Republic of the Philippines of a stay order and/or temporary restraining order (TRO)/preliminary

SUPREME COURT injunction against the implementation of the Writ of Execution4 dated
Manila August 22, 2011 issued by the Makati City RTC, Branch 148 in SP Proc.
Case No. M-6046.
FIRST DIVISION
Factual Antecedents
G.R. No. 196171 December 10, 2012
On May 24, 2000, RCBC entered into a Share Purchase
RCBC CAPITAL CORPORATION, Petitioners, Agreement5 (SPA) with Equitable-PCI Bank, Inc. (EPCIB), George L. Go
vs. and the individual shareholders6 of Bankard, Inc. (Bankard) for the sale to
BANCO DE ORO UNIBANK, INC., Respondent. RCBC of 226,460,000 shares (Subject Shares) of Bankard, constituting
67% of the latter’s capital stock. After completing payment of the contract
X- - - - - - - - - - - - - - - - - - - - - - - - - -X price (₱1,786,769,400), the corresponding deeds of sale over the subject
shares were executed in January 2001.
G.R. No. 199238
The dispute between the parties arose sometime in May 2003 when
RCBC informed EPCIB and the other selling shareholdersof an
BANCO DE ORO UNIBANK, INC., Petitioner,
overpayment of the subject shares, claiming there was an overstatement
vs.
of valuation of accounts amounting to ₱478 million and that the sellers
COURT OF APPEALS and RCBC CAPITAL
violated their warrantyunder Section 5(g)of the SPA.7
CORPORATION, Respondents.
As no settlement was reached, RCBC commenced arbitration
DECISION
proceedings with the ICC-ICA in accordance with Section 10 of the SPA
which states:
VILLARAMA, JR., J.:
Section 10.Arbitration
Before the Court are two consolidated petitions separately filed by the
parties in an arbitration case administered by the International Chamber
Should there be any dispute arising between the parties relating to this
of Commerce-International Court of Arbitration (ICC-ICA) pursuant to the
Agreement including the interpretation or performance hereof which
arbitration clause in their contract.
cannot be resolved by agreement of the parties within fifteen (15) days
after written notice by a party to another, such matter shall then be finally
The Case settled by arbitration under the Rules of Conciliation and Arbitration of the
International Chamber of Commerce in force as of the time of arbitration,
In G.R. No. 196171, a petition for review under Rule 45 of the 1997 Rules by three arbitrators appointed in accordance with such rules. The venue
of Civil Procedure, as amended, RCBC Capital Corporation (RCBC) of arbitration shall be in Makati City, Philippines and the arbitration
seeks to reverse the Court of Appeals (CA) Decision1 dated December 23, proceedings shall be conducted in the English language. Substantive
2010 in CA-G.R. SP No. 113525 which reversed and set aside the June aspects of the dispute shall be settled by applying the laws of the
24, 2009 Order2 of the Regional Trial Court (RTC) of Makati City, Branch Philippines. The decision of the arbitrators shall be final and binding upon
148 in SP Proc. Case No. M-6046. the parties hereto and the expenses of arbitration (including without
limitation the award of attorney’s fees to the prevailing party) shall be paid
In G.R. No. 199238,a petition for certiorari under Rule 65, Banco De Oro as the arbitrators shall determine.8
Unibank, Inc. (BDO)assails the Resolution3 dated September 13, 2011 in
CA-G.R. SP No. 120888 which denied BDO’s application for the issuance
In its Request for Arbitration9 dated May 12, 2004, Claimant RCBC
charged Bankard with deviating from and contravening generally
accepted accounting principles and practices, due to which the financial
statements of Bankard prior to the stock purchase were far from fair and
accurate, and resulted in the overpayment of ₱556 million. For this
violation of sellers’representations and warranties under the SPA, RCBC
sought its rescission, as well as payment of actual damages in the
amount of ₱573,132,110, legal interest on the purchase price until actual
restitution, moral damages and litigation and attorney’s fees, with
alternative prayer for award of damages in the amount of at least
₱809,796,082 plus legal interest.
In their Answer,10 EPCIB, Go and the other selling individual shareholders
(Respondents) denied RCBC’s allegations contending that RCBC’s claim
is one for overpayment or price reduction under Section 5(h) of the SPA
which is already time-barred, the remedy of rescission is unavailable, and
even assuming that rescission is permitted by the SPA, RCBC failed to
file its claim within a reasonable time. They further asserted that RCBC is
not entitled to its alternative prayer for damages, being guilty of laches
and failing to set out the details of the breach as required under Section 7
of the SPA. A counterclaim for litigation expenses and costs of arbitration
in the amount of US$300,000, as well as moral and exemplary damages,
was likewise raised by the Respondents.
RCBC submitted a Reply11 to the aforesaid Answer.
Subsequently, the Arbitration Tribunal was constituted. Mr. Neil Kaplan
was nominated by RCBC; Justice Santiago M. Kapunan (a retired
Member of this Court) was nominated by the Respondents; and Sir Ian
Barker was appointed by the ICC-ICA as Chairman.
On August 13, 2004, the ICC-ICA informed the parties that they are
required to pay US$350,000 as advance on costs pursuant to Article 30
(3) of the ICC Rules of Arbitration (ICC Rules). RCBC paid its share of
US$107,000, the balance remaining after deducting payments of
US$2,500 and US$65,000 it made earlier. Respondents’ share of the
advance on costs was thus fixed at US$175,000.
Respondents filed an Application for Separate Advances on Costs12 dated
September 17, 2004 under Article 30(2) of the ICC Rules, praying that
the ICC fix separate advances on the cost of the parties’ respective
claims and counterclaims, instead of directing them to share equally on
the advance cost of Claimant’s (RCBC) claim. Respondents deemed this
advance cost allocation to be proper, pointing out that the total amount of
RCBC’s claim is substantially higher – more than 40 times –the total
amount of their counterclaims, and that it would be unfair to require them
to share in the costs of arbitrating what is essentially a price issue that is
now time-barred under the SPA.
On September 20, 2004, the ICC-ICA informed Respondents that their
application for separate advances on costs was premature pending the
execution of the Terms of Reference (TOR).13 The TOR was settled by the
parties and signed by the Chairman and Members of the Arbitral Tribunal
by October 11, 2004. On December 3, 2004,14 the ICC-ICA denied the
application for separate advances on costs and invited anew the
Respondents to pay its share in the advance on costs. However, despite
reminders from the ICC-ICA, Respondents refused to pay their share in
the advance cost fixed by the ICC-ICA. On December 16, 2004, the ICC-
ICA informed the parties that if Respondents still failed to pay its share in
the advance cost, it would apply Article 30(4) of the ICC Rules and
request the Arbitration Tribunal to suspend its work and set a new time
limit, and if such requested deposit remains unpaid at the expiry thereof,
the counterclaims would be considered withdrawn.15
In a fax-letter dated January 4, 2005, the ICC-ICA invited RCBC to pay
the said amount in substitution of Respondents.It also granted an
extension until January 17, 2005 within which to pay the balance of the
advance cost (US$175,000). RCBC replied that it was not willing to
shoulder the share of Respondents in the advance on costs but
nevertheless requested for a clarification as to the effect of such refusal
to substitute for Respondents’share.16
On March 10, 2005, the ICC-ICA instructed the Arbitration Tribunal to
suspend its work and granted the parties a final time-limit of 15 days to
pay the balance of the advanceon costs, failing which the claims shall be
considered withdrawn, without prejudice to their reintroduction at a later
date in another proceeding. The parties were advised that if any of them
objects to the measure, it should make a request in writing within such
period.17 For the same reason of non-receipt of the balance of the
advance cost, the ICC-ICA issued Procedural Order No. 3 for the
adjournment of the substantive hearings and granting the Respondents a
two-month extension within which to submit their brief of evidence and
witnesses.
RCBC objected to the cancellation of hearings, pointing out that
Respondents have been given ample time and opportunity to submit their
brief of evidence and prepare for the hearings and that their request for
postponement serves no other purpose but to delay the proceedings. It
alleged that Respondents’ unjustified refusal to pay their share in the
advance on costs warrants a ruling that they have lost standing to
participate in the proceedings. It thus prayed that Respondents be
declared as in default, the substantive hearings be conducted as
originally scheduled, and RCBC be allowed to submit rebuttal evidence
and additional witness statements.18
On December 15, 2005, the ICC-ICA notified the parties of its decision to
increase the advances on costs from US$350,000 to US$450,000 subject
to later readjustments, and again invited the Respondents to pay the
US$100,000 increment within 30 days from notice. Respondents,
however, refused to pay the increment, insisting that RCBC should bear
the cost of prosecuting its own claim and that compelling the
Respondents to fund such prosecution is inequitable. Respondents
reiterated that it was willing to pay the advance on costs for their
counterclaim.19
On December 27, 2005, the ICC-ICA advised that it was not possible to
fix separate advances on costs as explained in its December 3, 2004
letter, and again invited Respondents to pay their share in the advance
on costs. Respondents’ response contained in the letter dated January 6,
2006 was still the same: it was willing to pay only the separate advance
on costs of their counterclaim.20 In view of Respondents’ continuing
refusal to pay its equal share in the advance on costs and increment,
RCBC wrote the ICC-ICA stating that the latter should compel the
Respondents to pay as otherwise RCBC will be prejudiced and the
inaction of the ICC-ICA and the Arbitration Tribunal will detract from the
effectiveness of arbitration as a means of settling disputes. In accordance
with Article 30(4) of the ICC Rules, RCBC reiterated its request to declare
the Respondents as in default without any personality to participate in the
proceedings not only with respect to their counterclaims but also to the
claim of RCBC.21
Chairman Ian Barker, in a letter dated January 25, 2006, stated in part:
xxxx
2. The Tribunal has no power under the ICC Rules to order
the Respondents to pay the advance on costs sought by the
ICC or to give the Claimant any relief against the
Respondents’ refusal to pay. The ICC Rules differ from, for
example, the Rules of the LCIA (Article 24.3) which enables a
party paying the share of costs which the other party has refused
to pay, to recover "that amount as a debt immediately due from
the defaulting party."
3. The only sanction under the ICC Rules is contained within
Article 30 (4). Where a request for an advance on costs has not
been complied with, after consultation with the Tribunal, the
Secretary-General may direct the Tribunal to suspend its work.
After expiry of a time limit, all claims and counterclaims are then
considered as withdrawn. This provision cannot assist a Claimant
who is anxious to litigate its claim. Such a Claimant has to pay
the sums requested (including the Respondents’ share) if it
wishes the arbitration to proceed.
4. It may be possible for a Claimant in the course of the
arbitral hearing (or whenever costs are being considered by
the Tribunal) to make submissions based on the failure of
the Respondents to pay their share of the costs
advance.What relief, if any, would have to be then
determined by the Tribunal after having heard submissions
from the Respondents.
5. I should be pleased if the Claimant will advise the Tribunal of
its intention in relation to the costs advance. If the costs are not
paid, the arbitration cannot proceed.22 (Italics in the original;
emphasis supplied)
RCBC paid the additional US$100,000 under the second assessment to
avert suspension of the Arbitration Tribunal’s proceedings.
Upon the commencement of the hearings, the Arbitration Tribunal
decided that hearings will be initially confined to issues of liability (liability
phase) while the substantial issues will be heard on a later date (quantum
phase).
Meanwhile, EPCIB’s corporate name was officially changed to Banco De
Oro (BDO)-EPCIB after its merger with BDO was duly approved by the
Securities and Exchange Commission. As such, BDO assumed all the
obligations and liabilities of EPCIB under the SPA.
On September 27, 2007, the Arbitration Tribunal rendered a Partial
Award23 (First Partial Award) in ICC-ICA Case No. 13290/MS/JB/JEM,as
follows:
15 AWARD AND DIRECTIONS
15.1 The Tribunal makes the following declarations by way of
Partial Award:
(a) The Claimant’s claim is not time-barred under the
provisions of this SPA.
(b) The Claimant is not estopped by its conduct or the
equitable doctrine of laches from pursuing its claim.
(c) As detailed in the Partial Award, the Claimant has
established the following breaches by the Respondents of
clause 5(g) of the SPA:
i) the assets, revenue and net worth of Bankard
were overstated by reason of its policy on and
recognition of Late Payment Fees;
ii) reported receivables were higher than their
realisable values by reason of the ‘bucketing’
method, thus overstating Bankard’s assets; and
iii) the relevant Bankard statements were
inadequate and misleading in that their
disclosures caused readers to be misinformed
about Bankard’s accounting policies on revenue
and receivables.
(d) Subject to proof of loss the Claimant is entitled to
damages for the foregoing breaches.
(e) The Claimant is not entitled to rescission of the SPA.
(f) All other issues, including any issue relating to
costs, will be dealt with in a further or final award.
15.2 A further Procedural Order will be necessary subsequent to
the delivery of this Partial Award to deal with the determination of
quantum and in particular, whether there should be an Expert
appointed by the Tribunal under Article 20(4) of the ICC Rules to
assist the Tribunal in this regard.
15.3 This Award is delivered by a majority of the Tribunal (Sir Ian
Barker and Mr. Kaplan). Justice Kapunan is unable to agree with
the majority’s conclusion on the claim of estoppel brought by the
Respondents.24 (Emphasis supplied)
On October 26, 2007, RCBC filed with the Makati City RTC, Branch 148
(SP Proc. Case No. M-6046)amotion to confirm the First Partial Award,
while Respondents filed a motion to vacate the same.
ICC-ICA by letter25 dated October 12, 2007 increased the advance on
costs from US$450,000 to US$580,000. Under this third assessment,
RCBC paid US$130,000 as its share on the increment. Respondents
declined to pay its adjudged total share of US$290,000 on account of its
filing in the RTC of a motion to vacate the First Partial Award.26 The ICC-
ICA then invited RCBC to substitute for Respondents in paying the
balance of US$130,000 by December 21, 2007.27 RCBC complied with the
request, making its total payments in the amount of US$580,000.28
While RCBC paid Respondents’ share in the increment (US$130,000), it
reiterated its plea that Respondents be declared as in default and the
counterclaimsdeemed as withdrawn.29
Chairman Barker’s letter dated December 18, 2007 states in part:
xxxx
8. Contrary to the Complainant’s view, the Tribunal has no
jurisdiction to declare that the Respondents have no right to
participate in the proceedings concerning the claim. Article 30(4)
of the ICC Rules applies only to any counterclaim of the
Respondents.
9. The Tribunal interprets the Claimant’s latest letter as an
application by the Claimant to the Tribunal for the issue of a
partial award against the Respondents in respect of their
failure to pay their share of the ICC’s requests for advance
on costs.
10. I should be grateful if the Claimant would confirm that this is
the situation. If so, the Claimant should propose a timetable for
which written submissions should be made by both parties. This
is an application which can be considered by the Tribunal on
written submissions.30 (Emphasis supplied)
RCBC, in a letter dated December 26, 2007, confirmed the Arbitration
Tribunal’s interpretation that it was applying for a partial award against
Respondents’ failure to pay their share in the advance on costs.31
Meanwhile, on January 8, 2008, the Makati City RTC, Branch 148 issued
an order in SP Proc. Case No. M-6046 confirming the First Partial Award
and denying Respondents’ separate motions to vacate and to suspend
and inhibit Barker and Kaplan. Respondents’ motion for reconsideration
was likewise denied. Respondents directly filed with this Court a petition
for review on certiorari under Rule 45, docketed as G.R. No. 182248 and
entitled Equitable PCI Banking Corporation v. RCBC Capital
Corporation.32 In our Decision dated December 18, 2008, we denied the
petition and affirmed the RTC’s ruling confirming the First Partial Award.
On January 18, 2008, the Arbitration Tribunal set a timetable for the filing
of submission by the parties on whether it should issue a Second Partial
Award in respect of the Respondents’ refusal to pay an advance on costs
to the ICC-ICA.
In compliance, RCBC filed on February 7, 2008an Application for
Reimbursement of Advance on Costs Paid, praying for the issuance of a
partial award directing the Respondents to reimburse its payment in the
amount of US$290,000 representing Respondents’ share in the Advance
on Costs and to consider Respondents’ counterclaim for actual damages
in the amount of US$300,000, and moral and exemplary damages as
withdrawn for their failure to pay their equal share in the advance on
costs. RCBC invoked the plain terms of Article 30 (2) and (3) to stress the
liability of Respondents to share equally in paying the advance on costs
where the Arbitration Tribunal has fixed the same.33
Respondents, on the other hand, filed their Opposition34 to the said
application alleging that the Arbitration Tribunal has lost its objectivity in
an unnecessary litigation over the payment of Respondents’ share in the
advance costs. They pointed out that RCBC’s letter merely asked that
Respondents be declared as in default for their failure to pay advance
costs but the Arbitration Tribunal, while denying the request offered an
alternative to RCBC: a Partial Award for Respondents’ share in the
advance costs even if it was clear from the language of RCBC’s
December 11, 2007 letter that it had no intention of litigating for the
advance costs. Chairman Barker, after ruling earlier that it cannot grant
RCBC’s request to declare the Respondents as having no right to
participate in the proceedings concerning the claim, interpreted RCBC’s
letter as an application for the Arbitration Tribunal to issue a partial award
in respect of such refusal of Respondents to pay their share in the
advance on costs, and subsequently directed the parties to make
submissions on the matter.Aside from violating their right to due process
and to be heard by an impartial tribunal, Respondents also argued that in
issuing the award for advance cost, the ArbitrationTribunal decided an
issue beyond the terms of the TOR.
Respondents also emphasized that the parties agreed on a two-part
arbitration: the first part of the Tribunal’s proceedings would determine
Respondents’ liability, if any, for alleged violation of Section 5(g) and (h)
of the SPA; and the second part of the proceedings would determine the
amounts owed by one party to another as a consequence of a finding of
liability or lack thereof. An award for "reimbursement of advances for
costs" clearly falls outside the scope of either proceedings. Neither can
the Tribunal justify such proceedings under Article 23 of the ICC Rules
(Conservatory and Interim Measures) because that provision does not
contemplate an award for the reimbursement of advance on costs in
arbitration cases. Respondents further asserted that since the advances
on costs have been paid by the Claimant (RCBC), the main claim and
counterclaim may both be heard by the Arbitration Tribunal.
In his letter dated March 13, 2008, Chairman Barker advised the parties,
as follows:
1. The Tribunal acknowledges the Respondents’ response to the
Claimant’s application for a Partial Award, based on the
Respondents’ failure to pay their share of the costs, as requested
by the ICC.
2. The Tribunal notes that neither party has referred to an
article by Mat[t]hew Secomb on this very subject which
appears in the ICC Bulletin Vol. 14 No.1 (Spring 2003). To
assist both sides and to ensure that the Tribunal does not
consider material on which the parties have not been given an
opportunity to address, I attach a copy of this article, which also
contains reference to other scholarly works on the subject.
3. The Tribunal will give each party seven days within which to
submit further written comments as a consequence of being
alerted to the above authorities.35 (Additional emphasis supplied)
The parties complied by submitting their respective comments.
RCBC refuted Respondents’ allegation of partiality on the part of
Chairman Barker and reiterated the prayer in its application for
reimbursement of advance on costs paid to the ICC-ICA. RCBC
contended that based on Mr. Secomb’s article, whether the "contractual"
or "provisional measures" approach is applied, the Arbitration Tribunal is
vested with jurisdiction and authority to render an award with respect to
said reimbursement of advance cost paid by the non-defaulting party.36
Respondents, on the other hand, maintained that RCBC’s application for
reimbursement of advance cost has no basis under the ICC Rules. They
contended that no manifest injustice can be inferred from an act of a
party paying for the share of the defaulting party as this scenario is
allowed by the ICC Rules. Neither can a partial award for advance cost
be justified under the "contractual approach" since the matter of costs for
arbitration is between the ICC and the parties, not the Arbitration Tribunal
and the parties. An arbitration tribunal can issue decisions on costs only
for those costs not fixed by the ICC.37
Respondents reiterated their position that Article 30(3) envisions a
situation whereby a party would refuse to pay its share on the advance
on costs and provides a remedy therefor – the other party "shall be free
to pay the whole of the advance on costs." Such party’s reimbursement
for payments of the defaulting party’s share depends on the final arbitral
award where the party liable for costs would be determined. This is the
only remedy provided by the ICC Rules.38
On May 28, 2008, the Arbitration Tribunal rendered the Second Partial
Award,39 as follows:
7 AWARD
7.1 Having read and considered the submissions of both parties, the
Tribunal AWARDS, DECLARES AND ORDERS as follows:
(a) The Respondents are forthwith to pay to the Claimant the sum
of US$290,000.
(b) The Respondents’ counterclaim is to be considered as
withdrawn.
(c) All other questions, including interest and costs, will be dealt
with in a subsequent award.40
The above partial award was received by RCBC and Respondents on
June 12, 2008.
On July 11, 2008, EPCIB filed a Motion to Vacate Second Partial
Award41 in the Makati City RTC, Branch 148 (SP Proc. Case No. M-6046).
On July 10, 2008, RCBC filed in the same court a Motion to Confirm
Second Partial Award.42
EPCIB raised the following grounds for vacating the Second Partial
Award: (a) the award is void ab initio having been rendered by the
arbitrators who exceeded their power or acted without it; and (b) the
award was procured by undue means or issued with evident partiality or
attended by misbehavior on the part of the Tribunal which resulted in a
material prejudice to the rights of the Respondents. EPCIB argued that
there is no express agreement either in the SPA or the ICC Rules for
such right of reimbursement. There is likewise no implied agreement
because from the ICC Rules, the only inference is that the parties agreed
to await the dispositions on costs liability in the Final Award, not before.
On the ruling of the Arbitration Tribunal that Respondents’ application for
costs are not counterclaims, EPCIB asserted that this is contrary to
Philippine law as it is basic in our jurisdiction that counterclaims for
litigation expenses, moral and exemplary damages are proper
counterclaims, which rule should be recognized in view of Section 10 of
the SPA which provides that "substantive aspects of the dispute shall be
settled by applying the laws of the Philippines." Finally, EPCIB takes
issue with Chairman Barker’s interpretation of RCBC’s December 11,
2007 letter as an application for a partial award for reimbursement of the
substituted payments. Such conduct of Chairman Barker is prejudicial
and proves his evident partiality in favor of RCBC.
RCBC filed its Opposition,43 asserting that the Arbitration Tribunal had
jurisdiction to consider Respondents’ counterclaim as withdrawn, the
same having been abandoned by not presenting any computation or
substantiation by evidence, their only computation relates only to
attorney’s fees which are simply cost of litigation properly brought at the
conclusion of the arbitration. It also pointed out that the Arbitration
Tribunal was empowered by the parties’ arbitral clause to determine the
manner of payment of expenses of arbitration, and that the Second
Partial Award was based on authorities and treatiseson the mandatory
and contractual nature of the obligation to pay advances on costs.
In its Reply,44 EPCIB contended that RCBC had the option to agree to its
proposal for separate advances on costs but decided against it; RCBC’s
act of paying the balance of the advance cost in substitution of EPCIB
was for the purpose of having EPCIB defaulted and the latter’s
counterclaim withdrawn. Having agreed to finance the arbitration until its
completion, RCBC is not entitled to immediate reimbursement of the
amount it paid in substitution of EPCIB under an interim award, as its
right to a partial or total reimbursement will have to be determined under
the final award. EPCIB asserted that the matter of reimbursement of
advance cost paid cannot be said to have properly arisen during
arbitration. EPCIB reiterated that Chairman Barker’s interpretation of
RCBC’s December 11, 2007 letter as an application for interim award for
reimbursement is tantamount to a promise that the award will be issued
in due course.
After a further exchange of pleadings, and other motions seeking relief
from the court in connection with the arbitration proceedings (quantum
phase), the Makati City RTC, Branch 148 issued the Order45 dated June
24, 2009 confirming the Second Partial Award and denying EPCIB’s
motion to vacate the same. Said court held that since the parties agreed
to submit any dispute under the SPA to arbitration and to be bound by the
ICC Rules, they are also bound to pay in equal shares the advance on
costs as provided in Article 30 (2) and (3). It noted that RCBC was forced
to pay the share of EPCIB in substitution of the latter to prevent a
suspension of the arbitration proceedings, while EPCIB’s non-payment
seems more like a scheme to delay such proceedings. On the Arbitration
Tribunal’s ruling on EPCIB’s counterclaim, no error was committed in
considering it withdrawn for failure of EPCIB to quantify and substantiate
it with supporting evidence. As to EPCIB’s claim for attorney’s fees, the
RTC agreed that these should be brought only at the close of arbitration.
EPCIB moved to reconsider the June 24, 2009 Order and for the
voluntary inhibition of the Presiding Judge (Judge Oscar B. Pimentel) on
the ground that EPCIB’s new counsel represented another client in
another case before him in which said counsel assailed his conduct and
had likewise sought his inhibition. Both motions were denied in the Joint
Order46 dated March 23, 2010.
On April 14, 2010, EPCIB filed in the CA a petition for review47 with
application for TRO and/or writ of preliminary injunction (CA-G.R. SP No.
113525) in accordance with Rule 19, Section 4 of the Special Rules of
Court on Alternative Dispute Resolution48 (Special ADR Rules). EPCIB
assailed the Makati City RTC, Branch 148 in denying its motion to vacate
the Second Partial Award despite (a) said award having been rendered in
excess of jurisdiction or power, and contrary to public policy; (b) the fact
that it was issued with evident partiality and serious misconduct; (c) the
award deals with a dispute not contemplated within the terms of
submission to arbitration or beyond the scope of such submission, which
therefore ought to be vacated pursuant to Article 34 of the UNCITRAL
Model Law; and (d) the Presiding Judge having exhibited bias and
prejudice against BDO and its counsel as confirmed by his
pronouncements in the Joint Order dated March 23, 2010 in which,
instead of recusing himself, he imputed malice and unethical conduct in
the entry of appearance of Belo Gozon Elma Asuncion and Lucila Law
Offices in SP Proc. Case No. M-6046, which warrants his voluntary
inhibition.
Meanwhile, on June 16, 2010, the Arbitration Tribunal issued the Final
Award,49 as follows:
15 AWARD
15.1 The Tribunal by a majority (Sir Ian Barker & Mr. Kaplan) awards,
declares and adjudges as follows:
(a) the Respondents are to pay damages to the Claimant for
breach of the sale and purchase agreement for Bankard shares in
the sum of ₱348,736,920.29.
(b) The Respondents are to pay to the Claimant the sum of
US$880,000 in respect of the costs of the arbitration as fixed by
the ICC Court.
(c) The Respondents are to pay to the Claimant the sum of
US$582,936.56 for the fees and expenses of Mr. Best.
(d) The Respondents are to pay to the Claimant their expenses of
the arbitration as follows:
(i) Experts’ fees ₱7,082,788.55
(ii) Costs of without prejudice meeting ₱22,571.45
(iii) Costs of arbitration hearings ₱553,420.66
 (iv) Costs of transcription service ₱483,597.26
Total ₱8,144,377.62
(e) The Respondents are to pay to the Claimant the sum of
₱7,000,000 for party-and-party legal costs.
(f) The Counterclaims of the Respondents are all dismissed.
(g) All claims of the Claimant are dismissed, other than those
referred to above.
15.2 Justice Kapunan does not agree with the majority of the members of
the Tribunal and has issued a dissenting opinion. He has refused to sign
this Award.50
On July 1, 2010 BDO filed in the Makati City RTC a Petition to Vacate
Final Award Ad Cautelam,51 docketed as SP Proc. Case No. M-6995,
which was raffled to Branch 65.
On July 28, 2010, RCBC filed with the Makati City RTC, Branch 148 (SP
Proc. Case No. M-6046) a Motion to Confirm Final Award.52 BDO filed its
Opposition With Motion to Dismiss53 on grounds that a Petition to Vacate
Final Award Ad Cautelamhad already been filed in SP Proc. Case No. M-
6995. BDO also pointed out that RCBC did not file the required petition
but instead filed a mere motion which did not go through the process of
raffling to a proper branch of the RTC of Makati City and the payment of
the required docket/filing fees. Even assuming that Branch 148 has
jurisdiction over RCBC’s motion to confirm final award, BDO asserted
that RCBC had filed before the Arbitration Tribunal an Application for
Correction and Interpretation of Award under Article 29 of the ICC Rules,
which is irreconcilable with its Motion to Confirm Final Award before said
court. Hence, the Motion to Confirm Award was filed precipitately.
On August 18, 2010, RCBC filed an Omnibus Motion in SP Proc. Case
No. M-6995 (Branch 65) praying for the dismissal of BDO’s Petition to
Vacate Final Award or the transfer of the same to Branch 148 for
consolidation with SP Proc. Case No. M-6046. RCBC contended that
BDO’s filing of its petition with another court is a blatant violation of the
Special ADR Rules and is merely a subterfuge to commit forum-
shopping. BDO filed its Opposition to the Omnibus Motion.54
On October 28, 2010, Branch 65 issued a Resolution55 denying RCBC’s
omnibus motion and directing the service of the petition to RCBC for the
latter’s filing of a comment thereon. RCBC’s motion for reconsideration
was likewise denied in the said court’s Order dated December 15, 2010.
RCBC then filed its Opposition to the Petition to Vacate Final Award Ad
Cautelam.
Meanwhile, on November 10, 2010, Branch 148 (SP Proc. Case No. M-
6046) issued an Order56 confirming the Final Award "subject to the
correction/interpretation thereof by the Arbitral Tribunal pursuant to the
ICC Rules and the UNCITRAL Model Law," and denying BDO’s
Opposition with Motion to Dismiss.
On December 30, 2010, George L. Go, in his personal capacity and as
attorney-in-fact of the other listed shareholders of Bankard, Inc. in the
SPA (Individual Shareholders), filed a petition in the CA, CA-G.R. SP No.
117451, seeking to set aside the above-cited November 10, 2010 Order
and to enjoin Branch 148 from further proceeding in SP Proc. Case No.
M-6046. By Decision57 dated June 15, 2011, the CA dismissed the said
petition. Their motion for reconsideration of the said decision was likewise
denied by the CA in its Resolution58 dated December 14, 2011.
On December 23, 2010, the CA rendered its Decision in CA-G.R. SP No.
113525, the dispositive portion of which states:
WHEREFORE, premises considered, the following are
hereby REVERSED and SET ASIDE:
1. the Order dated June 24, 2009 issued in SP Proc. Case No. M-
6046 by the Regional Trial Court of Makati City, Branch 148,
insofar as it denied the Motion to Vacate Second Partial Award
dated July 8, 2008 and granted the Motion to Confirm Second
Partial Award dated July 10, 2008;
2. the Joint Order dated March 23, 2010 issued in SP Proc. Case
No. M-6046 by the Regional Trial Court of Makati City, Branch
148, insofar as it denied the Motion For Reconsideration dated
July 28, 2009 relative to the motions concerning the Second
Partial Award immediately mentioned above; and
3. the Second Partial Award dated May 28, 2008 issued in
International Chamber of Commerce Court of Arbitration
Reference No. 13290/MS/JB/JEM.
SO ORDERED.59
RCBC filed a motion for reconsideration but the CA denied the same in
its Resolution60 dated March 16, 2011. On April 6, 2011, it filed a petition
for review on certiorari in this Court (G.R. No. 196171).
On February 25, 2011, Branch 65 rendered a Decision61 in SP Proc. Case
No. M-6995, as follows:
WHEREFORE, premises considered, the Final Award dated June 16,
2010 in ICC Ref. No. 13290/MS/JB/JEM is hereby VACATED with cost
against the respondent.
SO ORDERED.62
In SP Proc. Case No. M-6046, Branch 148 issued an Order63 dated
August 8, 2011 resolving the following motions: (1) Motion for
Reconsideration filed by BDO, Go and Individual Shareholders of the
November 10, 2010 Order confirming the Final Award; (2) RCBC’s
Omnibus Motion to expunge the motion for reconsideration filed by Go
and Individual Shareholders, and for execution of the Final Award; (3)
Motion for Execution filed by RCBC against BDO; (4) BDO’s Motion for
Leave to File Supplement to the Motion for Reconsideration; and (5)
Motion for Inhibition filed by Go and Individual Shareholders. Said Order
decreed:
WHEREFORE, premises considered, it is hereby ORDERED, to wit:
1. Banco De Oro’s Motion for Reconsideration, Motion for Leave
to File Supplement to Motion for Reconsideration, and Motion to
Inhibit are DENIED for lack of merit.
2. RCBC Capital’s Motion to Expunge, Motion to Execute against
Mr. George L. Go and the Bankard Shareholders, and the Motion
to Execute against Banco De Oro are hereby GRANTED.
3. The damages awarded to RCBC Capital Corporation in the
amount of Ph₱348,736,920.29 is subject to an interest of 6% per
annum reckoned from the date of RCBC Capital’s extra-judicial
demand or from May 5, 2003 until the confirmation of the Final
Award. Likewise, this compounded amount is subject to 12%
interest per annum from the date of the confirmation of the Final
Award until its satisfaction. The costs of the arbitration amounting
to US$880,000.00, the fees and expenses of Mr. Best amounting
to US$582,936.56, the Claimant’s expenses of the arbitration
amounting to Ph₱8,144,377.62, and the party-and-party legal
costs amounting to Ph₱7,000,000.00 all ruled in favor of RCBC
Capital Corporation in the Final Award of the Arbitral Tribunal
dated June 16, 2010 are subject to 12% legal interest per annum,
also reckoned from the date of the confirmation of the Final
Award until its satisfaction.
4. Pursuant to Section 40 of R.A. No. 9285, otherwise known as
the Alternative Dispute Resolution Act of 2004 in relation to Rule
39 of the Rules of Court, since the Final Award have been
confirmed, the same shall be enforced in the same manner as
final and executory decisions of the Regional Trial Court, let a writ
of execution be issued commanding the Sheriff to enforce this
instant Order confirming this Court’s Order dated November 10,
2010 that judicially confirmed the June 16, 2010 Final Award.
SO ORDERED.64
Immediately thereafter, RCBC filed an Urgent Motion for Issuance of a
Writ of Execution.65 On August 22, 2011, after approving the execution
bond, Branch 148 issued a Writ of Execution for the implementation of
the said court’s "Order dated August 8, 2011 confirming the November
10, 2010 Order that judicially confirmed the June 16, 2010 Final Award x
x x."66
BDO then filed in the CA, a "Petition for Review (With Application for a
Stay Order or Temporary Restraining Order and/or Writ of Preliminary
Injunction," docketed as CA-G.R. SP No. 120888. BDO sought to reverse
and set aside the Orders dated November 10, 2010 and August 8, 2011,
and any writ of execution issued pursuant thereto, as well as the Final
Award dated June 16, 2010 issued by the Arbitration Tribunal.
In its Urgent Omnibus Motion67 to resolve the application for a stay order
and/or TRO/writ of preliminary injunction, and to quash the Writ of
Execution dated August 22, 2011 and lift the Notices of Garnishment
dated August 22, 2011, BDO argued that the assailed orders of execution
(Writ of Execution and Notice of Garnishment) were issued with indecent
haste and despite the non-compliance with the procedures in Special
ADR Rules of the November 10, 2010 Order confirming the Final Award.
BDO was not given sufficient time to respond to the demand for payment
or to elect the method of satisfaction of the judgment debt or the property
to be levied upon. In any case, with the posting of a bond by BDO,
Branch 148 has no jurisdiction to implement the appealed orders as it
would pre-empt the CA from exercising its review under Rule 19 of the
Special ADR Rules after BDO had perfected its appeal. BDO stressed
that the bond posted by RCBC was for a measly sum of ₱3,000,000.00 to
cause execution pending appeal of a monetary award that may reach
₱631,429,345.29. RCBC also failed to adduce evidence of "good cause"
or "good reason" to justify discretionary execution under Section 2(a),
Rule 39 of the Rules of Court.
BDO further contended that the writ of execution should be quashed for
having been issued with grave abuse of discretion amounting to lack or
excess of jurisdiction as Branch 148 modified the Final Award at the time
of execution by imposing the payment of interests though none was
provided therein nor in the Order confirming the same.
During the pendency of CA-G.R. SP No. 120888, Branch 148 continued
with execution proceedings and on motion by RCBC
designated/deputized additional sheriffs to replace Sheriff Flora who was
supposedly physically indisposed.68 These court personnel went to the
offices/branches of BDO attempting to serve notices of garnishment and
to levy the furniture, fixtures and equipment.
On September 12, 2011, BDO filed a Very Urgent Motion to Lift Levy and
For Leave to Post Counter-Bond69 before Branch 148 praying for the lifting
of the levy of BDO Private Bank, Inc. (BPBI) shares and the cancellation
of the execution sale thereof scheduled on September 15, 2011, which
was set for hearing on September 14, 2011. BDO claimed that the levy
was invalid because it was served by the RTC Sheriffs not to the
authorized representatives of BPBI, as provided under Section 9(b), Rule
39 in relation to Section 7, Rule 57 of the Rules of Court stating that a
notice of levy on shares of stock must be served to the president or
managing agent of the company which issued the shares. However, BDO
was advised by court staff that Judge Sarabia was on leave and the case
could not be set for hearing.
In its Opposition to BDO’s application for injunctive relief, RCBC prayed
for its outright denial as BDO’s petition raises questions of fact and/or law
which call for the CA to substitute its judgment with that of the Arbitration
Tribunal, in patent violation of applicable rules of procedure governing
domestic arbitration and beyond the appellate court’s jurisdiction. RCBC
asserted that BDO’s application has become moot and academic as the
writ of execution was already implemented and/or enforced. It also
contended that BDO has no clear and unmistakable right to warrant
injunctive relief because the issue of jurisdiction was already ruled upon
in CA-G.R. SP No. 117451 which dismissed the petition filed by Go and
the Individual Shareholders of Bankard questioning the authority of
Branch 148 over RCBC’s motion to confirm the Final Award despite the
earlier filing by BDO in another branch of the RTC (Branch 65) of a
petition to vacate the said award.
On September 13, 2011, BDO, to avert the sale of the BPBI shares
scheduled on September 15, 2011 and prevent further disruption in the
operations of BDO and BPBI, paid under protest by tendering a
Manager’s Check in the amount of ₱637,941,185.55, which was
accepted by RCBC as full and complete satisfaction of the writ of
execution. BDO manifested before Branch 148 that such payment was
made without prejudice to its appeal before the CA.70
On even date, the CA denied BDO’s application for a stay order and/or
TRO/preliminary injunction for non-compliance with Rule 19.25 of the
Special ADR Rules. The CA ruled that BDO failed to show the existence
of a clear right to be protected and that the acts sought to be enjoined
violated any right. Neither was BDO able to demonstrate that the injury to
be suffered by it is irreparable or not susceptible to mathematical
computation.
BDO did not file a motion for reconsideration and directly filed with this
Court a petition for certiorari with urgent application for writ of preliminary
mandatory injunction (G.R. No. 199238).
The Petitions
In G.R. No. 196171, RCBC set forth the following grounds for the reversal
of the CA Decision dated December 23, 2010:
I.
THE COURT OF APPEALS ACTED CONTRARY TO LAW AND
PRIOR RULINGS OF THIS HONORABLE COURT AND
COMMITTED REVERSIBLE ERROR IN VACATING THE
SECOND PARTIAL AWARD ON THE BASIS OF CHAIRMAN
BARKER’S ALLEGED PARTIALITY, WHICH IT CLAIMS IS
INDICATIVE OF BIAS CONSIDERING THAT THE
ALLEGATIONS CONTAINED IN BDO/EPCIB’S PETITION FALL
SHORT OF THE JURISPRUDENTIAL REQUIREMENT THAT
THE SAME BE SUPPORTED BY CLEAR AND CONVINCING
EVIDENCE.
 II.
THE COURT OF APPEALS ACTED CONTRARY TO LAW AND
PRIOR RULINGS OF THIS HONORABLE COURT AND
COMMITTED REVERSIBLE ERROR WHEN IT REVERSED THE
ARBITRAL TRIBUNAL’S FINDINGS OF FACT AND LAW IN THE
SECOND PARTIAL AWARD IN PATENT CONTRAVENTION OF
THE SPECIAL ADR RULES WHICH EXPRESSLY PROHIBITS
THE COURTS, IN AN APPLICATION TO VACATE AN
ARBITRAL AWARD, FROM DISTURBING THE FINDINGS OF
FACT AND/OR INTERPRE[TA]TION OF LAW OF THE
ARBITRAL TRIBUNAL.71
BDO raises the following arguments in G.R. No. 199238:
THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION
IN PERFUNCTORILY DENYING PETITIONER BDO’S APPLICATION
FOR STAY ORDER, AND/OR TEMPORARY RESTRAINING ORDER
AND PRELIMINARY INJUNCTION DESPITE THE EXISTENCE AND
CONCURRENCE OF ALL THE ELEMENTS FOR THE ISSUANCE OF
SAID PROVISIONAL RELIEFS
A. PETITIONER BDO HAS CLEAR AND UNMISTAKABLE
RIGHTS TO BE PROTECTED BY THE ISSUANCE OF THE
INJUNCTIVE RELIEF PRAYED FOR, WHICH, HOWEVER,
WERE DISREGARDED BY PUBLIC RESPONDENT WHEN IT
DENIED PETITIONER BDO’S PRAYER FOR ISSUANCE OF A
STAY ORDER AND/OR TRO
B. PETITIONER BDO’S RIGHT TO DUE PROCESS AND
EQUAL PROTECTION OF THE LAW WAS GROSSLY
VIOLATED BY THE RTC-MAKATI CITY BRANCH 148, THE
DEPUTIZED SHERIFFS AND RESPONDENT RCBC CAPITAL,
WHICH VIOLATION WAS AIDED BY PUBLIC RESPONDENT’S
INACTION ON AND EVENTUAL DENIAL OF THE PRAYER FOR
STAY ORDER AND/OR TRO
C. DUE TO THE ACTS AND ORDERS OF RTC BRANCH 148,
PETITIONER BDO SUFFERED IRREPARABLE DAMAGE AND
INJURY, AND THERE WAS DIRE AND URGENT NECESSITY
FOR THE ISSUANCE OF THE INJUNCTIVE RELIEF PRAYED
FOR WHICH PUBLIC RESPONDENT DENIED IN GRAVE
ABUSE OF DISCRETION72
Essentially, the issues to be resolved are: (1) whether there is legal
ground to vacate the Second Partial Award; and (2) whether BDO is
entitled to injunctive relief in connection with the execution proceedings in
SP Proc. Case No. M-6046.
In their TOR, the parties agreed on the governing law and rules as
follows:
Laws to be Applied
13 The Tribunal shall determine the issues to be resolved in accordance
with the laws of the Republic of the Philippines.
Procedure to be Applied
14 The proceedings before the Tribunal shall be governed by the ICC
Rules of Arbitration (1 January 1998) and the law currently applicable to
arbitration in the Republic of the Philippines.73
As stated in the Partial Award dated September 27, 2007, although the
parties provided in Section 10 of the SPA that the arbitration shall be
conducted under the ICC Rules, it was nevertheless arbitration under
Philippine law since the parties are both residents of this country. The
provisions of Republic Act No. 87674 (RA 876),as amended by Republic
Act No. 928575 (RA 9285)principally applied in the arbitration between the
herein parties.76
The pertinent provisions of R.A. 9285 provide:
SEC. 40. Confirmation of Award. – The confirmation of a domestic
arbitral award shall be governed by Section 23 of R.A. 876.
A domestic arbitral award when confirmed shall be enforced in the same
manner as final and executory decisions of the Regional Trial Court.
The confirmation of a domestic award shall be made by the regional trial
court in accordance with the Rules of Procedure to be promulgated by
the Supreme Court.
xxxx
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.
Rule 11.4 of the Special ADR Rules sets forth the grounds for vacating
an arbitral award:
Rule 11.4. Grounds.—(A) To vacate an arbitral award. – The arbitral
award may be vacated on the following grounds:
a. The arbitral award was procured through corruption, fraud or
other undue means;
b. There was evident partiality or corruption in the arbitral
tribunal or any of its members;
c. The arbitral tribunal was guilty of misconduct or any form of
misbehavior that has materially prejudiced the rights of any party
such as refusing to postpone a hearing upon sufficient cause
shown or to hear evidence pertinent and material to the
controversy;
d. One or more of the arbitrators was disqualified to act as such
under the law and willfully refrained from disclosing such
disqualification; or
e. The arbitral tribunal exceeded its powers, or so imperfectly
executed them, such that a complete, final and definite award
upon the subject matter submitted to them was not made.
The award may also be vacated on any or all of the following grounds:
a. The arbitration agreement did not exist, or is invalid for any
ground for the revocation of a contract or is otherwise
unenforceable; or
b. A party to arbitration is a minor or a person judicially declared
to be incompetent.
xxxx
In deciding the petition to vacate the arbitral award, the court shall
disregard any other ground than those enumerated above. (Emphasis
supplied)
Judicial Review
At the outset, it must be stated that a review brought to this Court under
the Special ADR Rules is not a matter of right. Rule 19.36 of said Rules
specified the conditions for the exercise of this Court’s discretionary
review of the CA’s decision.
Rule 19.36.Review discretionary.—A review by the Supreme Court is not
a matter of right, but of sound judicial discretion, which will be granted
only for serious and compelling reasons resulting in grave prejudice
to the aggrieved party. The following, while neither controlling nor fully
measuring the court’s discretion, indicate the serious and compelling, and
necessarily, restrictive nature of the grounds that will warrant the exercise
of the Supreme Court’s discretionary powers, when the Court of
Appeals:
a. Failed to apply the applicable standard or test for judicial
review prescribed in these Special ADR Rules in arriving at its
decision resulting in substantial prejudice to the aggrieved party;
b. Erred in upholding a final order or decision despite the lack of
jurisdiction of the court that rendered such final order or decision;
c. Failed to apply any provision, principle, policy or rule contained
in these Special ADR Rules resulting in substantial prejudice to
the aggrieved party; and
d. Committed an error so egregious and harmful to a party as to
amount to an undeniable excess of jurisdiction.
The mere fact that the petitioner disagrees with the Court of Appeals’
determination of questions of fact, of law or both questions of fact and
law, shall not warrant the exercise of the Supreme Court’s discretionary
power. The error imputed to the Court of Appeals must be grounded
upon any of the above prescribed grounds for review or be closely
analogous thereto.
A mere general allegation that the Court of Appeals has committed
serious and substantial error or that it has acted with grave abuse of
discretion resulting in substantial prejudice to the petitioner without
indicating with specificity the nature of such error or abuse of discretion
and the serious prejudice suffered by the petitioner on account thereof,
shall constitute sufficient ground for the Supreme Court to dismiss
outright the petition. (Emphasis supplied)
The applicable standard for judicial review of arbitral awards in this
jurisdiction is set forth in Rule 19.10 which states:
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.
xxxx
The court shall not set aside or vacate the award of the arbitral tribunal
merelyon 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. (Emphasis supplied)
The above rule embodied the stricter standard in deciding appeals from
arbitral awards established by jurisprudence. In the case of Asset
Privatization Trust v. Court of Appeals,77 this Court held:
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.78
Accordingly, we examine the merits of the petition before us solely on the
statutory ground raised for vacating the Second Partial Award: evident
partiality, pursuant to Section 24 (b) of the Arbitration Law (RA 876) and
Rule 11.4 (b) of the Special ADR Rules.
Evident Partiality
Evident partiality is not defined in our arbitration laws. As one of the
grounds for vacating an arbitral award under the Federal Arbitration Act
(FAA) in the United States (US), the term "encompasses both an
arbitrator’s explicit bias toward one party and an arbitrator’s inferred bias
when an arbitrator fails to disclose relevant information to the parties."79
From a recent decision80 of the Court of Appeals of Oregon, we quote a
brief discussion of the common meaning of evident partiality:
To determine the meaning of "evident partiality," we begin with the terms
themselves. The common meaning of "partiality" is "the inclination to
favor one side."Webster’s Third New Int'l Dictionary 1646 (unabridged
ed 2002); see also id. (defining "partial" as "inclined to favor one party in
a cause or one side of a question more than the other: biased,
predisposed" (formatting in original)). "Inclination," in turn, means "a
particular disposition of mind or character : propensity, bent" or "a
tendency to a particular aspect, state, character, or action."Id. at 1143
(formatting in original); see also id. (defining "inclined" as "having
inclination, disposition, or tendency").
The common meaning of "evident" is "capable of being perceived
esp[ecially] by sight : distinctly visible : being in evidence : discernable[;] *
* * clear to the understanding : obvious, manifest, apparent."Id. at 789
(formatting in original); see also id. (stating that synonyms of "evident"
include "apparent, patent, manifest, plain, clear, distinct, obvious, [and]
palpable" and that, "[s]ince evident rather naturally
suggests evidence, it may imply the existence of signs and
indications that must lead to an identification or inference"
(formatting in original)). (Emphasis supplied)
Evident partiality in its common definition thus implies "the existence
of signs and indications that must lead to an identification or inference" of
partiality.81 Despite the increasing adoption of arbitration in many
jurisdictions, there seems to be no established standard for determining
the existence of evident partiality. In the US, evident partiality "continues
to be the subject of somewhat conflicting and inconsistent judicial
interpretation when an arbitrator’s failure to disclose prior dealings is at
issue."82
The first case to delineate the standard of evident partiality in arbitration
proceedings was Commonwealth Coatings Corp. v. Continental Casualty
Co., et al.83 decided by the US Supreme Court in 1968. The Court therein
addressed the issue of whether the requirement of impartiality applies to
an arbitration proceeding. The plurality opinion written by Justice Black
laid down the rule that the arbitrators must disclose to the parties "any
dealings that might create an impression of possible bias,"84 and that
underlying such standard is "the premise that any tribunal permitted by
law to try cases and controversies not only must be unbiased but also
must avoid even the appearance of bias."85 In a separate concurring
opinion, Justice White joined by Justice Marshall, remarked that "[t]he
Court does not decide today that arbitrators are to be held to the
standards of judicial decorum of Article III judges, or indeed of any
judges."86 He opined that arbitrators should not automatically be
disqualified from an arbitration proceeding because of a business
relationship where both parties are aware of the relationship in advance,
or where the parties are unaware of the circumstances but the
relationship is trivial. However, in the event that the arbitrator has a
"substantial interest" in the transaction at hand, such information must be
disclosed.
Subsequent cases decided by the US Court of Appeals Circuit Courts
adopted different approaches, given the imprecise standard of evident
partiality in Commonwealth Coatings.
In Morelite Construction Corp. v. New York District Council Carpenters
Benefit Funds,87 the Second Circuit reversed the judgment of the district
court and remanded with instructions to vacate the arbitrator’s award,
holding that the existence of a father-son relationship between the
arbitrator and the president of appellee union provided strong evidence of
partiality and was unfair to appellant construction contractor. After
examining prior decisions in the Circuit, the court concluded that –
x x x we cannot countenance the promulgation of a standard for partiality
as insurmountable as "proof of actual bias" -- as the literal words
of Section 10 might suggest. Bias is always difficult, and indeed often
impossible, to "prove." Unless an arbitrator publicly announces his
partiality, or is overheard in a moment of private admission, it is difficult to
imagine how "proof" would be obtained. Such a standard, we fear,
occasionally would require that we enforce awards in situations that are
clearly repugnant to our sense of fairness, yet do not yield "proof" of
anything.
If the standard of "appearance of bias" is too low for the invocation
of Section 10, and "proof of actual bias" too high, with what are we
left? Profoundly aware of the competing forces that have already been
discussed, we hold that "evident partiality" within the meaning of 9
U.S.C. § 10 will be found where a reasonable person would have to
conclude that an arbitrator was partial to one party to the
arbitration.x x x88 (Emphasis supplied)
In Apperson v. Fleet Carrier Corporation,89 the Sixth Circuit agreed with
the Morelite court’s analysis, and accordingly held that to invalidate an
arbitration award on the grounds of bias, the challenging party must show
that "a reasonable person would have to conclude that an arbitrator was
partial" to the other party to the arbitration.
This "myriad of judicial interpretations and approaches to evident
partiality" resulted in a lack of a uniform standard, leaving the courts "to
examine evident partiality on a case-by-case basis."90 The case at bar
does not present a non-disclosure issue but conduct allegedly showing
an arbitrator’s partiality to one of the parties.
EPCIB/BDO, in moving to vacate the Second Partial Award claimed that
the Arbitration Tribunal exceeded its powers in deciding the issue of
advance cost not contemplated in the TOR, and that Chairman Barker
acted with evident partiality in making such award. The RTC held that
BDO failed to substantiate these allegations. On appeal, the CA likewise
found that the Arbitration Tribunal did not go beyond the submission of
the parties because the phrasing of the scope of the agreed issues in the
TOR ("[t]he issues to be determined by the Tribunal are those issues
arising from the said Request for Arbitration, Answer and Reply and such
other issues as may properly arise during the arbitration")is broad enough
to accommodate a finding on the liability and the repercussions of BDO’s
failure to share in the advances on costs. Section 10 of the SPA also
gave the Arbitration Tribunal authority to decide how the costs should be
apportioned between them.
However, the CA found factual support in BDO’s charge of partiality, thus:
On the issue on evident partiality, the rationale in the American case
of Commonwealth Coatings Corp. v. Continental Cas. Co. appears to be
very prudent. In Commonwealth, the United States Supreme Court
reasoned that courts "should…be even more scrupulous to safeguard the
impartiality of arbitrators than judges, since the former have completely
free rein to decide the law as well as the facts, and are not subject to
appellate review" in general. This taken into account, the Court applies
the standard demanded of the conduct of magistrates by analogy.
After all, the ICC Rules require that an arbitral tribunal should act fairly
and impartially. Hence, an arbitrator’s conduct should be beyond
reproach and suspicion. His acts should be free from the
appearances of impropriety.
An examination of the circumstances claimed to be illustrative of
Chairman Barker’s partiality is indicative of bias. Although RCBC had
repeatedly asked for reimbursement and the withdrawal of BDO’s
counterclaims prior to Chairman Barker’s December 18, 2007 letter, it is
baffling why it is only in the said letter that RCBC’s prayer was given
a complexion of being an application for a partial award. To the
Court, the said letter signaled a preconceived course of action that
the relief prayed for by RCBC will be granted.
That there was an action to be taken beforehand is confirmed by
Chairman Barker’s furnishing the parties with a copy of the Secomb
article. This article ultimately favored RCBC by advancing its
cause. Chairman Barker makes it appear that he intended good to
be done in doing so but due process dictates the cold neutrality of
impartiality. This means that "it is not enough…[that] cases [be decided]
without bias and favoritism. Nor is it sufficient that…prepossessions [be
rid of]. [A]ctuations should moreover inspire that belief." These put into
the equation, the furnishing of the Secomb article further marred the trust
reposed in Chairman Barker. The suspicion of his partiality on the subject
matter deepened. Specifically, his act established that he had pre-formed
opinions.
Chairman Barker’s providing of copies of the said text is easily
interpretable that he had prejudged the matter before him. In any case,
the Secomb article tackled bases upon which the Second Partial Award
was founded. The subject article reflected in advance the disposition
of the ICC arbitral tribunal. The award can definitely be viewed as an
affirmation that the bases in the Secomb article were adopted earlier on.
To the Court, actuations of arbitrators, like the language of judges, "must
be guarded and measured lest the best of intentions be misconstrued."
x x x x91 (Emphasis supplied)
We affirm the foregoing findings and conclusion of the appellate court
save for its reference to the obiter in Commonwealth Coatings that
arbitrators are held to the same standard of conduct imposed on judges.
Instead, the Court adopts the reasonable impression of
partiality standard, which requires a showing that a reasonable person
would have to conclude that an arbitrator was partial to the other party to
the arbitration. Such interest or bias, moreover, "must be direct, definite
and capable of demonstration rather than remote, uncertain, or
speculative."92 When a claim of arbitrator’s evident partiality is made, "the
court must ascertain from such record as is available whether the
arbitrators’ conduct was so biased and prejudiced as to destroy
fundamental fairness."93
Applying the foregoing standard, we agree with the CA in finding that
Chairman Barker’s act of furnishing the parties with copies of Matthew
Secomb’s article, considering the attendant circumstances,is indicative of
partiality such that a reasonable man would have to conclude that he was
favoring the Claimant, RCBC. Even before the issuance of the Second
Partial Award for the reimbursement of advance costs paid by RCBC,
Chairman Barker exhibited strong inclination to grant such relief to
RCBC, notwithstanding his categorical ruling that the Arbitration Tribunal
"has no power under the ICC Rules to order the Respondents to pay the
advance on costs sought by the ICC or to give the Claimantany relief
against the Respondents’ refusal to pay."94 That Chairman Barker was
predisposed to grant relief to RCBC was shown by his act of interpreting
RCBC’s letter, which merely reiterated its plea to declare the
Respondents in default and consider all counterclaims withdrawn – as
what the ICC Rules provide – as an application to the Arbitration Tribunal
to issue a partial award in respect of BDO’s failure to share in the
advance costs. It must be noted that RCBC in said letter did not
contemplate the issuance of a partial order, despite Chairman Barker’s
previous letter which mentioned the possibility of granting relief upon the
parties making submissions to the Arbitration Tribunal. Expectedly, in
compliance with Chairman Barker’s December 18, 2007 letter, RCBC
formally applied for the issuance of a partial award ordering BDO to pay
its share in the advance costs.
Mr. Secomb’s article, "Awards and Orders Dealing With the Advance on
Costs in ICC Arbitration: Theoretical Questions and Practical
Problems"95 specifically dealt with the situation when one of the parties to
international commercial arbitration refuses to pay its share on the
advance on costs. After a brief discussion of the provisions of ICC Rules
dealing with advance on costs, which did not provide for issuance of a
partial award to compel payment by the defaulting party, the author
stated:
4. As we can see, the Rules have certain mechanisms to deal with
defaulting parties. Occasionally, however, parties have sought to use
other methods to tackle the problem of a party refusing to pay its part of
the advance on costs. These have included seeking an order or award
from the arbitral tribunal condemning the defaulting party to pay its share
of the advance on costs. Such applications are the subject of this
1âwphi1
article.96
By furnishing the parties with a copy of this article, Chairman Barker
practically armed RCBC with supporting legal arguments under the
"contractual approach" discussed by Secomb. True enough, RCBC in its
Application for Reimbursement of Advance Costs Paid utilized said
approach as it singularly focused on Article 30(3)97 of the ICC Rules and
fiercely argued that BDO was contractually bound to share in the
advance costs fixed by the ICC.98 But whether under the "contractual
approach" or "provisional approach" (an application must be treated as
an interim measure of protection under Article 23 [1] rather than
enforcement of a contractual obligation), both treated in the Secomb
article, RCBC succeeded in availing of a remedy which was not expressly
allowed by the Rules but in practice has been resorted to by parties in
international commercial arbitration proceedings. It may also be
mentioned that the author, Matthew Secomb, is a member of the ICC
Secretariat and the "Counsel in charge of the file", as in fact he signed
some early communications on behalf of the ICC Secretariat pertaining to
the advance costs fixed by the ICC.99 This bolstered the impression that
Chairman Barker was predisposed to grant relief to RCBC by issuing a
partial award.
Indeed, fairness dictates that Chairman Barker refrainfrom suggesting to
or directing RCBC towards a course of action to advance the latter’s
cause, by providing it with legal arguments contained in an article written
by a lawyer who serves at the ICC Secretariat and was involved or had
participation -- insofar as the actions or recommendations of the ICC – in
the case. Though done purportedly to assist both parties, Chairman
Barker’s act clearly violated Article 15 of the ICC Rules declaring that "[i]n
all cases, the Arbitral Tribunal shall act fairly and impartially and ensure
that each party has a reasonable opportunity to present its case." Having
pre-judged the matter in dispute, Chairman Barker had lost his objectivity
in the issuance of the Second Partial Award.
In fine, we hold that the CA did not err in concluding that the article
ultimately favored RCBC as it reflected in advance the disposition of the
Arbitral Tribunal, as well as "signalled a preconceived course of action
that the relief prayed for by RCBC will be granted." This conclusion is
further confirmed by the Arbitral Tribunal’s pronouncements in its Second
Partial Award which not only adopted the "contractual approach" but even
cited Secomb’s article along with other references, thus:
6.1 It appears to the Tribunal that the issue posed by this application is
essentially a contractual one. x x x
xxxx
6.5 Matthew Secomb, considered these points in the article in 14 ICC
Bulletin No. 1 (2003) which was sent to the parties. At Para. 19, the
learned author quoted from an ICC Tribunal (Case No. 11330) as follows:
"The Arbitral Tribunal concludes that the partiesin arbitrations conducted
under the ICC Rules have a mutually binding obligation to pay the
advance on costs as determined by the ICC Court, based on Article 30-3
ICC Rules which – by reference – forms part of the parties’ agreement to
arbitration under such Rules."100
The Court, however, must clarify that the merits of the parties’ arguments
as to the propriety of the issuance of the Second Partial Award are not in
issue here. Courts are generally 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. A contrary rule would make an arbitration award
the commencement, not the end, of litigation.101 It is the finding of evident
partiality which constitutes legal ground for vacating the Second Partial
Award and not the Arbitration Tribunal’s application of the ICC Rules
adopting the "contractual approach" tackled in Secomb’s article.
Alternative dispute resolution methods or ADRs – like arbitration,
mediation, negotiation and conciliation – are encouraged by this Court.
By enabling parties to resolve their disputes amicably, they provide
solutions that are less time-consuming, less tedious, less confrontational,
and more productive of goodwill and lasting
relationship.102 Institutionalization of ADR was envisioned as "an important
means to achieve speedy and impartial justice and declog court
dockets."103 The most important feature of arbitration, and indeed, the key
to its success, is the public’s confidence and trust in the integrity of the law that an injunction will not issue to restrain the performance of an act
process.104 For this reason, the law authorizes vacating an arbitral award already done. This is so for the simple reason that nothing more can be
when there is evident partiality in the arbitrators. done in reference thereto. A writ of injunction becomes moot and
academic after the act sought to be enjoined has already been
Injunction Against Execution Of Arbitral Award consummated.
Before an injunctive writ can be issued, it is essential that the following WHEREFORE, premises considered, the petition m G.R. No. 199238
requisites are present: (1) there must be a right inesse or the existence of is DENIED. The Resolution dated September 13,2011 ofthe Court of
a right to be protected; and (2) the act against which injunction to be Appeals in CA-G.R. SP No. 120888 is AFFIRMED.
directed is a violation of such right. The onus probandi is on movant to
show that there exists a right to be protected, which is directly threatened The petition in G.R. No. 196171 is DENIED. The Decision dated
by the act sought to be enjoined. Further, there must be a showing that December 23, 2010 of the Court of Appeals in CA-G.R. SP No. 113525 is
the invasion of the right is material and substantial and that there is an hereby AFFIRMED.
urgent and paramount necessity for the writ to prevent a serious
damage.105 SO ORDERED.
Rule 19.22 of the Special ADR Rules states:
Rule 19.22. Effect of appeal.—The appeal shall not stay the award,
judgment, final order or resolution sought to be reviewed unless the Court
of Appeals directs otherwise upon such terms as it may deem just.
We find no reversible error or grave abuse of discretion in the CA’s denial
of the application for stay order or TRO upon its finding that BDO failed to
establish the existence of a clear legal right to enjoin execution of the
Final Award confirmed by the Makati City RTC, Branch 148, pending
resolution of its appeal.It would be premature to address on the merits
the issues raised by BDO in the present petition considering that the CA
still has to decide on the validity of said court's orders confirming the
Final Award. But more important, since BOO had already paid
₱637,941,185.55 m manager's check, albeit under protest, and which
payment was accepted by RCBC as full and complete satisfaction of the
writ of execution, there is no more act to be enjoined.
Settled is the rule that injunctive reliefs are preservative remedies for the
protection of substantive rights and interests. Injunction is not a cause of
action in itself, but merely a provisional remedy, an adjunct to a main suit.
When the act sought to be enjoined has become fait accompli, the prayer
for provisional remedy should be denied. 106
Thus, the Court ruled in Gov. Looyuko107 that when the events sought to
be prevented by injunction or prohibition have already happened, nothing
more could be enjoined or prohibited. Indeed, it is a universal principle of
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
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
Donation8evidencing 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 )15covering 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.21Notably, 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.36Respondent 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.55
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.
xxxx
SO ORDERED.67
Hence, this appeal.
On 5 September 2011, this Court granted petitioner’s prayer for the
issuance of a Temporary Restraining Order68staying 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.92Being 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."100Arbitration 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.
802 Phil. 839
SECOND DIVISION
[ G.R. No. 220546, December 07, 2016 ]
LUZON IRON DEVELOPMENT GROUP CORPORATION AND
CONSOLIDATED IRON SANDS, LTD., PETITIONERS, V.
BRIDESTONE MINING AND DEVELOPMENT CORPORATION AND
ANACONDA MINING AND DEVELOPMENT CORPORATION,
RESPONDENTS.
DECISION
MENDOZA, J.:
This petition for review on certiorari with prayer for the issuance of a writ
of preliminary injunction and/or temporary restraining order (TRO) seeks
to reverse and set aside the September 8, 2015 Decision[1] of the Court of
Appeals (CA) in CA-G.R. SP No. 133296, which affirmed the March 18,
2013[2] and September 18, 2013[3] Orders of the Regional Trial Court,
Branch 59, Makati City (RTC), in the consolidated case for rescission of
contract and damages.
The Antecedents.
On October 25, 2012, respondents Bridestone Mining and Development
Corporation (Bridestone) and Anaconda Mining and Development
Corporation (Anaconda) filed separate complaints before the RTC for
rescission of contract and damages against petitioners Luzon Iron
Development Group Corporation (Luzon Iron) and Consolidated Iron
Sands, Ltd. (Consolidated Iron), docketed as Civil Case No. 12-1053 and
Civil Case No. 12-1054, respectively. Both complaints sought the
rescission of the Tenement Partnership and Acquisition Agreement
(TPAA)[4]entered into by Luzon Iron and Consolidated Iron, on one hand,
and Bridestone and Anaconda, on the other, for the assignment of the
Exploration Permit Application of the former in favor of the latter. The
complaints also sought the return of the Exploration Permits to
Bridestone and Anaconda.[5]
Thereafter, Luzon Iron and Consolidated Iron filed their Special
Appearance with Motion to Dismiss[6] separately against Bridestone's
complaint and Anaconda's complaint. Both motions to dismiss presented
similar grounds for dismissal. They contended that the RTC could not
acquire jurisdiction over Consolidated Iron because it was a foreign
corporation that had never transacted business in the Philippines.
Likewise, they argued that the RTC had no jurisdiction over the subject
matter because of an arbitration clause in the TPAA.
On December 19, 2012, the RTC ordered the consolidation of the two
cases.[7] Subsequently, Luzon Iron and Consolidated Iron filed their
Special Appearance and Supplement to Motions to Dismiss,[8] dated
January 31, 2013, seeking the dismissal of the consolidated cases. The
petitioners alleged that Bridestone and Anaconda were guilty of forum
shopping because they filed similar complaints before the Department of
Environment and Natural Resources (DENR), Mines and Geosciences
Bureau, Regional Panel of Arbitrators against Luzon Iron.
The RTC Orders
In its March 18, 2013 Order, the RTC denied the motions to dismiss, as
well as the supplemental motion to dismiss, finding that Consolidated Iron
was doing business in the Philippines, with Luzon Iron as its resident
agent. The RTC ruled that it had jurisdiction over the subject matter
because under clause 14.8 of the TPAA, the parties could go directly to
courts when a direct and/or blatant violation of the provisions of the TPAA
had been committed. The RTC also opined that the complaint filed before
the DENR did not constitute forum shopping because there was neither
identity of parties nor identity of reliefs sought.
Luzon Iron and Consolidated Iron moved for reconsideration, but the RTC
denied their motion in its September 18, 2013 Order.
Undaunted, they filed their petition for review with prayer for the issuance
of a writ of preliminary injunction and/or TRO before the CA.
The CA Ruling
In its September 8, 2015 Decision, the CA affirmed the March 18, 2013
and September 18, 2013 RTC Orders in denying the motions to dismiss
and the supplemental motions to dismiss. It agreed that the court
acquired jurisdiction over the person of Consolidated Iron because the
summons may be validly served through its agent Luzon Iron,
considering that the latter was merely the business conduit of the former.
The CA also sustained the jurisdiction of the RTC over the subject matter
opining that the arbitration clause in the TPAA provided for an exception
where parties could directly go to court.
Further, the CA also disregarded the averment of forum shopping,
explaining that in the complaint before the RTC, both Consolidated Iron
and Luzon Iron were impleaded but in the complaint before the DENR
only the latter was impleaded. It stated that there was no identity of relief
and no identity of cause of action.
Hence, this appeal raising the following:
ISSUES
I was merely its conduit. Thus, they insisted that summons could be
WHETHER THE COURT OF APPEALS ERRED IN RULING THAT THE
TRIAL COURT ACQUIRED JURISDICTION OVER THE PERSON OF
CONSOLIDATED IRON;
II
WHETHER THE COURT OF APPEALS ERRED IN RULING THAT THE
TRIAL COURT HAS JURISDICTION OVER THE SUBJECT MATTER
OF THE CONSOLIDATED CASES; AND
III
WHETHER THE COURT OF APPEALS ERRED IN RULING THAT
BRIDESTONE/ANACONDA WERE NOT GUILTY OF FORUM
SHOPPING.[9]
Petitioners Luzon Iron and Consolidated Iron insist that the RTC has no
jurisdiction over the latter because it is a foreign corporation which is
neither doing business nor has transacted business in the Philippines.
They argue that there could be no means by which the trial court could
acquire jurisdiction over the person of Consolidated Iron under any mode
of service of summons. The petitioners claim that the service of summons
to Consolidated Iron was defective because the mere fact that Luzon Iron
was a wholly-owned subsidiary of Consolidated Iron did not establish that
Luzon Iron was the agent of Consolidated Iron. They emphasize that
Consolidated Iron and Luzon Iron are two distinct and separate entities.
The petitioners further assert that the trial court had no jurisdiction over
the consolidated cases because of the arbitration clause set forth in the
TPAA. They reiterate that Luzon Iron and Consolidated Iron were guilty of
forum shopping because their DENR complaint contained similar causes
of action and reliefs sought. They stress that the very evil sought to be
prevented by the prohibition on forum shopping had occurred when the
DENR and the RTC issued conflicting orders in dismissing or upholding
the complaints filed before them.
Position of Respondents
In their Comment/Opposition,[10] dated January 7, 2016, respondents
Bridestone and Anaconda countered that the RTC validly acquired
jurisdiction over the person of Consolidated Iron. They posited that
Consolidated Iron was doing business in the Philippines as Luzon Iron
served to Luzon Iron as Consolidated Iron's agent. Likewise, they denied
that they were guilty of forum shopping as the issues and the reliefs
prayed for in the complaints before the RTC and the DENR differed.
Further, the respondents asserted that the trial court had jurisdiction over
the complaints because the TPAA itself allowed a direct resort before the
courts in exceptional circumstances. They cited paragraph 14.8 thereof
as basis explaining that when a direct and/or blatant violation of the
TPAA had been committed, a party could go directly to the courts. They
faulted the petitioners in not moving for the referral of the case for
arbitration instead of merely filing a motion to dismiss. They added that
actions that are subject to arbitration agreement were merely suspended,
and not dismissed.
Reply of Petitioners
In their Reply,[11] dated April 29, 2016, the petitioners stated that
Consolidated Iron was not necessarily doing business in the Philippines
by merely establishing a wholly-owned subsidiary in the form of Luzon
Iron. Also, they asserted that Consolidated Iron had not been validly
served the summons because Luzon Iron is neither its resident agent nor
its representative in the Philippines. The petitioners explained that Luzon
Iron, as a wholly-owned subsidiary, had a separate and distinct
personality from Consolidated Iron.
The petitioners explained that Paragraph 14.8 of the TPAA should not be
construed as an authority to directly resort to court action in case of a
direct and/or blatant violation of the TPAA because such interpretation
would render the arbitration clause nugatory. They contended that, even
for the sake of argument, the judicial action under the said provisions was
limited to issues or matters which were inexistent in the present case.
They added that a party was not required to file a formal request for
arbitration before an arbitration clause became operational. Lastly, they
insisted that the respondents were guilty of forum shopping in
simultaneously filing complaints before the trial court and the DENR.
The Court's Ruling
The petition is impressed with merit.
Filing of complaints
before the RTC and the
DENR is forum shopping
Forum shopping is committed when multiple suits involving the same
parties and the same causes of action are filed, either simultaneously or
successively, for the purpose of obtaining a favorable judgment through
means other than appeal or certiorari.[12] The prohibition on forum
shopping seeks to prevent the possibility that conflicting decisions will be
rendered by two tribunals.[13]
In Spouses Arevalo v. Planters Development Bank,[14] the Court
elaborated that forum shopping vexed the court and warranted the
dismissal of the complaints. Thus:
Forum shopping is the act of litigants who repetitively avail themselves of
multiple judicial remedies in different fora, simultaneously or
successively, all substantially founded on the same transactions and the
same essential facts and circumstances; and raising substantially similar
issues either pending in or already resolved adversely by some other
court; or for the purpose of increasing their chances of obtaining a
favorable decision, if not in one court, then in another. The rationale
against forum-shopping is that a party should not be allowed to
pursue simultaneous remedies in two different courts, for to do so
would constitute abuse of court processes which tends to degrade
the administration of justice, wreaks havoc upon orderly judicial
procedure, and adds to the congestion of the heavily burdened
dockets of the courts.
xxxx
What is essential in determining the existence of forum-shopping is
the vexation caused the courts and litigants by a party who asks
different courts and/or administrative agencies to rule on similar or
related causes and/or grant the same or substantially similar reliefs,
in the process creating the possibility of conflicting decisions being
rendered upon the same issues.
xxxx
We emphasize that the grave evil sought to be avoided by the rule
against forum-shopping is the rendition by two competent tribunals of two
separate and contradictory decisions. To avoid any confusion, this
Court adheres strictly to the rules against forum shopping, and any
violation of these rules results in the dismissal of a case. The acts
committed and described herein can possibly constitute direct
contempt.[15] [Emphases supplied]
There is forum shopping when the following elements are present: (a)
identity of parties, or at least such parties representing the same interests
in both actions; (b) identity of rights asserted and reliefs prayed for, the
relief being founded on the same facts; and (c) the identity of the two
preceding particulars, such that any judgment rendered in the other
action will, regardless of which party is successful, amounts to res
judicata in the action under consideration.[16] All the above-stated
elements are present in the case at bench.
First, there is identity of parties. In both the complaints before the RTC
and the DENR, Luzon Iron was impleaded as defendant while
Consolidated Iron was only impleaded in the complaint before the RTC.
Even if Consolidated Iron was not impleaded in the DENR complaint, the
element still exists. The requirement is only substantial, and not absolute,
identity of parties; and there is substantial identity of parties when there is
community of interest between a party in the first case and a party in the
second case, even if the latter was not impleaded in the other
case.[17] Consolidated Iron and Luzon Iron had a common interest under
the TPAA as the latter was a wholly-owned subsidiary of the former.
Second, there is identity of causes of action. A reading of the complaints
filed before the RTC and the DENR reveals that they had almost identical
causes of action and they prayed for similar reliefs as they ultimately
sought the return of their respective Exploration Permit on the ground of
the alleged violations of the TPAA committed by the petitioners.[18] In Yap
v. Chua,[19] the Court ruled that identity of causes of action did not mean
absolute identity.
Hornbook is the rule that identity of causes of action does not mean
absolute identity; otherwise, a party could easily escape the operation
of res judicata by changing the form of the action or the relief sought. The
test to determine whether the causes of action are identical is to
ascertain whether the same evidence will sustain both actions, or
whether there is an identity in the facts essential to the maintenance
of the two actions. If the same facts or evidence would sustain both,
the two actions are considered the same, and a judgment in the first
case is a bar to the subsequent action. Hence, a party cannot, by
varying the form of action or adopting a different method of presenting his
case, escape the operation of the principle that one and the same cause
of action shall not be twice litigated between the same parties or their
privies. xxx[20] [Emphases supplied]
In the case at bench, both complaints filed before different fora involved
similar facts and issues, the resolution of which depends on analogous
evidence. Thus, the filing of two separate complaints by the petitioners
with the RTC and the DENR clearly constitutes forum shopping.
It is worth noting that the very evil which the prohibition against forum
shopping sought to prevent had happened—the RTC and the DENR had
rendered conflicting decisions. The trial court ruled that it had jurisdiction
notwithstanding the arbitration clause in the TPAA. On the other hand,
the DENR found that it was devoid of jurisdiction because the matter was
subject to arbitration.
Summons were not
validly served
Section 12 of Rule 14 of the Revised Rules of Court provides that "[w]hen
the defendant is a foreign private juridical entity which has transacted
business in the Philippines, service may be made on its resident agent
designated in accordance with law for that purpose, or, if there be no
such agent, on the government official designated by law to that effect, or
on any of its officers or agents within the Philippines."
The Rule on Summons, as it now reads, thus, makes the question
whether Consolidated Iron was "doing business in the Philippines"
irrelevant as Section 12, Rule 14 of the Rules of Court was broad enough
to cover corporations which have "transacted business in the
Philippines."
In fact, under the present legal milieu, the rules on service of summons
on foreign private juridical entities had been expanded as it recognizes
additional modes by which summons may be served. A.M No. 11-3-6-
SC[21] thus provides:
Section 12. Rule 14 of the Rules of Court is hereby amended to read as
follows:
"SEC. 12. Service upon foreign private juridical entity. — When the
defendant is a foreign private juridical entity which has transacted
business in the Philippines, service may be made on its resident agent
designated in accordance with law for that purpose, or, if there be no
such agent, on the government official designated by law to that effect, or
on any of its officers or agents within the Philippines.
If the foreign private juridical entity is not registered in the Philippines or
has no resident agent, service may, with leave of court, be effected out of
the Philippines through any of the following means:
a) By personal service coursed through the appropriate court in the
foreign country with the assistance of the Department of Foreign Affairs;
b) By publication once in a newspaper of general circulation in the
country where the defendant may be found and by serving a copy of the
summons and the court order by registered mail at the last known
address of the defendant;
c) By facsimile or any recognized electronic means that could generate
proof of service; or
d) By such other means as the court may in its discretion direct."
The petitioners are mistaken in arguing that it cannot be served summons
because under Section 15, Rule 14 of the Rules of Court, extrajudicial
service of summons may be resorted to only when the action is in
rem or quasi in rem and not when the action is in personam. The premise
of the petitioners is erroneous as the rule on extraterritorial service of
summons provided in Section 15, Rule 14 of the Rules of Court is a
specific provision dealing precisely with the service of summons on a
defendant which does not reside and is not found in the Philippines. On
the other hand, Section 12, Rule 14 thereof, specifically applies to a
defendant foreign private juridical entity which had transacted
business in the Philippines. Both rules may provide for similar modes of
service of summons, nevertheless, they should only be applied in
particular cases, with one applicable to defendants which do not reside
and are not found in the Philippines and the other to foreign private
juridical entities which had transacted business in the Philippines.
In the case at bench, it is crystal clear that Consolidated Iron transacted
business in the Philippines as it was a signatory in the TPAA that was
executed in Makati. Hence, as the respondents argued, it may be served
with the summons in accordance with the modes provided under Section
12, Rule 14 of the Rules of Court.
In Atiko Trans, Inc. v. Prudential Guarantee and Assurance, Inc.,[23] the
Court elucidated on the means by which summons could be served on a
foreign juridical entity, to wit:
On this score, we find for the petitioners. Before it was amended by A.M.
No. 11-3-6-SC, Section 12 of Rule 14 of the Rules of Court reads:
SEC. 12. Service upon foreign private juridical entity. — When the
defendant is a foreign private juridical entity which has transacted
business in the Philippines, service may be made on its resident agent
designated in accordance with law for that purpose, or, if there be no
such agent, on the government official designated by law to that effect, or
on any of its officers or agents within the Philippines.
Elucidating on the above provision of the Rules of Court, this Court
declared in Pioneer International, Ltd. v. Guadiz, Jr. that when the
defendant is a foreign juridical entity, service of summons maybe made
upon:
1. Its resident agent designated in accordance with law
for that purpose;
2. The government official designated by law to receive
summons if the corporation does not have a resident
agent; or,
3. Any of the corporation's officers or agents within the
Philippines.[24] [Emphasis supplied]
The Court, however, finds that Consolidated Iron was not properly served
with summons through any of the permissible modes under the Rules of
Court. Indeed, Consolidated Iron was served with summons through
Luzon Iron. Such service of summons, however, was defective.
It is undisputed that Luzon Iron was never registered before the
Securities and Exchange Commission (SEC) as Consolidated Iron's
resident agent. Thus, the service of summons to Consolidated Iron
through Luzon Iron cannot be deemed a service to a resident
agent[25] under the first mode of service.
Likewise, the respondents err in insisting that Luzon Iron could be served
summons as an agent of Consolidated Iron, it being a wholly-owned
subsidiary of the latter. The allegations in the complaint must clearly
show a connection between the principal foreign corporation and its
alleged agent corporation with respect to the transaction in question as a
general allegation of agency will not suffice.[26] In other words, the
allegations of the complaint taken as whole should be able to convey that
the subsidiary is but a business conduit of the principal or that by reason
of fraud, their separate and distinct personality should be
disregarded.[27] A wholly-owned subsidiary is a distinct and separate
entity from its mother corporation and the fact that the latter exercises
control over the former does not justify disregarding their separate
personality. It is true that under the TPAA, Consolidated Iron wielded
great control over the actions of Luzon Iron under the said agreement.
This, nonetheless, does not warrant the conclusion that Luzon Iron was a
mere conduit of Consolidated Iron. In Pacific Rehouse Corporation v.
CA,[28]the Court ruled:
Albeit the RTC bore emphasis on the alleged control exercised by Export
Bank upon its subsidiary E-Securities, "[c]ontrol, by itself, does not mean
that the controlled corporation is a mere instrumentality or a business
conduit of the mother company. Even control over the financial and
operational concerns of a subsidiary company does not by itself call
for disregarding its corporate fiction. There must be a perpetuation of
fraud behind the control or at least a fraudulent or illegal purpose behind
the control in order to justify piercing the veil of corporate fiction. Such
fraudulent intent is lacking in this case.[29] [Emphasis supplied]
In the case at bench, the complaint merely contained a general statement
that Luzon Iron was the resident agent of Consolidated Iron, and that it
was a wholly-owned subsidiary of the latter. There was no allegation
showing that Luzon Iron was merely a business conduit of Consolidated
Iron, or that the latter exercised control over the former to the extent that
their separate and distinct personalities should be set aside. Thus, Luzon
Iron cannot be deemed as an agent of Consolidated Iron in connection
with the third mode of service of summons.
To reiterate, the Court did not acquire jurisdiction over Consolidated Iron
because the service of summons, coursed through Luzon Iron, was
defective. Luzon Iron was neither the resident agent nor the conduit or
agent of Consolidated Iron.
On the abovementioned procedural issues alone, the dismissal of the
complaints before the RTC was warranted. Even granting that the
complaints were not procedurally defective, there still existed enough
reason for the trial court to refrain from proceeding with the case.
Controversy must be
referred for arbitration
The petitioners insisted that the RTC had no jurisdiction over the subject
matter because under Paragraph 15.1 of the TPAA, any dispute out of or
in connection with the TPAA must be resolved by arbitration. The said
provision provides:
If, for any reasonable reason, the Parties cannot resolve a material fact,
material event or any dispute arising out of or in connection with this
TPAA, including any question regarding its existence, validity or
termination, within 90 days from its notice, shall be referred to and finally
resolved by arbitration in Singapore in accordance with the Arbitration
Rules of the Singapore International Arbitration Centre ("SIAC Rules") for
the time being in force, which rules are deemed to be incorporated by
reference in this clause 15.1.30
The RTC, as the CA agreed, countered that Paragraph 14.8 of the TPAA
allowed the parties to directly resort to courts in case of a direct and/or
blatant violation of the provisions of the TPAA. Paragraph 14.8 stated:
Each Party agrees not to commence or procure the commencement of
any challenge or claim, action, judicial or legislative enquiry, review or
other investigation into the sufficiency, validity, legality or constitutionality
of (i) the assignments of the Exploration Permit Applications(s) (sic) to
LIDGC, (ii) any other assignments contemplated by this TPAA, and/or (iii)
or (sic) any agreement to which the Exploration Permit Application(s) may
be converted, unless a direct and/or blatant violation of the provisions of
the TPAA has been committed.[31]
In Bases Conversion Development Authority v. DMCI Project Developers,
Inc.,[32] the Court emphasized that the State favored arbitration, to wit:
The state adopts a policy in favor of arbitration. Republic Act No.
9285 expresses this policy:
SEC. 2. Declaration of Policy. — It is hereby declared the policy of the
State to actively promote party autonomy in the resolution of disputes or
the freedom of the parties to make their own arrangements to resolve
their disputes. Towards this end, the State shall encourage and
actively promote the use of Alternative Dispute Resolution (ADR) as
an important means to achieve speedy and impartial justice and
declog court dockets. As such, the State shall provide means for the
use of ADR as an efficient tool and an alternative procedure for the
resolution of appropriate cases. Likewise, the State shall enlist active
private sector participation in the settlement of disputes through ADR.
This Act shall be without prejudice to the adoption by the Supreme Court
of any ADR system, such as mediation, conciliation, arbitration, or any
combination thereof as a means of achieving speedy and efficient means
of resolving cases pending before all courts in the Philippines which shall
be governed by such rules as the Supreme Court may approve from time
to time.
Our policy in favor of party autonomy in resolving disputes has
been reflected in our laws as early as 1949 when our Civil Code was
approved. Republic Act No. 876 later explicitly recognized the validity
and enforceability of parties' decision to submit disputes and related
issues to arbitration.
Arbitration agreements are liberally construed in favor of
proceeding to arbitration. We adopt the interpretation that would
render effective an arbitration clause if the terms of the agreement
allow for such interpretation.[33] [Emphases supplied]
Thus, consistent with the state policy of favoring arbitration, the present
TPAA must be construed in such a manner that would give life to the
arbitration clause rather than defeat it, if such interpretation is
permissible. With this in mind, the Court views the interpretation
forwarded by the petitioners as more in line with the state policy favoring
arbitration.
Paragraphs 14.8 and 15.1 of the TPAA should be harmonized in such a
way that the arbitration clause is given life, especially since such
construction is possible in the case at bench. A synchronized reading of
the abovementioned TPAA provisions will show that a claim or action
raising the sufficiency, validity, legality or constitutionality of: (a) the
assignments of the EP to Luzon Iron; (b) any other assignments
contemplated by the TPAA; or (c) any agreement to which the EPs may
be converted, may be instituted only when there is a direct and/or blatant
violation of the TPAA. In turn, the said action or claim is commenced by
proceeding with arbitration, as espoused in the TPAA.
The Court disagrees with the respondents that Paragraph 14.8 of the
TPAA should be construed as an exception to the arbitration clause
where direct court action may be resorted to in case of direct and/or
blatant violation of the TPAA occurs. If such interpretation is to be
espoused, the arbitration clause would be rendered inutile as practically
all matters may be directly brought before the courts. Such construction is
anathema to the policy favoring arbitration.
A closer perusal of the TPAA will also reveal that paragraph 14 and all its
sub-paragraphs are general provisions, whereas paragraphs 15 and all
its sub-clauses specifically refer to arbitration. When general and specific
provisions are inconsistent, the specific provision shall be paramount and
govern the general provision.[34]
The petitioners' failure to refer the case for arbitration, however, does not
render the arbitration clause in the TPAA inoperative. In Koppel, Inc. v.
Makati Rotary Club Foundation, Inc. (Koppel),[35] the Court explained that
an arbitration clause becomes operative, notwithstanding the lack of a
formal request, when a party has appraised the trial court of the existence
of an arbitration clause, viz:
xxx 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.
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.
xxxx
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 xxx 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.
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 Contract and, more significantly, of
its desire to have the same enforced in this case. This act of petitioner
is enough valid invocation of his right to arbitrate. xxx[36] [Emphases
supplied; italics in the original]
It is undisputed that the petitioners Luzon Iron and Consolidated Iron
never made any formal request for arbitration. As expounded in Koppel,
however, a formal request is not the sole means of invoking an arbitration
clause in a pending suit. Similar to the said case, the petitioners here
made the RTC aware of the existence of the arbitration clause in the
TPAA as they repeatedly raised this as an issue in all their motions to Court, Branch 59, Makati City, is hereby SET ASIDE. The complaints in
dismiss. As such, it was enough to activate the arbitration clause and, Civil Case Nos. 12-1053 and 12-1054 are DISMISSED. The parties,
thus, should have alerted the RTC in proceeding with the case. however, are ORDERED to commence arbitration proceedings pursuant
to Paragraph 15.1 of the Tenement Partnership and Acquisition
Moreover, judicial restraint should be exercised pursuant to the Agreement.
competence-competence principle embodied in Rule 2.4 of the Special
Rules of Court on Alternative Dispute Resolution.[37]The said provision SO ORDERED.
reads:
RULE 2.4. Policy Implementing Competence-Competence Principle. —
The arbitral tribunal shall be accorded the first opportunity or competence
to rule on the issue of whether or not it has the competence or jurisdiction
to decide a dispute submitted to it for decision, including any objection
with respect to the existence or validity of the arbitration
agreement. When a court is asked to rule upon issue/s affecting the
competence or jurisdiction of an arbitral tribunal in a dispute
brought before it, either before or after the arbitral tribunal is
constituted, the court must exercise judicial restraint and defer to
the competence or jurisdiction of the arbitral tribunal by allowing
the arbitral tribunal the first opportunity to rule upon such issues.
Where the court is asked to make a determination of whether the
arbitration agreement is null and void, inoperative or incapable of being
performed, under this policy of judicial restraint, the court must make no
more than a prima facie determination of that issue.
Unless the court, pursuant to such prima facie determination, concludes
that the arbitration agreement is null and void, inoperative or incapable of
being performed, the court must suspend the action before it and refer
the parties to arbitration pursuant to the arbitration agreement. [Emphasis
supplied]
Generally, the action of the court is stayed if the matter raised before it is
subject to arbitration.[38] In the case at bench, however, the complaints
filed before the RTC should have been dismissed considering that the
petitioners were able to establish the ground for their dismissal, that is,
violating the prohibition on forum shopping. The parties, nevertheless, are
directed to initiate arbitration proceedings as provided under Paragraph
15.1 of the TPAA.
WHEREFORE, the petition is GRANTED. The September 8, 2015
Decision of the Court of Appeals in CA-G.R. SP No. 133296, affirming the
March 18, 2013 and September 18, 2013 Orders of the Regional Trial
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 212081 February 23, 2015
DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES
(DENR), Petitioner,
vs.
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).
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 ₱4,337,141.00, 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
₱2,038,456.30.7
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 ₱2,239,479.60 and assured payment at the soonest
possible time.10
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-07-60321.12
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-001.15
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.18
On the due date for submission of the draft decisions, however, only
respondent complied with the given deadline,19while 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.20
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) ₱2,285,089.89 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)
₱2,033,034.59 as accrued interest thereon; (c) ₱500,000.00 as
exemplary damages; and (d) ₱150,000.00 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 ₱182,119.44.26
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.28
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).34
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. Onthe 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 ₱50,000.00. 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.38
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.40
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.46
On July 12, 2012, petitioner received the RTC’s Order dated July 9, 2012
denying its motion to quash.47
Dissatisfied, it filed on September 10, 2012a 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.
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.56
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.57
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."58
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."60
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: a. an evident miscalculation of figures, a typographical or
arithmetical error;
b. an evident mistake in the description of any party, person,
date, amount, thing or property referred to in the award;
c. where the arbitrators have awarded upon a matter not
submitted to them, not affecting the merits of the decision upon
the matter submitted;
d. 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
e. 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.66
Moreover, the parties may appeal the final award to the CA through a
petition for review under Rule43 of the Rules of Court.67
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 17.2,68Rule 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 2369of R.A. 876.70
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.
a. Holding that the arbitration agreement is in existent, invalid or
unenforceable;
b. Reversing the arbitral tribunal’s preliminary determination
upholding its jurisdiction;
c. Denying the request to refer the dispute to arbitration;
d. Granting or refusing an interim relief;
e. Denying a petition for the appointment of an arbitrator;
f. Confirming, vacating or correcting a domestic arbitral award;
g. Suspending the proceedings to set aside an international
commercial arbitral award and referring the case back to the
arbitral tribunal;
h. Allowing a party to enforce an international commercial arbitral
award pending appeal;
i. Adjourning or deferring a ruling on whether to set aside,
recognize and or enforce an international commercial arbitral
award;
j. Allowing a party to enforce a foreign arbitral award pending
appeal; and
k. 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.73
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
1âwphi1
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,78every 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.82
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 latter when it filed a "Petition for Enforcement and Payment of Final and
be heard. Having been given such opportunity, petitioner should only Executory Arbitral Award"86before the COA. Accordingly, it is now the
blame itself for its own procedural blunder. 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
On this score, the petition for certiorari in CA-G.R. SP No. 126458 was of Appeals in CA-G.R. SP No. 126458 which dismissed the petition for
likewise properly dismissed. certiorari filed by petitioner the Department of Environment and Natural
Resources is hereby AFFIRMED.
IV.
SO ORDERED.
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
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FIRST DIVISION

