the same may be determined. Such rules and limitations ought to be
observed in any succeeding lease agreements between petitioner and respondent for they are, in
themselves, material conditions of the donation of the subject land.28

In this connection, petitioner cites item 2(g) of the Deed of Donation and Amended Deed of Donation that
supposedly limits the amount of rent for the lease over the second twenty-five (25) years to only " three
percent (3%) of the fair market value of the subject land excluding the improvements.29

For petitioner then, the rental stipulations of both the 2000 Lease Contract and 2005 Lease Contract
cannot be enforced as they are clearly, in view of their exorbitant exactions, in violation of the
aforementioned threshold in item 2(g) of the Deed of Donation and Amended Deed of Donation .
Consequently, petitioner insists that the amount of rent it has to pay thereon is and must still be governed
by the limitations prescribed in the Deed of Donation and Amended Deed of Donation.30

The Demand Letters

On 1 June 2009, respondent sent a letter (First Demand Letter)31 to petitioner notifying the latter of its
default " per Section 12 of the 2005 Lease Contract " and demanding for the settlement of the rent and "
donation " due for the year 2009. Respondent, in the same letter, further intimated of canceling the 2005
Lease Contract should petitioner fail to settle the said obligations.32 Petitioner received the First Demand
Letter on2 June 2009.33

On 22 September 2009, petitioner sent a reply34 to respondent expressing its disagreement over the
rental stipulations of the 2005 Lease Contract — calling them " severely disproportionate,"
"unconscionable" and "in clear violation to the nominal rentals mandated by the Amended Deed of
Donation." In lieu of the amount demanded by the respondent, which purportedly totaled to
₱8,394,000.00, exclusive of interests, petitioner offered to pay only ₱80,502.79,35 in accordance with the
rental provisions of the Deed of Donation and Amended Deed of Donation.36 Respondent refused this
offer.37

On 25 September 2009, respondent sent another letter (Second Demand Letter)38 to petitioner,
reiterating its demand for the payment of the obligations already due under the 2005 Lease Contract. The
Second Demand Letter also contained a demand for petitioner to " immediately vacate the leased
premises " should it fail to pay such obligations within seven (7) days from its receipt of the letter.39 The
respondent warned of taking " legal steps " in the event that petitioner failed to comply with any of the
said demands.40 Petitioner received the Second Demand Letter on 26September 2009.41

Petitioner refused to comply with the demands of the respondent. Instead, on 30 September 2009,
petitioner filed with the Regional Trial Court (RTC) of Parañaque City a complaint42 for the rescission or
cancellation of the Deed of Donation and Amended Deed of Donation against the respondent. This case
is currently pending before Branch 257 of the RTC, docketed as Civil Case No. CV 09-0346.

The Ejectment Suit

On 5 October 2009, respondent filed an unlawful detainer case43 against the petitioner before the
Metropolitan Trial Court (MeTC) of Parañaque City. The ejectment case was raffled to Branch 77 and was
docketed as Civil Case No. 2009-307.

On 4 November 2009, petitioner filed an Answer with Compulsory Counterclaim.44 In it, petitioner
reiterated its objection over the rental stipulations of the 2005 Lease Contract for being violative of the
material conditions of the Deed of Donation and Amended Deed of Donation.45 In addition to the
foregoing, however, petitioner also interposed the following defenses:

1. The MeTC was not able to validly acquire jurisdiction over the instant unlawful detainer case in view of
the insufficiency of respondent’s demand.46 The First Demand Letter did not contain an actual demand
to vacate the premises and, therefore, the refusal to comply there with does not give rise to an action for
unlawful detainer.47

2. Assuming that the MeTC was able to acquire jurisdiction, it may not exercise the same until the
disagreement between the parties is first referred to arbitration pursuant to the arbitration clause of the
2005 Lease Contract.48

3. Assuming further that the MeTC has jurisdiction that it can exercise, ejectment still would not lie as the
2005 Lease Contract is void abinitio.49 The stipulation in the 2005 Lease Contract requiring petitioner to
give yearly " donations " to respondent is a simulation, for they are, in fact, parts of the rent. 50 Such
grants were only denominated as " donations " in the contract so that the respondent—anon-stock and
non-profit corporation—could evade payment of the taxes otherwise due thereon.51

In due course, petitioner and respondent both submitted their position papers, together with their other
documentary evidence.52 Remarkably, however, respondent failed to submit the Second Demand Letter
as part of its documentary evidence.

Rulings of the MeTC, RTC and Court of Appeals

On 27 April 2010, the MeTC rendered judgment53 in favor of the petitioner. While the MeTC refused to
dismiss the action on the ground that the dispute is subject to arbitration, it nonetheless sided with the
petitioner with respect to the issues regarding the insufficiency of the respondent’s demand and the
nullity of the 2005 Lease Contract.54 The MeTC thus disposed:

WHEREFORE, judgment is hereby rendered dismissing the case x x x, without pronouncement as to costs.

SO ORDERED.5
The respondent appealed to the Regional Trial Court (RTC). This appeal was assigned to Branch 274 of the
RTC of Parañaque City and was docketed as Civil Case No. 10-0255.

On 29 October 2010, the RTC reversed56 the MeTC and ordered the eviction of the petitioner from the
subject land:

WHEREFORE, all the foregoing duly considered, the appealed Decision of the Metropolitan Trial Court,
Branch 77, Parañaque City, is hereby reversed, judgment is thus rendered in favor of the plaintiff-appellant
and against the defendant-appellee, and ordering the latter –

(1) to vacate the lease[d] premises made subject of the case and to restore the possession thereof to the
plaintiff-appellant;

(2) to pay to the plaintiff-appellant the amount of Nine Million Three Hundred Sixty Two Thousand Four
Hundred Thirty Six Pesos (₱9,362,436.00), penalties and net of 5% withholding tax, for the lease period
from May 25, 2009 to May 25, 2010 and such monthly rental as will accrue during the pendency of this
case;

(3) to pay attorney’s fees in the sum of ₱100,000.00 plus appearance fee of ₱3,000.00;

(4) and costs of suit.

As to the existing improvements belonging to the defendant-appellee, as these were built in good faith,
the provisions of Art. 1678of the Civil Code shall apply.

SO ORDERED.57

The ruling of the RTC is premised on the following ratiocinations:

1. The respondent had adequately complied with the requirement of demand as a jurisdictional precursor
to an unlawful detainer action.58 The First Demand Letter, in substance, contains a demand for petitioner
to vacate when it mentioned that it was a notice " per Section12 of the 2005 Lease Contract."59 Moreover,
the issue of sufficiency of the respondent’s demand ought to have been laid to rest by the Second Demand
Letter which, though not submitted in evidence, was nonetheless admitted by petitioner as containing a"
demand to eject " in its Answer with Compulsory Counterclaim.60

2. The petitioner cannot validly invoke the arbitration clause of the 2005 Lease Contract while, at the same
time, impugn such contract’s validity.61 Even assuming that it can, petitioner still did not file a formal
application before the MeTC so as to render such arbitration clause operational.62 At any rate, the MeTC
would not be precluded from exercising its jurisdiction over an action for unlawful detainer, over which,
it has exclusive original jurisdiction.63

3. The 2005 Lease Contract must be sustained as a valid contract since petitioner was not able to adduce
any evidence to support its allegation that the same is void.64 There was, in this case, no evidence that
respondent is guilty of any tax evasion.65

Aggrieved, the petitioner appealed to the Court of Appeals.

On 19 August 2011, the Court of Appeals affirmed66 the decision of the RTC:
WHEREFORE , the petition is DENIED . The assailed Decision of the Regional Trial Court of Parañaque City,
Branch 274, in Civil Case No. 10-0255 is AFFIRMED. SO ORDERED.67

Hence, this appeal.

On 5 September 2011, this Court granted petitioner’s prayer for the issuance of a Temporary Restraining
Order68 staying the immediate implementation of the decisions adverse to it.

OUR RULING

Independently of the merits of the case, the MeTC, RTC and Court of Appeals all erred in overlooking the
significance of the arbitration clause incorporated in the 2005 Lease Contract . As the Court sees it, that
is a fatal mistake.

For this reason, We grant the petition.

Present Dispute is Arbitrable Under the

Arbitration Clause of the 2005 Lease

Agreement Contract

Going back to the records of this case, it is discernable that the dispute between the petitioner and
respondent emanates from the rental stipulations of the 2005 Lease Contract. The respondent insists
upon the enforce ability and validity of such stipulations, whereas, petitioner, in substance, repudiates
them. It is from petitioner’s apparent breach of the 2005 Lease Contract that respondent filed the instant
unlawful detainer action.

One cannot escape the conclusion that, under the foregoing premises, the dispute between the petitioner
and respondent arose from the application or execution of the 2005 Lease Contract . Undoubtedly, such
kinds of dispute are covered by the arbitration clause of the 2005 Lease Contract to wit:

19. Governing Law – The provisions of this 2005 Lease Contract shall be governed, interpreted and
construed in all aspects in accordance with the laws of the Republic of the Philippines.

Any disagreement as to the interpretation, application or execution of this 2005 Lease Contract shall be
submitted to a board of three (3) arbitrators constituted in accordance with the arbitration law of the
Philippines. The decision of the majority of the arbitrators shall be binding upon FKI and respondent.69
(Emphasis supplied)

The arbitration clause of the 2005 Lease Contract stipulates that "any disagreement" as to the "
interpretation, application or execution " of the 2005 Lease Contract ought to be submitted to
arbitration.70 To the mind of this Court, such stipulation is clear and is comprehensive enough so as to
include virtually any kind of conflict or dispute that may arise from the 2005 Lease Contract including the
one that presently besets petitioner and respondent.

The application of the arbitration clause of the 2005 Lease Contract in this case carries with it certain legal
effects. However, before discussing what these legal effects are, We shall first deal with the challenges
posed against the application of such arbitration clause.

Challenges Against the Application of the


Arbitration Clause of the 2005 Lease

Contract

Curiously, despite the lucidity of the arbitration clause of the 2005 Lease Contract, the petitioner, as well
as the MeTC, RTC and the Court of Appeals, vouched for the non-application of the same in the instant
case. A plethora of arguments was hurled in favor of bypassing arbitration. We now address them.