ANDREW D. FYFE, G.R. NO. 160071

RICHARDT. NUTTALL, and
RICHARD J. WALD, Present:
Petitioners,
*SERENO, CJ,
**LEONARDO-DE CASTRO,
Acting Chairperson,
- versus - BERSAMIN,
PERLAS-BERNABE, and
CAGUIOA,JJ

PHILIPPINE AIRLINES, INC., Promulgated:

Respondent.

x-------------------------------------------------------------------

DECISION

BERSAMIN, J.

This case concerns the order issued by the Regional Trial Court
granting the respondent's application to vacate the adverse arbitral award of
the panel of arbitrators, and the propriety of the recourse from such order.

The Case

Under review are the resolutions promulgated in C.A.-G.R. No. 71224

entitled Andrew D. Fyfe, Richard T Nuttall and Richard J Wald v.
Philippine Airlines, Inc. on May 30, 2003 1 and September 19, 2003,2
whereby the Court of Appeals (CA) respectively granted the respondent's

On leave.
Acting Chairperson per Special Order No. 2355 dated June 2, 2016.
Rollo (Vol. I), pp. 75-77; penned by Associate Justice Amelita G. Tolentino (retired), concurred in by
Associate Justice Buenaventura J. Guerrero (retired/deceased) and Associate Justice Mariano C. de!
Castillo (now a Member of this Court).
1
Id. at 79.

}\
 1 , - Decision 2 G.R. No. 160071
........ ' \ ··• f ...

";' .. :. . : . \

' •
4
"" i\ I .t; 1\ ' ' .
\,(!> .'.'. \ /•L't ·
. ._' Motfol:J .. to Dismiss Appeal (without Prejudice to the Filing of Appellee 's
.
,:.:.·
. .. . . .
%nd ...
"'
the petitioners' Motion for Reconsideration.
- ....- .¥ . _,

Antecedents

In 1998, the respondent underwent rehabilitation proceedings in the

Securities and Exchange Commission (SEC),3 which issued an order dated
July 1, 1998 decreeing, among others, the suspension of all claims for
payment against the respondent. 4 To convince its creditors to approve the
rehabilitation plan, the respondent decided to hire technical advisers with
recognized experience in the airline industry. This led the respondent
through its then Director Luis Juan K. Virata to consult with people in the
industry, and in due course came to meet Peter W. Foster, formerly of
Cathay Pacific Airlines. 5 Foster, along with Michael R. Scantlebury,
negotiated with the respondent on the details of a proposed technical
services agreement. 6 Foster and Scantlebury subsequently organized Regent
Star Services Ltd. (Regent Star) under the laws of the British Virgin Islands. 7
On January 4, 1999, the respondent and Regent Star entered into a Technical
Services Agreement (TSA) for the delivery of technical and advisory or
management services to the respondent, 8 effective for five years, or from
January 4, 1999 until December 31, 2003. 9 On the same date, the
respondent, pursuant to Clause 6 of the TSA, 10 submitted a Side Letter, 11 the
relevant portions of which stated:

For and in consideration of the services to be faithfully performed by

Regent Star in accordance with the terms and conditions of the
Agreement, the Company agrees to pay Regent Star as follows:

1.1 Upon execution of the Agreement, Four Million

Seven Hundred Thousand US Dollars (US$4,700,000.00),
representing advisory fees for two (2) years from the date of
signature of the Agreement with an additional amount of not
exceeding One Million Three Hundred Thousand US Dollars
(US$ l ,300,000.00) being due and demandable upon Regent
Star's notice to the Company of its engagement of an
individual to assume the position of CCA under the
Agreement;

xx xx

SEC Case No. 06-98-6004

Rollo (Vol. I), pp. 149-150, 150.
Rollo (Vol. II), pp. 1387-1388.
Rollo (Vol. !), pp. 421-422.
Id. at 422.
Id. at 286-296.
9
Id. at 288.
10
6. Remuneration
The Company shall pay to Regent Star certain fees in an amount and on the dates agreed upon by way
of a side letter with the Company."
11
Rollo (Vol. I). pp. I 00-103.

Si
Decision 3 G.R. No. 160071

In addition to the foregoing, the Company agrees as follows:

xx xx

In the event of a full or partial termination of the Agreement

for whatever reason by either the Company or a Senior
Technical Adviser/Regent Star prior to the end of the term of
the Agreement, the following penalties are payable by the
terminating party:

A. During the first 2 years

1. Senior Company Adviser (CCA) US$800,000.00

2. Senior Commercial Adviser (SCA) - 800,000.00
3. Senior Financial Adviser (FSA) 700,000.00
4. Senior Ground Services and
Training Adviser (SAG) 500,000.00
5. Senior Engineering and
Maintenance Adviser (SAM) 500,000.00

xx xx

For the avoidance of doubt, it is understood and agreed that

in the event that the terminating party is an individual Senior
Technical Adviser the liability to pay such Termination
Amount to the Company shall rest with that individual party,
not with RSS. Similarly, if the terminating party is the
Company, the liability to the aggrieved party shall be the
individual Senior Technical Adviser, not to RSS. 12

Regent Star, through Foster, conformed to the terms stated in the Side
Letter. 13 The SEC approved the TSA on January 19, 1999. 14

In addition to Foster and Scantlebury, Regent Star engaged the

petitioners in respective capacities, specifically: Andrew D. Fyfe as Senior
Ground Services and Training Adviser; Richard J. Wald as Senior
Maintenance and Engineering Adviser; and Richard T. Nuttall as Senior
Commercial Adviser. The petitioners commenced to render their services to
the respondent immediately after the TSA was executed. 15

On July 26, 1999, the respondent dispatched a notice to Regent Star

terminating the TSA on the ground of lack of confidence effective July 31,
1999 . 16 In its notice, the respondent demanded the offsetting of the penalties
due to the petitioners with the two-year advance advisory fees it had paid to
Regent Star, thus:

'°
13
Id. at 100-102.
Id.at103.
14
Id. at 104-105.
15
Id. at 14.
16
Id. at 106-107.

5"J
Decision 4 G.R. No. 160071

The side letter stipulates that "[i]n the event of a full or partial
termination of the Agreement for whatever reason by either the Company
or a Senior Technical Adviser/Regent Star prior to the end of the term of
the Agreement, the following penalties are payable by the terminating
party:"

During the first 2 years:

Senior Company Adviser US$800,000.00

Senior Commercial Adviser 800,000.00
Senior Financial Adviser 700,000.00
Senior Ground Services and
Training Adviser 500.000.00
Senior Engineering and
Maintenance Adviser 500,000.00

TOTAL US$3,300,000.00

There is, therefore, due to RSS from PAL the amount of

US$3,300,000.00 by way of stipulated penalties.

However, RSS has been paid by PAL advance "advisory fee for
two (2) years from date of signature of the Agreement" the amount of
US$5,700,000. Since RSS has rendered advisory services from 4 January
to 31 July 1999, or a period of seven months, it is entitled to retain only
the advisory fees for seven months. This is computed as follows:

US$5,700,000 = US$237,500/month x 7 =US$ l ,662,500

24 months

The remaining balance of the advance advisory fee, which

corresponds to the unserved period of 17 months, or US$4,037,500,
should be refunded by RSS to PAL.

Off-setting the amount of US$3,300,000 due from PAL to RSS

against the amount of US$4,037,500 due from RSS to PAL, there remains
a net balance of US$73 7,500 due and payable to PAL. Please settle this
amount at your early convenience, but not later than August 15, 1999. 17

On June 8, 1999, the petitioners, along with Scantlebury and Wald,

wrote to the respondent, through its President and Chief Operating Officer,
Avelino Zapanta, to seek clarification on the status of the TSA in view of the
appointment of Foster, Scantleburry and Nuttall as members of the
Permanent Rehabilitation Receiver (PRR) for the respondent. 18 A month
later, Regent Star sent to the respondent another letter expressing
disappointment over the respondent's ignoring the previous letter, and
denying the respondent's claim for refund and set-off. Regent Star then

17
Id. at 106- 107.
18
Jd.at303.
Decision 5 G.R. No. 160071

proposed therein that the issue be submitted to arbitration in accordance with

Clause 14 19 of the TSA. 20

Thereafter, the petitioners initiated arbitration proceedings in the

Philippine Dispute Resolution Center, Inc. (PDRCI) pursuant to the TSA.

Ruling of the PDRCI

After due proceedings, the PDRCI rendered its decision ordering the
respondent to pay termination penalties, 21 viz.:

On issue No. 1 we rule that the Complainants are entitled to their

claim for termination penalties.

When the PAL terminated the Technical Services Agreement on

July 26, 1999 which also resulted in the termination of the services of the
senior technical advisers including those of the Complainants it admitted
that the termination penalties in the amount of US$3,300,000.00 as
provided in the Letter dated January 4, 1999 are payable to the Senior
Technical Advisers by PAL. Xxx. PAL's admission of its liability to pay
the termination penalties to the complainants was made also in its Answer.
PAL 's counsel even stipulated during the hearing that the airline company
admits that it is liable to pay Complainants the termination penalties.xxx.

However, PAL argued that although it is liable to pay termination

penalties the Complainants are not entitled to their respective claims
because considering that PAL had paid RSS advance "advisory fees for
two (2) years" in the total amount of US$5,700,000.00 and RSS had
rendered advisory services for only seven (7) months from January 4,
1999 to July 31, 1999 that would entitle RSS to an (sic) advisory fees of
only US$ l ,662,500.00 and therefore the unserved period of 17 months
equivalent to US$4,037,500.00 should be refunded. And setting off the
termination penalties of US$3,300,000.00 due RSS from PAL against the
amount ofUS$4,037,500.00 still due PAL from RSS there would remain a
net balance of US$737,500.00 still due PAL from RSS and/or the Senior
Technical Advisers which the latter should pay pro-rata as follows: Peter
W. Forster, the sum of US$178,475.00; Richard T. Nuttall, the sum of
US$178,475.00; Michael R. Scantlebury; the sum of US$156,350.00,
Andrew D. Fyfe, the sum of US$11 I ,362.50; and Richard J. Wald the sum
of US$ Ill ,362.50. RSS is a special company which the Senior Technical
Advisers had utilized for the specific purpose of providing PAL with
technical advisory services they as a group had contracted under the
19
14. Dispute Resolution and Arbitration
The parties shall use good faith efforts to settle all questions, disputes or other differences in any way
arising out of or in relation to this Agreement. Any dispute should be clearly stated in writing by the
aggrieved party to the other party. Both parties agree to use their best endeavours to resolve issues within
30 days of written notice of a dispute through good faith negotiations and discussions.
Upon failure of the foregoing, any dispute, controversy or claim arising out of or relating to this
Agreement or the breach, termination or invalidity thereof, shall be finally settled by arbitration
administered by the Philippine Dispute Resolution Center, Inc. (PDRCI) in accordance with its own
International Commercial Arbitration Rules as at present in force. (see rollo, Vol. I, p. 294)
20
Rollo (Vol. I), p. 304.
21
Id. at 421-461.
.
 Decision 6 G.R. No. 160071

Agreement. Hence when PAL signed the Agreement with RSS, it was for
all intents and purposes an Agreement signed individually with the Senior
Technical Advisers including the Complainants. The RSS and the five (5)
Senior Technical Advisers should be treated as one and the same,

The Arbitration Tribunals is not convinced.

xx xx

PAL cannot refuse to pay Complainants their termination penal tics

by setting off against the unserved period of seventeen ( 17) months of
their advance advisory fees as the Agreement and the Side Letter clearly
do not allow refund. This Arbitration Tribunal cannot read into the
contract, which is the law between the parties, what the contract does not
provide or what the parties did not intend. It is basic in contract
interpretation that contracts that are not ambiguous are to be interpreted
according to their literal meaning and should not be interpreted beyond
their obvious intendment. x x x. The penalties work as security for the
Complainants against the uncertainties of their work at PAL whose closure
was a stark reality they were facing. (TSN Hearing on April 27, 2000, pp.
48-49) This would not result in unjust enrichment for the Complainants
because the termination of the services was initiated by PAL itself without
cause. In fact, PAL admitted that at the time their services were terminated
the Complainants were performing well in their respective assigned
works. 22 xx x.

PAL also presented hypothetical situations and certain

computations that it claims would result to an "injustice" to PAL which
would then "lose a very substantial amount of money" if the claimed
refund is not allowed. PAL had chosen to pre-terminate the services of the
complainants and must therefore pay the termination penalties provided in
the Side Letter. If it finds itself losing "substantial" sums of money
because of its contractual commitments, there is nothing this Arbitration
Tribunal can do to remedy the situation. Jurisprudence teaches us that
neither the law nor the courts will extricate a party from an unwise or
undesirable contract that he or she entered into with all the required
formalities and with full awareness of its consequences. ( Opulencia vs.
Appeals, 293 SCRA 385 (1998) 23

Decision of the RTC

Dissatisfied with the outcome, the respondent filed its Application to

Vacate Arbitral Award in the Regional Trial Court, in Makati City (RTC),
docketed as SP Proc. M-5147 and assigned to Branch 57, 24 arguing that the
arbitration decision should be vacated in view of the July 1, 1998 order of
the SEC placing the respondent under a state of suspension of payment
pursuant to Section 6( c) of Presidential Decree No. 902-A, as amended by
P.D. No. 1799. 25

22
Id. at 428-429, 447, 453.
23
Id. at 453.
24
Id. at 4 74-528.
15
Id. at 523-524.

14
Decision 7 G.R. No. 160071

The petitioners countered with their Motion to Dismiss, 26 citing the

following grounds, namely: (a) lack of jurisdiction over the persons of the
petitioners due to the improper service of summons; (b) the application did
not state a cause of action; and (c) the application was an improper remedy
because the respondent should have filed an appeal in the CA pursuant to
Rule 43 of the Rules of Court. 27

On March 7, 2001, the RTC granted the respondent's Application to

Vacate Arbitral A ward, 28 disposing:

WHEREFORE, the subject arbitral award dated September 29,

2000 is hereby vacated and set aside, without prejudice to the
complainants' filing with the SEC rehabilitation receiver of PAL their
subject claim for appropriate adjudication. The panel of arbitrators
composed of lawyers Beda Fajardo, Arturo de Castro and Bienvenido
Magnaye is hereby ordered discharged on the ground of manifest
partiality.

No pronouncement as to cost and attorney's fees.

SO ORDERED. 29

Anent jurisdiction over the persons of the petitioners, the RTC opined:

On the objection that the Court has not acquired jurisdiction over
the person of the complainants because summonses were not issued and
served on them, the Court rules that complainants have voluntarily
submitted themselves to the jurisdiction of the Court by praying the Court
to grant them affirmative relief, i.e., that the Court confirm and declare
final and executory the subject arbitral award. Moreover, under Sections
22 and 26 of the Arbitration Law (R.A. 876), an application or petition to
vacate arbitral award is deemed a motion and service of such motion on
the adverse party or his counsel is enough to confer jurisdiction upon the
Court over the adverse party.

It is not disputed that complainants were duly served by personal

delivery with copies of the application to vacate. In fact, they have
appeared through counsel and have filed pleadings. In line with this ruling,
the objection that the application to vacate does not state a cause of action
against complainants must necessarily fall inasmuch as this present case is
a special proceeding (Sec. 22, Arbitration Law), and Section 3(a), Rule 1
of the 1997 Rules of Civil Procedure is inapplicable here. 30

On whether or not the application to vacate was an appropriate

remedy under Sections 24 and 26 of the Arbitration Law, and whether or not

26
Id.at612-633.
27
Rollo (Vol. II), p. 1396.
78
- Rollo (Vol. I), pp. 1064-1069.
29
Id.at 1069.
30
Id. at 1064-1065.

h
 Decision 8 G.R. No. 160071

the July 1, 1998 order of the SEC deprived the Panel of Arbitrators of the
authority to hear the petitioners' claim, the RTC held:

The rationale for the suspension is to enable the rehabilitation

receiver to exercise his powers without any judicial or extra-judicial
interference that might unduly hinder the rescue of the distressed
corporation. x x x. PD No. 902-A does not provide for the duration of the
suspension; therefore, it is deemed to be effective during the entire period
that the corporate debtor is under SEC receivership.

There is no dispute that PAL is under receivership (Exhibits "1"

and "2"). In its Order dated 1 July 1998, the SEC declared that "all claims
for payment against PAL are deemed suspended." This Order effectively
deprived all other tribunals of jurisdiction to hear and decide all actions for
claims against PAL for the duration of the receivership.

xx xx

Unless and until the SEC lifts the Order dated 1 July 1998, the
Panel of Arbitrators cannot take cognizance of complainant' claims
against PAL without violating the exclusive jurisdiction of the SEC. The
law has granted SEC the exclusive jurisdiction to pursue the rehabilitation
of a private corporation through the appointment of a rehabilitation
receiver (Sec 6 (d), PD No. 902-A, as amended by PD 1799). "exclusive
jurisdiction precludes the idea of co-existence and refers to jurisdiction
possessed to the exclusion of others. x xx. Thus, "(I)nstead of vexing the
courts with suits against the distressed firm, they are directed to file their
claims with the receiver who is the duly appointed officer of the SEC.
xx x. 31

After their motion for reconsideration32 was denied, 33 the petitioners

appealed to the CA by notice of appeal.