At different points in the proceedings of this case, the following arguments were offered against the
application of the arbitration clause of the 2005 Lease Contract:

1. The disagreement between the petitioner and respondent is non-arbitrable as it will inevitably touch
upon the issue of the validity of the 2005 Lease Contract.71 It was submitted that one of the reasons
offered by the petitioner in justifying its failure to pay under the 2005 Lease Contract was the nullity of
such contract for being contrary to law and public policy.72 The Supreme Court, in Gonzales v. Climax
Mining, Ltd.,73 held that " the validity of contract cannot be subject of arbitration proceedings " as such
questions are " legal in nature and require the application and interpretation of laws and jurisprudence
which is necessarily a judicial function ." 74

2. The petitioner cannot validly invoke the arbitration clause of the 2005 Lease Contract while, at the same
time, impugn such contract’s validity.75

3. Even assuming that it can invoke the arbitration clause whilst denying the validity of the 2005 Lease
Contract , petitioner still did not file a formal application before the MeTC so as to render such arbitration
clause operational.76 Section 24 of Republic Act No. 9285 requires the party seeking arbitration to first
file a " request " or an application therefor with the court not later than the preliminary conference.77

4. Petitioner and respondent already underwent Judicial Dispute Resolution (JDR) proceedings before the
RTC.78 Hence, a further referral of the dispute to arbitration would only be circuitous.79 Moreover, an
ejectment case, in view of its summary nature, already fulfills the prime purpose of arbitration, i.e. , to
provide parties in conflict with an expedient method for the resolution of their dispute.80 Arbitration then
would no longer be necessary in this case.81

None of the arguments have any merit.

First. As highlighted in the previous discussion, the disagreement between the petitioner and respondent
falls within the all-encompassing terms of the arbitration clause of the 2005 Lease Contract. While it may
be conceded that in the arbitration of such disagreement, the validity of the 2005 Lease Contract, or at
least, of such contract’s rental stipulations would have to be determined, the same would not render such
disagreement non-arbitrable. The quotation from Gonzales that was used to justify the contrary position
was taken out of context. A rereading of Gonzales would fix its relevance to this case.

In Gonzales, a complaint for arbitration was filed before the Panel of Arbitrators of the Mines and
Geosciences Bureau (PA-MGB) seeking the nullification of a Financial Technical Assistance Agreement and
other mining related agreements entered into by private parties.82

Grounds invoked for the nullification of such agreements include fraud and unconstitutionality.83 The
pivotal issue that confronted the Court then was whether the PA-MGB has jurisdiction over that particular
arbitration complaint. Stated otherwise, the question was whether the complaint for arbitration raises
arbitrable issues that the PA-MGB can take cognizance of.

Gonzales decided the issue in the negative. In holding that the PA-MGB was devoid of any jurisdiction to
take cognizance of the complaint for arbitration, this Court pointed out to the provisions of R.A. No. 7942,
or the Mining Act of 1995, which granted the PA-MGB with exclusive original jurisdiction only over mining
disputes, i.e., disputes involving " rights to mining areas," "mineral agreements or permits," and " surface
owners, occupants, claim holders or concessionaires" requiring the technical knowledge and experience
of mining authorities in order to be resolved.84 Accordingly, since the complaint for arbitration in
Gonzales did not raise mining disputes as contemplated under R.A. No. 7942 but only issues relating to
the validity of certain mining related agreements, this Court held that such complaint could not be
arbitrated before the PA-MGB.85 It is in this context that we made the pronouncement now in discussion:

Arbitration before the Panel of Arbitrators is proper only when there is a disagreement between the
parties as to some provisions of the contract between them, which needs the interpretation and the
application of that particular knowledge and expertise possessed by members of that Panel. It is not
proper when one of the parties repudiates the existence or validity of such contract or agreement on the
ground of fraud or oppression as in this case. The validity of the contract cannot be subject of arbitration
proceedings. Allegations of fraud and duress in the execution of a contract are matters within the
jurisdiction of the ordinary courts of law. These questions are legal in nature and require the application
and interpretation of laws and jurisprudence which is necessarily a judicial function.86 (Emphasis
supplied)

The Court in Gonzales did not simply base its rejection of the complaint for arbitration on the ground that
the issue raised therein, i.e. , the validity of contracts, is per se non-arbitrable. The real consideration
behind the ruling was the limitation that was placed by R.A. No. 7942 upon the jurisdiction of the PA-MGB
as an arbitral body . Gonzales rejected the complaint for arbitration because the issue raised therein is
not a mining dispute per R.A. No. 7942 and it is for this reason, and only for this reason, that such issue is
rendered non-arbitrable before the PA-MGB. As stated beforehand, R.A. No. 7942 clearly limited the
jurisdiction of the PA-MGB only to mining disputes.87

Much more instructive for our purposes, on the other hand, is the recent case of Cargill Philippines, Inc.
v. San Fernando Regal Trading, Inc.88 In Cargill , this Court answered the question of whether issues
involving the rescission of a contract are arbitrable. The respondent in Cargill argued against arbitrability,
also citing therein Gonzales . After dissecting Gonzales , this Court ruled in favor of arbitrability.89 Thus,
We held:

Respondent contends that assuming that the existence of the contract and the arbitration clause is
conceded, the CA's decision declining referral of the parties' dispute to arbitration is still correct. It claims
that its complaint in the RTC presents the issue of whether under the facts alleged, it is entitled to rescind
the contract with damages; and that issue constitutes a judicial question or one that requires the exercise
of judicial function and cannot be the subject of an arbitration proceeding. Respondent cites our ruling in
Gonzales, wherein we held that a panel of arbitrator is bereft of jurisdiction over the complaint for
declaration of nullity/or termination of the subject contracts on the grounds of fraud and oppression
attendant to the execution of the addendum contract and the other contracts emanating from it, and that
the complaint should have been filed with the regular courts as it involved issues which are judicial in
nature.
Such argument is misplaced and respondent cannot rely on the Gonzales case to support its argument.90
(Emphasis ours)

Second. Petitioner may still invoke the arbitration clause of the 2005 Lease Contract notwithstanding the
fact that it assails the validity of such contract. This is due to the doctrine of separability.91

Under the doctrine of separability, an arbitration agreement is considered as independent of the main
contract.92 Being a separate contract in itself, the arbitration agreement may thus be invoked regardless
of the possible nullity or invalidity of the main contract.93

Once again instructive is Cargill, wherein this Court held that, as a further consequence of the doctrine of
separability, even the very party who repudiates the main contract may invoke its arbitration clause.94

Third . The operation of the arbitration clause in this case is not at all defeated by the failure of the
petitioner to file a formal "request" or application therefor with the MeTC. We find that the filing of a
"request" pursuant to Section 24 of R.A. No. 9285 is not the sole means by which an arbitration clause
may be validly invoked in a pending suit.

Section 24 of R.A. No. 9285 reads:

SEC. 24. Referral to Arbitration . - A court before which an action is brought in a matter which is the subject
matter of an arbitration agreement shall, if at least one party so requests not later that the pre-trial
conference, or upon the request of both parties thereafter, refer the parties to arbitration unless it finds
that the arbitration agreement is null and void, inoperative or incapable of being performed. [Emphasis
ours; italics original]

The " request " referred to in the above provision is, in turn, implemented by Rules 4.1 to 4.3 of A.M. No.
07-11-08-SC or the Special Rules of Court on Alternative Dispute Resolution (Special ADR Rules):

RULE 4: REFERRAL TO ADR

Rule 4.1. Who makes the request. - A party to a pending action filed in violation of the arbitration
agreement, whether contained in an arbitration clause or in a submission agreement, may request the
court to refer the parties to arbitration in accordance with such agreement.

Rule 4.2. When to make request. - (A) Where the arbitration agreement exists before the action is filed .
- The request for referral shall be made not later than the pre-trial conference. After the pre-trial
conference, the court will only act upon the request for referral if it is made with the agreement of all
parties to the case.

(B) Submission agreement . - If there is no existing arbitration agreement at the time the case is filed but
the parties subsequently enter into an arbitration agreement, they may request the court to refer their
dispute to arbitration at any time during the proceedings

Rule 4.3. Contents of request. - The request for referral shall be in the form of a motion, which shall state
that the dispute is covered by an arbitration agreement.

A part from other submissions, the movant shall attach to his motion an authentic copy of the arbitration
agreement.
The request shall contain a notice of hearing addressed to all parties specifying the date and time when it
would be heard. The party making the request shall serve it upon the respondent to give him the
opportunity to file a comment or opposition as provided in the immediately succeeding Rule before the
hearing. [Emphasis ours; italics original]

Attention must be paid, however, to the salient wordings of Rule 4.1.It reads: "a party to a pending action
filed in violation of the arbitration agreement x x x may request the court to refer the parties to arbitration
in accordance with such agreement."

In using the word " may " to qualify the act of filing a " request " under Section 24 of R.A. No. 9285, the
Special ADR Rules clearly did not intend to limit the invocation of an arbitration agreement in a pending
suit solely via such "request." After all, non-compliance with an arbitration agreement is a valid defense
to any offending suit and, as such, may even be raised in an answer as provided in our ordinary rules of
procedure.95

In this case, it is conceded that petitioner was not able to file a separate " request " of arbitration before
the MeTC. However, it is equally conceded that the petitioner, as early as in its Answer with Counterclaim
,had already apprised the MeTC of the existence of the arbitration clause in the 2005 Lease Contract96
and, more significantly, of its desire to have the same enforced in this case.97 This act of petitioner is
enough valid invocation of his right to arbitrate. Fourth . The fact that the petitioner and respondent
already under went through JDR proceedings before the RTC, will not make the subsequent conduct of
arbitration between the parties unnecessary or circuitous. The JDR system is substantially different from
arbitration proceedings.

The JDR framework is based on the processes of mediation, conciliation or early neutral evaluation which
entails the submission of a dispute before a " JDR judge " who shall merely " facilitate settlement "
between the parties in conflict or make a " non-binding evaluation or assessment of the chances of each
party’s case."98 Thus in JDR, the JDR judge lacks the authority to render a resolution of the dispute that
is binding upon the parties in conflict. In arbitration, on the other hand, the dispute is submitted to an
arbitrator/s —a neutral third person or a group of thereof— who shall have the authority to render a
resolution binding upon the parties.99

Clearly, the mere submission of a dispute to JDR proceedings would not necessarily render the subsequent
conduct of arbitration a mere surplusage. The failure of the parties in conflict to reach an amicable
settlement before the JDR may, in fact, be supplemented by their resort to arbitration where a binding
resolution to the dispute could finally be achieved. This situation precisely finds application to the case at
bench.

Neither would the summary nature of ejectment cases be a valid reason to disregard the enforcement of
the arbitration clause of the 2005 Lease Contract . Notwithstanding the summary nature of ejectment
cases, arbitration still remains relevant as it aims not only to afford the parties an expeditious method of
resolving their dispute.

A pivotal feature of arbitration as an alternative mode of dispute resolution is that it is, first and foremost,
a product of party autonomy or the freedom of the parties to " make their own arrangements to resolve
their own disputes."100 Arbitration agreements manifest not only the desire of the parties in conflict for
an expeditious resolution of their dispute. They also represent, if not more so, the parties’ mutual
aspiration to achieve such resolution outside of judicial auspices, in a more informal and less antagonistic
environment under the terms of their choosing. Needless to state, this critical feature can never be
satisfied in an ejectment case no matter how summary it may be.

Having hurdled all the challenges against the application of the arbitration clause of the 2005 Lease
Agreement in this case, We shall now proceed with the discussion of its legal effects.

Legal Effect of the Application of the Arbitration Clause

Since there really are no legal impediments to the application of the arbitration clause of the 2005
Contract of Lease in this case, We find that the instant unlawful detainer action was instituted in violation
of such clause. The Law, therefore, should have governed the fate of the parties and this suit:

R.A. No. 876 Section 7. Stay of civil action. - If any suit or proceeding be brought upon an issue arising out
of an agreement providing for the arbitration thereof, the court in which such suit or proceeding is
pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration,
shall stay the action or proceeding until an arbitration has been had in accordance with the terms of the
agreement: Provided, That the applicant for the stay is not in default in proceeding with such
arbitration.[Emphasis supplied]

R.A. No. 9285

Section 24. Referral to Arbitration. - A court before which an action is brought in a matter which is the
subject matter of an arbitration agreement shall, if at least one party so requests not later that the pre-
trial conference, or upon the request of both parties thereafter, refer the parties to arbitration unless it
finds that the arbitration agreement is null and void, in operative or incapable of being performed.
[Emphasis supplied]

It is clear that under the law, the instant unlawful detainer action should have been stayed;101 the
petitioner and the respondent should have been referred to arbitration pursuant to the arbitration clause
of the 2005 Lease Contract . The MeTC, however, did not do so in violation of the law—which violation
was, in turn, affirmed by the RTC and Court of Appeals on appeal.

The violation by the MeTC of the clear directives under R.A. Nos.876 and 9285 renders invalid all
proceedings it undertook in the ejectment case after the filing by petitioner of its Answer with
Counterclaim —the point when the petitioner and the respondent should have been referred to
arbitration. This case must, therefore, be remanded to the MeTC and be suspended at said point.
Inevitably, the decisions of the MeTC, RTC and the Court of Appeals must all be vacated and set aside.

The petitioner and the respondent must then be referred to arbitration pursuant to the arbitration clause
of the 2005 Lease Contract.

This Court is not unaware of the apparent harshness of the Decision that it is about to make. Nonetheless,
this Court must make the same if only to stress the point that, in our jurisdiction, bona fide arbitration
agreements are recognized as valid;102 and that laws,103 rules and regulations104 do exist protecting
and ensuring their enforcement as a matter of state policy. Gone should be the days when courts treat
otherwise valid arbitration agreements with disdain and hostility, if not outright " jealousy,"105 and then
get away with it. Courts should instead learn to treat alternative means of dispute resolution as effective
partners in the administration of justice and, in the case of arbitration agreements, to afford them judicial
restraint.106 Today, this Court only performs its part in upholding a once disregarded state policy.

Civil Case No. CV 09-0346

This Court notes that, on 30 September 2009, petitioner filed with the RTC of Parañaque City, a
complaint107 for the rescission or cancellation of the Deed of Donation and Amended Deed of Donation
against the respondent. The case is currently pending before Branch 257 of the RTC, docketed as Civil Case
No. CV 09-0346.

This Court recognizes the great possibility that issues raised in Civil Case No. CV 09-0346 may involve
matters that are rightfully arbitrable per the arbitration clause of the 2005 Lease Contract. However, since
the records of Civil Case No. CV 09-0346 are not before this Court, We can never know with true certainty
and only speculate. In this light, let a copy of this Decision be also served to Branch 257of the RTC of
Parañaque for its consideration and, possible, application to Civil Case No. CV 09-0346.

WHEREFORE, premises considered, the petition is hereby GRANTED . Accordingly, We hereby render a
Decision:

1. SETTING ASIDE all the proceedings undertaken by the Metropolitan Trial Court, Branch 77, of Parañaque
City in relation to Civil Case No. 2009-307 after the filing by petitioner of its Answer with Counterclaim ;

2. REMANDING the instant case to the MeTC, SUSPENDED at the point after the filing by petitioner of its
Answer with Counterclaim;

3. SETTING ASIDE the following:

a. Decision dated 19 August 2011 of the Court of Appeals in C.A.-G.R. SP No. 116865,

b. Decision dated 29 October 2010 of the Regional Trial Court, Branch 274, of Parañaque City in Civil Case
No. 10-0255,

c. Decision dated 27 April 2010 of the Metropolitan Trial Court, Branch 77, of Parañaque City in Civil Case
No. 2009-307; and

4. REFERRING the petitioner and the respondent to arbitration pursuant to the arbitration clause of the
2005 Lease Contract, repeatedly included in the 2000 Lease Contract and in the 1976 Amended Deed of
Donation.

Let a copy of this Decision be served to Branch 257 of the RTC of Parañaque for its consideration and,
possible, application to Civil Case No. CV 09-0346.

No costs. SO ORDERED.
G.R. No. 94374 August 27, 1992

PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, petitioner, vs. EASTERN TELECOMMUNICATIONS


PHILIPPINES, INC. (ETPI) and NATIONAL TELECOMMUNICATIONS COMMISSION (NTC), respondents.

GUTIERREZ, JR., J.:

The petition seeks to set aside and annul the decision of the National Telecommunications Commission
(NTC) signed by former NTC Commissioner Jose Luis Alcuaz dated November 14, 1989 as well as the order
dated July 16, 1990 of the NTC En Banc.

On July, 16, 1987, Eastern Telecommunications Philippines, Inc. (Eastern) filed with the NTC an application
(docketed as NTC Case No. 8758) for a Certificate of Public Convenience and Necessity (CPCN) to
construct, maintain and operate an International Digital Gateway Facility (IDGF). In its application, Eastern
alleged that it is a domestic corporation and that it has the "franchise to land, construct, maintain and
operate telecommunications systems by cable, or any other means now known to science or which in the
future may be developed for the reception and transmission of messages to and between any point in the
Philippines to point exterior thereto . . . (R.A. 5002)

On July 22, 1987, NTC issued a notice of hearing, requiring publication of Eastern's application and
submission of financial and technical requirements and setting the case for initial hearing on May 31,
1988.

On June 23, 1988, petitioner Philippine Long Distance Telephone Company (PLDT) filed an "Opposition to
Main Application and to Prayer for Provisional Authority" dated June 20, 1988 based primarily on the
following grounds:

1. Since PLDT already operates and maintains three (3) international gateway switching facilities or
exchanges and will construct and operate by the year 1989 a new large-capacity international digital
exchange in Metro Manila, ETPI's proposed international digital gateway constitutes a needless and
wasteful duplication of facilities and an improvident expenditure of dollars, contrary to public policy and
detrimental to the public interest;

2. ETPI is basically an international data or record carrier and an such it has no local telephone
exchanges or much less a telephone network of its own in the Philippines;

3. ETPI's proposal to operate its own international gateway is a device, scheme or strategem to
exploit PLDT's domestic telephone network and expand its inordinately lucrative business as a telephone
correspondent;

4. ETPI's proposed international gateway will only enable ETPI to relegate to lesser importance its
primary obligation to operate as a record carrier, obtain at the expense of PLDT an increasing but
undeserved share in revenue from international telephone traffic, for ETPI will ride piggy-back on PLDT's
own for nationwide telephone network, and undermine the viability of PLDT's programmed new large-
capacity international digital gateway;

5. There will be substantial diminution and stunted growth of PLDT's revenue from its international
toll services vis-a-vis its huge investments for its ongoing development projects; and
6. The establishment of ETPI's' proposed international gateway is contrary to the international
practice to have one or more gateways of single ownership. (Rollo, pp. 224 to 225)

On July 8, 1988, PLDT served on Eastern a "Request for Admission and Interrogatories" which was
answered by Eastern on August 9, 1988.

On August 31, 1988, NTC issued an order defining the issues for trial on the basis of the respective
formulations of issues by Eastern and PLDT.

At the scheduled hearing on September 14, 1988, PLDT filed a Motion to Dismiss Eastern's Application,
questioning the jurisdiction of the NTC to hear and decide the application upon the ground that Eastern
was disqualified by its franchise from acquiring the CPCN applied for. After protracted debate between
the parties, the NTC denied the Motion to Dismiss and the trial proceeded.

On various hearing dates, Eastern and PLDT presented their respective documentary and testimonial
evidence. Thereafter, both applicant Eastern and oppositor PLDT filed extensive memoranda in support
of their respective positions.

On July 10, 1989, NTC motu proprio ordered that hearing be conducted for the purpose of propounding
clarificatory questions to Eastern and PLDT. Afterwhich, per order dated November 3, 1989, the case was
considered submitted for final resolution.