Resolution of the CA

The respondent moved to dismiss the appeal, 34 arguing against the

propriety of the petitioners' remedy, and positing that Section 29 of the
Arbitration Law limited appeals from an order issued in a proceeding under
the Arbitration Law to a review on certiorari upon questions of law. 35

On May 30, 2003, the CA promulgated the now assailed resolution

granting the respondent's Motion to Dismiss Appeal. 36 It declared that the
appropriate remedy against the order of the RTC vacating the award was a
petition for review on certiorari under Rule 45, viz.:

JI
Id. at I066.
12
Id. at I 070-1085.
:n
Id. at 1101-1102.
34
Id. at 1279-1285.
]5
Id. at 28.
''' Id. at 75-77.
..
 Decision 9 G.R. No. 160071

The term "certiorari" in the aforequoted provision refers to an

ordinary appeal under Rule 45, not the special action of certiorari under
Rule 65. As Section 29 proclaims, it is an "appeal." This being the case,
the proper forum for this action is, under the old and the new rules of
procedure, the Supreme Court. Thus, Section 2( c) of Rule 41 of the 1997
Rules of Civil Procedure states that,

"Jn all cases where only questions of law are raised or

involved, the appeal shall be to the Supreme Court by petition
for review on certiorari in accordance with Rule 45. "

Furthermore, Section 29 limits the appeal to "questions of law,"

another indication that it is referring to an appeal by certiorari under Rule
45 which, indeed, is the customary manner of reviewing such issues.

Based on the foregoing, it is clear that complainants-in-

arbitration/appellants filed the wrong action with the wrong forum.

WHEREFORE, premises the Motion to Dismiss

Appeal (Without Prejudice to the Filing of Appellee 's Brief) is
GRANTED and the instant appeal is hereby ordered DISMISSED.

SO ORDERED. 37

The petitioners moved for reconsideration, 38 but the CA denied their

motion. 39

Hence, this appeal by the petitioners.

Issues

The petitioners anchor this appeal on the following grounds, namely:

I
SECTION 29 OF THE ARBITRATION LAW, WHICH LIMITS THE
MODE OF APPEAL FROM THE ORDER OF A REGIONAL TRIAL
COURT IN A PROCEEDING MADE UNDER THE ARBITRATION
LAW TO A PETITION FOR REVIEW ON CERTIORARI UNDER
RULE 45 OF THE RULES, IS UNCONSTITUTIONAL FOR UNDULY
EXPANDING THE JURISDICTION OF THIS HONORABLE COURT
WITHOUT THIS HONORABLE COURT'S CONCURRENCE;

II
THE COURT OF APPEALS HAD JURISDICTION OVER THE CA
APPEAL BECAUSE:

37
Id. at 77.
38
Id. at 1340-1357.
39
Id. at 79.
<
 Decision 10 G.R. No. 160071

A.
THIS HONORABLE COURT HAS PREVIOUSLY UPHELD
THE EXERCISE BY THE COURT OF APPEALS OF
JURISDICTION OVER AN APPEAL INVOL YING
QUESTIONS OF FACT OR OF MIXED QUESTIONS OF FACT
AND LAW FROM A REGIONAL TRIAL COURT'S ORDER
VACATING AN ARBITRAL AWARD

B.
WHERE, AS IN THIS CASE, THE ISSUES ON APPEAL
CONCERNED THE ABSENCE OF EVIDENCE AND LACK OF
LEGAL BASIS TO SUPPORT THE REGIONAL TRIAL
COURT'S ORDER VACATING THE ARBITRAL AWARD,
GRAVE MISCHIEF WOULD RESULT IF THE REGIONAL
TRIAL COURT'S BASELESS FINDINGS OF FACT OR
MIXED FINDINGS OF FACT ARE PLACED BEYOND
APPELLATE REVIEW; AND

C.
THE COURT OF APPEALS' DISMISSAL OF THE CA APPEAL
WOULD IN EFFECT RESULT IN THE AFFIRMATION OF
THE REGIONAL TRIAL COURT'S EXERCISE OF
JURISDICTION, OVER PERSONS UPON WHOM IT FAILED
TO VALIDLY ACQUIRE SUCH JURISDICTION AND OF
APPELLATE JURISDICTION OVER THE PDRCI ARBITRAL
AWARD EVEN IF SUCH APPELLATE POWER IS
EXCLUSIVELY LODGED WITH THE COURT OF APPEALS
UNDER RULE 43 OF THE RULES

III
INSTEAD OF DISMISSING THE CA APPEAL OUTRIGHT, THE
COURT OF APPEALS SHOULD HAVE SHORTENED THE
PROCEEDINGS AND EXPEDITED JUSTICE BY EXERCISING
ORIGINAL JURISDICTION OVER THE APPLICATION TO VACA TE
PURSUANT TO RULE 43 OF THE RULES, ESPECIALLY
CONSIDERING THAT THE PARTIES HAD IN FACT ALREADY
FILED THEIR RESPECTIVE BRIEFS AND THE COMPLETE
RECORDS OF BOTH THE RTC APPLICATION TO VACATE AND
THE PDRCI ARBITRATION WERE ALREADY IN ITS POSSESSION;
AND

IV
IN THE EVENT THAT AN APPEAL FROM AN ORDER VACA TING
AN ARBITRAL AW ARD MAY BE MADE ONLY IN CERTIORARI
PROCEEDINGS AND ONLY TO THE SUPREME COURT, THE
COURT OF APPEALS SHOULD NOT HAVE DISMISSED THE CA
APPEAL, BUT IN THE HIGHER INTEREST OF JUSTICE, SHOULD
HA VE INSTEAD ENDORSED THE SAME TO THIS HONORABLE
COURT, AS WAS DONE IN SANTIAGO V GONZALES. 40

The petitioners contend that an appeal from the order arising from
arbitration proceedings cannot be by petition for review on certiorari under
Rule 45 of the Rules of Court because the appeal inevitably involves mixed
40
Id. at 30-31.

.(,
 Decision 11 G.R. No. 160071

questions of law and fact; that their appeal in the CA involved factual issues
in view of the RTC's finding that the panel of arbitrators had been guilty of
evident partiality even without having required the respondent to submit
independent proof thereon; that the appropriate remedy was either a petition
for certiorari under Rule 65 of the Rules of Court, or an ordinary appeal
under Rule 41 of the Rules of Court, conformably with the rulings in Asset
Privatization Trust v. Court of Appeals41 and Adamson v. Court of Appeals,42
respectively; and that the CA erroneously upheld the RTC's denial of their
Motion To Dismiss Appeal on the basis of their counsel's voluntary
appearance to seek affirmative relief because under Section 20, Rule 14 of
the Rules of Court their objection to the personal jurisdiction of the court
was not a voluntary appearance even if coupled with other grounds for a
motion to dismiss.

In riposte, the respondent avers that the petition for review on

certiorari should be denied due course because of the defective
verification/certification signed by the petitioners' counsel; and that the
special powers of attorney (SPAs) executed by the petitioners in favor of
their counsel did not sufficiently vest the latter with the authority to execute
the verification/certification in their behalf.

On the merits, the respondent maintains that: (a) the term certiorari
used in Section 29 of the Arbitration Law refers to a petition for review
under Rule 4 5 of the Rules of Court; ( b) the constitutional challenge against
Section 29 of the Arbitration Law was belatedly made; (c) the petitioners'
claim of lack of jurisdiction on the part of the RTC should fail because an
application to vacate an arbitral award under Sections 22 and 26 of the
Arbitration Law is only required to be in the form of a motion; and (d) the
complete record of the arbitration proceedings submitted to the RTC
sufficiently proved the manifest paiiiality and grave abuse of discretion on
the part of the panel of arbitrators.

To be resolved are: (a) whether or not the petition for review should
be dismissed for containing a defective verification/certification; and (b)
whether or not the CA erred in dismissing the appeal of the petitioners for
being an inappropriate remedy.

Ruling of the Court

We deny the petition for review on certiorari.

41
G.R. No. 121171, December 29, 1998, 300 SCRA 579
42
G.R. No. 106879, May 27, 1994, 232 SCRA 602.
.
J4
 Decision 12 G.R. No. 160071

I
There was sufficient compliance with the rule on
verification and certification against forum shopping

The respondent insists that the verification/certification attached to the

petition was defective because it was executed by the petitioners' counsel
whose authority under the SP As was only to execute the certification of non-
forum shopping; and that the signing by the counsel of the certification
could not also be allowed because the Rules of Court and the pertinent
circulars and rulings of the Court require that the petitioners must
themselves execute the same.

The insistence of the respondent is unwarranted. The SPAs

individually signed by the petitioners vested in their counsel the authority,
among others, "to do and perform on my behalf any act and deed relating to
the case, which it could legally do and perform, including any appeals or
further legal proceedings." The authority was sufficiently broad to expressly
and specially authorize their counsel, Atty. Ida Maureen V. Chao-Kho, to
sign the verification/certification on their behalf.

The purpose of the verification is to ensure that the allegations

contained in the verified pleading are true and correct, and are not the
product of the imagination or a matter of speculation; and that the pleading
is filed in good faith. 43 This purpose was met by the verification/certification
made by Atty. Chao-Kho in behalf of the petitioners, which pe1iinently
stated that:

2. Petitioners caused the preparation of the foregoing Petition for

Review on Certiorari, and have read and understood all the allegations
contained therein. Further, said allegations are true and correct based on
their own knowledge and authentic records in their and the Firm's
. 44
possess10n.

The tenor of the verification/certification indicated that the petitioners,

not Atty. Chao-Kho, were certifying that the allegations were true and
correct based on their knowledge and authentic records. At any rate, a
finding that the verification was defective would not render the petition for
review invalid. It is settled that the verification was merely a formal
requirement whose defect did not negate the validity or efficacy of the
verified pleading, or affect the jurisdiction of the court. 45

43
Bank of' the Philippine Islands v. Court ofAppeals, G.R. No. 146923, April 30, 2003, 402 SCRA 449,
454.
44
Rollo (Vol. I), p. 66.
45
Navarro v. Court ofAppeals, G.R. No. 141307, March 28, 2001, 355 SCRA 672, 679.
Decision 13 G.R. No. 160071

We also uphold the efficacy of the certification on non-forum

shopping executed by Atty. Chao-Kho on the basis of the authorization
bestowed under the SPAs by the petitioners. The lawyer of the party, in
order to validly execute the certification, must be "specifically authorized"
by the client for that purpose. 46 With the petitioners being non-residents of
the Philippines, the sworn certification on non-forum shopping by Atty.
Chao-Kho sufficiently complied with the objective of ensuring that no
similar action had been brought by them or the respondent against each
other, to wit:

5. Significantly, Petitioners are foreign residents who reside and

are presently abroad. Further, the Firm is Petitioners' sole legal counsel in
the Philippines, and hence, is in a position to know that Petitioners have
no other cases before any court o[r] tribunal in the Philippines; 47

In this regard, we ought not to exact a literal compliance with Section

4, Rule 45, in relation to Section 2, Rule 42 of the Rules of Court, that only
the party himself should execute the certification. After all, we have not
been shown by the respondent any intention on the part of the petitioners and
their counsel to circumvent the requirement for the verification and
certification on non-forum shopping. 48

II
Appealing the RTC order
vacating an arbitral award

The petitioners contend that the CA gravely erred in dismissing their

appeal for being an inappropriate remedy, and in holding that a petition for
review on certiorari under Rule 45 was the sole remedy under Section 29 of
the Arbitration Law. They argue that the decision of the RTC involving
arbitration could be assailed either by petition for certiorari under Rule 65,
as held in Asset Privatization Trust, or by an ordinary appeal under Rule 41,
as opined in Adamson.

The petitioners are mistaken.

Firstly, the assailed resolution of the CA did not expressly declare that
the petition for review on certiorari under Rule 45 was the sole remedy from
the RTC's order vacating the arbitral award. The CA rather emphasized that
the petitioners should have filed the petition for review on certiorari under
Rule 45 considering that Section 29 of the Arbitration Law has limited the

46
Hydro Resources Contractors Corporation v. National Irrigation Administration, G.R. No. 160215,
November 10, 2004, 441SCRA614, 636.
47
Rollo (Vol. I), p. 66.
48
Pilipinas Shell Petroleum Corporation v. John Bordman Ltd. <?f lloilo, Inc., G.R. No. 15983 l, October
14, 2005, 473 SCRA 151, 162.

p., "
 Decision 14 G.R. No. 160071

ground of review to "questions of law." Accordingly, the CA correctly

dismissed the appeal of the petitioners because pursuant to Section 2, 49 Rule
41 of the Rules of Court an appeal of questi?ns of law arising in the courts in
the first instance is by petition for review on certiorari under Rule 45.

It is noted, however, that since the promulgation of the assailed

decision by the CA on May 30, 2003, the law on the matter underwent
changes. On February 4, 2004. Republic Act No. 9285 (Alternative Dispute
Resolution Act of 2004) was passed by Congress, and was approved by the
President on April 2, 2004. Pursuant to Republic Act No. 9285, the Court
promulgated on September 1, 2009 in A.M. No. 07-11-08-SC the Special
Rules of Court on Alternative Dispute Resolution, which are now the present
rules of procedure governing arbitration. Among others, the Special Rules of
Court on Alternative Dispute Resolution requires an appeal by petition for
review to the CA of the final order of the R TC confirming, vacating,
correcting or modifYing a domestic arbitral award, to wit:

Rule 19.12 Appeal to the Court o,('Appeals. - An appeal to the Court of

Appeals through a petition for review under this Special Rule shall only be
allowed from the following orders of the Regional Trial Court:

a. Granting or denying an interim measure of protection;

b. Denying a petition for appointment of an arbitrator;

c. Denying a petition for assistance in taking evidence;

d. Enjoining or refusing to enjoin a person from divulging confidential

information;

e. Confirming, vacating or correcting/modifying a domestic arbitral

award;

f. Setting aside an international commercial arbitration award;

g. Dismissing the petition to set aside an international commercial

arbitration award even if the court does not decide to recognize or
enforce such award;

h. Recognizing and/or enforcing an international commercial arbitration

award;

49
Sec. 2. Modes
(a) Ordinary appeal.- The appeal to the Court of Appeals in cases decided by the Regional Trial
Court in the exercise of its original jurisdiction shall be taken by filing a notice of appeal with the court
which rendered the judgment or final order appealed from and serving a copy thereof upon the adverse
party. No record on appeal shall be required except in special proceedings and other cases of multiple or
separate appeals where the law or these Rules so require. In such cases, the record on appeal shall be filed
and served in like manner.
(b) Petition for review.-- The appeal to the Court of Appeals in cases decided by the Regional Trial
Court in the exercise of its appellate jurisdiction shall be by petition for review in accordance with Rule 42.
(c) Appeal by certiorari.- In all cases where only questions of law arc raised or involved, the
appeal shall be to the Supreme Court by petition for review on certiorari in accordance with Ruic 45.
(n)
Decision 15 G.R. No. 160071

i. Dismissing a petition to enforce an international commercial

arbitration award;

J. Recognizing and/or enforcing a foreign arbitral award;

k. Refusing recognition and/or enforcement of a foreign arbitral award;

I. Granting or dismissing a petition to enforce a deposited mediated

settlement agreement; and

m. Reversing the ruling of the arbitral tribunal upholding its jurisdiction.

Although the Special Rules of Court on Alternative Dispute

Resolution provides that the appropriate remedy from an order of the RTC
vacating a domestic arbitral award is an appeal by petition for review in the
CA, not an ordinary appeal under Rule 41 of the Rules of Court, the Court
cannot set aside and reverse the assailed decision on that basis because the
decision was in full accord with the law or rule in force at the time of its
promulgation.

The ruling in Asset Privatization Trust v. Court of Appeals 50 cannot be

the governing rule with respect to the order of the RTC vacating an arbitral
award. Asset Privatization Trust justified the resort to the petition for
certiorari under Rule 65 only upon finding that the RTC had acted without
jurisdiction or with grave abuse of discretion in confirming the arbitral
award. Nonetheless, it is worth reminding that the petition for certiorari
cannot be a substitute for a lost appeal. 51

Also, the petitioners have erroneously assumed that the appeal filed
by the aggrieved party in Adamson v. Court of Appeals 52 was an ordinary
one. Adamson concerned the correctness of the ruling of the CA in reversing
the decision of the trial court, not the propriety of the remedy availed of by
the aggrieved party. Nor did Adamson expressly declare that an ordinary
appeal could be availed of to assail the RTC's ruling involving arbitration.
As such, the petitioners' reliance on Adamson to buttress their resort to the
erroneous remedy was misplaced.

We remind that the petitioners cannot insist on their chosen remedy

despite its not being sanctioned by the Arbitration Law. Appeal as a remedy
is not a matter of right, but a mere statutory privilege to be exercised only in
the manner and strictly in accordance with the provisions of the law. 53

50
Supra, note 41, at 600-60 l
51
Celina, Sr. v. Court ofAppeals, G.R. No. 170562, June 29, 2007, 526 SCRA 195, 200.
52
Supra, note 42.
53
Boardwalk Business Ventures, Inc. v Villareal. Jr., G.R. No. 181182, April l 0, 2013, 695 SCRA 468,
477; R Transport Corporation v. Philippine Hawk Transport Corporation, G.R. No. 155737, October 19,
2005, 473 SCRA 342, 348.
Decision 16 G.R. No. 160071

III
Panel of Arbitrators had no jurisdiction
to hear and decide the petitioners' claim

The petitioners' appeal is dismissible also because the arbitration

panel had no jurisdiction to hear their claim. The R TC correctly opined that
the SEC's suspension order effective July 1, 1998 deprived the arbitration
panel of the jurisdiction to hear any claims against the respondent. The Court
has clarified in Castillo v. Uniwide Warehouse Club, Inc. 54 why the claim for
payment brought against a distressed corporation like the respondent should
not prosper following the issuance of the suspension order by the SEC,
regardless of when the action was filed, to wit:

Jurisprudence is settled that the suspension of proceedings referred

to in the law uniformly applies to all actions for claims filed against a
corporation, partnership or association under management or receivership,
without distinction, except only those expenses incurred in the ordinary
course of business. In the oft-cited case of Rubberworld (Phils.) Inc. v.
NLRC, the Court noted that aside from the given exception, the law is
clear and makes no distinction as to the claims that are suspended once a
management committee is created or a rehabilitation receiver is
appointed. Since the law makes no distinction or exemptions, neither
should this Court. Ubi lex non distinguit nee nos distinguere
debemos. Philippine Airlines, Inc. v. Zamora declares that the automatic
suspension of an action for claims against a corporation under a
rehabilitation receiver or management committee embraces all phases of
the suit, that is, the entire proceedings of an action or suit and not just the
payment of claims.

The reason behind the imperative nature of a suspension or

stay order in relation to the creditors claims cannot be downplayed,
for indeed the indiscriminate suspension of actions for claims intends
to expedite the rehabilitation of the distressed corporation by enabling
the management committee or the rehabilitation receiver to effectively
exercise its/his powers free from any judicial or extra.judicial
interference that might unduly hinder or prevent the rescue of the
debtor company. To allow such other actions to continue would only
add to the burden of the management committee or rehabilitation
receiver, whose time, effort and resources would be wasted in
defending claims against the corporation, instead of being directed
toward its restructuring and rehabilitation.

At this juncture, it must be conceded that the date when the

claim arose, or when the action was filed, has no bearing at all in
deciding whether the given action or claim is covered by the stay or
suspension order. What matters is that as long as the corporation is
under a management committee or a rehabilitation receiver, all
actions for claims against it, whether for money or otherwise, must
yield to the greater imperative of corporate revival, excepting only, as

54
G.R. No. 169725, April 30, 2010, 619 SCRA 641.

..e
 Decision 17 G.R. No. 160071

already mentioned, claims for payment of obligations incurred by the

corporation in the ordinary course of business. 55 (Bold emphasis
supplied)

IV
The requirement of due process was observed

The petitioners' challenge against the jurisdiction of the RTC on the

ground of the absence of the service of the summons on them also fails.

Under Section 22 56 of the Arbitration Law, arbitration is deemed a

special proceeding, by virtue of which any application should be made in the
manner provided for the making and hearing of motions, except as otherwise
expressly provided in the Arbitration Law.

The RTC observed that the respondent's Application to Vacate

Arbitral Award was duly served personally on the petitioners, who then
appeared by counsel and filed pleadings. The petitioners countered with their
Motion to Dismiss vis-a-vis the respondent's application, specifying therein
the various grounds earlier mentioned, including the lack of jurisdiction over
their persons due to the improper service of summons. Under the
circumstances, the requirement of notice was fully complied with, for
Section 26 57 of the Arbitration Law required the application to be served
upon the adverse party or his counsel within 30 days after the award was
filed or delivered "as prescribed by law for the service upon an attorney in
an action."

v
Issue of the constitutionality of the
Arbitration Law is devoid of merit

The constitutionality of Section 29 of the Arbitration Law is being

challenged on the basis that Congress has thereby increased the appellate
jurisdiction of the Supreme Court without its advice and concurrence, as
required by Section 30, Article VI of the 1987 Constitution, to wit:

55
Id. at 648-650.
56
Sec. 22. Arbitration deemed a proceeding. - Arbitration under a contract or submission shall be
deemed a special proceeding, of which the court specified in the contract or submission, or if none be
specified, the Court of First Instance for the province or city in which one of the parties resides or is doing
business, or in which the arbitration was held, shall have jurisdiction. Any application to the court, or a
judge thereof, hereunder shall be made in manner provided for the making and hearing of motions, except
as otherwise herein expressly provided.
57
Sec. 26. Motion to vacate, modijv, or correct an award: when made. - Notice of a motion to vacate,
modify or correct the award must be served upon the adverse party or his counsel within thirty days after
the award is filed or delivered, as prescribed by law for the service upon an attorney in an action.
 Decision 18 G.R. No. 160071

Section 30. No law shall be passed increasing the appellate

jurisdiction of the Supreme Court as provided in this Constitution without
its advice and concurrence.

The challenge is unworthy of consideration. Based on the tenor and

text of Section 30, Article VI of the 1987 Constitution, the prohibition
against increasing the appellate jurisdiction of the Supreme Court without its
advice and concurrence applies prospectively, not retrospectively.
Considering that the Arbitration Law had been approved on June 19, 1953,
and took effect under its terms on December 19, 1953, while the
Constitution was ratified only on February 2, 1987, Section 29 of the
Arbitration Law could not be declared unconstitutional.

WHEREFORE, the Court DENIES the petition for review on

certiorari for lack of merit; AFFIRMS the resolution promulgated on May
30, 2003 by the Court of Appeals in CA-G.R. CV No. 71224; and ORDERS
the petitioners to pay the costs of suit.

SO ORDERED.

WE CONCUR:

(On Leave)
MARIA LOURDES P. A. SERENO
Chief Justice

JA (}. . IJ.vuJv' .
TERESITA J. LEONARDO-DE CASTRO ESTELA M.'l>ERLAS-BERNABE
Associate Justice Associate Justice
Acting Chairperson
Decision 19 G.R. No. 160071

ATTESTATION

I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Court's Division.

TERESITA J. LEONARDO-DE CASTRO

Associate Justice
Acting Chairperson, First Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the

Division Acting Chairperson's Attestation, I certify that the conclusions in
the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court's Division.