On November 10, 1989, the NTC through Commissioner Jose Luis A. Alcuaz rendered a decision granting
Eastern's application. The dispositive portion reads as follows:

WHEREFORE, in the interest of public service, the Commission hereby issues a Certificate of Public
Convenience and Necessity (CPCN) to applicant EASTERN TELECOMMUNICATIONS PHILIPPINES, INC.
(ETPI) for the authority to install, operate and maintain an International Digital Gateway Facility in Metro
Manila, subject to the following

CONDITIONS:

1. Applicant shall within fifteen (15) days from receipt of this Decision, file with this Commission its
acceptance of the terms and conditions herein prescribed.

2. Within sixty (60) days from receipt by this Commission of applicant's acceptance of the terms and
conditions of this decision, applicant shall submit to this Commission a detailed schedule of activities
together with a detailed listing of all equipments required to carry out this authorization from the start
up to the completion of the installation and commencement of operations.

3. That the applicant shall install and establish the proposed international digital gateway including
all equipments necessary to put up the system in accordance with the plans and specifications submitted
and approved in this case, to wit:

4. Within Ninety (90) days from the date of acceptance of the terms and conditions herein
prescribed, applicant ETPI and PLDT shall enter into an interconnection agreement for the provision of
adequate interconnection facilities between applicant's gateway switch and PLDT's telephone network
and shall jointly submit such interconnection agreement to the Commission for approval. Such
interconnection agreement shall include among others the following:
4.1 General Statement of agreement to interconnect and abide with all the terms and conditions
included in the interconnection agreement;

4.2 Technical standards of interconnection. inclusive of the agreed interconnection criteria and
quality or grade of interconnection facilities;

4.3 Terms and conditions regarding the provision and operation and maintenance of any and all
interconnection facilities between network;

4.4 Terms and conditions as well as the manner of traffic revenue sharing and account settlement
therefor for all types of service as may be agreed upon by PLDT and applicant ETPI;

4.5 Provisions regarding amendments to the interconnection of ETPI and PLDT insofar as the
maintenance, operation and monitoring are concerned and insofar as maintaining a reliable grade of
service is concerned; liabilities of anyone or both of the parties for any loss or damages or interruption of
service resulting from various causes;

4.6 Any and all terms and conditions necessary to insure an efficient interconnection of the network
facilities of both parties;

4.7 Effectivity of the agreement.

5. That applicant shall complete the installation of the system including full interconnection with the
Public Switched Telephone Network (PSTN) and commence providing the service within the period three
hundred sixty (360) days from the date of this decision and inform the Commission in writing at least
fifteen (15) days before the date of commencement of actual service to allow the Technical Staff of this
Commission to conduct an ocular inspection and field test of the entire international digital gateway of
applicant including its interconnection with the PSTN.

6. Within thirty (30) days from the completion of the installation of the system but before the
commencement of actual operations, applicant shall submit to this Commission, a detailed listings of all
equipment actually installed to establish the system, together with their specifications and corresponding
costs.

7. That applicant, ETPI shall file before the Commission within One Hundred Eighty (180) days from
the approval hereof petition for the approval of the corresponding rates to be charged for its international
telephone service.

8. That the applicant shall allow interconnection of its international digital gateway switch with
other authorized telecommunications network desiring interconnect in accordance with cost efficient
interconnection.

9. Applicant shall submit to this Commission on or before March lst of each year, an Annual Report
of finances and operations for the previous year ending December 31st as required in Section 7(h) of
Commonwealth Act No. 146, as amended, the said report to be prepared in the Annual Report Form
prescribed by this Commission.

10. That applicant shall pay to this Commission on or before September 30th of each year, supervision
and regulation fees as required under Section 40 of Commonwealth Act 146, as amended.
11. That applicant shall not suspend operation of the herein authorized service without prior
authority from this Commission except in cases of emergency or interruption of service, in which case
applicant shall inform the Commission in writing at least (2) days from the occurrence of such service
interruption with detailed explanation as to the nature, cause and duration of interruption as well as
details of immediate measures being undertaken or to restore service in the shortest possible time

12. The technical staff of this Commission may at any time inspect the facilities of applicant to
determine compliance with the requirements of this Commission.

13. That applicant shall not alter, modify, revise any of the approved technical specifications
authorized without prior authority from this Commission.

14. That applicant shall comply with all laws, rules and regulations as are now existing and shall be
promulgated by the National Telecommunications Commission. (NTC decision dated Oct. 13, 1989, pp. 12
-15; NTC Case No. 87-149; Annex "A")

Commissioner Alcuaz signed the decision on November 10, 1989 and released the same to the NTC
Secretariat on November 14, 1989. Thus, the decision was entered into the NTC docket on November 14,
1989. Also on the same day, Eastern was served with a copy of the decision by Commissioner Alcuaz in his
NTC office. The next day, Eastern submitted its "acceptance" of the terms and conditions specified in the
decision.

A day later, on November 15, 1989, the NTC received a latter dated November 13, 1989 from the Office
of the President addressed to Commissioner Alcuaz stating that he had been replaced as head of NTC.
President Aquino stated, that she was designating Undersecretary of Transportation Josefina T. Lichauco
as acting Commissioner of the NTC.

On January 3, 1990, the NTC En Banc issued an order directing its board Secretary formally to release
copies of the NTC decision dated November 14, 1989 to the parties.

PLDT then filed a "Motion To Declare So-Called Alcuaz Decision Void/Inexistent" as well as a motion for
reconsideration of that decision. After further pleadings and counter pleadings, the NTC by an order dated
July 16, 1990 En Banc denied the PLDT motions assailing the validity of the said decision and confirmed
the November 14, 1989 decision signed by Commissioner Alcuaz.

Hence, the present petition for certiorari filed by PLDT premised on the following grounds

THE NTC LACKED OR EXCEEDED ITS JURISDICTION, AND/OR GRAVELY ABUSED ITS DISCRETION IN
EXERCISING THE SAME, WHEN IT AUTHORIZED ETPI TO INSTALL AND OPERATE AN EQUIPMENT INHERENT
TO OR ESSENTIAL ONLY FOR A TELEPHONE SYSTEM WHICH THE LATTER (ETPI), UNDER ITS LEGISLATIVE
FRANCHISE, WAS PROHIBITED OR UNAUTHORIZED TO ENGAGE IN.

II

THE NTC LACKED OR EXCEEDED ITS JURISDICTION, AND/OR GRAVELY ABUSED ITS DISCRETION IN
EXERCISING THE SAME, WHEN IT COMPELLED PLDT TO ALLOW THE LINKAGE WITH ITS TELEPHONE
SYSTEM, IN THE GUISE OF "INTERCONNECTION," ETPI'S PROPOSED IGS EQUIPMENT, SINCE (A)
INTERCONNECTION IS AUTHENTIC AND PROPER ONLY BETWEEN TWO EXISTING
TELECOMMUNICATIONS/TELEPHONE SYSTEMS AND AN IGS IS NOT SYSTEM BUT A MERE EQUIPMENT AND
(B) SUCH LINKAGE OF ETPI'S PROPOSED IGS WITH PLDT'S TELEPHONE SYSTEM WAS DIRECTED NOT TO
MEET OR SATISFY A PUBLIC NEED FOR IT BUT RATHER AND EXCLUSIVELY TO ALLOW ETPI TO EXPLOIT
PLDT's PRESENT TELEPHONE SUBSCRIBERS.

III

RESPONDENT NTC LACKED OR EXCEEDED ITS JURISDICTION, AND/OR GRAVELY ABUSED ITS DISCRETION
IN EXERCISING THE SAME, WHEN IT DECIDED ETPI'S SUBJECT APPLICATION WITHOUT RECITING THE FACTS
AND THE LAW UPON WHICH IT BASED ITS SAID JUDGMENT BUT INSTEAD MERELY ADOPTED WORD FOR
WORD VIRTUALLY EN TOTO ITS EARLIER DECISION IN A SIMILAR APPLICATION OF AN ENTIRELY DIFFERENT
APPLICANT.

IV

THE NTC LACKED OR EXCEEDED ITS JURISDICTION AND/OR GRAVELY ABUSED ITS DISCRETION IN THE
EXERCISE THEREOF WHEN IT COMPELLED PLDT IN ITS SUBJECT DECISION AND ORDER TO INTERCONNECT
ITS TELEPHONE SYSTEM WITH ETPI'S PROPOSED IGS ALL TO THE END THAT THE LATTER MIGHT THEREBY
ENGAGE ITSELF IN TELEPHONE SERVICES BY TAKING UNDUE ADVANTAGE OF PLDT'S PRESENT TELEPHONE
SYSTEM AND OPERATION. (Petition, pp. 13-14)

The basic issue is whether or not the rendition of the assailed NTC decision and order was attended by
grave abuse of discretion amounting to lack of jurisdiction on the part of the NTC.

There is merit in the petition.

1. Eastern filed its application for a CPCN to operate an IGF with the NTC on the basis of its franchise
granted by law under R.A. 5002. It is undisputed that the proposed IGF is nothing else but an international
telephone exchange. (OSG Comment, p. 13) It is an equipment that is a component or constitutive
element of a voice or telephone system rather than a non-voice or data service. Since an IGF is useful only
for a telephone system, NTC cannot validly grant Eastern the CPCN it seeks because of franchise limitations

The specific rights and privileges granted to Eastern are recited in Section 1 of R.A. 5002 which reads in
full:

Sec. 1. There is hereby granted to "The Eastern Extension Australasia and China Telegraph Company,
Ltd." its successors and assigns, hereinafter referred to as the "Grantee" a franchise to land, construct,
maintain and operate telecommunication systems by cable, or any other means now known to science or
which in the future may be developed for the reception and transmission of messages between any point
in the Philippines to points exterior thereto, including airplanes, airships or vessels even though such
airplanes airships or vessels may be located within territorial limits of the Philippines. (Emphasis supplied)

It is clear from the foregoing that the privilege so granted by the legislature was for the construction,
operation and maintenance of communications systems for the transmission of messages by cables or
means other than telephone. This is a significant distinction from the legislative franchise in PLDT v.
National Telecommunications, et al. (190 SCRA 717 [1990]) where the franchise of Express
Telecommunications Co. specifically used the word "radiotelephony."
The respondents contend that the law does not make any distinction between voice and non-voice
transmission of messages. Since a "message" is any written or oral communication or other transmitted
information sent by messenger or by some other means (as by signals) and "gateway" is the point of entry
and exit for inbound and outbound international messages (data as well as voice) the respondents argue
that there is no question that Eastern is qualified to own and operate its own international gateway facility
or telephone exchange for receiving had transmitting messages between any point in the Philippines to
any exterior part thereto or abroad (OSG Comment, p. 14)

In the absence of any qualification or intention to the contrary, the technical, not the general or ordinary
meaning of a word used in a statute should be adopted in the construction of the statute. (Agpalo,
Statutory Construction 1986, p. 138) This is particularly true in this case. The word "message," as used in
the franchise and in the telecommunication industry has a peculiar meaning when used with reference to
communication systems. The literal or common meaning can not be applied to key words in a franchise
for highly technical and scientifically advanced services so as to broaden a legislative grant beyond its plain
and intended meaning.