Acting Chief Justice

 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 174938 October 1, 2014
GERARDO LANUZA, JR. AND ANTONIO O. OLBES, Petitioners,
vs.
BF CORPORATION, SHANGRI-LA PROPERTIES, INC., ALFREDO C.
RAMOS, RUFO B. COLAYCO, MAXIMO G. LICAUCO III, AND
BENJAMIN C. RAMOS, Respondents.
DECISION
LEONEN, J.:
Corporate representatives may be compelled to submit to arbitration
proceedings pursuant to a contract entered into by the corporation they
represent if there are allegations of bad faith or malice in their acts
representing the corporation.
This is a Rule 45 petition, assailing the Court of Appeals' May 11, 2006
decision and October 5, 2006 resolution. The Court of Appeals affirmed
the trial court's decision holding that petitioners, as director, should
submit themselves as parties tothe arbitration proceedings between BF
Corporation and Shangri-La Properties, Inc. (Shangri-La).
In 1993, BF Corporation filed a collection complaint with the Regional
Trial Court against Shangri-Laand the members of its board of directors:
Alfredo C. Ramos, Rufo B.Colayco, Antonio O. Olbes, Gerardo Lanuza,
Jr., Maximo G. Licauco III, and Benjamin C. Ramos.1
BF Corporation alleged in its complaint that on December 11, 1989 and
May 30, 1991, it entered into agreements with Shangri-La wherein it
undertook to construct for Shangri-La a mall and a multilevel parking
structure along EDSA.2
Shangri-La had been consistent in paying BF Corporation in accordance
with its progress billing statements.3However, by October 1991, Shangri-
La started defaulting in payment.4
BF Corporation alleged that Shangri-La induced BF Corporation to
continue with the construction of the buildings using its own funds and
credit despite Shangri-La’s default.5 According to BF Corporation,
ShangriLa misrepresented that it had funds to pay for its obligations with
BF Corporation, and the delay in payment was simply a matter of delayed
processing of BF Corporation’s progress billing statements.6
BF Corporation eventually completed the construction of the
buildings.7 Shangri-La allegedly took possession of the buildings while still
owing BF Corporation an outstanding balance.8
BF Corporation alleged that despite repeated demands, Shangri-La
refused to pay the balance owed to it.9 It also alleged that the Shangri-
La’s directors were in bad faith in directing Shangri-La’s affairs.
Therefore, they should be held jointly and severally liable with Shangri-La
for its obligations as well as for the damages that BF Corporation incurred
as a result of Shangri-La’s default.10
On August 3, 1993, Shangri-La, Alfredo C. Ramos, Rufo B. Colayco,
Maximo G. Licauco III, and Benjamin C. Ramos filed a motion to suspend
the proceedings in view of BF Corporation’s failure to submit its dispute to
arbitration, in accordance with the arbitration clauseprovided in its
contract, quoted in the motion as follows:11
35. Arbitration
(1) Provided always that in case any dispute or difference shall arise
between the Owner or the Project Manager on his behalf and the
Contractor, either during the progress or after the completion or
abandonment of the Works as to the construction of this Contract or as to
any matter or thing of whatsoever nature arising there under or
inconnection therewith (including any matter or thing left by this Contract
to the discretion of the Project Manager or the withholding by the Project
Manager of any certificate to which the Contractor may claim to be
entitled or the measurement and valuation mentioned in clause 30(5)(a)
of these Conditions or the rights and liabilities of the parties under
clauses 25, 26, 32 or 33 of these Conditions), the owner and the
Contractor hereby agree to exert all efforts to settle their differences or
dispute amicably. Failing these efforts then such dispute or difference
shall be referred to arbitration in accordance with the rules and
procedures of the Philippine Arbitration Law.
xxx xxx xxx
(6) The award of such Arbitrators shall be final and binding on the parties.
The decision of the Arbitrators shall be a condition precedent to any right
of legal action that either party may have against the other. . .
.12 (Underscoring in the original)
On August 19, 1993, BF Corporation opposed the motion to suspend
proceedings.13
In the November 18, 1993 order, the Regional Trial Court denied the
motion to suspend proceedings.14
On December 8, 1993, petitioners filed an answer to BF Corporation’s
complaint, with compulsory counter claim against BF Corporation and
crossclaim against Shangri-La.15 They alleged that they had resigned as
members of Shangri-La’s board of directors as of July 15, 1991.16
After the Regional Trial Court denied on February 11, 1994 the motion for
reconsideration of its November 18, 1993 order, Shangri-La, Alfredo C.
Ramos, Rufo B. Colayco,Maximo G. Licauco III, and Benjamin Ramos
filed a petition for certiorari with the Court of Appeals.17
On April 28, 1995, the Court of Appeals granted the petition for certiorari
and ordered the submission of the dispute to arbitration.18
Aggrieved by the Court of Appeals’ decision, BF Corporation filed a
petition for review on certiorari with this court.19On March 27, 1998, this
court affirmed the Court of Appeals’ decision, directing that the dispute be
submitted for arbitration.20
Another issue arose after BF Corporation had initiated arbitration
proceedings. BF Corporation and Shangri-La failed to agree as to the law
that should govern the arbitration proceedings.21 On October 27, 1998,
the trial court issued the order directing the parties to conduct the
proceedings in accordance with Republic Act No. 876.22
Shangri-La filed an omnibus motion and BF Corporation an urgent motion
for clarification, both seeking to clarify the term, "parties," and whether
Shangri-La’s directors should be included in the arbitration proceedings
and served with separate demands for arbitration.23
Petitioners filed their comment on Shangri-La’s and BF Corporation’s
motions, praying that they be excluded from the arbitration proceedings
for being non-parties to Shangri-La’s and BF Corporation’s agreement.24
On July 28, 2003, the trial court issued the order directing service of
demands for arbitration upon all defendants in BF Corporation’s
complaint.25 According to the trial court, Shangri-La’s directors were
interested parties who "must also be served with a demand for arbitration
to give them the opportunity to ventilate their side of the controversy,
safeguard their interest and fend off their respective
positions."26 Petitioners’ motion for reconsideration ofthis order was
denied by the trial court on January 19, 2005.27
Petitioners filed a petition for certiorari with the Court of Appeals, alleging
grave abuse of discretion in the issuance of orders compelling them to
submit to arbitration proceedings despite being third parties to the
contract between Shangri-La and BF Corporation.28
In its May 11, 2006 decision,29 the Court of Appeals dismissed petitioners’
petition for certiorari. The Court of Appeals ruled that ShangriLa’s
directors were necessary parties in the arbitration
proceedings.30 According to the Court of Appeals:
[They were] deemed not third-parties tothe contract as they [were] sued
for their acts in representation of the party to the contract pursuant to Art.
31 of the Corporation Code, and that as directors of the defendant
corporation, [they], in accordance with Art. 1217 of the Civil Code, stand
to be benefited or injured by the result of the arbitration proceedings,
hence, being necessary parties, they must be joined in order to have
complete adjudication of the controversy. Consequently, if [they were]
excluded as parties in the arbitration proceedings and an arbitral award is
rendered, holding [Shangri-La] and its board of directors jointly and
solidarily liable to private respondent BF Corporation, a problem will
arise, i.e., whether petitioners will be bound bysuch arbitral award, and
this will prevent complete determination of the issues and resolution of
the controversy.31
The Court of Appeals further ruled that "excluding petitioners in the
arbitration proceedings . . . would be contrary to the policy against
multiplicity of suits."32
The dispositive portion of the Court of Appeals’ decision reads:
WHEREFORE, the petition is DISMISSED. The assailed orders dated
July 28, 2003 and January 19, 2005 of public respondent RTC, Branch
157, Pasig City, in Civil Case No. 63400, are AFFIRMED.33
The Court of Appeals denied petitioners’ motion for reconsideration in the
October 5, 2006 resolution.34
On November 24, 2006, petitioners filed a petition for review of the May
11, 2006 Court of Appeals decision and the October 5, 2006 Court of
Appeals resolution.35
The issue in this case is whether petitioners should be made parties to
the arbitration proceedings, pursuant to the arbitration clause provided in
the contract between BF Corporation and Shangri-La.
Petitioners argue that they cannot be held personally liable for corporate
acts or obligations.36 The corporation is a separate being, and nothing
justifies BF Corporation’s allegation that they are solidarily liable with
Shangri-La.37Neither did they bind themselves personally nor did they
undertake to shoulder Shangri-La’s obligations should it fail in its
obligations.38 BF Corporation also failed to establish fraud or bad faith on
their part.39
Petitioners also argue that they are third parties to the contract between
BF Corporation and Shangri-La.40Provisions including arbitration
stipulations should bind only the parties.41 Based on our arbitration laws,
parties who are strangers to an agreement cannot be compelled to
arbitrate.42
Petitioners point out thatour arbitration laws were enacted to promote the
autonomy of parties in resolving their disputes.43 Compelling them to
submit to arbitration is against this purpose and may be tantamount to
stipulating for the parties.44
Separate comments on the petition werefiled by BF Corporation, and
Maximo G. Licauco III, Alfredo C.Ramos and Benjamin C. Ramos.45
Maximo G. Licauco III Alfredo C. Ramos, and Benjamin C. Ramos
agreed with petitioners that Shangri-La’sdirectors, being non-parties to
the contract, should not be made personally liable for Shangri-La’s
acts.46 Since the contract was executed only by BF Corporation and
Shangri-La, only they should be affected by the contract’s stipulation.47 BF
Corporation also failed to specifically allege the unlawful acts of the
directors that should make them solidarily liable with Shangri-La for its
obligations.48
Meanwhile, in its comment, BF Corporation argued that the courts’ ruling
that the parties should undergo arbitration "clearly contemplated the
inclusion of the directors of the corporation[.]"49 BF Corporation also
argued that while petitioners were not parties to the agreement, they
were still impleaded under Section 31 of the Corporation Code.50Section
31 makes directors solidarily liable for fraud, gross negligence, and bad
faith.51 Petitioners are not really third parties to the agreement because
they are being sued as Shangri-La’s representatives, under Section 31 of
the Corporation Code.52
BF Corporation further argued that because petitioners were impleaded
for their solidary liability, they are necessary parties to the arbitration
proceedings.53 The full resolution of all disputes in the arbitration
proceedings should also be done in the interest of justice.54
In the manifestation dated September 6, 2007, petitioners informed the
court that the Arbitral Tribunal had already promulgated its decision on
July 31, 2007.55 The Arbitral Tribunal denied BF Corporation’s claims
against them.56Petitioners stated that "[they] were included by the Arbitral
Tribunal in the proceedings conducted . . . notwithstanding [their]
continuing objection thereto. . . ."57 They also stated that "[their] unwilling
participation in the arbitration case was done ex abundante ad cautela,
as manifested therein on several occasions."58 Petitioners informed the
court that they already manifested with the trial court that "any action
taken on [the Arbitral Tribunal’s decision] should be without prejudice to
the resolution of [this] case."59
Upon the court’s order, petitioners and Shangri-La filed their respective
memoranda. Petitioners and Maximo G. Licauco III, Alfredo C. Ramos,
and Benjamin C. Ramos reiterated their arguments that they should not
be held liable for Shangri-La’s default and made parties to the arbitration
proceedings because only BF Corporation and Shangri-La were parties
to the contract.
In its memorandum, Shangri-La argued that petitioners were impleaded
for their solidary liability under Section 31 of the Corporation Code.
Shangri-La added that their exclusion from the arbitration proceedings
will result in multiplicity of suits, which "is not favored in this
jurisdiction."60 It pointed out that the case had already been mooted by the
termination of the arbitration proceedings, which petitioners actively
participated in.61 Moreover, BF Corporation assailed only the correctness
of the Arbitral Tribunal’s award and not the part absolving Shangri-La’s
directors from liability.62
BF Corporation filed a counter-manifestation with motion to dismiss63 in
lieu of the required memorandum.
In its counter-manifestation, BF Corporation pointed out that since
"petitioners’ counterclaims were already dismissed with finality, and the
claims against them were likewise dismissed with finality, they no longer
have any interest orpersonality in the arbitration case. Thus, there is no
longer any need to resolve the present Petition, which mainly questions
the inclusion of petitioners in the arbitration proceedings."64 The court’s
decision in this case will no longer have any effect on the issue of
petitioners’ inclusion in the arbitration proceedings.65
The petition must fail.
The Arbitral Tribunal’s decision, absolving petitioners from liability, and its
binding effect on BF Corporation, have rendered this case moot and
academic.
The mootness of the case, however, had not precluded us from resolving
issues so that principles may be established for the guidance of the
bench, bar, and the public. In De la Camara v. Hon. Enage,66 this court
disregarded the fact that petitioner in that case already escaped from
prison and ruled on the issue of excessive bails:
While under the circumstances a ruling on the merits of the petition for
certiorari is notwarranted, still, as set forth at the opening of this opinion,
the fact that this case is moot and academic should not preclude this
Tribunal from setting forth in language clear and unmistakable, the
obligation of fidelity on the part of lower court judges to the unequivocal
command of the Constitution that excessive bail shall not be required.67
This principle was repeated in subsequent cases when this court deemed
it proper to clarify important matters for guidance.68
Thus, we rule that petitioners may be compelled to submit to the
arbitration proceedings in accordance with Shangri-Laand BF
Corporation’s agreement, in order to determine if the distinction between
Shangri-La’s personality and their personalities should be disregarded.
This jurisdiction adopts a policy in favor of arbitration. Arbitration allows
the parties to avoid litigation and settle disputes amicably and more
expeditiously by themselves and through their choice of arbitrators.
The policy in favor of arbitration has been affirmed in our Civil
Code,69 which was approved as early as 1949. It was later
institutionalized by the approval of Republic Act No. 876,70 which
expressly authorized, made valid, enforceable, and irrevocable parties’
decision to submit their controversies, including incidental issues, to
arbitration. This court recognized this policy in Eastboard Navigation, Ltd.
v. Ysmael and Company, Inc.:71
As a corollary to the question regarding the existence of an arbitration
agreement, defendant raises the issue that, even if it be granted that it
agreed to submit its dispute with plaintiff to arbitration, said agreement is
void and without effect for it amounts to removing said dispute from the
jurisdiction of the courts in which the parties are domiciled or where the
dispute occurred. It is true that there are authorities which hold that "a
clause in a contract providing that all matters in dispute between the
parties shall be referred to arbitrators and to them alone, is contrary to
public policy and cannot oust the courts of jurisdiction" (Manila Electric
Co. vs. Pasay Transportation Co., 57 Phil., 600, 603), however, there are
authorities which favor "the more intelligent view that arbitration, as an
inexpensive, speedy and amicable method of settling disputes, and as a
means of avoiding litigation, should receive every encouragement from
the courts which may be extended without contravening sound public
policy or settled law" (3 Am. Jur., p. 835). Congress has officially adopted
the modern view when it reproduced in the new Civil Code the provisions
of the old Code on Arbitration. And only recently it approved Republic Act
No. 876 expressly authorizing arbitration of future disputes.72 (Emphasis
supplied)
In view of our policy to adopt arbitration as a manner of settling disputes,
arbitration clauses are liberally construed to favor arbitration. Thus, in LM
Power Engineering Corporation v. Capitol Industrial Construction Groups,
Inc.,73 this court said:
Being an inexpensive, speedy and amicable method of settling disputes,
arbitration — along with mediation, conciliation and negotiation — is
encouraged by the Supreme Court. Aside from unclogging judicial
dockets, arbitration also hastens the resolution of disputes, especially of
the commercial kind. It is thus regarded as the "wave of the future" in
international civil and commercial disputes. Brushing aside a contractual
agreement calling for arbitration between the parties would be a step
backward.
Consistent with the above-mentioned policy of encouraging alternative
dispute resolution methods, courts should liberally construe arbitration
clauses. Provided such clause is susceptible of an interpretation that
covers the asserted dispute, an order to arbitrate should be granted. Any
doubt should be resolved in favor of arbitration.74(Emphasis supplied)
A more clear-cut statement of the state policy to encourage arbitration
and to favor interpretations that would render effective an arbitration
clause was later expressed in Republic Act No. 9285:75
SEC. 2. Declaration of Policy.- It is hereby declared the policy of the
State to actively promote party autonomy in the resolution of disputes or
the freedom of the party to make their own arrangements to resolve their
disputes. Towards this end, the State shall encourage and actively
promote the use of Alternative Dispute Resolution (ADR) as an important
means to achieve speedy and impartial justice and declog court dockets.
As such, the State shall provide means for the use of ADR as an efficient
tool and an alternative procedure for the resolution of appropriate cases.
Likewise, the State shall enlist active private sector participation in the
settlement of disputes through ADR. This Act shall be without prejudice to
the adoption by the Supreme Court of any ADR system, such as
mediation, conciliation, arbitration, or any combination thereof as a
means of achieving speedy and efficient means of resolving cases
pending before all courts in the Philippines which shall be governed by
such rules as the Supreme Court may approve from time to time.
....
SEC. 25. Interpretation of the Act.- In interpreting the Act, the court shall
have due regard to the policy of the law in favor of arbitration.Where
action is commenced by or against multiple parties, one or more of
whomare parties who are bound by the arbitration agreement although
the civil action may continue as to those who are not bound by such
arbitration agreement. (Emphasis supplied)
Thus, if there is an interpretation that would render effective an arbitration
clause for purposes ofavoiding litigation and expediting resolution of the
dispute, that interpretation shall be adopted. Petitioners’ main argument
arises from the separate personality given to juridical persons vis-à-vis
their directors, officers, stockholders, and agents. Since they did not sign
the arbitration agreement in any capacity, they cannot be forced to submit
to the jurisdiction of the Arbitration Tribunal in accordance with the
arbitration agreement. Moreover, they had already resigned as directors
of Shangri-Laat the time of the alleged default.
Indeed, as petitioners point out, their personalities as directors of
Shangri-La are separate and distinct from Shangri-La.
A corporation is an artificial entity created by fiction of law.76 This means
that while it is not a person, naturally, the law gives it a distinct
personality and treats it as such. A corporation, in the legal sense, is an
individual with a personality that is distinct and separate from other
persons including its stockholders, officers, directors,
representatives,77 and other juridical entities. The law vests in
corporations rights,powers, and attributes as if they were natural persons
with physical existence and capabilities to act on their own.78 For
instance, they have the power to sue and enter into transactions or
contracts. Section 36 of the Corporation Code enumerates some of a
corporation’s powers, thus:
Section 36. Corporate powers and capacity.– Every corporation
incorporated under this Code has the power and capacity:
1. To sue and be sued in its corporate name;
2. Of succession by its corporate name for the period of time
stated in the articles of incorporation and the certificate
ofincorporation;
3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in accordance with the
provisions of this Code;
5. To adopt by-laws, not contrary to law, morals, or public policy,
and to amend or repeal the same in accordance with this Code;
6. In case of stock corporations, to issue or sell stocks to
subscribers and to sell treasury stocks in accordance with the
provisions of this Code; and to admit members to the corporation
if it be a non-stock corporation;
7. To purchase, receive, take or grant, hold, convey, sell, lease,
pledge, mortgage and otherwise deal with such real and personal
property, including securities and bonds of other corporations, as
the transaction of the lawful business of the corporation may
reasonably and necessarily require, subject to the limitations
prescribed by law and the Constitution;
 8. To enter into merger or consolidation with other corporations
as provided in this Code;
9. To make reasonable donations, including those for the public
welfare or for hospital, charitable, cultural, scientific, civic, or
similar purposes: Provided, That no corporation, domestic or
foreign, shall give donations in aid of any political party or
candidate or for purposes of partisan political activity;
10. To establish pension, retirement, and other plans for the
benefit of its directors, trustees, officers and employees; and
11. To exercise such other powers asmay be essential or
necessary to carry out its purpose or purposes as stated in its
articles of incorporation. (13a)
Because a corporation’s existence is only by fiction of law, it can only
exercise its rights and powers through itsdirectors, officers, or agents,
who are all natural persons. A corporation cannot sue or enter into
contracts without them.
A consequence of a corporation’s separate personality is that consent by
a corporation through its representatives is not consent of the
representative, personally. Its obligations, incurred through official acts of
its representatives, are its own. A stockholder, director, or representative
does not become a party to a contract just because a corporation
executed a contract through that stockholder, director or representative.
Hence, a corporation’s representatives are generally not bound by the
terms of the contract executed by the corporation. They are not
personally liable for obligations and liabilities incurred on or in behalf of
the corporation.
Petitioners are also correct that arbitration promotes the parties’
autonomy in resolving their disputes. This court recognized in Heirs of
Augusto Salas, Jr. v. Laperal Realty Corporation79 that an arbitration
clause shall not apply to persons who were neither parties to the contract
nor assignees of previous parties, thus:
A submission to arbitration is a contract. As such, the Agreement,
containing the stipulation on arbitration, binds the parties thereto, as well
as their assigns and heirs. But only they.80 (Citations omitted)
Similarly, in Del Monte Corporation-USA v. Court of Appeals,81 this court
ruled:
The provision to submit to arbitration any dispute arising therefrom and
the relationship of the parties is part of that contract and is itself a
contract. As a rule, contracts are respected as the law between the
contracting parties and produce effect as between them, their assigns
and heirs. Clearly, only parties to the Agreement . . . are bound by the
Agreement and its arbitration clause as they are the only signatories
thereto.82 (Citation omitted)
This court incorporated these rulings in Agan, Jr. v. Philippine
International Air Terminals Co., Inc.83 and Stanfilco Employees v. DOLE
Philippines, Inc., et al.84
As a general rule, therefore, a corporation’s representative who did not
personally bind himself or herself to an arbitration agreement cannot be
forced to participate in arbitration proceedings made pursuant to an
agreement entered into by the corporation. He or she is generally not
considered a party to that agreement.
However, there are instances when the distinction between personalities
of directors, officers,and representatives, and of the corporation, are
disregarded. We call this piercing the veil of corporate fiction.
Piercing the corporate veil is warranted when "[the separate personality
of a corporation] is used as a means to perpetrate fraud or an illegal act,
or as a vehicle for the evasion of an existing obligation, the circumvention
of statutes, or to confuse legitimate issues."85 It is also warranted in alter
ego cases "where a corporation is merely a farce since it is a mere alter
ego or business conduit of a person, or where the corporation is so
organized and controlled and its affairs are so conducted as to make it
merely an instrumentality, agency, conduit or adjunct of another
corporation."86
When corporate veil is pierced, the corporation and persons who are
normally treated as distinct from the corporation are treated as one
person, such that when the corporation is adjudged liable, these persons,
too, become liable as if they were the corporation.
Among the persons who may be treatedas the corporation itself under
certain circumstances are its directors and officers. Section 31 of the
Corporation Code provides the instances when directors, trustees, or
officers may become liable for corporate acts:
Sec. 31. Liability of directors, trustees or officers. - Directors or trustees
who willfully and knowingly vote for or assent to patently unlawful acts of
the corporation or who are guilty of gross negligence or bad faith in
directing the affairs of the corporation or acquire any personal or
pecuniary interest in conflict with their duty as such directors or trustees
shall be liable jointly and severally for all damages resulting therefrom
suffered by the corporation, its stockholders or members and other
persons.
When a director, trustee or officer attempts to acquire or acquires, in
violation of his duty, any interest adverse to the corporation in respect of
any matter which has been reposed inhim in confidence, as to which
equity imposes a disability upon him to deal in his own behalf, he shall be
liable as a trustee for the corporation and must account for the profits
which otherwise would have accrued to the corporation. (n)
Based on the above provision, a director, trustee, or officer of a
corporation may be made solidarily liable with it for all damages suffered
by the corporation, its stockholders or members, and other persons in
any of the following cases:
a) The director or trustee willfully and knowingly voted for or
assented to a patently unlawful corporate act;
b) The director or trustee was guilty of gross negligence or bad
faith in directing corporate affairs; and
c) The director or trustee acquired personal or pecuniary interest
in conflict with his or her duties as director or trustee.
Solidary liability with the corporation will also attach in the following
instances:
a) "When a director or officer has consented to the issuance of
watered stocks or who, having knowledge thereof, did not
forthwith file with the corporate secretary his written objection
thereto";87
b) "When a director, trustee or officer has contractually agreed or
stipulated to hold himself personally and solidarily liable with the
corporation";88 and
c) "When a director, trustee or officer is made, by specific
provision of law, personally liable for his corporate action."89
When there are allegations of bad faith or malice against corporate
directors or representatives, it becomes the duty of courts or tribunals to
determine if these persons and the corporation should be treated as one.
Without a trial, courts and tribunals have no basis for determining
whether the veil of corporate fiction should be pierced. Courts or tribunals
do not have such prior knowledge. Thus, the courts or tribunals must first
determine whether circumstances exist towarrant the courts or tribunals
to disregard the distinction between the corporation and the persons
representing it. The determination of these circumstances must be made
by one tribunal or court in a proceeding participated in by all parties
involved, including current representatives of the corporation, and those
persons whose personalities are impliedly the sameas the corporation.
This is because when the court or tribunal finds that circumstances exist
warranting the piercing of the corporate veil, the corporate
representatives are treated as the corporation itself and should be held
liable for corporate acts. The corporation’s distinct personality is
disregarded, and the corporation is seen as a mere aggregation of
persons undertaking a business under the collective name of the
corporation.
Hence, when the directors, as in this case, are impleaded in a case
against a corporation, alleging malice orbad faith on their part in directing
the affairs of the corporation, complainants are effectively alleging that
the directors and the corporation are not acting as separate entities. They
are alleging that the acts or omissions by the corporation that violated
their rights are also the directors’ acts or omissions.90 They are alleging
that contracts executed by the corporation are contracts executed by the
directors. Complainants effectively pray that the corporate veilbe pierced
because the cause of action between the corporation and the directors is
the same.
In that case, complainants have no choice but to institute only one
proceeding against the parties. Under the Rules of Court, filing of
1âwphi1
multiple suits for a single cause of action is prohibited. Institution of more
than one suit for the same cause of action constitutes splitting the cause
of action, which is a ground for the dismissal ofthe others. Thus, in Rule
2:
Section 3. One suit for a single cause of action. — A party may not
institute more than one suit for a single cause of action. (3a)
Section 4. Splitting a single cause of action;effect of. — If two or more
suits are instituted on the basis of the same cause of action, the filing of
one or a judgment upon the merits in any one is available as a ground for
the dismissal of the others. (4a)
It is because the personalities of petitioners and the corporation may later
be found to be indistinct that we rule that petitioners may be compelled to
submit to arbitration.
However, in ruling that petitioners may be compelled to submit to the
arbitration proceedings, we are not overturning Heirs of Augusto Salas
wherein this court affirmed the basic arbitration principle that only parties
to an arbitration agreement may be compelled to submit to arbitration. In
that case, this court recognizedthat persons other than the main party
may be compelled to submit to arbitration, e.g., assignees and heirs.
Assignees and heirs may be considered parties to an arbitration
agreement entered into by their assignor because the assignor’s rights
and obligations are transferred to them upon assignment. In other words,
the assignor’s rights and obligations become their own rights and
obligations. In the same way, the corporation’s obligations are treated as
the representative’s obligations when the corporate veil is pierced.
Moreover, in Heirs of Augusto Salas, this court affirmed its policy against
multiplicity of suits and unnecessary delay. This court said that "to split
the proceeding into arbitration for some parties and trial for other parties
would "result in multiplicity of suits, duplicitous procedure and
unnecessary delay."91 This court also intimated that the interest of justice
would be best observed if it adjudicated rights in a single
proceeding.92 While the facts of that case prompted this court to direct the
trial court to proceed to determine the issues of thatcase, it did not
prohibit courts from allowing the case to proceed to arbitration, when
circumstances warrant.
Hence, the issue of whether the corporation’s acts in violation of
complainant’s rights, and the incidental issue of whether piercing of the
corporate veil is warranted, should be determined in a single proceeding.
Such finding would determine if the corporation is merely an aggregation
of persons whose liabilities must be treated as one with the corporation.
However, when the courts disregard the corporation’s distinct and
separate personality from its directors or officers, the courts do not say
that the corporation, in all instances and for all purposes, is the same as
its directors, stockholders, officers, and agents. It does not result in an
absolute confusion of personalities of the corporation and the persons
composing or representing it. Courts merely discount the distinction and
treat them as one, in relation to a specific act, in order to extend the
terms of the contract and the liabilities for all damages to erring corporate
officials who participated in the corporation’s illegal acts. This is done so
that the legal fiction cannot be used to perpetrate illegalities and
injustices.
Thus, in cases alleging solidary liability with the corporation or praying for
the piercing of the corporate veil, parties who are normally treated as
distinct individuals should be made to participate in the arbitration
proceedings in order to determine ifsuch distinction should indeed be
disregarded and, if so, to determine the extent of their liabilities.
In this case, the Arbitral Tribunal rendered a decision, finding that BF
Corporation failed to prove the existence of circumstances that render
petitioners and the other directors solidarily liable. It ruled that petitioners
and Shangri-La’s other directors were not liable for the contractual
obligations of Shangri-La to BF Corporation. The Arbitral Tribunal’s
decision was made with the participation of petitioners, albeit with their
continuing objection. In view of our discussion above, we rule that
petitioners are bound by such decision.
WHEREFORE, the petition is DENIED. The Court of Appeals' decision of
May 11, 2006 and resolution of October 5, 2006 are AFFIRMED.
SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 182248 December 18, 2008
EQUITABLE PCI BANKING CORPORATION,1 GEORGE L. GO,
PATRICK D. GO, GENEVIEVE W.J. GO, FERDINAND MARTIN G.
ROMUALDEZ, OSCAR P. LOPEZ-DEE, RENE J. BUENAVENTURA,
GLORIA L. TAN-CLIMACO, ROGELIO S. CHUA, FEDERICO C.
PASCUAL, LEOPOLDO S. VEROY, WILFRIDO V. VERGARA,
EDILBERTO V. JAVIER, ANTHONY F. CONWAY, ROMULAD U. DY
TANG, WALTER C. WESSMER, and ANTONIO N.
COTOCO, petitioners,
vs.
RCBC CAPITAL CORPORATION, respondent.
DECISION
VELASCO, JR., J.:
The Case
This Petition for Review on Certiorari under Rule 45 seeks the reversal of
the January 8, 20082 and March 17, 20083 Orders of the Regional Trial
Court (RTC), Branch 148 in Makati City in SP Proc. Case No. 6046,
entitled In the Matter of ICC Arbitration Ref. No. 13290/MS/JB/JEM
Between RCBC Capital Corporation, (Claimant), and Equitable PCI
Banking Corporation, Inc. et al., (Respondents). The assailed January 8,
2008 Order confirmed the Partial Award dated September 27,
20074 rendered by the International Chamber of Commerce-International
Court of Arbitration (ICC-ICA) in Case No. 13290/MS/JB/JEM, entitled
RCBC Capital Corporation (Philippines) v. Equitable PCI Bank, Inc. &
Others (Philippines). The March 17, 2008 Order denied petitioners’
motion for reconsideration of the January 8, 2008 Order.
The Facts
On May 24, 2000, petitioners Equitable PCI Bank, Inc. (EPCIB) and the
individual shareholders of Bankard, Inc., as sellers, and respondent
RCBC Capital Corporation (RCBC), as buyer, executed a Share
Purchase Agreement5(SPA) for the purchase of petitioners’ interests in
Bankard, representing 226,460,000 shares, for the price of PhP
1,786,769,400. To expedite the purchase, RCBC agreed to dispense with
the conduct of a due diligence audit on the financial status of Bankard.
Under the SPA, RCBC undertakes, on the date of contract execution, to
deposit, as downpayment, 20% of the purchase price, or PhP
357,353,880, in an escrow account. The escrowed amount, the SPA
stated, should be released to petitioners on an agreed-upon release date
and the balance of the purchase price shall be delivered to the share
buyers upon the fulfillment of certain conditions agreed upon, in the form
of a manager’s check.
The other relevant provisions of the SPA are:
Section 5. Sellers’ Representations and Warranties
The SELLERS jointly and severally represent and warrant
to the BUYER that:
xxxx
The Financial Condition of Bankard
g. The audited financial statements of Bankard for the three (3)
fiscal years ended December 31, 1997, 1998 and 1999, and the
unaudited financial statements for the first quarter ended 31
March 2000, are fair and accurate, and complete in all material
respects, and have been prepared in accordance with generally
accepted accounting principles consistently followed throughout
the period indicated and:
i) the balance sheet of Bankard as of 31 December 1999,
as prepared and certified by SGV & Co. ("SGV"), and the
unaudited balance sheet for the first quarter ended 31
March 2000, present a fair and accurate statement as of
those dates, of Bankard’s financial condition and of all its
assets and liabilities, and is complete in all material
respects; and
ii) the statements of Bankard’s profit and loss accounts for
the fiscal years 1996 to 1999, as prepared and certified by
SGV, and the unaudited profit and loss accounts for the

SECOND DIVISION
[ G.R. No. 204689, January 21, 2015 ]
STRONGHOLD INSURANCE COMPANY, INC., PETITIONER, VS. SPOUSES
RUNE AND LEA STROEM, RESPONDENTS.
DECISION
LEONEN, J.:
For resolution is a Petition for Review[1] under Rule 45 of the Rules of Court
assailing the Decision[2] dated November 20, 2012 of the Court of Appeals in CA-
G.R. CV No. 96017. The Court of Appeals affirmed the Decision[3] of the Regional
Trial Court of Makati, Branch 133 in Civil Case No. 02-1108 for collection of a sum
of money.
This case involves the proper invocation of the Construction Industry Arbitration
Committee's (CIAC) jurisdiction through an arbitration clause in a construction
contract. The main issue here is whether the dispute liability of a surety under a
performance bond is connected to a construction contract and, therefore, falls under
the exclusive jurisdiction of the CIAC.
Spouses Rune and Lea Stroem (Spouses Stroem) entered into an Owners-Contractor
Agreement[4] with Asis-Leif & Company, Inc. (Asis-Leif) for the construction of a
two-storey house on the lot owned by Spouses Stroem. The lot was located at Lot
4A, Block 24, Don Celso Tuason Street, Valley Golf Subdivision, Barangay
Mayamot, Antipolo, Rizal.[5]
On November 15, 1999, pursuant to the agreement, Asis-Leif secured Performance
Bond No. LP/G(13)83056 in the amount of P4,500,000.00 from Stronghold
Insurance Company, Inc. (Stronghold).[6] Stronghold and Asis-Leif, through Ms.
Ma. Cynthia Asis-Leif, bound themselves jointly and severally to pay the Spouses
Stroem the agreed amount in the event that the construction project is not
completed.[7]
Asis-Leif failed to finish the project on time despite repeated demands of the
Spouses Stroem.[8]
Spouses Stroem subsequently rescinded the agreement.[9] They then hired an
independent appraiser to evaluate the progress of the construction project.[10]
Appraiser Asian Appraisal Company, Inc.'s evaluation resulted in the following
percentage of completion: 47.53% of the residential building, 65.62% of the garage,
and 13.32% of the swimming pool, fence, gate, and land development.[11]
On April 5, 2001, Stronghold sent a letter to Asis-Leif requesting that the company
settle its obligations with the Spouses Stroem. No response was received from Asis-
Leif.[12]
On September 12, 2002, the Spouses Stroem filed a Complaint (with Prayer for
Preliminary Attachment)[13] for breach of contract and for sum of money with a
claim for damages against Asis-Leif, Ms. Cynthia Asis-Leif, and
Stronghold.[14] Only Stronghold was served summons. Ms. Cynthia Asis-Leif
allegedly absconded and moved out of the country.[15]
On July 13, 2010, the Regional Trial Court rendered a judgment in favor of the
Spouses Stroem. The trial court ordered Stronghold to pay the Spouses Stroem
?4,500,000.00 with 6% legal interest from the time of first demand.[16] The
dispositive portion of the trial court Decision reads:
WHEREFORE, finding plaintiffs' cause of action to be sufficiently established
being supported by evidence on records, judgement is hereby rendered in favor of
the plaintiff spouses Rune and Lea Stroem and against the defendant Stronghold
Insurance Company Incorporated ordering the latter to pay the plaintiff the sums of:
1) Php4,500,000.00 with six (6%) percent legal interest from the time of first
demand and interest due shall earn legal interest from the time of judicial demand
until fully paid.
2) Php35,000.00 by way of attorney's fees and other litigation expenses.
Defendant is further ordered to pay the costs of this suit.
SO ORDERED.[17]
Both Stronghold and the Spouses Stroem appealed to the Court of Appeals.[18]
The Court of Appeals affirmed with modification the trial court's Decision. It
increased the amount of attorney's fees to ?50,000.00.[19]
The dispositive portion of the Court of Appeals Decision reads:
WHEREFORE, the appeal of Stronghold Company, Inc[.] is DISMISSED, while
the appeal of spouses Rune and Lea Stroem is PARTLY GRANTED. The
November 27, 2009 Decision of the Regional Trial Court of Makati City
is AFFIRMED withMODIFICATION that the award of attorney's fees is
increased to P50,000.00
SO ORDERED.[20]
On March 20, 2013, this court required the Spouses Stroem to submit their
Comment on the Petition.[21]
We noted the Spouses Stroem's Comment on July 31, 2013.[22] We also required
Stronghold to file its Reply to the Comment,[23]which was noted on December 9,
2013.[24]
Stronghold argues that the trial court did not acquire jurisdiction over the case and,
therefore, the Court of Appeals committed reversible error when it upheld the
Decision of the Regional Trial Court.[25] The lower courts should have dismissed
the case in view of the arbitration clause in the agreement and considering that
"[Republic Act No. 876] explicitly confines the court's authority only to pass upon
the issue of whether there is [an] agreement . . . providing for arbitration. In the
affirmative, the statute ordains that the court shall issue an order 'summarily
directing the parties to proceed with the arbitration in accordance with the terms
thereof.'"[26]
Moreover, "the stipulations in said Agreement are part and parcel of the conditions
in the bond. Were it not for such stipulations in said agreement, [Stronghold] would
not have agreed to issue a bond in favor of the Spouses Stroem. The parties to the
bond are ALB/Ms. Asis-[L]eif, Spouses Stroem and [Stronghold] such that
ALB/Ms. Asis-[L]eif never ceased to be a party to the surety agreement."[27]
In any case, Stronghold's liability under the performance bond is limited only to
additional costs for the completion of the project.[28] In addition, the Court of
Appeals erred in holding that Stronghold changed its theory with regard to the notice
requirement[29] and in modifying the trial court's award of attorney's fees.[30]
On the other hand, the Spouses Stroem argue that Stronghold committed forum
shopping warranting dismissal of the case.[31] According to the Spouses Stroem,
Stronghold deliberately committed forum shopping when it filed the present petition
despite the pendency of the Spouses Stroem's Motion for Partial Reconsideration of
the Court of Appeals Decision dated November 20, 2012.[32]
More importantly, the Owners-Contractor Agreement is "separate and distinct from
the Bond. The parties to the Agreement are ALB/Ms. Asis-Leif and Spouses
Stroem, while the parties to the Bond are Spouses Stroem and Stronghold. The
considerations for the two contracts are likewise distinct. Thus, the arbitration
clause in the Agreement is binding only on the parties thereto, specifically ALB/Ms.
Asis-Leif and Spouses Stroem[.]"[33]
Contrary to Stronghold's argument, Spouses Stroem argues that stronghold is liable
for the full amount of the performance bond. The terms of the bond clearly show
that Stronghold is liable as surety.[34] Verily, notice to Stronghold is not required for
its liability to attach.[35]
The issues for consideration are:
(1) Whether the dispute involves a construction contract;
Whether the CIAC has exclusive jurisdiction over the controversy between
(2)
the parties;
Whether the Regional Trial Court should have dismissed the petition
(3) outright as required by law and jurisprudence and referred the matter to the
CIAC; and
Whether petitioner Stronghold Insurance Company, Inc. is liable under
(4)
Performance Bond No. LP/G(13)83056.
Whether petitioner Stronghold Insurance Company, Inc. is only liable
(a) as to the extent of any additional cost for the completion of the project
due to any increase in prices for labor and materials.
(b) Whether the case involves ordinary suretyship or corporate suretyship.
After considering the parties' arguments and the records of this case, this court
resolves to deny the Petition.
On forum-shopping
Respondents argue that petitioner committed forum shopping; hence, the case should
have been dismissed outright.
Records show that petitioner received a copy of the Decision of the Court of
Appeals on December 5, 2012.[36] Petitioner did not file a Motion for
Reconsideration of the assailed Decision. It filed before this court a Motion for
Extension of Time To File Petition for Review requesting an additional period of 30
days from December 20, 2012 or until January 19, 2013 to file the Petition.[37]
Respondents filed their Motion for Partial Reconsideration of the Court of Appeals
Decision on December 11, 2012.[38] They sought the modification of the Decision as
to the amounts of moral damages, exemplary damages, attorney's fees, and costs of
the suit.[39]
Respondents alleged in their Comment that as early as January 9, 2013, petitioner
received a copy of the Court of Appeals' Resolution requiring Comment on the
Motion for Partial Reconsideration.[40] Still, petitioner did not disclose in its
Verification and Certification Against Forum Shopping the pendency of
respondents' Motion for Partial Reconsideration.[41]
For its part, petitioner claims that it did not commit forum shopping. It fully
disclosed in its Petition that what it sought to be reviewed was the Decision dated
November 20, 2012 of the Court of Appeals. "Petitioner merely exercised its
available remedy with respect to the Decision of the Court of Appeals by filing [the]
Petition."[42] What the rules mandate to be stated in the Certification Against Forum
Shopping is the status of "any other action." This other action involves the same
issues and parties but is an entirely different case.
Indeed, petitioner is guilty of forum shopping.
There is forum shopping when:
as a result of an adverse opinion in one forum, a party seeks a favorable opinion
(other than by appeal or certiorari) in another. The principle applies not only with
respect to suits filed in the courts but also in connection with litigations commenced
in the courts while an administrative proceeding is pending[.][43] (Citation omitted)
This court has enumerated the elements of forum-shopping: "(a) identity of parties,
or at least such parties as represent the same interests in both actions; (b) identity of
rights asserted and reliefs prayed for, the reliefs being founded on the same facts;
and (c) the identity with respect to the two preceding particulars in the two cases is
such that any judgment rendered in the pending cases, regardless of which party is
successful, amount to res judicata in the other case."[44]
Rule 42, Section 2[45] in relation to Rule 45, Section 4 of the Rules of Court
mandates petitioner to submit a Certification Against Forum Shopping and promptly
inform this court about the pendency of any similar action or proceeding before
other courts or tribunals. The rule's purpose is to deter the unethical practice of
pursuing simultaneous remedies in different forums, which "wreaks havoc upon
orderly judicial procedure."[46] Failure to comply with the rule is a sufficient ground
for the dismissal of the petition.[47]
Records show that petitioner's duly authorized officer certified the following on
January 21, 2013:
4. I further certify that: (a) I have not commenced any other action or proceeding
involving the same issues in the Supreme Court, Court of Appeals, or any other
tribunal or agency; (b) to the best of my knowledge, no such action or proceeding is
pending in the Supreme Court, the Court of Appeals or different Divisions thereof,
or any tribunal or agency; (c) if I should thereafter learn that a similar action or
proceeding has been filed or is pending before the Supreme Court, the Court of
Appeals, or different Divisions thereof, or any other tribunal or agency, I undertake
to promptly inform the aforesaid courts and such tribunal or agency of the fact
within five (5) days therefrom.[48]
Petitioner failed to carry out its duty of promptly informing this court of any pending
action or proceeding before this court, the Court of Appeals, or any other tribunal or
agency. This court cannot countenance petitioner's disregard of the rules.
This court has held before that:
[u]ltimately, what is truly important to consider in determining whether forum-
shopping exists or not is the vexation caused the courts and parties-litigant by a
party who asks different courts and/or administrative agencies to rule on the same
or related causes and/or to grant the same or substantially the same reliefs, in the
process creating the possibility of conflicting decisions being rendered by the
different fora upon the same issue.[49] (Emphasis supplied)
On this basis, this case should be dismissed.
On arbitration and the CIAC's jurisdiction
Petitioner changed the theory of its case since its participation in the trial court
proceedings. It raised the issue of lack of jurisdiction in view of an arbitration
agreement for the first time.
Generally, parties may not raise issues for the first time on appeal.[50] Such practice
is violative of the rules and due process and is frowned upon by the
courts. However, it is also well-settled that jurisdiction can never be waived or
acquired by estoppel.[51] Jurisdiction is conferred by the Constitution or by
law.[52] "Lack of jurisdiction of the court over an action or the subject matter of an
action cannot be cured by the silence, by acquiescence, or even by express consent
of the parties."[53]
Section 4 of Executive Order No. 1008[54] is clear in defining the exclusive
jurisdiction of the CIAC:
SECTION 4. Jurisdiction The CIAC shall have original and exclusive jurisdiction
over disputes arising from, or connected with, contracts entered into by parties
involved in construction in the Philippines, whether the dispute arises before or after
the completion of the contract, or after the abandonment or breach thereof. These
disputes may involve government or private contracts. For the Board to acquire
jurisdiction, the parties to a dispute must agree to submit the same to voluntary
arbitration.
The jurisdiction of the CIAC may include but is not limited to violation of
specifications for materials and workmanship; violation of the terms of agreement;
interpretation and/or application of contractual time and delays; maintenance and
defects; payment, default of employer or contractor and changes in contract cost.
Excluded from the coverage of this law are disputes arising from employer-
employee relationships which shall continue to be covered by the Labor Code of the
Philippines. (Emphasis supplied)
Similarly, Section 35 of Republic Act No. 9285 or the Alternative Dispute
Resolution Act of 2004 states:
SEC. 35. Coverage of the Law. - Construction disputes which fall within the original
and exclusive jurisdiction of the Construction Industry Arbitration Commission (the
"Commission") shall include those between or among parties to, or who are
otherwise bound by, an arbitration agreement, directly or by reference whether such
parties are project owner, contractor, subcontractor, quantity surveyor, bondsman
or issuer of an insurance policy in a construction project.
The Commission shall continue to exercise original and exclusive jurisdiction over
construction disputes although the arbitration is "commercial" pursuant to Section 21
of this Act. (Emphasis supplied)
In Heunghwa Industry Co., Ltd., v. DJ Builders Corporation,[55] this court held that
"there are two acts which may vest the CIAC with jurisdiction over a construction
dispute. One is the presence of an arbitration clause in a construction contract, and
the other is the agreement by the parties to submit the dispute to the CIAC."[56]
This court has ruled that when a dispute arises from a construction contract, the
CIAC has exclusive and original jurisdiction.[57] Construction has been defined as
referring to "all on-site works on buildings or altering structures, from land
clearance through completion including excavation, erection and assembly and
installation of components and equipment."[58]
In this case, there is no dispute as to whether the Owners-Contractor Agreement
between Asis-Leif and respondents is a construction contract. Petitioner and
respondents recognize that CIAC has jurisdiction over disputes arising from the
agreement.
What is at issue in this case is the parties' agreement, or lack thereof, to submit the
case to arbitration. Respondents argue that petitioner is not a party to the arbitration
agreement. Petitioner did not consent to arbitration. It is only respondent and Asis-
Leif that may invoke the arbitration clause in the contract.
This court has previously held that a performance bond, which is meant "to
guarantee the supply of labor, materials, tools, equipment, and necessary supervision
to complete the project[,]"[59] is significantly and substantially connected to the
construction contract and, therefore, falls under the jurisdiction of the CIAC.[60]
Prudential Guarantee and Assurance Inc. v. Anscor Land, Inc.[61] involved
circumstances similar to the present case. In Prudential, property owner Anscor
Land, Inc. (ALI) entered into a contract for the construction of an eight-unit
townhouse located in Capitol Hills, Quezon City with contractor Kraft Realty and
Development Corporation (KRDC).[62] KRDC secured the completion of the
construction project through a surety and performance bond issued by Prudential
Guarantee and Assurance Inc. (PGAI).[63]
The delay in the construction project resulted in ALI's termination of the contract
and claim against the performance bond.[64] "ALI [subsequently] commenced
arbitration proceedings against KRDC and PGAI in the CIAC."[65] PGAI, however,
argued that it was not a party to the construction contract.[66]
The CIAC ruled that PGAI was not liable under the performance bond.[67] Upon
review, the Court of Appeals held that PGAI was jointly and severally liable with
KRDC under the performance bond.[68]
PGAI appealed the Court of Appeals Decision and claimed that CIAC did not have
jurisdiction over the performance bond.[69] This court ruled:
A guarantee or a surety contract under Article 2047 of the Civil Code of the
Philippines is an accessory contract because it is dependent for its existence upon the
principal obligation guaranteed by it.
In fact, the primary and only reason behind the acquisition of the performance bond
by KRDC was to guarantee to ALI that the construction project would proceed in
accordance with the contract terms and conditions. In effect, the performance bond
becomes liable for the completion of the construction project in the event KRDC
fails in its contractual undertaking.
Because of the performance bond, the construction contract between ALI and
KRDC is guaranteed to be performed even if KRDC fails in its obligation. In
practice, a performance bond is usually a condition or a necessary component of
construction contracts. In the case at bar, the performance bond was so connected
with the construction contract that the former was agreed by the parties to be a
condition for the latter to push through and at the same time, the former is reliant on
the latter for its existence as an accessory contract.
Although not the construction contract itself, the performance bond is deemed as an
associate of the main construction contract that it cannot be separated or severed
from its principal. The Performance Bond is significantly and substantially
connected to the construction contract that there can be no doubt it is the CIAC,
under Section 4 of EO No. 1008, which has jurisdiction over any dispute arising
from or connected with it.[70] (Emphasis supplied, citations omitted)
At first look, the Owners-Contractor Agreement and the performance bond reference
each other; the performance bond was issued pursuant to the construction
agreement.
A performance bond is a kind of suretyship agreement. A suretyship agreement is
an agreement "whereby a party, called the surety, guarantees the performance by
another party, called the principal or obligor, of an obligation or undertaking in favor
of another party, called the obligee."[71] In the same vein, a performance bond is
"designed to afford the project owner security that the . . . contractor, will faithfully
comply with the requirements of the contract . . . and make good [on the] damages
sustained by the project owner in case of the contractor's failure to so perform."[72]
It is settled that the surety's solidary obligation for the performance of the principal
debtor's obligation is indirect and merely secondary.[73] Nevertheless, the surety's
liability to the "creditor or promisee of the principal is said to be direct, primary and
absolute; in other words, he is directly and equally bound with the principal."[74]
Verily, "[i]n enforcing a surety contract, the 'complementary-contracts-construed-
together' doctrine finds application. According to this principle, an accessory
contract must be read in its entirety and together with the principal
agreement."[75] Article 1374 of the Civil Code provides:
ART. 1374. The various stipulations of a contract shall be interpreted together,
attributing to the doubtful ones that sense which may result from all of them taken
jointly.
Applying the "complementary-contracts-construed-together" doctrine, this court
in Prudential held that the surety willingly acceded to the terms of the construction
contract despite the silence of the performance bond as to arbitration:
In the case at bar, the performance bond was silent with regard to arbitration. On the
other hand, the construction contract was clear as to arbitration in the event of
disputes. Applying the said doctrine, we rule that the silence of the accessory
contract in this case could only be construed as acquiescence to the main
contract. The construction contract breathes life into the performance bond. We are
not ready to assume that the performance bond contains reservations with regard to
some of the terms and conditions in the construction contract where in fact it is
silent. On the other hand, it is more reasonable to assume that the party who issued
the performance bond carefully and meticulously studied the construction contract
that it guaranteed, and if it had reservations, it would have and should have
mentioned them in the surety contract.[76] (Emphasis supplied)
This court, however, cannot apply the ruling in Prudential to the present
case. Several factors militate against petitioner's claim.
The contractual stipulations in this case and in Prudential are different. The relevant
provisions of the Owners-Contractor Agreement in this case state:
ARTICLE 5. THE CONTRACT DOCUMENTS
The following documents prepared by the CONTRACTOR shall constitute an
integral part of this contract as fully as if hereto attached or herein stated, except as
otherwise modified by mutual agreement of parties, and attached to this agreement.
Attachment 5.1 Working Drawings
Attachment 5.2 Outline Specifications
Attachment 5.3 Bill of Quantities
Attachment 5.4 CONTRACTOR Business License
....
ARTICLE 7. PERFORMANCE (SURETY) BOND
7.1 Within 30 days of the signing of this agreement, CONTRACTOR shall provide
to OWNERS a performance bond, issued by a duly licensed authority acceptable to
the OWNERS, and equal to the amount of PHP 4,500,000.00 (Four Million and
Five Hundred Thousand Philippine Pesos), with the OWNERS as beneficiary.
7.2 The performance bond will guarantee the satisfactory and faithful performance
by the CONTRACTOR of all provisions stated within this contract.
ARTICLE 8. ARBITRATION
8.1 Any dispute between the parties hereto which cannot be amicably settled
shall be finally settled by arbitration in accordance with the provision of
Republic Act 876, of The Philippines, as amended by the Executive Order 1008
dated February 4, 1985.[77] (Emphasis in the original)
 arbitration:
In contrast, the provisions of the construction contract in Prudential provide:
The CIAC was created through Executive Order No. 1008 (E.O. 1008), in
Article 1 recognition of the need to establish an arbitral machinery that would expeditiously
CONTRACT DOCUMENTS settle construction industry disputes. The prompt resolution of problems arising
from or connected with the construction industry was considered of necessary and
1.1 The following shall form part of this Contract and together with this Contract, vital for the fulfillment of national development goals, as the construction industry
are known as the "Contract Documents": provides employment to a large segment of the national labor force and is a leading
contributor to the gross national product.[85] (Citation omitted)
a. Bid Proposal However, where a surety in a construction contract actively participates in a
collection suit, it is estopped from raising jurisdiction later. Assuming that petitioner
.... is privy to the construction agreement, we cannot allow petitioner to invoke
arbitration at this late stage of the proceedings since to do so would go against the
d. Notice to proceed law's goal of prompt resolution of cases in the construction industry.
.... WHEREFORE, the petition is DENIED. The case is DISMISSED. Petitioner's
counsel is STERNLY WARNED that a repetition or similar violation of the rule on
j. Appendices A & B (respectively, Surety Bond for Performance and, Supply of Certification Against Forum Shopping will be dealt with more severely.
Materials by the Developer)[78] (Emphasis supplied)
SO ORDERED.
This court in Prudential held that the construction contract expressly incorporated
the performance bond into the contract.[79] In the present case, Article 7 of the
Owners-Contractor Agreement merely stated that a performance bond shall be
issued in favor of respondents, in which case petitioner and Asis-Leif Builders
and/or Ms. Ma. Cynthia Asis-Leif shall pay P4,500,000.00 in the event that Asis-
Leif fails to perform its duty under the Owners-Contractor
Agreement.[80] Consequently, the performance bond merely referenced the contract
entered into by respondents and Asis-Leif, which pertained to Asis-Leif's duty to
construct a two-storey residence building with attic, pool, and landscaping over
respondents' property.[81]
To be clear, it is in the Owners-Contractor Agreement that the arbitration clause is
found. The construction agreement was signed only by respondents and the
contractor, Asis-Leif, as represented by Ms. Ma. Cynthia Asis-Leif. It is basic that
"[c]ontracts take effect only between the parties, their assigns and heirs[.]"[82] Not
being a party to the construction agreement, petitioner cannot invoke the arbitration
clause. Petitioner, thus, cannot invoke the jurisdiction of the CIAC.
Moreover, petitioner's invocation of the arbitration clause defeats the purpose
of arbitration in relation to the construction business. The state has continuously
encouraged the use of dispute resolution mechanisms to promote party
autonomy.[83] In LICOMCEN, Incorporated v. Foundation Specialists, Inc.,[84] this
court upheld the CIAC's jurisdiction in line with the state's policy to promote
 first quarter ended 31 March 2000, fairly and accurately
present the results of the operations of Bankard for the
periods indicated, and are complete in all material
respects.
h. Except as disclosed in the Disclosures, and except to the
extent set forth or reserved in the audited financial statements of
Bankard as of 31 December 1999 and its unaudited financial
statements as of 31 March 2000, Bankard, as of such dates and
up to 31 May 2000, had and shall have no liabilities, omissions or
mistakes in its records which will have material adverse effect on
the net worth or financial condition of Bankard to the extent of
more than One Hundred Million Pesos (P100,000,000.00) in the
aggregate. In the event such material adverse effect on the net
worth or financial condition of Bankard exceeds One Hundred
Million Pesos (P100,000,000.00), the Purchase Price shall be
reduced in accordance with the following formula:
Reduction in Purchase Price = X multiplied by
226,460,000
where
Amount by which negative adjustment
exceeds P100 Million
X= --------------------------------------------
338,000,000
xxxx
Section 7. Remedies for Breach of Warranties
a. If any of the representations and warranties of any or all of the
SELLERS or the BUYER (the "Defaulting Party") contained in
Sections 5 and 6 shall be found to be untrue when made and/or
as of the Closing Date, the other party, i.e., the BUYER if the
Defaulting Party is any or all of the SELLERS and the SELLERS
if the Defaulting Party is the BUYER (hereinafter referred to as
the "Non-Defaulting Party") shall have the right to require the
Defaulting Party, at the latter’s expense, to cure such breach,
and/or seek damages, by providing notice or presenting a claim
to the Defaulting Party, reasonably specifying therein the
particulars of the breach. The foregoing remedies shall be
available to the Non-Defaulting Party only if the demand therefor
is presented in writing to the Defaulting Party within three (3)
years from the Closing Date except that the remedy for a breach
of the SELLERS’ representation and warrant in Section 5 (h) shall
be available only if the demand therefor is presented to the
Defaulting Party in writing together with schedules and to
substantiate such demand, within six (6) months from the Closing
Date.6
On June 2, 2000, RCBC deposited the stipulated downpayment amount
in an escrow account after which it was given full management and
operational control of Bankard. June 2, 2000 is also considered by the
parties as the Closing Date referred to in the SPA.
Thereafter, the parties executed an Amendment to Share Purchase
Agreement (ASPA) dated September 19, 2000.7Its paragraph 2(e)
provided that:
2. Notwithstanding any provisions to the contrary in the Share
Purchase Agreement and/or any agreement, instrument or
document entered into or executed by the Parties in relation
thereto (the "Related Agreements"), the Parties hereby agree
that:
xxxx
(1.925)
e) Notwithstanding the provisions of Sec. 7 of the Share
Purchase Agreement to the contrary, the remedy for a breach
of the SELLERS’ representation and warranty in Section
5(h) of the Share Purchase Agreement shall be available if the
demand therefor is presented to the SELLERS in writing
together with schedules and data to substantiate such demand,
on or before 31 December 2000. (Emphasis added.)
Sometime in September 2000, RCBC had Bankard’s accounts audited,
creating for the purpose an audit team led by a certain Rubio, the Vice-
President for Finance of RCBC at the time. Rubio’s conclusion was that
the warranty, as contained in Section 5(h) of the SPA (simply Sec. 5[h]
hereinafter), was correct.
On December 28, 2000, RCBC paid the balance of the contract price.
The corresponding deeds of sale for the shares in question were
executed in January 2001.
Thereafter, in a letter of May 5, 2003, RCBC informed petitioners of its
having overpaid the purchase price of the subject shares, claiming that
there was an overstatement of valuation of accounts amounting to PhP
478 million, resulting in the overpayment of over PhP 616 million. Thus,
RCBC claimed that petitioners violated their warranty, as sellers,
embodied in Sec. 5(g) of the SPA (Sec. 5[g] hereinafter).
Following unsuccessful attempts at settlement, RCBC, in accordance
with Sec. 10 of the SPA, filed a Request for Arbitration dated May 12,
20048 with the ICC-ICA. In the request, RCBC charged Bankard with
deviating from, contravening and not following generally accepted
accounting principles and practices in maintaining their books. Due to
these improper accounting practices, RCBC alleged that both the audited
and unaudited financial statements of Bankard prior to the stock
purchase were far from fair and accurate and, hence, violated the
representations and warranties of petitioners in the SPA. Per RCBC, its
overpayment amounted to PhP 556 million. It thus prayed for the
rescission of the SPA, restitution of the purchase price, payment of actual
damages in the amount of PhP 573,132,110, legal interest on the
purchase price until actual restitution, moral damages, and litigation and
attorney’s fees. As alternative to rescission and restitution, RCBC prayed
for damages in the amount of at least PhP 809,796,092 plus legal
interest.
To the Request for Arbitration, petitioners filed an Answer dated July 28,
2004,9 denying RCBC’s inculpatory averments and setting up the
following affirmative allegations: the period for filing of the asserted claim
had already lapsed by force of Sec. 7 of the SPA; RCBC is not entitled to
rescission having had ample opportunity and reasonable time to file a
claim against petitioners; RCBC is not entitled to its alternative prayer of
damages, being guilty of laches and failing to set out the details of the
breach as required under Sec. 7.
Arbitration in the ICC-ICA proceeded after the formation of the arbitration
tribunal consisting of retired Justice Santiago M. Kapunan, nominated by
petitioners; Neil Kaplan, RCBC’s nominee; and Sir Ian Barker, appointed
by the ICC-ICA.
After drawn out proceedings with each party alleging deviation and non-
compliance by the other with arbitration rules, the tribunal, with Justice
Kapunan dissenting, rendered a Partial Award dated September 27,
2007,10 the dispositive portion of which states:
15 AWARD AND DIRECTIONS
15.1 The Tribunal makes the following declarations by way of
Partial Award:
(a) The Claimant’s claim is not time-barred under the provisions
of this SPA.
(b) The Claimant is not estopped by its conduct or the equitable
doctrine of laches from pursuing its claim.
(c) As detailed in the Partial Award, the Claimant has established
the following breaches by the Respondents of clause 5(g) of the
SPA:
i) the assets, revenue and net worth of Bankard were
overstated by reason of its policy on and recognition of
Late Payment Fees;
ii) reported receivables were higher than their realizable
values by reason of the ‘bucketing’ method, thus
overstating Bankard’s assets; and
iii) the relevant Bankard statements were inadequate and
misleading in that their disclosures caused readers to be
misinformed about Bankard’s accounting policies on
revenue and receivables.
(d) Subject to proof of loss the Claimant is entitled to damages for
the foregoing breaches.
(e) The Claimant is not entitled to rescission of the SPA.
(f) All other issues, including any issue relating to costs, will be
dealt with in a further or final award.
15.2 A further Procedural Order will be necessary subsequent to
the delivery of this Partial Award to deal with the determination of
quantum and in particular, whether there should be an Expert
appointed by the Tribunal under Article 20(4) of the ICC Rules to
assist the Tribunal in this regard.
 15.3 This Award is delivered by a majority of the Tribunal (Sir Ian
Barker and Mr. Kaplan). Justice Kapunan is unable to agree with
the majority’s conclusion on the claim of estoppel brought by the
respondents.
On the matter of prescription, the tribunal held that RCBC’s claim is not
time-barred, the claim properly falling under the contemplation of Sec.
5(g) and not Sec. 5(h). As such, the tribunal concluded, RCBC’s claim
was filed within the three (3)-year period under Sec. 5(g) and that the six
(6)-month period under Sec. 5(h) did not apply.
The tribunal also exonerated RCBC from laches, the latter having sought
relief within the three (3)-year period prescribed in the SPA. On the
matter of estoppel suggested in petitioners’ answer, the tribunal stated in
par. 10.27 of the Partial Award the following:
As to the issue of estoppel, Justice Kapunan stated:
10.27 Clearly, there has to be both an admission or
representation by (in this case) the Claimant [RCBC], plus
reliance upon it by (in this case) the Respondents [herein
petitioners]. The Tribunal cannot find as proved any
admission/representation that the Claimant was abandoning a
5(g) claim, any reliance by the Respondents on an admission,
and any detriment to the Respondents such as would entitle them
to have the Claimant deprived of the benefit of clause 5(g). These
aspects of the claim for estoppels are rejected.11
Notably, the tribunal considered the rescission of the SPA and ASPA as
impracticable and "totally out of the question."12
In his Dissenting Opinion13 which he submitted to and which was received
on September 24, 2007 by the ICC-ICA, Justice Kapunan stated the
observation that RCBC’s claim is time-barred, falling as such claim did
under Sec. 5(h), which prescribes a comparatively shorter prescriptive
period, not 5(g) as held by the majority of the tribunal, to wit:
Claimant admits that the Claim is for recovery of P431 million on
account of alleged "overvaluation of the net worth of Bankard,"
allegedly for "improper accounting practices" resulting in "its book
value per share as of 31 December 1999 [being] overstated."
Claimant’s witness, Dean Echanis asserts that "the inadequate
provisioning for Bankard’s doubtful accounts result[ed] in an
overstatement of its December 31, 1999 total assets and net
worth of by [sic] least P418.2 million."
In addition, Claimant’s demand letter addressed to the
Respondents alleged that "we overpaid for the Shares to the
extent of the impact of the said overstatement on the Book Value
per share".
These circumstances establish beyond dispute that the Claim is
based on the alleged overstatement of the 1999 net worth of
Bankard, which the parties relied on in setting the purchase price
of the shares. Moreover, it is clear that there was an
overstatement because of "improper accounting practices" which
led Claimant to overpay for the shares.
Ultimately, the Claim is one for recovery of overpayment in the
purchase price of the shares. x x x
Moreover, Mr. Rubio’s findings merely corroborated the
disclosures made in the Information Memorandum that Claimant
received from the Respondents prior to the execution of the SPA.
In this connection, I note that Bankard’s policy on provisioning
and setting of allowances using the Bucketed Method and income
recognition from AR/Principal, AR/Interest and AR/LPFs were
disclosed in the Information Memorandum. Thus, these alleged
improper accounting practices were known to the Claimant even
prior to the execution of the SPA.
Thus, when Claimant paid the balance of the purchase price, it
did so with full knowledge of these accounting practices of
Bankard that it now assails. By paying the balance of the
purchase price without taking exception or objecting to the
accounting practices disclosed through Mr. Rubio’ s review and
the Information Memorandum, Claimant is deemed to have
accepted such practices as correctly reporting the 1999 net
worth. x x x
xxxx
As last point, I note that my colleagues invoke a principle that for
estoppels to apply there must be positive indication that the right
to sue was waived. I am of the view that there is no such principle
under Philippine law. What is applicable is the holding in Knecht
and in Coca- Cola that prior knowledge of an unfavorable fact is
 binding on the party who has such knowledge; "when the
purchaser proceeds to make investigations by himself, and the
vendor does nothing to prevent such investigation from being as
complete as the former might wish, the purchaser cannot later
allege that the vendor made false representations to him" (Cf.
Songco v. Sellner, 37 Phil 254 citations omitted).
Applied to this case, the Claimant cannot seek relief on the basis
that when it paid the purchase price in December 2000, it was
unaware that the accounting practices that went into the reporting
of the 1999 net worth as amounting to P1,387,275,847 were not
in conformity with GAAP [generally accepted accounting
principles]. (Emphasis added.)
On October 26, 2007, RCBC filed with the RTC a Motion to Confirm
Partial Award. On the same day, petitioners countered with a Motion to
Vacate the Partial Award. On November 9, 2007, petitioners again filed a
Motion to Suspend and Inhibit Barker and Kaplan.
On January 8, 2008, the RTC issued the first assailed order confirming
the Partial Award and denying the adverted separate motions to vacate
and to suspend and inhibit. From this order, petitioners sought
reconsideration, but their motion was denied by the RTC in the equally
assailed second order of March 17, 2008.
From the assailed orders, petitioners came directly to this Court through
this petition for review.
The Issues
This petition seeks the review, reversal and setting aside of the
orders Annexes A and B and, in lieu of them, it seeks judgment
vacating the arbitrators’ liability award, Annex C, on these
grounds:
(a) The trial court acted contrary to law and judicial authority in
refusing to vacate the arbitral award, notwithstanding it was
rendered in plain disregard of the parties’ contract and applicable
Philippine law, under which the claim in arbitration was
indubitably time-barred.
(b) The trial court acted contrary to law and judicial authority in
refusing to vacate and in confirming the arbitral award,
notwithstanding that the arbitrators had plainly and admittedly
failed to accord petitioners’ due process by denying them a
hearing on the basic factual matter upon which their liability is
predicated.
(c) The trial court committed grave error in confirming the
arbitrators’ award, which held petitioners-sellers liable for an
alleged improper recording of accounts, allegedly affecting the
value of the shares they sold, notwithstanding that the
respondent-buyer knew before contracting that the accounts were
kept in the manner complained of, and in fact ratified and adopted
the questioned accounting practice and policies.14
The Court’s Ruling
The petition must be denied.
On Procedural Misstep of Direct Appeal to This Court
As earlier recited, the ICC-ICA’s Partial Award dated September 27, 2007
was confirmed by the RTC in its first assailed order of January 8, 2008.
Thereafter, the RTC, by order of March 17, 2008, denied petitioners’
motion for reconsideration. Therefrom, petitioners came directly to this
Court on a petition for review under Rule 45 of the Rules of Court.
This is a procedural miscue for petitioners who erroneously bypassed the
Court of Appeals (CA) in pursuit of its appeal. While this procedural gaffe
has not been raised by RCBC, still we would be remiss in not pointing out
the proper mode of appeal from a decision of the RTC confirming,
vacating, setting aside, modifying, or correcting an arbitral award.
Rule 45 is not the remedy available to petitioners as the proper mode of
appeal assailing the decision of the RTC confirming as arbitral award is
an appeal before the CA pursuant to Sec. 46 of Republic Act No. (RA)
9285, otherwise known as the Alternative Dispute Resolution Act of 2004,
or completely, An Act to Institutionalize the Use of an Alternative Dispute
Resolution System in the Philippines and to Establish the Office for
Alternative Dispute Resolution, and for other Purposes, promulgated on
April 2, 2004 and became effective on April 28, 2004 after its publication
on April 13, 2004.
In Korea Technologies Co., Ltd v. Lerma, we explained, inter alia, that the
RTC decision of an assailed arbitral award is appealable to the CA and
may further be appealed to this Court, thus:
Sec. 46 of RA 9285 provides for an appeal before the CA as the
remedy of an aggrieved party in cases where the RTC sets aside,
rejects, vacates, modifies, or corrects an arbitral award, thus:
SEC. 46. Appeal from Court Decision or Arbitral Awards.–A
decision of the Regional Trial Court confirming, vacating, setting
aside, modifying or correcting an arbitral award may be appealed
to the Court of Appeals in accordance with the rules and
procedure to be promulgated by the Supreme Court.
The losing party who appeals from the judgment of the court
confirming an arbitral award shall be required by the appellate
court to post a counterbond executed in favor of the prevailing
party equal to the amount of the award in accordance with the
rules to be promulgated by the Supreme Court.
Thereafter, the CA decision may further be appealed or reviewed
before this Court through a petition for review under Rule 45 of
the Rules of Court.15
It is clear from the factual antecedents that RA 9285 applies to the instant
case. This law was already effective at the time the arbitral proceedings
were commenced by RCBC through a request for arbitration filed before
the ICC-ICA on May 12, 2004. Besides, the assailed confirmation order of
the RTC was issued on March 17, 2008. Thus, petitioners clearly took the
wrong mode of appeal and the instant petition can be outright rejected
and dismissed.
Even if we entertain the petition, the outcome will be the same.
The Court Will Not Overturn an Arbitral Award
Unless It Was Made in Manifest Disregard of the Law
In Asset Privatization Trust v. Court of Appeals,16 the Court passed on
similar issues as the ones tendered in the instant petition. In that case,
the arbitration committee issued an arbitral award which the trial court,
upon due proceedings, confirmed despite the opposition of the losing
party. Motions for reconsideration by the losing party were denied. An
appeal interposed by the losing party to the CA was denied due course.
On appeal to this Court, we established the parameters by which an
arbitral award may be set aside, to wit:
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.
Nonetheless, the arbitrators’ awards is not absolute and without
exceptions. The arbitrators cannot resolve issues beyond the
scope of the submission agreement. The parties to such an
agreement are bound by the arbitrators’ award only to the extent
and in the manner prescribed by the contract and only if the
award is rendered in conformity thereto. Thus, Sections 24 and
25 of the Arbitration Law provide grounds for vacating, rescinding
or modifying an arbitration award. Where the conditions described
in Articles 2038, 2039 and 2040 of the Civil Code applicable to
compromises and arbitration are attendant, the arbitration award
may also be annulled.
xxxx
Finally, it should be stressed that while a court is precluded from
overturning an award for errors in determination of factual issues,
nevertheless, if an examination of the record reveals no support
whatever for the arbitrators’ determinations, their award must be
vacated. In the same manner, an award must be vacated if it
was made in "manifest disregard of the law."17 (Emphasis
supplied.)
Following Asset Privatization Trust, errors in law and fact would not
generally justify the reversal of an arbitral award. A party asking for the
vacation of an arbitral award must show that any of the grounds for
vacating, rescinding, or modifying an award are present or that the
arbitral award was made in manifest disregard of the law. Otherwise, the
Court is duty-bound to uphold an arbitral award.
The instant petition dwells on the alleged manifest disregard of the law by
the ICC-ICA.
The US case of Merrill Lynch, Pierce, Fenner & Smith, Inc. v.
Jaros18 expounded on the phrase "manifest disregard of the law" in the
following wise:
This court has emphasized that manifest disregard of the law is a
very narrow standard of review. Anaconda Co. v. District Lodge
No. 27, 693 F.2d 35 (6th Cir.1982). A mere error in interpretation
or application of the law is insufficient. Anaconda, 693 F.2d at 37-
38. Rather, the decision must fly in the face of clearly established
legal precedent. When faced with questions of law, an arbitration
panel does not act in manifest disregard of the law unless (1) the
applicable legal principle is clearly defined and not subject to
reasonable debate; and (2) the arbitrators refused to heed that
legal principle.
Thus, to justify the vacation of an arbitral award on account of "manifest
disregard of the law," the arbiter’s findings must clearly and unequivocally
violate an established legal precedent. Anything less would not suffice.
In the present case, petitioners, in a bid to establish that the arbitral
award was issued in manifest disregard of the law, allege that the Partial
Award violated the principles of prescription, due process, and estoppel.
A review of petitioners’ arguments would, however, show that their
arguments are bereft of merit. Thus, the Partial Award dated September
27, 2007 cannot be vacated.
RCBC’s Claim Is Not Time-Barred
Petitioners argue that RCBC’s claim under Sec. 5(g) is based on
overvaluation of Bankard’s revenues, assets, and net worth, hence, for
price reduction falling under Sec. 5(h), in which case it was belatedly
filed, for RCBC presented the claim to petitioners on May 5, 2003, when
the period for presenting it under Sec. 5(h) expired on December 31,
2000. As a counterpoint, RCBC asserts that its claim clearly comes under
Sec. 5(g) in relation to Sec. 7 which thus gave it three (3) years from the
closing date of June 2, 2000, or until June 1, 2003, within which to make
its claim. RCBC contends having acted within the required period, having
presented its claim-demand on May 5, 2003.
To make clear the issue at hand, we highlight the pertinent portions of
Secs. 5(g), 5(h), and 7 bearing on what petitioners warranted relative to
the financial condition of Bankard and the remedies available to RCBC in
case of breach of warranty:
g. The audited financial statements of Bankard for the three
(3) fiscal years ended December 31, 1997, 1998 and 1999, and
the unaudited financial statements for the first quarter ended
31 March 2000, are fair and accurate, and complete in all
material respects, and have been prepared in accordance
with generally accepted accounting principles consistently
followed throughout the period indicated and:
i) the balance sheet of Bankard as of 31 December
1999, as prepared and certified by SGV & Co. ("SGV"),
and the unaudited balance sheet for the first quarter
ended 31 March 2000, present a fair and accurate
statement as of those dates, of Bankard’s financial
condition and of all its assets and liabilities, and is
complete in all material respects; and
ii) the statements of Bankard’s profit and loss
accounts for the fiscal years 1996 to 1999, as prepared
and certified by SGV, and the unaudited profit and loss
accounts for the first quarter ended 31 March 2000,
fairly and accurately present the results of the
operations of Bankard for the periods indicated, and are
complete in all material respects.
h. Except as disclosed in the Disclosures, and except to the
extent set forth or reserved in the audited financial statements of
Bankard as of 31 December 1999 and its unaudited financial
statements for the first quarter ended 31 March 2000, Bankard,
as of such dates and up to 31 May 2000, had and shall have
no liabilities, omissions or mistakes in its records which will
have a material adverse effect on the net worth or financial
condition of Bankard to the extent of more than One Hundred
Million Pesos (P 100,000,000.00) in the aggregate. In the event
such material adverse effect on the net worth or financial
condition of Bankard exceeds One Hundred Million Pesos (P
 100,000,000.00), the Purchase Price shall be reduced in
accordance with the following formula:
xxxx
Section 7. Remedies for Breach of Warranties
If any of the representations and warranties of any or all of the
SELLERS or the BUYER (the "Defaulting Party") contained in
Sections 5 and 6 shall be found to be untrue when made and/or
as of the Closing Date, the other party, i.e., the BUYER if the
Defaulting is any of the SELLERS and the SELLERS if the
Defaulting Party is the BUYER (hereinafter referred to as the
"Non-Defaulting Party") shall have the right to require the
Defaulting Party, at the latter’s expense, to cure such breach,
and/or seek damages, by providing notice or presenting a
claim to the Defaulting Party, reasonably specifying therein the
particulars of the breach. The foregoing remedies shall be
available to the Non-Defaulting Party only if the demand
therefor is presented in writing to the Defaulting Party within
three (3) years from the Closing Date, except that the remedy
for a breach of the SELLERS’ representation and warranty in
Section 5 (h) shall be available only if the demand therefor is
presented to the Defaulting Party in writing together with
schedules and data to substantiate such demand, within six (6)
months from the Closing Date. (Emphasis supplied.)
Before we address the issue put forward by petitioners, there is a
necessity to determine the nature and application of the reliefs provided
under Sec. 5(g) and Sec. 5(h) in conjunction with Sec. 7, thus:
(1) The relief under Sec. 5(h) is specifically for price reduction as said
section explicitly states that the "Purchase Price shall be reduced in
accordance with the following formula x x x." In addition, Sec. 7 gives the
aggrieved party the right to ask damages based on the stipulation that the
non-defaulting party "shall have the right to require the Defaulting Party,
at the latter’s expense, to cure such breach and/or seek damages."
On the other hand, the remedy under Sec. 5(g) in conjunction with Sec. 7
can include specific performance, damages, and other reliefs excluding
price reduction.
(2) Sec. 5(g) warranty covers the audited financial statements (AFS) for
the three (3) years ending December 31, 1997 to 1999 and the unaudited
financial statements (UFS) for the first quarter ending March 31, 2000.
On the other hand, the Sec. 5(h) warranty refers only to the AFS for the
year ending December 31, 1999 and the UFS up to May 31, 2000. It is
undenied that Sec. 5(h) refers to price reduction as it covers "only the
most up-to-date audited and unaudited financial statements upon which
the price must have been based."19
(3) Under Sec. 5(h), the responsibility of petitioners for its warranty
shall exclude the disclosures and reservations made in AFS of Bankard
as of December 31, 1999 and its UFS up to May 31, 2000. No such
exclusions were made under Sec. 5(g) with respect to the warranty of
petitioners in the AFS and UFS of Bankard.
(4) Sec. 5(h) gives relief only if there is material adverse effect in the net
worth in excess of PhP 100 million and it provides a formula for price
reduction.20 On the other hand, Sec. 5(g) can be the basis for remedies
like specific performance, damages, and other reliefs, except price
reduction, even if the overvaluation is less or above PhP 100 million and
there is no formula for computation of damages.
(5) Under Sec. 7, the aggrieved party shall present its written demand to
the defaulting party within three (3) years from closing date. Under Sec.
5(h), the written demand shall be presented within six (6) months from
closing date. In accordance with par. 2(c) of the ASPA, the deadline to
file the demand under Sec. 5(h) was extended to December 31, 2000.
From the above determination, it becomes clear that the aggrieved party