We agree with PLDT's contention that no one "transmits" on the telephone his or her "message."
Telephone technology precisely eliminates the intermediary role of a messenger (human or mechanical)
by allowing the calling and the called parties, respectively, to directly communicate with one another. A
party need not "transmit" any "message" through cable to be received and given to the other party. This
procedure of sending data (the "message") by cable transmission is characteristic of a telegraph but not
of a telephone system. Thus, when RA 5002 speaks of a "telecommunication (system) by cable . . . for the
reception and transmission of message," it can only be referring to a record or data service such as a
telegraph system.

It is not the product, effect or end result, nor the act of receiving and transmitting messages which is given
a franchise. It is the system used, the facility established, and the entire network whose costs run into
hundreds of millions of pesos which is given legislative approval. A radio-television company, a computer-
network, a cable system, a postal system, a package and message delivery firm, and many other schemes
for broadcasting and communicating messages, information, and entertainment are all engaged in the
reception and transmission of messages. But to say that their franchises can be interpreted to include a
telephone exchange system is to strain interpretation into incredulous limits.

Franchises are always interpreted strictly against the franchise holder, never liberally and certainly not in
a strained and exaggerated manner. (Philippine Long Distance Telephone Co. v. National
Telecommunications Commission, 190 SCRA 717 [1990]).

The legislative history of the law granting Eastern's franchise is most instructive and belies the arguments
of Eastern.

Eastern is actually not the original grantee of the franchise under RA 5002. It acquired its franchise from
Eastern Extension Australasia and China Telegraph Co., Ltd., a foreign corporation organized and existing
under the laws of Great Britain which was engaged in international telecommunications in Manila since
Spanish times. This company was given a concession for the construction, operation and maintenance of
a submarine telegraph cable from Hongkong to Manila. On June 21, 1952, when the concession expired,
RA 808 was approved granting a legislative franchise "to land, construct, maintain and operate at Manila
in the Philippines a submarine telegraph cable connecting Manila with Hongkong.
On May 2, 1967, R.A. 808 was amended by R.A. 5002 by enlarging the scope of the franchise granting
Eastern Extension Australasia a franchise to land, construct, maintain and operate telecommunications
by cable or other means known to science or which in the future may be developed for the transmission
of messages between any point in the Philippines to points exterior thereto.

On July 24, 1974, P.D. 484 was issued by President Ferdinand E. Marcos authorizing Eastern Extension
Australasia to transfer and assign the franchise granted to it under R.A. 808, as amended by R.A. 5002 to
the Eastern Telecommunications Philippines, Inc. (Commissioner of Internal Revenue v. Court of Tax
Appeals, 195 SCRA 444 [1991])

The original legislative grant was a franchise for a submarine telegraph (not telephone) cable. The grantee
upon whom Congress vested the franchise was a telegraph and not a telephone company. From 1952
until the franchise was assigned to Eastern and, in fact since Spanish times, it's predecessor never
operated any telephone service. The assignment of the franchise contemplated only what the transfer
could convey which is a telegraph system. And even from the time of the transfer in 1974, Eastern never
operated a telephone service. Eastern has always been aware of the limits of its franchise and the exact
nature of its operations.

The clear intention of the law granting the franchise cannot be disputed. If Congress had contemplated
the use of telephone, the law would have stated so. Undeniably, telephone technology was already
existing in 1952 when R.A. 808 was enacted. To construe the phrased "telecommunication system by cable
or any other means now known to science or which in the future may be developed for the reception and
transmission of messages" so as to include telephones is well-nigh preposterous. Indeed, telephones did
not have to be discovered or developed. They were not for the future. They were already existing at that
time. As held in De los Santos v. Mallare (87 Phil. 289 [1950]), the history of the times and state of things
when the act was framed must be followed. Conditions of the things at the time of enactment of the law
should be considered to determine the legislative intent. (Gomez Garcia v. Hipolito, et al., 2 Phil. 732
[1903]; United States v. De Guzman, 30 Phil. 416 [1915])

Eastern's franchise was intended from the beginning and has been interpreted to cover only record or
data telecommunications services. This is bolstered by the fact that at present, Eastern is the holder of
various CPCN's from the NTC to operate only non-voice telecommunications services.

2. The only opportunity when Eastern had anything to do with voice communications was in 1977
when President Marcos authorized it to be a correspondent of telephone administrations in Singapore,
Taiwan and Hongkong. Eastern wrote Malacañang for approval and the President placed a marginal note
on the letter telling Eastern to go ahead. Notwithstanding this authority given by President Marcos, the
act of the President did not amend the legislative franchise and is of doubtful validity. The marginal note
is certainly not in the exercise of the President's legislative power. It was never published and could not
have amended or enlarged an act of Congress.

Eastern, meanwhile, capitalizes on this marginal note on its letter to show that it is also engaged in voice
communication. It, therefore, asserts that PLDT is now estopped to question the franchise limitation of
Eastern since PLDT entered into an agreement with Eastern involving international telephone service in
1978 (Letter-Agreement dated September 29, 1978, Exhibit "O," ETPI Comment, pp. 8-9)

This argument is specious.


The alleged assent of PLDT to Eastern's operation as a "voice correspondent" is contained in an agreement
extracted from PLDT at a time when it could not have resisted such a Presidential imposition. PLDT never
intended to voluntarily recognize the validity of Eastern's voice correspondentship. This is shown by the
fact that after the former President had been removed from office, PLDT refused to implement the
agreement. PLDT can not therefore be deemed in estoppel under these circumstances

The fact that Eastern agreed "to limit itself to correspondent relationship for voice traffic" can not be
taken to mean that Eastern may operate a telephone service now. Its franchise does not authorize it to
do so. NTC Circular No. 3-06-88 dated March 16, 1988 provides that "no Certificate of Public Convenience
(CPC) can be granted by this Commission to a person or entity who does not hold any valid franchise."3.
Significantly, in its July 29, 1988 answer to a request for admission and interrogatories in NTC Case
No. 87-50, Eastern admitted that it does not and has never operated any telephone exchange or network
in the Philippines and has no decision or order from any regulatory commission granting it a certificate of
public convenience to operate a telephone exchange or network in this country.

This alone shows that Eastern was then fully aware of its franchise limitation that it cannot operate a
domestic telephone or telecommunications system.

Eastern, however, asserts that it is not asking for authority to install and operate a domestic telephone or
telecommunications system. The international gateway facility it proposes to undertake is understood as
a system which would mediate between the domestic telephone system of PLDT and the transmitting and
carrying facilities of Eastern. The gateway facility will permit messages originating from a person using
PLDT's domestic telephone system to enter the transmitting and carrying facilities of Eastern, as well as
messages incoming from abroad through Eastern's carrying facilities to enter PLDT's domestic system.

Thus, there is a need to interconnect with PLDT's domestic telephone network as ordered by the NTC.
Eastern's expounded services would be useless if it cannot mainly use the existing PLDT grid.
Interconnection as the term denotes, contemplates or relates to the linkage of two existing telephone
companies with one another in order to allow the subscribers of one system to access or reach the
subscribers of the other operator.

Interconnection is proper only between two legitimate companies with valid legislative franchises and not
between an international message transmission company and a legitimate telephone firm as in the case
at bar. Eastern's franchise can not be strained or distorted to enable it to become a carrier's carrier.
Certainly, an interconnection system requires a specific franchise.

While PLDT has franchises for both domestic and international telephone services, Eastern has none. The
pretense that it does not need any to tap into an existing domestic telephone network is misleading.
Unless it utilizes PLDT's domestic network, the gateway facility or telephone exchange of Eastern would
be completely useless. This is the meaning of interconnection whether termed "interfacing" or some other
name.

In the absence of legislative authority to operate a telephone system, it was therefore grave abuse of
discretion for NTC to order Eastern to interconnect with PLDT.

4. Eastern had no use for a "gateway facility" in its many decades of operations in the Philippines.
Only when it decided to go into the telephone business as an expansion of its "message transmission"
business because of various hi-tech developments did it suddenly need a gateway facility and read into
its franchise something which was never there .The use of gibberish and esoteric jargon and such high
sounding technical terms as analog or digital levels, interfacing with broadband transmission, switching
maintenance, traffic operations, network maintenance management, transmission center, etc. can not
disguise the fact that a gateway facility is part of a telephone system and that Eastern wants to engage in
combined international and substantially extensive domestic telephone services without any legislative
authority.

The proposed gateway facility by interconnecting with PLDT's domestic telecommunications network will
enable local subscribers to talk directly with users of telephones abroad. It is in effect a long distance
telephone exchange system. Eastern will charge long distance telephone rates and collect from local
subscribers who use its services. This is a far cry from its franchised business of being an international
carrier of messages to and from its terminals or landing stations. It will be engaged in domestic services
from the gateway or exchange to the local telephone user and international services from the gateway to
the foreign country.

Eastern has no telephone system in the Philippines or anywhere else in the world. It does not have a single
telephone subscriber. Yet, it has been authorized by NTC to open a telephone exchange connecting PLDT
subscribers with telephone systems around the world.