is entitled to two (2) separate alternative remedies under Secs. 5 and 7 of
the SPA, thus:
1. A claim for price reduction under Sec. 5(h) and/or damages
based on the breach of warranty by Bankard on the absence of
liabilities, omissions and mistakes on the financial statements as
of 31 December 1999 and the UFS as of 31 May 2000, provided
that the material adverse effect on the net worth exceeds PhP
100M and the written demand is presented within six (6) months
from closing date (extended to 31 December 2000); and
2. An action to cure the breach like specific performance and/or
damages under Sec. 5(g) based on Bankard’s breach of warranty
involving its AFS for the three (3) fiscal years ending 31
 December 1997, 1998, and 1999 and the UFS for the first quarter
ending 31 March 2000 provided that the written demand shall be
presented within three (3) years from closing date.
Has RCBC the option to choose between Sec. 5(g) or Sec. 5(h)?
The answer is yes. Sec. 5 and Sec. 7 are clear that it is discretionary on
the aggrieved parties to avail themselves of any remedy mentioned
above. They may choose one and dispense with the other. Of course, the
relief for price reduction under Sec. 5(h) will have to conform to the
prerequisites and time frame of six (6) months; otherwise, it is waived.
Preliminarily, petitioners’ basic posture that RCBC’s claim is for the
recovery of overpayment is specious. The records show that in
its Request for Arbitration dated May 12, 2004, RCBC prayed for the
rescission of the SPA, restitution of the whole purchase price, and
damages not for reduction of price or for the return of any overpayment.
Even in its May 5, 2000 letter,21 RCBC did not ask for the recovery of any
overpayment or reduction of price, merely stating in it that the accounts of
Bankard, as reflected in its AFS for 1999, were overstated which,
necessarily, resulted in an overpayment situation. RCBC was emphatic
and unequivocal that petitioners violated their warranty covered by Sec.
5(g) of the SPA.
It is thus evident that RCBC did not avail itself of the option under Sec.
5(h), i.e., for price reduction or the return of any overpayment arising from
the overvaluation of Bankard’s financial condition. Clearly, RCBC invoked
Sec. 5(g) to claim damages from petitioners which is one of the
alternative reliefs granted under Sec. 7 in addition to rescission and
restitution of purchase price.
Petitioners do not deny that RCBC formally filed its claim under Sec. 5(g)
which is anchored on the material overstatement or overvaluation of
Bankard’s revenues, assets, and net worth and, hence, the
overstatement of the purchase price. They, however, assert that such
claim for overpayment is actually a claim under Sec. 5(h) of the SPA for
price reduction which it forfeited after December 31, 2000.
We cannot sustain petitioners’ position.
It cannot be disputed that an overstatement or overvaluation of Bankard’s
financial condition as of closing date translates into a misrepresentation
not only of the accuracy and truthfulness of the financial statements
under Sec. 5(g), but also as to Bankard’s actual net worth mentioned in
Sec. 5(h). Overvaluation presupposes mistakes in the entries in the
financial statements and amounts to a breach of petitioners’
representations and warranties under Sec. 5. Consequently, such error in
the financial statements would impact on the figure representing the net
worth of Bankard as of closing date. An overvaluation means that the
financial condition of Bankard as of closing date, i.e., June 2, 2000, is
overstated, a situation that will definitely result in a breach of EPCIB’s
representations and warranties.
A scrutiny of Sec. 5(g) and Sec. 5(h) in relation to Sec. 7 of the SPA
would indicate the following remedies available to RCBC should it be
discovered, as of closing date, that there is overvaluation which will
constitute breach of the warranty clause under either Sec. 5(g) or (h), to
wit:
(1) An overvaluation of Bankard’s actual financial condition as of closing
date taints the veracity and accuracy of the AFS for 1997, 1998, and
1999 and the UFS for the first quarter of 2000 and is an actionable
breach of petitioners’ warranties under Sec. 5(g).
(2) An overvaluation of Bankard’s financial condition as of May 31, 2000,
encompassing the warranted financial condition as of December 31, 1999
through the AFS for 1999 and as of March 31, 2000 through the UFS for
the first quarter of 2000, is a breach of petitioners’ representations and
warranties under Sec. 5(h).
Thus, RCBC has two distinct alternative remedies in case of an
overvaluation of Bankard’s financial condition. It may invoke Sec. 5(h)
when the conditions of the threshold aggregate overvaluation and the
claim made within the six-month time-bar are present. In the alternative, it
may invoke Sec. 5(g) when it finds that a claim for "curing the breach"
and/or damages will be more advantageous to its interests provided it is
filed within three (3) years from closing date. Since it has two remedies,
RCBC may opt to exercise either one. Of course, the exercise of either
one will preclude the other.
Moreover, the language employed in Sec. 5(g) and Sec. 5(h) is clear and
bereft of any ambiguity. The SPA’s stipulations reveal that the non-use or
waiver of Sec. 5(h) does not preclude RCBC from availing itself of the
second relief under Sec. 5(g). Article 1370 of the Civil Code is explicit that
"if terms of a contract are clear and leave no doubt upon the intention of
the contracting parties the literal meaning of its stipulations shall control."
Since the terms of a contract have the force of law between the
parties,22 then the parties must respect and strictly conform to it. Lastly, it
is a long held cardinal rule that when the terms of an agreement are
reduced to writing, it is deemed to contain all the terms agreed upon and
no evidence of such terms can be admitted other than the contents of the
agreement itself.23 Since the SPA is unambiguous, and petitioners failed
to adduce evidence to the contrary, then they are legally bound to comply
with it.
Petitioners agreed ultimately to the stipulation that:
Each of the representations and warranties of the SELLERS is
deemed to be a separate representation and warranty, and the
BUYER has placed complete reliance thereon in agreeing to the
Purchase Price and in entering into this Agreement. The
representations and warranties of the SELLERS shall be correct
as of the date of this Agreement and as of the Closing Date with
the same force and effect as though such representations and
warranties had been made as of the Closing Date.24 (Emphasis
supplied.)
The Court sustains the finding in the Partial Award that Sec. 5(g) of the
SPA is a free standing warranty and not constricted by Sec. 5(h) of the
said agreement.
Upon the foregoing premises and in the light of the undisputed facts on
record, RCBC’s claim for rescission of the SPA and damages due to
overvaluation of Bankard’s accounts was properly for a breach of the
warranty under Sec. 5(g) and was not time-barred. To repeat, RCBC
presented its written claim on May 5, 2003, or a little less than a month
before closing date, well within the three (3)-year prescriptive period
provided under Sec. 7 for the exercise of the right provided under Sec.
5(g).
Petitioners bemoan the fact that "the arbitrators’ liability award (a)
disregarded the 6-month contractual limitation for RCBC’s ‘overprice’
claim, and [b] substituted in its place the 3-year limitation under the
contract for other claims,"25adopting in that regard the interpretation of the
SPA made by arbitral tribunal member, retired Justice Kapunan, in his
Dissenting Opinion, in which he asserted:
Ultimately, the Claim is one for recovery of overpayment in the
purchase price of the shares. And it is in this context, that I
respectfully submit that Section 5(h) and not Section 5(g), applies
to the present controversy.26
xxxx
True, without Section 5(h), the Claim for price recovery would fall
under Section 5(g). The recovery of the pecuniary loss of the
Claimant in the form of the excess price paid would be in the
nature of a claim for actual damages by way of compensation. In
that situation, all the accounts in the 1999 financial statements
would be the subject of the warranty in Section 5(g).
However, since the parties explicitly included Section 5(h) in their
SPA, which assures the Claimant that there were no "omissions
or mistakes in the records" that would misstate the 1999 net
worth account, I am left with no other conclusion but that the
accuracy of the net worth was the subject of the warranty in
Section 5(h), while the accuracy or correctness of the other
accounts that did not bear on, or affect Bankard’s net worth,
were guaranteed by Section 5(g).
xxxx
This manner of reconciling the two provisions is consistent with
the principle in Rule 130, Section 12 of the Rules of Court that
"when a general and a particular provision are inconsistent, the
latter is paramount to the former… [so] a particular intent will
control a general one that is inconsistent with it." This is also
consistent with existing doctrines on statutory construction, the
application of which is illustrated in the case of Commissioner of
Customs vs. Court of Tax Appeals, GR No. L-41861, dated March
23, 1987 x x x.
xxxx
The Claim is for recovery of the excess price by way of
actual damages.27 x x x (Emphasis supplied.)
Justice Kapunan noted that without Sec. 5(h), RCBC’s claim would fall
under Sec. 5(g), impliedly admitting that both provisions could very well
cover RCBC’s claim, except that Sec. 5(h) excludes the situation
contemplated in it from the general terms of Sec. 5(g).
Such view is incorrect.
While it is true that Sec. 5(h), as couched, is a warranty on the accuracy
of the Bankard’s net worth while Sec. 5(g), as also couched, is a warranty
on the veracity, accuracy, and completeness of the AFS in all material
respects as prepared in accordance with generally accepted accounting
principles consistently followed throughout the period audited, yet both
warranties boil down to the same thing and stem from the same accounts
as summarized in the AFS. Since the net worth is the balance of
Bankard’s assets less its liabilities, it necessarily includes all the
accounts under the AFS. In short, there are no accounts in the AFS
that do not bear on the net worth of Bankard. Moreover, as earlier
elucidated, any overvaluation of Bankard’s net worth is necessarily a
misrepresentation of the veracity, accuracy, and completeness of the
AFS and also a breach of the warranty under Sec. 5(g). Thus, the subject
of the warranty in Sec. 5(h) is also covered by the warranty in Sec. 5(g),
and Sec. 5(h) cannot exclude such breach from the ambit of Sec. 5(g).
There is no need to rely on Sec. 12, Rule 130 of the Rules of Court for
both Sec. 5(g) and Sec. 5(h) as alternative remedies are of equal footing
and one need not categorize one section as a general provision and the
other a particular provision.
More importantly, a scrutiny of the four corners of the SPA does not
explicitly reveal any stipulation nor even impliedly that the parties
intended to limit the scope of the warranty in Sec. 5(g) or gave priority to
Sec. 5(h) over Sec. 5(g).
The arbitral tribunal did not find any legal basis in the SPA that Sec. 5(h)
"somehow cuts down" the scope of Sec. 5(g), thus:
9.10 In the opinion of the Tribunal, there is nothing in the
wording used in the SPA to give priority to one warranty over
the other. There is nothing in the wording used to indicate
that the parties intended to limit the scope of the warranty in
5(g). If it be contended that, on a true construction of the two
warranties, 5(h) somehow cuts down the scope of 5(g), the
Tribunal can find no justification for such conclusion on the
wording used. Furthermore, the Tribunal is of the view that very
clear words would be needed to cut down the scope of the 5(g)
warranty.28
The Court upholds the conclusion of the tribunal and rules that the claim
of RCBC under Sec. 5(g) is not time-barred.
Petitioners Were Not Denied Due Process
Petitioners impute on RCBC the act of creating summaries of the
accounts of Bankard which "in turn were used by its experts to conclude
that Bankard improperly recorded its receivables and committed material
deviations from GAAP requirements."29 Later, petitioners would assert
that "the arbitrators’ partial award admitted and used the Summaries as
evidence, and held on the basis of the ‘information’ contained in them
that petitioners were in breach of their warranty in GAAP compliance."
To petitioners, the ICC-ICA’s use of such summaries but without
presenting the source documents violates their right to due process.
Pressing the point, petitioners had moved, but to no avail, for the
exclusion of the said summaries. Petitioners allege that they had
reserved the right to cross-examine the witnesses of RCBC who testified
on the summaries, pending the resolution of their motion to exclude. But,
according to them, they were effectively denied the right to cross-
examine RCBC’s witnesses when the ICC-ICA admitted the summaries
of RCBC as evidence.
Petitioners’ position is bereft of merit.
Anent the use but non-presentation of the source documents as the
jumping board for a claim of denial of due process, petitioners
cite Compania Maritima v. Allied Free Worker’s Union.30 It may be stated,
however, that such case is not on all fours with the instant case and,
therefore, cannot be applied here considering that it does not involve an
administrative body exercising quasi-judicial function but rather the
regular court.
In a catena of cases, we have ruled that "[t]he essence of due process is
the opportunity to be heard. What the law prohibits is not the absence of
previous notice but the absolute absence thereof and the lack of
opportunity to be heard."31
We also explained in Lastimoso v. Asayo that "[d]ue process in an
administrative context does not require trial type proceedings similar to
those in courts of justice. Where an opportunity to be heard either
through oral arguments or through pleadings is accorded, there is no
denial of procedural due process."32
Were petitioners afforded the opportunity to refute the summaries and
pieces of evidence submitted by RCBC which became the bases of the
experts’ opinion?
The answer is in the affirmative.
We recall the events that culminated in the issuance of the challenged
Partial Award, thus:
On May 17, 2004, the ICC-ICA received the Request for Arbitration dated
May 12, 2004 from RCBC seeking rescission of the SPA and restitution
of all the amounts paid by RCBC to petitioners, with actual and moral
damages, interest, and costs of suit.
On August 8, 2004, petitioners filed an Answer to the Request for
Arbitration dated July 28, 2004, setting up a counterclaim for USD
300,000 for actual and exemplary damages.
RCBC filed its Reply33 dated August 31, 2004 to petitioners’ Answer to
the Request for Arbitration.
On October 4, 2004, the parties entered into the Terms of Reference.34 At
the same time, the chairperson of the arbitral tribunal issued a provisional
timetable35 for the arbitration.
On October 25, 2004, as previously agreed upon in the meeting on
October 4, 2004, petitioners filed a Motion to Dismiss36 while RCBC filed
a "Claimant’s Position Paper (Re: [Petitioners’] Assertion that RCBC
CAPITAL CORPORATION’s Present Claim Is Time Barred)."37
Then, the tribunal issued Procedural Order No. 1 dated January 12,
2005,38 denying the motion to dismiss and setting the initial hearing of the
case on April 11, 2005.
In a letter dated February 9, 2005,39 petitioners requested that the tribunal
direct RCBC to produce certain documents. At the same time, petitioners
sought the postponement of the hearing on April 11, 2005 to March 21,
2005, in light of their own request.
On February 11, 2005, petitioners received RCBC’s brief of evidence and
supporting documentation in accordance with the provisional
timetable.40 In the brief of evidence, RCBC provided summaries of the
accounts of Bankard, which petitioners now question.
Later, in a letter dated February 14, 2005,41 petitioners complained to the
tribunal with regard to their lack of access to RCBC’s external auditor.
Petitioners sought an audit by an accounting firm of the records of
Bankard with respect to the claims of RCBC. By virtue of such requests,
petitioners also sought a rescheduling of the provisional timetable,
despite their earlier assurance to the tribunal that if they received the
documents that they requested on February 9, 2005 on or before
February 21, 2005, they would abide by the provisional timetable.
Thereafter, the tribunal issued Procedural Order No. 2 dated February
18, 2005,42 in which it allowed the discovery and inspection of the
documents requested by petitioners that were also scheduled on
February 18, 2005. The request for an audit of Bankard’s accounts was
denied without prejudice to the conduct of such audit during the course of
the hearings. Consequently, the tribunal amended the provisional
timetable, extending the deadline for petitioners to file their brief of
evidence and documents to March 21, 2005. The date of the initial
hearing, however, remained on April 11, 2005.
On February 18, 2005, petitioners were furnished the documents that
they requested RCBC.43 The parties also agreed to meet again on
February 23, 2005 to provide petitioners with a "walk-through" of
Bankard’s Statistical Analysis System and to provide petitioners with a
soft copy of all of Bankard’s cardholders.44
During the February 23, 2005 meeting, EPCIB’s counsels/representatives
were accompanied to the Bankard’s Credit-MIS Group. There, Bankard’s
representative, Amor Lazaro, described and explained to petitioners’
representatives the steps involved in procuring and translating raw data
on customer transactions. Lazaro explained that Bankard captures
cardholder information and transactions through encoding or electronic
data capture. Thereafter, such data are transmitted to its main credit card
administration system. Such raw data are then sent to Bankard’s
Information Technology Group. Using a proprietary software called SAS,
the raw data is then converted into SAS files which may be viewed,
handled, and converted into Excel files for reporting purposes. During the
walk-through, petitioners’ representatives asked questions which were
answered in detail by Lazaro.
At the same time, another Bankard representative, Felix L. Sincoñegue,
accompanied two auditors/representatives of petitioners to examine the
journal vouchers and supporting documents of Bankard consisting of
several boxes. The auditors randomly sifted through the boxes which
they had earlier requested to be inspected.
In addition, petitioners were furnished with an electronic copy of the
details of all cardholders, including relevant data for aging of receivables
for the years 2000 to 2003, as well as data containing details of written-
off accounts from 1999 to March 2000 contained in compact discs.45
On March 4, 2005, petitioners sent a letter46 to the tribunal requesting for
a postponement of the April 11, 2005 hearing of the case. Petitioners
claim that they could not confirm the summaries prepared by RCBC,
considering that RCBC allegedly did not cooperate in providing data that
would facilitate their verification. Petitioners specifically mentioned the
following data: (1) list of names of cardholders whose accounts are
sources of data gathered or calculated in the summaries; (2) references
to the basic cardholder documents from which such data were collected;
and (3) access to the underlying cardholder documents at a time and
under conditions mutually convenient to the parties. As regards the
compact discs of information provided to petitioners, it is claimed that
such information could not be accessed as the software necessary for the
handling of the data could not be made immediately available to them.
In Procedural Order No. 3 dated March 11 2005,47 the initial hearing was
moved to June 13 to 16, 2005, considering that petitioners failed to pay
the advance on costs of the tribunal.
On March 23, 2005, RCBC paid the balance of the advance on costs.48
On April 22, 2005, petitioners sent the tribunal a letter,49 requesting for
the postponement of the hearing scheduled on June 13 to 16, 2005 on
the ground that they could not submit their witness’ statements due to the
volume of data that they acquired from RCBC.
In a letter dated April 25, 2005,50 petitioners demanded from RCBC that
they be allowed to examine the journal vouchers earlier made available to
them during the February 23, 2005 meeting. This demand was answered
by RCBC in a letter dated April 26, 2005,51 stating that such demand was
being denied by virtue of Procedural Order No. 2, in which it was ruled
that further requests for discovery would not be made except with leave
of the chairperson of the tribunal.
In Procedural Order No. 4,52 the tribunal granted petitioners’ request for
the postponement of the hearing on June 13, 2005 and rescheduled it to
November 21, 2005 in light of the pending motions filed by EPCIB with
the RTC in Makati City.
On July 29, 2005, the parties held a meeting wherein it was agreed that
petitioners would be provided with hard and soft copies of the inventory of
the journal vouchers earlier presented to its representatives, while
making the journal vouchers available to petitioners for two weeks for
examination and photocopying.53
On September 2, 2005, petitioners applied for the postponement of the
November 21, 2005 hearing due to the following: (1) petitioners had
earlier filed a motion dated August 11, 2005 with the RTC, in which the
issue of whether the non-Filipino members of the tribunal were illegally
practicing law in the Philippines by hearing their case, which was still
pending; and (2) the gathering and processing of the data and documents
made available by RCBC would require 26 weeks.54 Such application was
denied by the tribunal in Procedural Order No. 5 dated September 16,
2005.55
On October 21, 2005, the tribunal issued Procedural Order No.
6,56 postponing the November 21, 2005 hearing by virtue of an order
issued by the RTC in Makati City directing the tribunal to reset the
hearing for April 21 and 24, 2006.
Thereafter, in a letter dated January 18, 2006,57 petitioners wrote the
tribunal requesting that RCBC be directed to: (1) provide petitioners with
information identifying the journal vouchers and other supporting
documents that RCBC used to arrive at the figures set out in the
summaries and other relevant information necessary to enable them to
reconstruct and/or otherwise understand the figures or amounts in each
summary; and (2) submit to petitioners the requested pieces of
information as soon as these are or have become available, or in any
case not later than five days.
In response to such letter, RCBC addressed a letter dated January 31,
200658 to the tribunal claiming that the pieces of information that
petitioners requested are already known to petitioners considering that
RCBC merely maintained the systems that they inherited when it bought
Bankard from petitioners. RCBC added that the documents that EPCIB
originally transmitted to it when RCBC bought Bankard were all being
made available to petitioners; thus, any missing supporting documents
from these files were never transmitted to them in the first place.
Later, petitioners sent to the tribunal a letter dated February 10,
2006,59 asking that it direct RCBC to provide petitioners with the
supporting documents that RCBC mentioned in its letter dated January
31, 2006. Petitioners wrote that should RCBC fail to present such
documents, RCBC’s summaries should be excluded from the records.
In a letter dated March 10, 2006,60 petitioners requested that they be
given an additional period of at least 47 days within which to submit their
evidence-in-chief with the corresponding request for the cancellation of
the hearing on April 24, 2006. Petitioners submit that should such request
be denied, RCBC’s summaries should be excluded from the records.
On April 6, 2006, petitioners filed their arbitration briefs and witness
statements. By way of reply, on April 17, 2006, RCBC submitted Volumes
IV and V of its exhibits and Volume II of its evidence-in-chief.61
On April 18, 2006, petitioners requested the tribunal that they be allowed
to file rejoinder briefs, or otherwise exclude RCBC’s reply brief and
witness statements.62 In this request, petitioners also requested that the
hearing set for April 24, 2006 be moved. These requests were denied.
Consequently, on April 24 to 27, 2006, the arbitral tribunal conducted
hearings on the case.63
On December 4, 2006, petitioners submitted rejoinder affidavits, raising
new issues for the first time, to which RCBC submitted Volume III of its
evidence-in-chief by way of a reply.
On January 16, 2007, both parties simultaneously submitted their
memoranda. On January 26, 2007, both parties simultaneously filed their
reply to the other’s memorandum.64
Thus, on September 27, 2007, the Partial Award was rendered by the
Tribunal.
Later, petitioners moved to vacate the said award before the RTC. Such
motion was denied by the trial court in the first assailed order dated
January 8, 2008. Petitioners then moved for a reconsideration of such
order, but their motion was also denied in the second assailed order
dated March 17, 2008.
The foregoing events unequivocally demonstrate ample opportunity for
petitioners to verify and examine RCBC’s summaries, accounting
records, and reports. The pleadings reveal that RCBC granted
petitioners’ requests for production of documents and accounting records.
More so, they had more than three (3) years to prepare for their defense
after RCBC’s submission of its brief of evidence. Finally, it must be
emphasized that petitioners had the opportunity to appeal the Partial
Award to the RTC, which they in fact did. Later, petitioners even moved
for the reconsideration of the denial of their appeal. Having been able to
appeal and move for a reconsideration of the assailed rulings, petitioners
cannot claim a denial of due process.65
Petitioners’ right to due process was not breached.
As regards petitioners’ claim that its right to due process was violated
when they were allegedly denied the right to cross-examine RCBC’s
witnesses, their claim is also bereft of merit.
Sec. 15 of RA 876 or the Arbitration Law provides that:
Section 15. Hearing by arbitrators. – Arbitrators may, at the
commencement of the hearing, ask both parties for brief
statements of the issues in controversy and/or an agreed
statement of facts. Thereafter the parties may offer such evidence
as they desire, and shall produce such additional evidence as the
arbitrators shall require or deem necessary to an understanding
and determination of the dispute. The arbitrators shall be the
sole judge of the relevancy and materiality of the evidence
offered or produced, and shall not be bound to conform to
the Rules of Court pertaining to evidence. Arbitrators shall
receive as exhibits in evidence any document which the
parties may wish to submit and the exhibits shall be properly
identified at the time of submission. All exhibits shall remain in
the custody of the Clerk of Court during the course of the
arbitration and shall be returned to the parties at the time the
award is made. The arbitrators may make an ocular inspection of
any matter or premises which are in dispute, but such inspection
shall be made only in the presence of all parties to the arbitration,
unless any party who shall have received notice thereof fails to
appear, in which event such inspection shall be made in the
absence of such party. (Emphasis supplied.)
The well-settled rule is that administrative agencies exercising quasi-
judicial powers shall not be fettered by the rigid technicalities of
procedure, albeit they are, at all times required, to adhere to the basic
concepts of fair play. The Court wrote in CMP Federal Security Agency,
Inc. v. NLRC:
 While administrative tribunals exercising quasi-judicial powers,
like the NLRC and Labor Arbiters, are free from the rigidity of
certain procedural requirements, they are nonetheless bound by
law and practice to observe the fundamental and essential
requirements of due process. The standard of due process that
must be met in administrative tribunals allows a certain degree of
latitude as long as fairness is not ignored. Hence, it is not legally
objectionable, for being violative of due process, for the Labor
Arbiter to resolve a case based solely on the position papers,
affidavits or documentary evidence submitted by the parties. The
affidavits of witnesses in such case may take the place of their
direct testimony.66
Of the same tenor is our holding in Quiambao v. Court of Appeals:
In resolving administrative cases, conduct of full-blown trial is not
indispensable to dispense justice to the parties. The requirement
of notice and hearing does not connote full adversarial
proceedings. Submission of position papers may be sufficient for
as long as the parties thereto are given the opportunity to be
heard. In administrative proceedings, the essence of due
process is simply an opportunity to be heard, or an
opportunity to explain one’s side or opportunity to seek a
reconsideration of the action or ruling complained of. This
constitutional mandate is deemed satisfied if a person is
granted an opportunity to seek reconsideration of an action
or a ruling. It does not require trial-type proceedings similar to
those in the courts of justice. Where opportunity to be heard
either through oral arguments or through pleadings is accorded,
there is no denial of procedural due process.67 (Emphasis
supplied.)
Citing Vertudes v. Buenaflor, petitioners also cry denial of due process
when they were allegedly denied the right to cross-examine the
witnesses presented by RCBC. It is true that in Vertudes, we stated: "The
right of a party to confront and cross-examine opposing witnesses in a
judicial litigation, be it criminal or civil in nature, or in proceedings before
administrative tribunals with quasi-judicial powers, is a fundamental right
which is part of due process."68
It is, however, equally true that:
[T]he right is a personal one which may be waived expressly or
impliedly by conduct amounting to a renunciation of the right of
cross-examination. Thus, where a party has had the
opportunity to cross-examine a witness but failed to avail
himself of it, he necessarily forfeits the right to cross-
examineand the testimony given on direct examination of the
witness will be received or allowed to remain in the
record.69 (Emphasis supplied.)
We also held in one case:
However, the right has always been understood as requiring
not necessarily an actual cross-examination but merely an
opportunity to exercise the right to cross-examine if desired.
What is proscribed by statutory norm and jurisprudential
precept is the absence of the opportunity to cross-examine.
The right is a personal one and may be waived expressly or
impliedly. There is an implied waiver when the party was given
the opportunity to confront and cross-examine an opposing
witness but failed to take advantage of it for reasons attributable
to himself alone. If by his actuations, the accused lost his
opportunity to cross-examine wholly or in part the witnesses
against him, his right to cross-examine is impliedly
waived.70 (Emphasis supplied.)
And later in Velez v. De Vera, the Court En Banc expounded on the
above rulings, adding that in administrative proceedings, cross-
examination is not indispensable, thus:
Due process of law in administrative cases is not identical with
"judicial process" for a trial in court is not always essential to due
process. While a day in court is a matter of right in judicial
proceedings, it is otherwise in administrative proceedings since
they rest upon different principles. The due process clause
guarantees no particular form of procedure and its requirements
are not technical. Thus, in certain proceedings of administrative
character, the right to a notice or hearing [is] not essential to due
process of law. The constitutional requirement of due process is
met by a fair hearing before a regularly established administrative
agency or tribunal. It is not essential that hearings be had before
the making of a determination if thereafter, there is available trial
and tribunal before which all objections and defenses to the
making of such determination may be raised and considered.
One adequate hearing is all that due process requires. What is
 required for "hearing" may differ as the functions of the
administrative bodies differ.
The right to cross-examine is not an indispensable aspect of
due process.71 x x x (Emphasis supplied.)
Clearly, the right to cross-examine a witness, although a fundamental
right of a party, may be waived. Petitioners themselves admit having had
the opportunity to cross-examine RCBC’s witnesses during the hearings
before the tribunal, but declined to do so by reserving such right at a later
time. Having had the opportunity to cross-examine RCBC’s witnesses,
petitioners were not denied their right to due process.
RCBC Is Not Estopped from Questioning
the Financial Condition of Bankard
On estoppel, petitioners contend that RCBC already knew the recording
of the Bankard accounts before it paid the balance of the purchase price
and could no longer challenge the financial statements of Bankard.
RCBC, they claim, had full control of the operations of Bankard since
June 2, 2000 and RCBC’s audit team reviewed the accounts in
September 2000. Thus, RCBC is now precluded from denying the
fairness and accuracy of said accounts since it did not seek price
reduction under Sec. 5(h). Lastly, they asseverate that RCBC continued
with Bankard’s accounting policies and practices and found them to
conform to the generally accepted accounting principles, contrary to
RCBC’s allegations.
It also bears stating that in his dissent, retired Justice Kapunan, an
arbitral tribunal member, argued that Bankard’s accounting practices
were disclosed in the information memorandum provided to RCBC;
hence, RCBC was supposed to know such accounting practices and to
have accepted their propriety even before the execution of the SPA. He
then argued that when it paid the purchase price on December 29, 2000,
RCBC could no longer claim that the accounting practices that went into
the reporting of the 1999 AFS of Bankard were not in accord with
generally accepted accounting principles. He pointed out that RCBC was
bound by the audit conducted by a certain Rubio prior to the full payment
of the purchase price of Bankard. Anchored on these statements by
Justice Kapunan, petitioners conclude that RCBC is estopped from
claiming that the former violated their warranties under the SPA.
Petitioners’ contention is not meritorious.
Art. 1431 of the Civil Code, on the subject of estoppel, provides: "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."
The doctrine of estoppel is based upon the grounds of public policy, fair
dealing, good faith, and justice; and its purpose is to forbid one to speak
against one’s own acts, representations, or commitments to the injury of
one to whom they were directed and who reasonably relied on them.72
We explained the principle of estoppel in Philippine Savings Bank v.
Chowking Food Corporation:
x x x The equitable doctrine of estoppel was explained by this
Court in Caltex (Philippines), Inc. v. Court of Appeals:
Under the doctrine of 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. A party may not go back on
his own acts and representations to the prejudice of the
other party who relied upon them. In the law of evidence,
whenever a party has, by his own declaration, act, or
omission, intentionally and deliberately led another to
believe a particular thing true, to act upon such belief, he
cannot, in any litigation arising out of such declaration,
act, or omission, be permitted to falsify it.
The principle received further elaboration in Maneclang v. Baun:
In estoppel by pais, as related to the party sought to be
estopped, it is necessary that there be a concurrence of
the following requisites: (a) conduct amounting to false
representation or concealment of material facts or at least
calculated to convey the impression that the facts are
otherwise than, and inconsistent with, those which the
party subsequently attempts to assert; (b) intent, or at
least expectation that this conduct shall be acted upon, or
at least influenced by the other party; and (c) knowledge,
actual or constructive of the actual facts.
Estoppel may vary somewhat in definition, but all authorities
agree that a party invoking the doctrine must have been
 misled to one’s prejudice. That is the final and, in reality, most
important of the elements of equitable estoppel. It is this element
that is lacking here.73 (Emphasis supplied.)
The elements of estoppel pertaining to the party estopped are:
(1) conduct which amounts to a false representation or
concealment of material facts, or, at least, which calculated to
convey the impression that the facts are otherwise than, and
inconsistent with, those which the party subsequently attempts to
assert; (2) intention, or at least expectation, that such conduct
shall be acted upon by the other party; and (3) knowledge, actual
or constructive, of the actual facts.74
In the case at bar, the first element of estoppel in relation to the party
sought to be estopped is not present. Petitioners claim that RCBC
misrepresented itself when RCBC made it appear that they considered
petitioners to have sufficiently complied with its warranties under Sec.
5(g) and 5(h), in relation to Sec. 7 of the SPA. Petitioners’ position is that
"RCBC was aware of the manner in which the Bankard accounts were
recorded, well before it consummated the SPA by taking delivery of the
shares and paying the outstanding 80% balance of the contract price."75
Petitioners, therefore, theorize that in this case, the first element of
estoppel in relation to the party sought to be estopped is that RCBC
made a false representation that it considered Bankard’s accounts to be
in order and, thus, RCBC abandoned any claim under Sec. 5(g) and 5(h)
by its inaction.
Such contention is incorrect.
It must be emphasized that it was only after a second audit that RCBC
presented its claim to petitioners for violation of Sec. 5(g), within the three
(3)-year period prescribed. In other words, RCBC, prior to such second
audit, did not have full and thorough knowledge of the correctness of
Bankard’s accounts, in relation to Sec. 5(g). RCBC, therefore, could not
have misrepresented itself considering that it was still in the process of
verifying the warranties covered under Sec. 5(g). Considering that there
must be a concurrence of the elements of estoppel for it to arise, on this
ground alone such claim is already negated. As will be shown, however,
all the other elements of estoppel are likewise absent in the case at bar.
As to the second element, in order to establish estoppel, RCBC must
have intended that petitioners would act upon its actions. This element is
also missing. RCBC by its actions did not mislead petitioners into
believing that it waived any claim for violation of a warranty. The periods
under Sec. 5(g) and 5(h) were still available to RCBC.
The element that petitioners relied on the acts and conduct of RCBC is
absent. The Court finds that there was no reliance on the part of
petitioners on the acts of RCBC that would lead them to believe that the
RCBC will forego the filing of a claim under Sec. 5(g). The allegation that
RCBC knew that the Bankard accounts did not comply with generally
accepted accounting principles before payment and, hence, it cannot
question the financial statements of Bankard is meritless. Precisely, the
SPA explicitly provides that claims for violation of the warranties under
Sec. 5(g) can still be filed within three (3) years from the closing date.
Petitioners’ contention that RCBC had full control of Bankard operations
after payment of the price and that an audit undertaken by the Rubio
team did not find anything wrong with the accounts could not have
plausibly misled petitioners into believing that RCBC will waive its right to
file a claim under Sec. 5(g). After all, the period to file a claim under Sec.
5(g) is three (3) years under Sec. 7, much longer than the six (6)-month
period under Sec. 5(h). Petitioners are fully aware that the warranties
under Sec. 5(g) (1997 up to March 2000) are of a wider scope than that
of Sec. 5(h) (AFS of 1999 and UFS up to May 31, 2000), necessitating a
longer audit period than the six (6)-month period under Sec. 5(h).
The third element of estoppel in relation to the party sought to be
estopped is also absent considering that, as stated, RCBC was still in the
process of verifying the correctness of Bankard’s accounts prior to
presenting its claim of overvaluation to petitioners. RCBC, therefore, had
no sufficient knowledge of the correctness of Bankard’s accounts.
On another issue, RCBC could not have immediately changed the
Bankard accounting practices until it had conducted a more extensive
and thorough audit of Bankard’s voluminous records and transactions to
uncover any irregularities. That would be the only logical explanation why
Bankard’s alleged irregular practices were maintained for more than two
(2) years from closing date. The fact that RCBC continued with the audit
of Bankard’s AFS and records after the termination of the Rubio audit can
only send the clear message to petitioners that RCBC is still entertaining
the possibility of filing a claim under Sec. 5(g). It cannot then be said that
petitioners’ reliance on RCBC’s acts after full payment of the price could
have misled them into believing that no more claim will be presented by
RCBC.
The Arbitral Tribunal explained in detail why estoppel is not present in the
case at bar, thus:
10.18 The audit exercise conducted by Mr. Legaspi and Mr.
Rubio was clearly not one comprehensive enough to have
discovered the problems later unearthed by Dr. Laya and Dean
Ledesma. x x x
10.19 Although the powers of the TC [Transition Committee] may
have been widely expressed in the view of Mr. Rogelio Chua,
then in charge of Bankard x x x the TC conducted meetings only
to get updated on the status and progress of Bankard’s
operations. Commercially, one would expect that an unpaid
vendor expecting to receive 80% of a large purchase price would
not be receptive to a purchaser making vast policy changes in the
operation of the business until the purchaser has paid up its
money. It is more likely that, until the settlement date, there was a
practice of maintaining the status quo at Bankard.
10.20 But neither the Claimant nor the TC did anything, in the
Tribunal’s view, which would have given the Respondents the
impression that they were being relieved over the next three
years of susceptibility to a claim under clause 5(g). Maybe the TC
could have been more proactive in commissioning further or more
in-depth audits but it was not. It did not have to be. It is
commercially unlikely that it have been done so, with the
necessary degree of attention to detail, within the relatively short
time between the appointment of the TC and the ultimate
settlement date of the purchase – a period of some three months.
An interim arrangement was obviously sensible to enable the
Claimant and its staff to become familiar with the practices and
procedures of Bankard.
10.21 The core consideration weighing with the Tribunal in
assessing these claims for estoppel is that the SPA allowed two
types of claim; one within six months under 5(h) and one within
three years under 5(g). The Tribunal has already held the present
claim is not barred by clause 5(h). It must therefore have been
within the reasonable contemplation of the parties that a 5(g)
claim could surface within the three-year period and that it could
be somewhat differently assessed than the claim under 5(h). The
Tribunal cannot find estoppel by conduct either from the formation
of the TC or from the limited auditing exercise done by Mr. Rubio
and Mr. Legaspi. The onus proving estoppel is on the
Respondents and it has not been discharged.
10.22 If the parties had wished the avenues of relief for
misrepresentation afforded to the Claimant to have been
restricted to a claim under Clause 5(h), then they could have said
so. The ‘special audit’ may have provided an answer to any claim
based on clause 5(h) but it cannot do so in respect of a claim
based on Clause 5(g). Clause 5(g) imposed a positive obligation
on the Respondents from which they cannot be excused, simply
by reason of either the formation and conduct of the TC or of the
limited audit.
10.23 The three-year limitation period obviously contemplated
that it could take some time to ascertain whether there had been
a breach of the GAAP standards, etc. Such was the case. A six-
month limitation period under Clause 5(h), in contrast, presaged a
somewhat less stringent enquiry of the kind carried out by Mr.
Rubio and Mr. Legaspi.
10.24 Clause 2(3) of the Amendment to the SPA strengthens the
conclusion that the parties were concerned only with a 5(h) claim
during the TC’s reign. The focus of the ‘audit’ – however intense it
was – conducted by Mr. Rubio and Mr. Legaspi, was on
establishing possible liability under that section and thus as a
possible reduction in the price to be paid on settlement.
10.25 The fact that the purchase price was paid over in full
without any deduction in terms of clause 5(h) is not a bar to the
Claimant bringing a claim under 5(g) within the three-year period.
The fact that payment was made can be, as the Tribunal has
held, a barrier to a claim for rescission and restitution ad inegrum.
A claim for estoppel needs a finding of representation by words of
conduct or a shared presumption that a right would not be relied
upon. The party relying on estoppel has to show reliance to its
detriment or that, otherwise, it would be unconscionable to resile
from the provision.
10.26 Article 1431 of the Civil Code states:
"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."
 10.27 Clearly, there has to both an admission or representation
by (in this case) the Claimant, plus reliance upon it by (in this
case) the Respondents. The Tribunal cannot find as proved any
admission/representation that the Claimant was abandoning a
5(g) claim, any reliance by Respondents on an admission, and
any detriment to the Respondents such as would entitle them to
have the Claimant deprived of the benefit of clause 5(g). These
aspects of the claim of estoppel are rejected.
xxxx
10.42 The Tribunal is not the appropriate forum for deciding
whether there have been any regulatory or ethical infractions by
Bankard and/or the Claimant in setting the ‘buy-back’ price. It has
no bearing on whether the Claimant must be considered as
having waived its right to claim against the Respondents.
10.43 In the Tribunal’s view, neither any infraction by Bankard in
failing to advise the Central Bank of the experts’ findings, nor a
failure to put a tag on the accounts nor to have said something to
the shareholders in the buy-back exercise operates as a
"technical knock-out" of Claimant’s claim.
10.44 The Tribunal notes that the conciliation process mandated
by the SPA took most of 2003 and this may explain a part of the
delay in commencing arbitral proceedings.
10.45 Whatever the status of Mr. Rubio’s and Mr. Legaspi’s
enquiries in late 2000, the Claimant was quite entitled to
commission subsequent reports from Dr. Laya and Dr. Echanis
and, on the basis of those reports, make a timeous claim under
clause 5(g) of the SPA.
10.46 In the Tribunal’s view, therefore, there is no merit in
Respondents’ various submissions that the Claimant is debarred
from prosecuting its claims on the grounds of estoppel. There is
just no proof of the necessary representation to the Respondent,
nor any detriment to the Respondent proved. The grounds of
delay and laches are not substantiated.
In summary, the tribunal properly ruled that petitioners failed to prove that
the formation of the Transition Committee and the conduct of the audit by
Rubio and Legaspi were admissions or representations by RCBC that it
would not pursue a claim under Sec. 5(g) and that petitioners relied on
such representation to their detriment. We agree with the findings of the
tribunal that estoppel is not present in the situation at bar.
Additionally, petitioners claim that in Knecht v. Court of
Appeals76 and Coca-Cola Bottlers Philippines, Inc. v. Court of Appeals
(Coca-Cola),77 this Court ruled that the absence of the element of reliance
by a party on the representation of another does not negate the principle
of estoppel. Those cases are, however, not on all fours with and cannot
be applied to this case.
In Knecht, the buyer had the opportunity of knowing the conditions of the
land he was buying early on in the transaction, but proceeded with the
sale anyway. According to the Court, the buyer was estopped from
claiming that the vendor made a false representation as to the condition
of the land. This is not true in the instant case. RCBC did not conduct a
due diligence audit in relation to Sec.5(g) prior to the sale due to
petitioners’ express representations and warranties. The examination
conducted by RCBC, through Rubio, after the execution of the SPA on
June 2, 2000, was confined to finding any breach under Sec. 5(h) for a
possible reduction of the purchase price prior to the payment of its
balance on December 31, 2000. Further, the parties clearly agreed under
Sec. 7 of the SPA to a three (3)-year period from closing date within
which to present a claim for damages for violation of the warranties under
the SPA. Hence, Knecht is not a precedent to the case at bar.
So is Coca-Cola. As lessee, Coca-Cola Bottlers was well aware of the
nature and situation of the land relative to its intended use prior to the
signing of the contract. Its subsequent assertion that the land was not
suited for the purpose it was leased was, therefore, cast aside for being
unmeritorious. Such circumstance does not obtain in the instant case.
There was no prior due diligence audit conducted by RCBC, it having
relied, as earlier stated, on the warranties of petitioners with regard to the
financial condition of Bankard under Sec. 5(g). As such, Sec. 5(g)
guaranteed RCBC that it could file a claim for damages for any mistakes
in the AFS and UFS of Bankard. Clearly, Coca-Cola also cannot be
applied to the instant case.
It becomes evident from all of the foregoing findings that the ICC-ICA is
not guilty of any manifest disregard of the law on estoppel. As shown
above, the findings of the ICC-ICA in the Partial Award are well-
supported in law and grounded on facts. The Partial Award must be
upheld.
We close this disposition with the observation that a member of the three-
person arbitration panel was selected by petitioners, while another was
respondent’s choice. The respective interests of the parties, therefore,
are very much safeguarded in the arbitration proceedings. Any
suggestion, therefore, on the partiality of the arbitration tribunal has to be
dismissed.
WHEREFORE, the instant petition is hereby DENIED. The assailed
January 8, 2008 and March 17, 2008 Orders of the RTC, Branch 148 in
Makati City are hereby AFFIRMED.
SO ORDERED.
 SECOND DIVISION 16. If any dispute arise hereunder which cannot be
settled by mutual accord between the parties to
G.R. No. 173137, January 11, 2016 such dispute, then that dispute shall be referred to
arbitration. The arbitration shall be held in
BASES CONVERSION DEVELOPMENT whichever place the parties to the dispute decide
AUTHORITY, Petitioner, v. DMCI PROJECT DEVELOPERS, and failing mutual agreement as to a location
INC., Respondent. within twenty-one (21) days after the occurrence
of the dispute, shall be held in Metro Manila and
G.R. NO. 173170 shall be conducted in accordance with the
Philippine Arbitration Law (Republic Act No. 876)
NORTH LUZON RAILWAYS supplemented by the Rules of Conciliation and
CORPORATION, Petitioner, v. DMCI PROJECT DEVELOPERS, Arbitration of the International Chamber of
INC.Respondent. Commerce. All award of such arbitration shall be
final and binding upon the parties to the dispute.5
DECISION
BCDA organized and incorporated Northrail.6 Northrail was
LEONEN, J.:
registered with the Securities and Exchange Commission on
August 22, 1995.7
An arbitration clause in a document of contract may extend to
chanroblesvirtuallawlibrary
subsequent documents of contract executed for the same
BCDA invited investors to participate in the railroad project's
purpose. Nominees of a party to and beneficiaries of a contract
financing and implementation. Among those invited were D.M.
containing an arbitration clause may become parties to a
Consunji, Inc. and Metro Pacific Corporation.8
proceeding initiated based on that arbitration clause.
chanroblesvirtuallawlibrary
On June 10, 1995, Bases Conversion Development Authority
On February 8, 1996, the Joint Venture Agreement was
(BCDA) entered into a Joint Venture Agreement1with Philippine
amended to include D.M. Consunji, Inc. and/or its
National Railways (PNR) and other foreign corporations.2
nominee as party.9 Under the amended Joint Venture
chanroblesvirtuallawlibrary
Agreement, D.M. Consunji, Inc. shall be an additional investor
Under the Joint Venture Agreement, the parties agreed to
of Northrail.10 It shall subscribe to 20% of the increase in
construct a railroad system from Manila to Clark with possible
Northrail's authorized capital stock.11
extensions to Subic Bay and La Union and later, possibly to
chanroblesvirtuallawlibrary
Ilocos Norte and Nueva Ecija.3 BCDA shall establish North Luzon
On February 8, 1996, BCDA and the other parties to the Joint
Railways Corporation (Northrail) for purposes of constructing,
Venture Agreement, including D.M. Consunji, Inc. and/or its
operating, and managing the railroad system.4 The Joint
nominee, entered into a Memorandum of
Venture Agreement contained the following provision:
Agreement.12 Under this agreement, the parties agreed that
the initial seed capital of P600 million shall be infused to
ARTICLE XVI
Northrail.13 Of that amount, P200 million shall be D.M. Consunji,
ARBITRATION
Inc.'s share, which shall be converted to equity upon NorthraiPs
privatization.14 Later, D.M. Consunji, Inc.'s share was increased
to P300 million.15
chanroblesvirtuallawlibrary

Upon BCDA and Northrail's request,16 DMCI Project Developers,
Inc. (DMCI-PDI) deposited P300 million into NorthraiPs account
with Land Bank of the Philippines.17 The deposit was made on
August 7, 199618 for its "future subscription of the Northrail
shares of stocks."19 In NorthraiPs 1998 financial statements
submitted to the Securities and Exchange Commission, this
amount was reflected as "Deposits For Future Subscription."20At
that time, NorthraiPs application to increase its authorized
capital stock was still pending with the Securities and Exchange
Commission.21 chanroblesvirtuallawlibrary
In letters22dated April 4, 1997, D.M. Consunji, Inc.
informed PNR and the other parties that DMCI-PDI shall
be its designated nominee for all the agreements it
entered and would enter with them in connection with
the railroad project. Pertinent portions of the letters provide:
[I]n order to formalize the inclusion of [DMCI Project
Developers, Inc.] as a party to the JVA and MOA, DMCI would
like to notify all the parties that it is designating PDI as its
nominee in both agreements and such other agreements that
may be signed by the parties in furtherance of or in connection
with the PROJECT. By this nomination, all the rights,
obligations, warranties and commitments of DMCI under the
JVA and MOA shall henceforth be assumed performed and
delivered by PDI.23 (Emphasis supplied)
Later, Northrail withdrew from the Securities and Exchange
Commission its application for increased authorized capital
stock.24 Moreover, according to DMCI-PDI, BCDA applied for
Official Development Assistance from Obuchi Fund of
Japan.25 This required Northrail to be a 100% government-
owned and controlled corporation.26 chanroblesvirtuallawlibrary
On September 27, 2000, DMCI-PDI started demanding from
BCDA and Northrail the return of its P300 million
deposit.27 DMCI-PDI cited Northrail's failure to increase its
authorized capital stock as reason for the demand.28 BCDA and
Northrail refused to return the deposit29 for the following
reasons:
a) At the outset, DMCI PDI/FBDC's participation in Northrail was
as a joint venture partner and co-investor in the Manila Clark
Rapid Railway Project, and as such, was granted corresponding
representation in the Northrail Board.
b) DMCI PDI/FBDC was privy to all the deliberations of the
Northrail Board and participated in the decisions made and
policies adopted to pursue the project.
c) DMCI PDI/FBDC had full access to the financial statements of
Northrail and was regularly informed of the corporation's
financial condition.30
chanrobleslaw
Upon BCDA's request, the Office of the Government Corporate
Counsel (OGCC) issued Opinion No. 116, Series of 200131 on
June 27, 2001. The OGCC stated that "since no increase in
capital stock was implemented, it is but proper to return the
investments of both FBDC and DMCI[.]"32 chanroblesvirtuallawlibrary
In a January 19, 2005 letter,33 DMCI-PDI reiterated the request
for the refund of its P300 million deposit for future Northrail
subscription. On March 18, 2005, BCDA denied34 DMCI-PDI's
request:
We regret to say that we are of the position that the P300
[million] contribution should not be returned to DMCI for the
following reasons:
a. the P300 million was in the nature of a
contribution, not deposits for future subscription;
and
b. DMCI, as a joint venture partner, must share in
profits and losses.35
On August 17, 2005,36 DMCI-PDI served a demand for
arbitration to BCDA and Northrail, citing the arbitration clause in
the June 10, 1995 Joint Venture Agreement.37 BCDA and
Northrail failed to respond.38 chanroblesvirtuallawlibrary
DMCI-PDI filed before the Regional Trial Court of Makati39 a
Petition to Compel Arbitration40 against BCDA and Northrail,
pursuant to the alleged arbitration clause in the Joint Venture
Agreement.41 DMCI-PDI prayed for "an order directing the
parties to proceed to arbitration in accordance with the terms
and conditions of the agreement."42
BCDA filed a Motion to Dismiss43 on the ground that there was
no arbitration clause that DMCI-PDI could enforce since DMCI-
PDI was not a party to the Joint Venture Agreement containing
the arbitration clause.44Northrail filed a separate Motion to
Dismiss45 on the ground that the court did not have jurisdiction
over it and that DMCI-PDI had no cause for arbitration against
it.46
chanroblesvirtuallawlibrary
In the Decision47 dated February 9, 2006, the trial court denied
BCDA's and Northrail's Motions to Dismiss and granted DMCI-
PDI's Petition to Compel Arbitration. The dispositive portion of
the decision reads:
WHEREFORE, the petition is granted. The parties are ordered to
present their dispute to arbitration in accordance with Article
XVI of the Joint Agreement.
SO ORDERED.48 chanrobleslaw
The trial court ruled that the arbitration clause in the Joint
Venture Agreement should cover all subsequent documents
including the amended Joint Venture Agreement and the
Memorandum of Agreement. The three (3) documents
constituted one contract for the formation and funding of
Northrail.49 chanroblesvirtuallawlibrary
The trial court also ruled that even though DMCI-PDI was not a
signatory to the Joint Venture Agreement and the Memorandum
of Agreement, it was an assignee of D.M. Consunji, Inc.'s rights.
Therefore, it could invoke the arbitration clause in the Joint
Venture Agreement.50
In an Order51 dated June 9, 2006, the trial court denied BCDA
and Northrail's Motion for Reconsideration of the February 9,
2006 trial court Decision.
BCDA filed a Rule 45 Petition before this court, assailing the
February 9, 2006 trial court Order granting DMCI-PDI's Petition
chanroblesvirtuallawlibrary to Compel Arbitration and the June 9, 2006 Order denying
BCDA and Northrail's Motion for Reconsideration.52 chanroblesvirtuallawlibrary
The issue in this case is whether DMCI-PDI may compel BCDA
and Northrail to submit to arbitration.
BCDA argued that only the parties to an arbitration agreement
can be bound by that agreement.53 The arbitration clause that
DMCI-PDI sought to enforce was in the Joint Venture
Agreement, to which DMCI-PDI was not a party.54 There was
also no evidence that the right to compel arbitration under the
Joint Venture Agreement was assigned to DMCI-
PDI.55 Assuming that there was such an assignment, BCDA did
not consent to or recognize it.56 Therefore, the trial court's
conclusion that DMCI-PDI was D.M. Consunji, Inc.'s assignee
had no basis.57 In BCDA's view, DMCI-PDI had no right to
compel BCDA to submit to arbitration.58 chanroblesvirtuallawlibrary
BCDA also argued that the trial court decided the Motion to
Dismiss in violation of the parties' right to due process. The trial
court should have conducted a hearing so that the parties could
have presented their respective positions on the issue of
assignment. The trial court merely accepted DMCI-PDI's
allegations, without basis.59chanroblesvirtuallawlibrary
In a separate Petition for Review,60 Northrail argued that it
cannot be compelled to submit itself to arbitration because it
was not a party to the arbitration agreement.61 chanroblesvirtuallawlibrary
Northrail also argued that DMCI-PDI cannot initiate an action to
compel BCDA and Northrail to arbitration because DMCI-PDI
itself was not a party to the arbitration agreement. DMCI-PDI
chanroblesvirtuallawlibrary
was not D.M. Consunji, Inc.'s assignee because BCDA did not
consent to that assignment.62 chanroblesvirtuallawlibrary
In its Comment63 on BCDA's Petition, DMCI-PDI argued that
Rule 45 was a wrong mode of appeal.64 The issues raised by
BCDA did not involve questions of law.65
DMCI-PDI pointed out that BCDA breached their agreement
when it failed to apply the P300 million deposit to Northrail
subscriptions. It turned out that such application was rendered
impossible by the alleged loan requirement that Northrail be
wholly owned by the government and by Northrail's withdrawal
from the Securities and Exchange Commission of its application
for an increase in authorized capital stock.66
DMCI-PDI also argued that it is an assignee and nominee of
D.M. Consunji, Inc., which is a party to the contracts. Therefore,
it is also a party to the arbitration clause.67
DMCI-PDI contended that the arbitration agreement extended
to all documents relating to the project.68 Even though the
agreement was expressed only in the Joint Venture Agreement,
its effect extends to the amendment to the Joint Venture
Agreement and Memorandum of Agreement.69
DMCI-PDI emphasized that BCDA had always recognized it as
D.M. Consunji's assignee in its correspondences with the OGCC
and with the President of DMCI, Mr. Isidro Consunji.70 In those
letters, BCDA described DMCI-PDI's participation as being the
"joint venture partner . . . and co-investor in the Manila Clark
Rapid Railway Project[.]"71 Hence, it is now estopped from
denying its personality in this case.72
We rule for DMCI-PDI. chanRoblesvirtualLawlibrary
I resolution of appropriate cases. Likewise, the State shall enlist
The state has a policy in favor of arbitration
At the outset, we must state that BCDA and Northrail invoked
the correct remedy. Rule 45 is applicable when the issues raised
before this court involved purely questions of law. In Villamor v.
Balmores:73 chanroblesvirtuallawlibrary
[t]here is a question of law "when there is doubt or controversy
as to what the law is on a certain [set] of facts." The test is
"whether the appellate court can determine the issue raised
chanroblesvirtuallawlibrary without reviewing or evaluating the evidence." Meanwhile, there
is a question of fact when there is "doubt ... as to the truth or
falsehood of facts." The question must involve the examination
of probative value of the evidence presented.74 chanroblesvirtuallawlibrary
BCDA and Northrail primarily ask us to construe the arbitration
clause in the Joint Venture Agreement. They assert that the
clause does not bind DMCI-PDI and Northrail. This issue is a
chanroblesvirtuallawlibrary question of law. It does not require us to examine the probative
value of the evidence presented. The prayer is essentially for
this court to determine the scope of an arbitration clause.
chanroblesvirtuallawlibrary Arbitration is a mode of settling disputes between parties.75 Like
many alternative dispute resolution processes, it is a product of
the meeting of minds of parties submitting a pre-defined set of
disputes. They agree among themselves to a process of dispute
resolution that avoids extended litigation.
chanroblesvirtuallawlibrary The state adopts a policy in favor of arbitration. Republic Act
No. 928576 expresses this policy:
SEC. 2. Declaration of Policy. - It is hereby declared the policy
of the State to actively promote party autonomy in the
resolution of disputes or the freedom of the parties to make
their own arrangements to resolve their disputes. Towards this
end, the State shall encourage and actively promote the use of
chanroblesvirtuallawlibrary
Alternative Dispute Resolution (ADR) as an important means to
achieve speedy and impartial justice and declog court
dockets. As such, the State shall provide means for the use of
ADR as an efficient tool and an alternative procedure for the
active private sector participation in the settlement of disputes
through ADR. This Act shall be without prejudice to the adoption
by the Supreme Court of any ADR system, such as mediation,
conciliation, arbitration, or any combination thereof as a means
of achieving speedy and efficient means of resolving cases
pending before all courts in the Philippines which shall be
governed by such rules as the Supreme Court may approve
from time to time. (Emphasis supplied)