5. In Commissioner of Internal Revenue v. Court of Tax Appeals, (supra), this Court accepted the
submissions of Eastern that it is engaged exclusively in international communications and international
commerce. We ruled that its legislative franchise was granted on the premise that its operations are
international and what it has in the Philippines is a terminal or station only. Eastern argued and this Court
agreed in a case involving domestic tax assessments that the company operates only a cable station or a
terminal in the Philippines and does not fall under the citizenship requirements of the Constitution. We
ruled that the Court "is not prepared to punish the respondent corporation which remained firm in not
violating its franchise."

Eastern was firm in not violating its franchise when domestic tax assessments were in issue. Not so when
it comes to expanding its business into an entirely different and fast-growing profitable field. It is now
adopting an entirely new position. In big advertisements in all major newspapers around May 15, 1992,
Eastern advertised as its first line of business, direct dial and cellular international telephone services. We
see no reason why the Court should suddenly fall for specious and deceptive arguments and come out
with findings and conclusions diametrically opposed to its earlier decision.

6. The main reason for our decision is legal. Eastern has no franchise. It must first go to Congress. An
additional point, however, is that there is no urgent public need for the establishment of another IGF.

PLDT puts forth the argument that at present it has five (5) existing gateway facilities to meet the needs
of the people but NTC nevertheless approved Eastern's application in the event that PLDT's operations
might be suspended i.e. labor dispute, fortuitous event, technical causes etc.

In its order of July 16, 1990, the NTC states that:

. . . [W]ith PLDT's cut-cover of its Makati gateway facility it will have a total of 4575 international switch
termination. The combined capacity of the new international gateway operators, namely Philcom and
ETPI will only amount to 33% of PLDT's capacity. It is the Commission's position that in the event,
therefore, that any of PLDT's gateway facilities become inoperative, relief can be provided by the gateway
facilities of Philcom and the applicant. The possibility that any two of the gateway operator's facilities
would fail at the same time is very remote. . . . (Emphasis supplied, page 12, Order — Annex "B" of petition)

. . . The Commission is also convinced of the economic viability of another gateway operator and that
authorizing applicant is not unnecessary and wasteful duplication. The grant to another operator of
another international gateway would provide for excess capacity which will take care of any abnormal
increase in the international traffic which can be expected with the trend in the economic activities in the
country. . . . (Emphasis supplied; p. 13; Order, Annex "B" of petition).

The proposed combined facilities of applicants Eastern (NTC Case No. 87-149) which will be thirty-three
percent (33%) of PLDT's capacity are intended to provide relief" in the event any of PLDT's gateway
facilities become inoperative and to provide excess capacity to "take care of any abnormal increase in
international traffic."

NTC's fear is more illusory than real. In PLDT's 63 years of existence, it could only point to one outage of
consequence at the PLDT gateway which took place in November 1987. But this did not even totally
disrupt PLTD's international operations.

We do not see how the common good may be served when there are other remedies available which are
less costly and more expedient than constructing and maintaining a sixth gateway in a stand-by capacity
which would function only in the extreme case that the other five (5) gateways may shutdown.

7. Finally, NTC's reliance on free competition in the industry is to allow a private purpose for gain to
masquerade behind a noble policy against which nobody can dissent.

Citing the recent case of Philippine Long Distance Telephone Co. v. National Telecommunications, supra,
that "neither PLDT nor any other public utility has a constitutional right to a monopoly position," PLDT has
never claimed as a right the power to exclusively operate IGF's in the Philippines. In fact, Philippine Global
Communications (PHILCOM) was granted a CPCN to operate another IGF in NTC Case No. 87-149 under
Philcom's legislative franchise, R.A. 4167. (See Urgent Motion Reiterating Prayer for a Temporary
Restraining Order, p. 2) But the indubitable fact is that PLDT has invested billions of pesos over decades
of operating, maintaining and improving the country's telephone system.

Eastern had been in the Philippines long before petitioner PLDT was incorporated and commenced
business. Eastern and PLDT existed peacefully together for decades because they had separate franchises
for different and specific purposes. Only when Eastern tried to muscle into PLDT's turf did litigation arise.
What Eastern is trying to accomplish is to ride piggy back on the existing infrastructure built and developed
by PLDT. It is competing with PLDT's gateway facilities but in order to compete, it must interconnect with
PLDT's domestic network. It will become what is known in the business as a carrier's carrier. This is even
worse than what Justice Isagani A. Cruz characterized in Philippine Long Distance Telephone Co. v.
National Telecommunications Commission (supra) through his story of the little red hen who found some
rice but none of the barnyard animals would help her plant, water, harvest, and finally cook it.

PLDT has existing gateway facilities which are used by its own domestic telephone subscribers. The
records do not show any urgency for another company, especially a non-franchised one, to operate a
similar facility for exactly the same people without having spent a single centavo to build up the domestic
system. The proposed international gateway will not add a single telephone unit to existing phones in the
country. We fail to see how a non-franchised telephone system will improve telephone services in the
Philippines through the proposed scheme. There will be a diversion of profits to Eastern, but no additional
telephone anywhere and no improvement of services. Unless, like the proverbial camel in the desert
poking its head into a tent, Eastern proposes to later expand into other profitable areas of the telephone
business and starts installing its own phones. Eastern should first go to Congress, get its own franchise,
and prove that it can really contribute to more efficient telephone services instead of merely riding piggy
back on the most profitable aspect of another company's operations.

WHEREFORE, the petition is hereby GRANTED. The decision of the National Telecommunications
Commission dated November 14, 1989 as well as the order dated July 16, 1990 are ANNULLED and SET
ASIDE.

SO ORDERED.
G.R. No. 193225 February 9, 2015

BBB,* Petitioner, vs. AAA,* Respondent. R E S O L U T I O N

REYES, J.:

Petitioner BBB is now before this Court with a Petition for Review on Certiorari1 under Rule 45 of the
Rules of Civil Procedure to assail the Decision2 dated November 6, 2009 and Resolution3 dated August 3,
2010 of the Court of Appeals (CA) in CA-G.R. CV No. 89581, which affirmed with modification the issuance
against him on August 14, 2007 of a Permanent Protection Order (PPO)4 by the Regional Trial Court (RTC)
of Pasig City, Branch 162, in favor of his wife, herein respondent AAA.

Antecedent Facts

The CA aptly summarized as follows the facts of the case until the RTC’s issuance of the PPO against BBB:

Both [BBB] and [AAA] allege that they first met in 1991 but started to date seriously only in 1996. [AAA]
was then a medical student and was raising her first child borne from a previous relationship, a boy named
[CCC], with the help of her parents.

During the relationship with [BBB], [AAA] bore two more children namely, [DDD] (born on December 11,
1997) and [EEE] (born on October 19, 2000).

To legalize their relationship, [BBB] and [AAA] married in civil rights on October 10, 2002 and thereafter,
the birth certificates of the children, including [CCC’s], was amended to change their civil status to
legitimated by virtue of the said marriage.

The relationship, both admit, was far from ideal and has had its share of happy moments and heated
arguments. The two however have contradicting statements as to the cause of their present situation.

[BBB] alleges that [AAA’s] irrational jealousy has caused their frequent arguments. According to [BBB],
[AAA] has been suspicious of [BBB] and his relationship with his female co-workers, which [BBB] alleges,
contrary to [AAA’s] suspicion, are purely professional. According to [BBB], because of their repeated fights,
he was forced to leave the family home to prevent the brewing animosity between him and his wife. Soon
after [BBB] left, [AAA] herself decided to leave the family home and brought the children with her, which
made it difficult for [BBB] to see their kids regularly. This has also caused the family expense to double,
making it even more difficult for [BBB] to fulfill his financial obligations.

[AAA], on the other hand, alleges that their heated arguments were often due to [BBB’s] incessant
womanizing. When confronted about it, [BBB], instead of denying the same, would even curse [AAA].

The breaking point for [AAA] came when, [BBB’s] alleged mistress, a woman by the name of [FFF], insulted
and humiliated [AAA] in public, in the presence of [BBB] himself, who, according to [AAA], did nothing to
stop the same. Extremely hurt, [AAA] decided to leave the conjugal home with the children and lived
temporarily at a friend’s house. She however went back to the conjugal home with [DDD] and [EEE] after
some time, leaving her son [CCC] at her friend’s house.

What made matters worse, according to [AAA], was the apparent biases of [BBB] in favor of [DDD] and
[EEE]. That despite his promise to treat [CCC] as his own, [BBB] would still treat the latter differently from
the two kids, putting [CCC] at a disadvantage. [AAA], cites as example the instances when, [BBB] would
buy food and toys for [DDD] and [EEE] only, buying nothing for [CCC].

While living separately from [BBB], [AAA] discovered that [BBB] was not paying the rentals due on the
condominium unit they were occupying, forcing [AAA] to move out. [AAA] was likewise compelled to find
work to support the family, after [BBB] has started to be remiss in his financial obligations to the family.
According to [AAA], the amounts given by [BBB] were not sufficient to cover the family expenses, forcing
her to request for loans from friends.

[AAA] likewise feels threatened after discovering [that BBB] was stalking her and/or their children. [AAA]
alleges that she found out that [BBB] has sought the help of one [GGG], a friend of [BBB] who lives within
the same compound where [AAA] lives, to go through the guard’s logbook to monitor their every move,
i.e., who visits them, what time [AAA] leaves and returns back home, etc.

Citing the foregoing as constituting economic and psychological abuse, [AAA] filed an application for the
issuance of a Temporary Protection Order with a request to make the same permanent after due hearing,
before the Regional Trial Court of Pasig City.

Finding good ground in [AAA’s] application, the court a quo issued a Temporary Protection Order (TPO).
The TPO was thereafter, made permanent by virtue of a Decision of the RTC dated August [14, 2007], the
dispositive portion of which orders:

a. Prohibiting [BBB], directly and indirectly, from stalking, harassing, annoying, or otherwise verbally
abusing [AAA], directly or indirectly, to refrain from insulting her, cursing her and shouting invectives at
her;

b. Prohibiting [BBB] from committing or threatening to commit any act that may cause mental and
emotional anguish to [AAA], i.e. publicly displaying her extramarital relations with his mistress [FFF] and
anyone else for that matter;

c. Prohibiting [BBB] from exposing the minor children to immoral and illicit environment, specifically
prohibiting him to allow her (sic) mistress[FFF] and anyone else to be with them in instances where he
would be allowed by this Court to see their children;

d. Allowing [BBB] ALONE to see and visit his children once a month (for a total of 12 visits per year) at the
latter’s residence for a maximum period of 2 years [sic]each visit, subject to further orders from this Court.
For this purpose, [BBB’s every visit] shall be accompanied by the Court Sheriff, who shall coordinate with
[AAA] as to the availability of time and date of children for such visit, at the expense of [BBB]. For every
visit, the Court Sheriff is directed to submit his report within 5 days from the date [BBB] visited the
children;

e. Directing [BBB] to allow [AAA] to continue to have lawful use and possession of the motor vehicle more
particularly described as follows:

One (1) Hyundai Starex Van 1997 Model Plate Number: WJP 902

Chassis Number:

Serial Number KMJWH7HPXU158443


f. Granting [AAA] permanent sole custody over their common children until further orders from this Court;

g. Ordering [BBB] to provide support in the amount of Php 62,918.97 per month (not Php 81,650.00 being
prayed by [AAA]) to [AAA] as monthly support, inclusive of educational expenses, groceries, medicines,
medical bills, and insurance premiums, starting from the month of January 2007 to be given within the
first five (5) days of the month through the Court Sheriff, who shall coordinate with [AAA] in receiving
such support;

h. Requiring [BBB] to stay away from the offended party and any designated family or household member
at a distance of 100 meters;

i. Requiring [BBB] to stay away from the residence, school, place of employment or any specified place
frequented regularly by the offended party and children and any designated family or household member;

j. Ordering [BBB] to post bond of Php 300,000.00 to keep peace pursuant to Section 23 of RA 9262 with
the undertaking that [BBB] will not commit the violence sought to be prevented and that in case such
violence is committed[,] he will pay the amount determined by the Court in its judgment;

k. Ordering [BBB] to pay the sum of Php 100,000.00 (not Php 200,000.00 being prayed by [AAA])
representing both reasonable attorney’s fees and cost of litigation, including cost of suit.

Ruling of the CA

BBB filed before the CA an appeal6 to challenge the RTC Decision dated August 14, 2007.1âwphi1 BBB
alleged that the RTC’s (a) issuance of the PPO against him, (b) award to AAA of the sole custody over their
children, (c) directives for him to pay attorney’s fees and costs of litigation and to post an excessive
amount of bond, and (d) declaration that he had an abusive character lack factual bases.

On November 6, 2009, the CA rendered the assailed decision affirming the factual findings and
dispositions of the RTC, but ordering the remand of the case for the latter to determine in the proper
proceedings who shall be awarded custody of the children. Like the RTC, the CA found that under the
provisions of Republic Act (R.A.) No. 9262,7 BBB had subjected AAA and their children to psychological,
emotional and economic abuses. BBB displayed acts of marital infidelity which exposed AAA to public
ridicule causing her emotional and psychological distress. While BBB alleged that FFF was only a
professional colleague, he continued to have public appearances with her which did not help to dispel
AAA’s accusation that the two had an extra-marital relation. Further, BBB verbally abused AAA either in
person or through text messages. The CA likewise did not favorably consider BBB’s claim that he cannot
provide financial support to AAA and the children in the amount required by the RTC as his income merely
depended on contractual hosting and events management assignments. The CA emphasized that AAA was
in the position to know the sources of BBB’s income. Citing Section 288 of R.A. No. 9262 and Article 2139
of the Family Code, the CA, however, ordered the RTC to determine who shall be entitled to exercise
custody over the children, who at that time were already older than seven years of age.

The CA denied BBB’s Motion for Partial Reconsideration10 by way of the Resolution11 dated August 3,
2010 which is likewise assailed in the instant petition.

Issues

Undaunted, BBB now comes before this Court raising the following issues:
I

WHETHER OR NOT THE [CA]COMMITTED ERROR IN AFFIRMING THE RTC’S DECISION TO MAKE THE
[TEMPORARY RESTRAINING ORDER (TPO)] PERMANENT.

II

WHETHER OR NOT THE [CA]COMMITTED ERROR IN AFFIRMING THE RTC’S AWARD OF ATTORNEY’S FEES
AND COST OF LITIGATION IN FAVOR OF [AAA].

III

WHETHER OR NOT THE [CA]COMMITTED ERROR IN AFFIRMING THE RTC’S ORDER REQUIRING [BBB] TO
POST AN EXCESSIVE AMOUNTOF BOND TO KEEP THE PEACE.12

IV

WHETHER OR NOT THE CA AND THE RTC CORRECTLY ADMITTED INTO EVIDENCETHE UNAUTHENTICATED
TEXT MESSAGES ADDUCED BY AAA.13

WHETHER OR NOT THE AWARD OF SUPPORT SHOULD BE DELETED AS THE SPOUSES’ COMMON
BIOLOGICAL CHILDREN, DDD AND EEE, ARE ALREADY UNDER BBB’S ACTUAL CARE AND CUSTODY SINCE
AUGUST 2010 WHEN AAA LEFT TO WORK AS A NURSE IN THE UNITED STATES.14

In support of the instant petition, BBB merely reiterates his factual claims in the proceedings below
relative to his financial position and AAA’s supposedly baseless accusations and demands from him. In
addition, he posits that the text messages offered by AAA as evidence were unauthenticated; hence,
doubt exists as to their admissibility. Further, he points out that due to the current whereabouts and
circumstances of the parties, the PPO issued against him is rendered moot. He now has actual care and
custody of DDD and EEE, while CCC, who is not his biological son, resides in a college dormitory. BBB and
AAA barely get in touch with each other except when the latter initiates the same.

In her Comment15 to the petition, AAA counters that BBB erroneously raises factual issues which are
subjects beyond the contemplation of a petition filed under Rule 45 of the Rules of Civil Procedure.
Further, BBB continuously violates the PPO, which under the provisions of R.A. No. 9262, is supposed to
be immediately executory upon its issuance by the RTC. AAA claims that BBB still verbally abuses her. BBB
has not posted the 300,000.00 bond required from him. He likewise has not paid the attorney’s fees and
costs of litigation awarded to AAA. He does not provide support for CCC, who, in the eyes of the law, is
also among his legitimated children. AAA further alleges that in2010, she left DDD and EEE under the care
of BBB only because the circumstances then obtaining forced her to do so. Three years had then lapsed
from the time she filed an application for a protection order and still, no execution of the PPO ensued.
She could not depend for financial support from BBB. She was thus left with no choice but to yield custody
over DDD and EEE even if the set-up exposed the children to BBB’s illicit affairs. AAA points out that since
their children are all older than seven years of age, they are already capable of choosing for themselves
whom they want to exercise custody over them.

Pending the Court’s deliberation of the instant case, BBB filed a Manifestation and Motion to Render
Judgment Based on a Memorandum of Agreement (MOA).16 BBB alleges that on July 29, 2013, he and
AAA had entered into a compromise anent the custody, exercise of parental authority over, and support
of DDD and EEE.17

AAA’s counsel, Atty. Shielah Elbinias-Uyboco (Atty. Uyboco), filed a Comment to the MOA18 pointing out
that AAA signed the MOA while emotionally distressed and sans the former’s advice and guidance. Atty.
Uyboco likewise emphasizes that BBB’s illicit relationship with FFF continues in violation of the PPO issued
by the RTC.

In BBB’s Reply,19 he counters that AAA should be presumed to have acted with due care and full
knowledge of the contents of the MOA which she signed. Further, BBB’s alleged involvement with FFF is
an issue which need not be resolved in a judgment based on compromise.

Disquisition of the Court

The instant petition is not a proper subject of a compromise agreement.

The Court cannot take the simplest course of finally writing finis to the instant petition by rendering a
judgment merely based on compromise as prayed for by BBB due to reasons discussed below.

Alleging psychological violence and economic abuse, AAA anchored her application for the issuance of a
TPO and a PPO on the basis of the provisions of R.A. No. 9262. In the instant petition, what is essentially
being assailed is the PPO issued by the RTC and which was affirmed by the CA. The rules, however, intend
that cases filed under the provisions of R.A. No. 9262 be not subjects of compromise agreements.

It bears stressing that Section 23(d) of A.M. No. 04-10-11-SC20 explicitly prohibits compromise on any act
constituting the crime of violence against women. Thus, in Garcia v. Drilon,21 the Court declared that:

Violence, however, is not a subject for compromise. A process which involves parties mediating the issue
of violence implies that the victim is somehow at fault. x x x.22 (Emphasis deleted) AM No. 10-4-16-SC,23
on the other hand, directs the referral to mediation of all issues under the Family Code and other laws in
relation to support, custody, visitation, property relations and guardianship of minor children, excepting
therefrom those covered by R.A. No. 9262.

While AAA filed her application for a TPO and a PPO as an independent action and not as an incidental
relief prayed for in a criminal suit, the instant petition cannot be taken outside the ambit of cases falling
under the provisions of R.A. No. 9262. Perforce, the prohibition against subjecting the instant petition to
compromise applies.

The courts a quo committed no error in issuing a PPO against BBB.

Anent the main issues raised in the instant petition, the Court finds no error in the CA’s ruling that the
RTC properly issued a PPO against BBB and that a remanding of the case to the trial court is necessary to
determine who shall exercise custody over CCC, DDD and EEE. However, the choices of the children as
with whom they would prefer to stay would alter the effects of the PPO. Hence, this Court affirms the
herein assailed PPO except items (d), (f), (g), (h) and (i)24 thereof relative to who shall be granted custody
over the three children, how the spouses shall exercise visitation rights, and the amount and manner of
providing financial support, which are matters the RTC is now directed to determine with dispatch.

The Court notes BBB’s manifestation that he and AAA had arrived at an amicable settlement as regards
the issues of custody, exercise of parental authority over, and support of DDD and EEE. While these
matters can be lawful subjects of compromise, AAA’s vacillation, as expressed by her counsel, compels
the Court to exercise prudence by directing the RTC to resolve with finality the aforesaid issues. The
parties are, however, not precluded from entering into a compromise as regards the aforesaid issues, but
the Court now requires the RTC’s direct supervision lest the parties muddle the issues anew and fail to
put an end to their bickering.