Our policy in favor of party autonomy in resolving disputes has
been reflected in our laws as early as 1949 when our Civil Code
was approved.77 Republic Act No. 87678 later explicitly
recognized the validity and enforceability of parties' decision to
submit disputes and related issues to arbitration.79chanroblesvirtuallawlibrary
Arbitration agreements are liberally construed in favor of
proceeding to arbitration.80 We adopt the interpretation that
would render effective an arbitration clause if the terms of the
agreement allow for such interpretation.81 In LM Power
Engineering Corporation v. Capitol Industrial Construction
Groups, Inc.,82 this court said:
Consistent with the above-mentioned policy of encouraging
alternative dispute resolution methods, courts should liberally
construe arbitration clauses. Provided such clause is susceptible
of an interpretation that covers the asserted dispute, an order
to arbitrate should be granted. Any doubt should be resolved in
favor of arbitration.83
chanrobleslaw
This manner of interpreting arbitration clauses is made explicit
in Section 25 of Republic Act No. 9285:
SEC. 25. Interpretation of the Act.-In interpreting the Act, the
court shall have due regard to the policy of the law in favor of
arbitration. Where action is commenced by or against multiple
parties, one or more of whom are parties to an arbitration
agreement, the court shall refer to arbitration those parties who
are bound by the arbitration agreement although the civil action
may continue as to those who are not bound by such arbitration
agreement.
Hence, we resolve the issue of whether DMCI-PDI may compel
BCDA and Northrail to submit to arbitration proceedings in light
of the policy in favor of arbitration.
BCDA and Northrail assail DMCI-PDI's right to compel them to
submit to arbitration based on the assumption that DMCI-PDI
was not a party to the agreement containing the arbitration
clause.
Three documents — (a) Joint Venture Agreement, (b) amended
Joint Venture Agreement, and (c) Memorandum of Agreement
— represent the agreement between BCDA, Northrail, and D.M.
Consunji, Inc. Among the three documents, only the Joint
Venture Agreement contains the arbitration clause. DMCI-PDI
was allegedly not a party to the Joint Venture Agreement.
To determine the coverage of the arbitration clause, the relation
among the three documents and DMCI-PDI's involvement in the
execution of these documents must first be understood.
The Joint Venture Agreement was executed by BCDA, PNR, and
some foreign corporations.84 The purpose of the Joint Venture
Agreement was for the construction of a railroad system from
Manila to Clark with a possible extension to Subic Bay and later
to San Fernando, La Union, Laoag, Ilocos Norte, and San Jose,
Nueva Ejica.85Under the Joint Venture Agreement, BCDA agreed
to incorporate Northrail, which shall have an authorized capital
stock of F5.5 billion.86 The parties agreed that BCDA/PNR shall
have a 30% equity with Northrail.87Other Filipino partners shall
have a total of 50% equity, while foreign partners shall have at
most 20% equity.88 Pertinent provisions of the Joint Venture
Agreement are as follows:
JOINT VENTURE AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
This Joint Venture Agreement (JVA) made and executed at
Makati, Metro Manila, this__ day of June 1995 by and between:
The BASES CONVERSION DEVELOPMENT AUTHORITY
. . . hereinafter referred to as BASECON;
The PHILIPPINE NATIONAL RAILWAYS ...;
The following corporations collectively referred to as
the Foreign Group:
a) CONSTRUCCIONES Y AUXILIAR DE
FERROCARRILES, S.A... .;

b) ENTRECANALES Y TAVORA, SA . . .;
c) CUBIERTAS MZOV, S.A. . . .;
d) COBRA, S.A....; and
e) Others who may later participate in the JVA.chanRoblesvirtualLawlibrary
-and-
EUROMA DEVELOPMENT CORPORATION . . .
WITNESSETH:
....
WHEREAS, a project identified pursuant to the aforesaid policy
is the establishment of a Premier International Airport Complex
located at the former Clark Air Base as expressed in Executive
Order 174 s. 1994 in order to accommodate the expected heavy
flow of passenger and cargo traffic to and from the Philippines,
to start the development of the Northern Luzon Grid and to
accelerate the development of Central Luzon and finally to
decongest Metro Manila of its vehicular traffic;
WHEREAS, in order to implement and provide such a mass
transit and access system, the parties hereto agreed to
construct a double-trac[k] railway system from Manila to Clark
with a possible extension to Subic Bay and later to San
Fernando, La Union, as the second phase, and finally to Laoag,
Ilocos Norte and to San Jose, Nueva Ecija, as the third phase of
the project, hereinafter referred to as the PROJECT;
ARTICLE I
DEFINITION OF TERMS
....
1.5 "PROJECT" means the construction, operation and
management of a double-track railway system from Manila to
Clark with an extension to Subic Bay, and a possible extension
to San Fernando, La Union, as the second phase, and finally to
Laoag, Ilocos Norte and to San Jose, Nueva Ecija, as the third
phase of the PROJECT.
1.6 "North Luzon Railways Corporation
(NORTHRAIL)["] means the joint venture corporation to be
established in accordance with Article II hereof.
.... chanRoblesvirtualLawlibrary
ARTICLE II
THE NORTH LUZON RAILROAD CORPORATION
2.1 BASECON shall establish and incorporate in accordance with
the laws of the Republic of the Philippines a corporation to be
known as NORTH LUZON RAILWAYS CORPORATION
(NORTHRAIL) with an initial capitalization of one hundred
million pesos (PI 00,000,000.00).
2.2 NORTHRAIL shall eventually have an authorized capital
stock of FIVE BILLION FIVE HUNDRED MILLION PESOS (P 5.5
Billion) divided into 55,000,000 shares with par value of P 100
per share.
.... chanRoblesvirtualLawlibrary
ARTICLE III
PURPOSE OF NORTHRAIL
A. PRIMARY PURPOSE
3.1 To construct, operate and manage a railroad system to
serve Northern and Central Luzon; and to develop, construct,
manage, own, lease, sublease and operate establishments and
facilities of all kinds related to the railroad system;
.... chanRoblesvirtualLawlibrary
ARTICLE IV
PARTICIPATION/TRANSFER/ENCUMBRANCE OF SHARES

4.1 NORTHRAIL shall increase its authorized capital stock upon
the subscription thereon by the parties to this JVA in accordance
with the following equity proportion/participation:
Foreign Group up to 20%
Euroma/Filipino partners 50%
BASECON/PNR 30%
....
4.4 The shares owned by Filipino stockholders including
BASECON, PNR, EUROMA Development Corporation and
hereinafter to be owned by Filipino corporations shall not be
less than sixty percent (60%) at any given time.
.... chanRoblesvirtualLawlibrary
ARTICLE XVI
ARBITRATION
16. If any dispute arise hereunder which cannot be settled by
mutual accord between the parties to such dispute, then that
dispute shall be referred to arbitration. The arbitration shall be
held in whichever place the parties to the dispute decide and
failing mutual agreement as to a location within twenty-one
(21) days after the occurrence of the dispute, shall be held in
Metro Manila and shall be conducted in accordance with the
Philippine Arbitration Law (Republic Act No. 876) as
supplemented by the Rules of Conciliation and Arbitration of the
International Chamber of Commerce. All award of such
arbitration shall be final and binding upon the parties to the
dispute.
ARTICLE XVII
ASSIGNMENT
17.1 No party to this Agreement may assign, transfer or convey
this Agreement, create or incur any encumbrance of its rights or
any part of its rights and obligations hereunder or any shares of
stocks of NORTHRAIL to any person, firm or corporation without
the prior written consent of the other parties or except as
provided in the Articles of Incorporation and By-Laws of
NORTHRAIL and this Agreement.
17.2 This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors
and permitted assignees and designees or nominees whenever
possible.89 chanrobleslaw
The Joint Venture Agreement was amended on February 8,
199690 to include D.M. Consunji, Inc. and/or its nominee as
party.91 The participations of the parties in Northrail were also
modified. Pertinent provisions of the amended Joint Venture
Agreement are reproduced as follows:
This Amendment to the Joint Venture Agreement dated 10th of
June 1995 (the Agreement) made and executed
at_____________ , Metro Manila, on this 8th day of February
1996 by and among: chanRoblesvirtualLawlibrary
BASES CONVERSION DEVELOPMENT AUTHORITY . . .
hereinafter referred to as BASECON;
with
PHILIPPINE NATIONAL RAILWAYS ...
and
The following corporations collectively referred to as
the FOREIGN GROUP:
CONSTRUCCIONES Y AUXILIAR DE FERROCARRILES, S.A..
. .;
ENTRECANALES Y TAVORA, S.A....; CUBIERTAS Y MZOV,
S.A. . . .;
COBRA INSTALACIONES Y SERVICIOS, S.A.. . .; and
Other investors who may later participate in the Joint
Venture; chanRoblesvirtualLawlibrary
 and
Other local investors to be represented by EUROMA
DEVELOPMENT CORPORATION . . .
and
P.M. CONSUNJI. INC. and/or its nominee . . .
WITNESSETH THAT
WHEREAS, a Joint Venture Agreement (JVA) was executed on
the 10th of June 1995 between BASECON, PNR, FOREIGN
GROUP, and EUROMA;
....
NOW, THEREFORE, for and in consideration of the foregoing
premises and of the mutual covenant contained therein, THE
PARTIES HEREBY AGREE that the JVA should be amended as
follows:
1. In Article 1.3, D.M. CONSUNJI, INC. shall
be included as strategic partner, being one
of the Philippine registered companies
selected by BASECON, PNR and the Lead
Group on the basis of its qualifications for
the implementation of the Project.
2. Article 4.1 should read as follows:
"NORTHRAIL shall increase its authorized
capital stock upon the subscription thereon
by the Parties to this JVA in accordance
with the following equity
proportion/participation:
SRG.............................................
. up to 10%
DMCI............................................
......... 20%
BASECON/PNR.............................
up to 30%
Others..........................................
........... 40%
3. In Article 4.4, the Filipino corporations
whose total shares in NORTHRAIL's capital
stock, which should not be less than sixty
percent (60%) at any given time, shall
include D.M. CONSUNJI,
INC.93 (Underscoring supplied)
On February 8, 1996, the same date of the execution of the
amended Joint Venture Agreement, the same parties executed a
Memorandum of Agreement94 "to set up the mechanics for
raising the seed capitalization needed by
NORTHRAIL[.]"95 Pertinent provisions of the Memorandum of
Agreement are reproduced as follows:
WITNESSETH THAT
WHEREAS, the Manila - Clark Rapid Railway System Project,
hereinafter referred to as the Project, was identified as one of
the major infrastructure projects to accelerate the development
of Central Luzon, particularly the former U.S. bases at Clark and
Subic;
....
WHEREAS, the North Luzon Railways Corporation
(NORTHRAIL) was organized and incorporated to implement the
development, construction, operation and maintenance of the
railway system in Northern Luzon;
WHEREAS, NORTHRAIL is wholly owned and controlled by
BASECON;
WHEREAS, the privatization of NORTHRAIL is necessary in
order to accelerate the implementation of the Project by tapping
the financial resources and expertise of the private sector;
....

WHEREAS, the Parties of the Joint Venture Agreement (JVA) of
10 June 1995, namely BASECON, PNR, SPANISH RAILWAY
GROUP and EUROMA, agreed to invite other private investors to
help in the financing and implementation of the Project, and to
raise the required equity in order to accelerate the privatization
of NORTHRAIL;
WHEREAS, DMCI and other private investors. . . have
manifested their desire to be strategic partners in implementing
the Project;
WHEREAS, DMCI and other private investors have the financial
capability to implement the Project;
WHEREAS, Phase I of the Project covers the Manila - Clark
section of the North Luzon railway network as defined by the
JVA of 10 June 1995 . . .[;]
.... chanRoblesvirtualLawlibrary
ARTICLE I
PURPOSE
1.1 Purpose. This Agreement is entered into by the Parties in
order to set up the mechanics for raising the seed capitalization
needed by NORTHRAIL to accelerate the implementation of the
Project.
.... chanRoblesvirtualLawlibrary
ARTICLE II
TERMS OF AGREEMENT
....
2.1 The Parties agree to put up the necessary seed
capitalization needed by NORTHRAIL to fast-track the
implementation of the Rapid Rail Transit System Project
according to the following schedule:
BCDA/PNR...................... PHP 300 Million
DMCI..................................................... PHP 200 Million
SRG...................................................... PHP 100 Million
TOTAL................................................... PHP 600 Million
....
2.3 The amounts contributed by BCDA/PNR, DMCI, SRG, and
others are committed to be converted to equity when
NORTHRAIL is privatized.96 chanroblesvirtuallawlibrary
There is no rule that a contract should be contained in a single
document.97 A whole contract may be contained in several
documents that are consistent with one other.98 chanroblesvirtuallawlibrary
Moreover, at any time during the lifetime of an agreement,
circumstances may arise that may cause the parties to change
or add to the terms they previously agreed upon. Thus,
amendments or supplements to the agreement may be
executed by contracting parties to address the circumstances or
issues that arise while a contract subsists.
When an agreement is amended, some provisions are changed.
Certain parts or provisions may be added, removed, or
corrected. These changes may cause effects that are
inconsistent with the wordings of the contract before the
changes were applied. In that case, the old provisions shall be
deemed to have lost their force and effect, while the changes
shall be deemed to have taken effect. Provisions that are not
affected by the changes usually remain effective.
When a contract is supplemented, new provisions that are not
inconsistent with the old provisions are added. The nature,
scope, and terms and conditions are expanded. In that case,
the old and the new provisions form part of the contract.
A reading of all the documents of agreement shows that they
were executed by the same parties. Initially, the Joint Venture
Agreement was executed only by BCD A, PNR, and the foreign
corporations. When the Joint Venture Agreement was amended
to include D.M. Consunji, Inc. and/or its nominee, D.M.
Consunji, Inc. and/or its nominee were deemed to have been
also a party to the original Joint Venture Agreement executed
by BCDA, PNR, and the foreign corporations. D.M. Consunji, Inc.
and/or its nominee became bound to the terms of both the Joint
Venture Agreement and its amendment.
Moreover, each document was executed to achieve the single
purpose of implementing the railroad project, such that
documents of agreement succeeding the original Joint Venture
Agreement merely amended or supplemented the provisions of
the original Joint Venture Agreement.
The first agreement — the Joint Venture Agreement — defined
the project, its purposes, the parties, the parties' equity
participation, and their responsibilities. The second agreement
— the amended Joint Venture Agreement —- only changed the
equity participation of the parties and included D.M. Consunji,
Inc. and/or its nominee as party to the railroad project. The
third agreement — the Memorandum of Agreement — raised
the seed capitalization of Northrail from P100 million as
indicated in the first agreement to P600 million, in order to
accelerate the implementation of the same project defined in
the first agreement.
The Memorandum of Agreement is an implementation of the
Joint Venture Agreement and the amended Joint Venture
Agreement. It could not exist without referring to the provisions
of the original and amended Joint Venture Agreements. It
assumes a prior knowledge of its terms. Thus, it referred to
"North Luzon railway network as defined by the JVA of 10 June
1995[.]"99chanroblesvirtuallawlibrary
In other words, each document of agreement represents a step
toward the implementation of the project, such that the three
agreements must be read together for a complete
understanding of the parties' whole agreement. The Joint
Venture Agreement, the amended Joint Venture Agreement,
and the Memorandum of Agreement should be treated as one
contract because they all form part of a whole agreement.
Hence, the arbitration clause in the Joint Venture Agreement
should not be interpreted as applicable only to the Joint Venture
Agreement's original parties. The succeeding agreements are
deemed part of or a continuation of the Joint Venture
Agreement. The arbitration clause should extend to all the
agreements and its parties since it is still consistent with all the
terms and conditions of the amendments and supplements. chanRoblesvirtualLawlibrary
II
BCDA and Northrail argued that they did not consent to D.M.
Consunji, Inc.'s assignment of rights to DMCI-PDI. Therefore,
DMCI-PDI did not validly become a party to any of the
agreement. Section 17.1 of the Joint Venture Agreement
provides that rights under the agreement may not be assigned,
transferred, or conveyed without the consent of the other
party.100 Thus:
17.1 No party to this Agreement may assign, transfer or convey
this Agreement, create or incur any encumbrance of its rights or
any part of its rights and obligations hereunder or any shares of
stocks of NORTHRAIL to any person, firm or corporation without
the prior written consent of the other parties or except as
provided in the Articles of Incorporation and By-Laws of
NORTHRAIL and the Agreement.101 chanroblesvirtuallawlibrary
However, Section 17.2 of the Joint Venture Agreement provides
that the agreement shall be binding on nominees:
17.2 This Agreement shall inure to the benefit of and be
binding upon the parties . . . and their respective successors
and permitted assignees and designees or nominees whenever
applicable.102(Emphasis supplied)
The principal parties to the agreement after its amendment
include D.M. Consunji, Inc. and/or its nominee:
AMENDMENT TO THE JOINT VENTURE AGREEMENT
This Amendment to the Joint Venture Agreement dated 10th of
June 1995 (the Agreement) made and executed at
_____________ , Metro Manila, on this 8th day of February
1996 by and among:
BASES CONVERSION DEVELOPMENT AUTHORITY . . .
with

PHILIPPINE NATIONAL RAILWAYS . . . chanRoblesvirtualLawlibrary
and
....
D.M. CONSUNJI, INC. and/or its nominee, a domestic
corporation duly organized and created pursuant to the laws of
the Republic of the Philippines . . .103 (Emphasis supplied)
MEMORANDUM OF AGREEMENT
This Agreement made and executed at Pasig, Metro Manila,
Philippines on this 8[th] day of February 1996 by and among:
BASES CONVERSION DEVELOPMENT AUTHORITY . . .
with
PHILIPPINE NATIONAL RAILWAYS ... chanRoblesvirtualLawlibrary
and
D.M. CONSUNJI, INC. and/or its nominee, a domestic
corporation duly organized and created pursuant to the laws of
the Republic of the Philippines . . .104 (Emphasis supplied)
Based on DMCI-PDFs letter to BCDA and Northrail dated April 4,
1997, D.M. Consunji, Inc. designated DMCI-PDI as its nominee
for the agreements it entered into in relation to the project:
[I]n order to formalize the inclusion of [DMCI Project
Developers, Inc.] as a party to the JVA and MOA, DMCI would
like to notify all the parties that it is designating PDI as its
nominee in both agreements and such other agreements that
may be signed by the parties in furtherance of or in connection
with the PROJECT. By this nomination, all the rights,
obligations, warranties and commitments of DMCI under the
JVA and MOA shall henceforth be assumed performed and
delivered by PDI.105 (Emphasis supplied)
Thus, lack of consent to the assignment is irrelevant because
there was no assignment or transfer of rights to DMCI-PDI.
DMCI-PDI was D.M. Consunji, Inc.'s nominee.
Section 17.2 of the Joint Venture Agreement clearly shows an
intent to treat assignment and nomination differently.
chanRoblesvirtualLawlibrary
17.2 This Agreement shall inure to the benefit of and be
binding upon the parties . . . and their respective successors
and permitted assignees and designees or nominees whenever
applicable.106(Emphasis supplied)
Assignment involves the transfer of rights after the perfection of
chanRoblesvirtualLawlibrary
a contract. Nomination pertains to the act of naming the party
with whom it has a relationship of trust or agency.
In Philippine Coconut Producers Federation, Inc. (COCOFED) v.
Republic,107 this court defined "nominee" as follows:
In its most common signification, the term "nominee'' refers to
one who is designated to act for another usually in a limited
way; a person in whose name a stock or bond certificate is
registered but who is not the actual owner thereof is considered
a nominee." Corpus Juris Secundum describes a nominee as
one:
". . . designated to act for another as his representative in a
rather limited sense. It has no connotation, however, other than
that of acting for another, in representation of another or as the
grantee of another. In its commonly accepted meaning the term
connoted the delegation of authority to the nominee in a
representative or nominal capacity only, and does not connote
the transfer or assignment to the nominee of any property in, or
ownership of, the rights of the person nominating
him."108 (Citations omitted)
Contrary to BCDA and Northrail's position, therefore, the
agreement's prohibition against transfers, conveyance, and
assignment of rights without the consent of the other party
does not apply to nomination.
DMCI-PDI is a party to all the agreements, including the
arbitration agreement. It may, thus, invoke the arbitration
clause against all the parties. chanRoblesvirtualLawlibrary
III
Northrail, although not a signatory to the contracts, is also
bound by the arbitration agreement.
In Lanuza v. BF Corporation,109 we recognized that there are
instances when non-signatories to a contract may be compelled
to submit to arbitration.110 Among those instances is when a
non-signatory is allowed to invoke rights or obligations based on
the contract.111
chanroblesvirtuallawlibrary
The subject of BCDA and D.M. Consunji, Inc.'s agreement was
the construction and operation of a railroad system. Northrail
was established pursuant to this agreement and its terms, and
for the same purpose, thus:
ARTICLE III
PURPOSE OF NORTHRAIL
A. PRIMARY PURPOSE
3.1. To construct, operate and manage a railroad system to
serve Northern and Central Luzon; and to develop, construct,
manage, own, lease, sublease and operate establishments and
facilities of all kinds related to the railroad system[.]112
Northrail's capitalization and the composition of its subscribers
are also subject to the provisions of the original and amended
Joint Venture Agreements, and the subsequent Memorandum of
Agreement. It was pursuant to the terms of these agreements
that Northrail demanded from D.M. Consunji, Inc. the infusion
of its share in subscription.
Therefore, Northrail cannot deny understanding that its
existence, purpose, rights, and obligations are tied to the
agreements. When Northrail demanded for the amount of D.M.
Consunji, Inc.'s subscription based on the agreements and later
accepted the latter's funds, it proved that it was bound by the
agreements' terms. It is also deemed to have accepted the term
that such funds shall be used for its privatization. It cannot
choose to demand the enforcement of some of its provisions if it
is in its favor, and then later by whim, deny being bound by its
terms.
Hence, when BCDA and Northrail decided not to proceed with
Northrail's privatization and the transfer of subscriptions to D.M.
Consunji, Inc., any obligation to return its supposed
subscription attached not only to BCDA as party to the
agreement but primarily to Northrail as beneficiary that
impliedly accepted the terms of the agreement and received
D.M. Consunji, Inc.'s funds.
There is, therefore, merit to DMCI-PDI's argument that if the
Civil Code113 gives third party beneficiaries to a contract the
right to demand the contract's fulfillment in its favor, the
reverse should also be true.114 A beneficiary who communicated
his or her acceptance to the terms of the agreement before its
revocation may be compelled to abide by the terms of an
agreement, including the arbitration clause. In this case,
Northrail is deemed to have communicated its acceptance of the
terms of the agreements when it accepted D.M. Consunji, Inc.'s
funds.
Finally, judicial efficiency and economy require a policy to avoid
multiplicity of suits. As we said in Lanuza:
chanrobleslaw
Moreover, in Heirs ofAugusto Salas, this court affirmed its policy
against multiplicity of suits and unnecessary delay. This court
said that "to split the proceeding into arbitration for some
parties and trial for other parties would "result in multiplicity of
suits, duplicitous procedure and unnecessary delay." This court
also intimated that the interest of justice would be best
observed if it adjudicated rights in a single proceeding. While
the facts of that case prompted this court to direct the trial
court to proceed to determine the issues of that case, it did not
prohibit courts from allowing the case to proceed to arbitration,
when circumstances warrant.115 chanrobleslaw
WHEREFORE, the petitions are DENIED. The February 9, 2006
Regional Trial Court Decision and the June 9, 2006 Regional
Trial Court Order are AFFIRMED.
SO ORDERED. cralaw