No grounds exist which compel this Court to resolve the first three issues raised by BBB since they are
merely factual in character.

In Padalhin v. Laviña,25 the Court declared that:

Primarily, Section 1, Rule 45 of the Rules of Court categorically states that the petition filed shall raise only
questions of law, which must be distinctly set forth. A question of law arises when there is doubt as to
what the law is on a certain state of facts, while there is a question of fact when the doubt arises as to the
truth or falsity of the alleged facts. For a question to be one of law, the same must not involve an
examination of the probative value of the evidence presented 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 circumstances. Once
it is clear that the issue invites a review of the evidence presented, the question posed is one of fact.

x x x [T]he substantive issue of whether or not the petitioners are entitled to moral and exemplary
damages as well as attorney’s fees is a factual issue which is beyond the province of a petition for review
on certiorari. x x x

In the case at bar, the petitioner spouses present to us issues with an intent to subject to review the
uniform factual findings of the RTC and the CA. Specifically, the instant petition challenges the existence
of clear and substantial evidence warranting the award of damages and attorney’s fees in Laviña’s favor.
Further, the instant petition prays for the grant of the Spouses Padalhin’s counterclaims on the supposed
showing that the complaint filed by Laviña before the RTC was groundless. It bears stressing that we are
not a trier of facts. Undoubtedly, the questions now raised before us are factual and not legal in character,
hence, beyond the contemplation of a petition filed under Rule 45 of the Rules of Civil Procedure.26 (Italics
in the original and emphasis ours)

In BBB’s case, he avers that the RTC and the CA’s (a) issuance of the PPO, (b) award of attorney’s fees and
costs of litigation in AAA’s favor, and (c) directive for him to post a bond in the amount of 300,000.00 all
lack factual bases. The first three issues presented unmistakably call for a re-calibration of evidence. While
the general rule that only legal issues can be resolved in a petition filed under Rule 45 recognizes
exceptions,27 BBB’s case does not fall in the latter category. The RTC and the CA are in accord with each
other as to their factual findings, which are supported by substantial evidence, thus, binding upon this
Court.

The doubt raised by BBB anent the admissibility of the text messages as evidence is not genuinely a legal
issue.

In the case of Justice Vidallon-Magtolis v. Salud,28 it is stated that any question as to the admissibility of
text messages as evidence is rendered moot and academic if the party raising such issue admits authorship
of the subject messages.29
BBB argues that the RTC and the CA erred in admitting as evidence the text messages which were sent by
him and FFF to AAA since they were unauthenticated. However, BBB himself effectively admitted in the
pleadings filed with this Court and the CA that he indeed sent the text messages attributed to him by AAA.
The Appellant’s Brief30 filed before the CA stated in part that:

[AAA] conveniently chose to leave out the initiatory messages to which [BBB] replied to. It is totally
obvious that the alleged messages from [BBB] are only messages that are in response to an ongoing verbal
or virtual tussle and the adamant refusal of [AAA] to bring the children home despite the entreaties of
[BBB]. Be it noted that [BBB], for the past several months leading up to their separation, and up to the
time that the instant case has been filed, continuously endured the extreme mood swings, malicious
accusations, haranguing, curses, insults, and even violence from [AAA].31 (Emphasis and underscoring in
the original and italics ours)

Further, in the instant petition, BBB repleads that:

[I]t is utterly apparent that the alleged messages from [BBB] are only messages that are in response to an
ongoing verbal or virtual tussle between the parties.32

In the above-quoted portions of the pleadings, BBB attempted to justify why he sent the messages to
AAA. However, in doing so, he, in effect, admitted authorship of the messages which AAA adduced as
evidence. It is likewise noted that BBB did not deny ownership of the cellphone number from which the
text messages were sent.

Hence, while at first glance, it would seem that the issue of admissibility of the text messages requires an
interpretation of the rules of evidence, this Court does not find the same to be necessary. While BBB had
admitted authorship of the text messages, he pleads for this Court to consider those messages as
inadmissible for allegedly being unauthenticated. BBB’s arguments are unbearably self-contradictory and
he cannot be allowed to take refuge under technical rules of procedure to assail what is already apparent.

The deletion from the PPO of the directive of the RTC and the CA relative to the award of support is not
warranted. While CCC is not BBB’s biological son, he was legitimated under the latter’s name. Like DDD
and EEE, CCC is entitled to receive support from BBB.

BBB claims that DDD and EEE are now under his sole care and custody, which allegedly renders moot the
provision in the PPO relative to support. BBB points out that CCC is not his biological son. Impliedly then,
BBB justifies why CCC is not entitled to receive support from him. This Court is not persuaded.

Article 177 of the Family Code provides that "[o]nly children conceived and born outside of wedlock of
parents who, at the time of the conception of the former, were not disqualified by any impediment to
marry each other may be legitimated." Article 178 states that "[l]egitimation shall take place by a
subsequent valid marriage between parents."

In the case at bar, the parties do not dispute the fact that BBB is not CCC’s biological father. Such being
the case, it was improper to have CCC legitimated after the celebration of BBB and AAA’s marriage. Clearly
then, the legal process of legitimation was trifled with. BBB voluntarily but falsely acknowledged CCC as
his son. Article 1431 of the New Civil Code pertinently provides:

Art. 1431. Through estoppel an admission or representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against the person relying thereon.
At least for the purpose of resolving the instant petition, the principle of estoppel finds application and it
now bars BBB from making an assertion contrary to his previous representations. He should not be
allowed to evade a responsibility arising from his own misrepresentations. He is bound by the effects of
the legitimation process. CCC remains to be BBB’s son, and pursuant to Article 179 of the Family Code,
the former is entitled to the same rights as those of a legitimate child, including the receipt of his father’s
support.

Notwithstanding the above, there is no absolute preclusion for BBB from raising before the proper court
the issue of CCC’s status and filiation. However, BBB cannot do the same in the instant petition before this
Court now. In Tison v. CA,33 the Court held that "the civil status [of a child] cannot be attacked
collaterally." The child’s legitimacy "cannot be contested by way of defense or as a collateral issue in
another action for a different purpose."34 The instant petition sprang out of AAA’s application for a PPO
before the RTC. Hence, BBB’s claim that CCC is not his biological son is a collateral issue, which this Court
has no authority to resolve now.

All told, the Court finds no merit in BBB’s petition, but there exists a necessity to remand the case for the
RTC to resolve matters relative to who shall be granted custody over the three children, how the spouses
shall exercise visitation rights, and the amount and manner of providing financial support.

The RTC and the CA found substantial evidence and did not commit reversible errors when they issued
the PPO against BBB. Events, which took place after the issuance of the PPO, do not erase the fact that
psychological, emotional and economic abuses were committed by BBB against AAA. Hence, BBB’s claim
that he now has actual sole care of DDD and EEE does not necessarily call for this Court’s revocation of
the PPO and the award to him of custody over the children.

This Court, thus, affirms the CA’s order to remand the case for the RTC to resolve the question of custody.
Since the children are now all older than seven years of age, they can choose for themselves whom they
want to stay with. If all the three children would manifest to the RTC their choice to stay with AAA, then
the PPO issued by RTC shall continue to be executed in its entirety. However, if any of the three children
would choose to be under BBB’s care, necessarily, the PPO issued against BBB relative to them is to be
modified. The PPO, in its entirety, would remain effective only as to AAA and any of the children who opt
to stay with her. Consequently, the RTC may accordingly alter the manner and amount of financial support
BBB should give depending on who shall finally be awarded custody over the children. Pursuant to Articles
201 and 202 of the Family Code, BBB’s resources and means and the necessities of AAA and the children
are the essential factors in determining the amount of support, and the same can be reduced or increased
proportionately. The RTC is reminded to be circumspect in resolving the matter of support, which is a
mutual responsibility of the spouses. The parties do not dispute that AAA is now employed as well, thus,
the RTC should consider the same with the end in mind of promoting the best interests of the children.

A final note on the effectivity and violation of a PPO

The Court reminds the parties that the application for the issuance of a PPO is not a process to be trifled
with. It is only granted after notice and hearing. Once issued, violation of its provisions shall be punishable
with a fine ranging from Five Thousand Pesos (5,000.00) to Fifty Thousand Pesos (₱50,000.00) and/or
imprisonment of six (6) months.35
Section 16 of R.A. No. 9262, on the other hand, provides that "[a] PPO shall be effective until revoked by
a court upon application of the person in whose favor the order was issued." Pending the resolution of
the instant petition, BBB claims that he and AAA had executed a MOA, upon which basis a judgment by
compromise is sought to be rendered. Atty. Uyboco, on her part, pointed out AAA’s vacillation anent the
MOA’s execution. With the foregoing circumstances, the parties, wittingly or unwittingly, have imposed
upon this Court the undue burden of speculating whether or not AAA’s half-hearted acquiescence to the
MOA is tantamount to an application for the revocation of the PPO. The Court, however, refuses to indulge
the whims of either parties. The questions raised in the instant petition for the Court to dispose of revolve
around the propriety of the PPO’s issuance. The Court resolves that principal query in the affirmative. The
PPO thus stands unless AAA, categorically and without any equivocation, files an application for its
revocation.

IN VIEW OF THE FOREGOING, the petition is DENIED. The Decision dated November 6, 2009 and Resolution
dated August 3, 2010 of the Court of Appeals in CA-G.R. CV No. 89581 are AFFIRMED. The Permanent
Protection Order, dated August 14, 2007, issued against BBB by the Regional Trial Court of Pasig City,
Branch 162STANDS except items (d), (f), (g), (h) and (i)36 thereof. The case is hereby remanded to the trial
court for it to accordingly modify the aforecited items after determining with dispatch the following:

(1) who between BBB and AAA shall exercise custody over the three children;

(2) how the parties shall exercise their respective visitation rights; and

(3) the amount and manner of providing financial support.

The Reply and Manifestation dated November 10, 2014 and December 4, 2014, respectively, are NOTED.

SO ORDERED.