Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 96283 February 25, 1992

CHUNG FU INDUSTRIES (PHILIPPINES) INC., its Directors and Officers

namely: HUANG KUO-CHANG, HUANG AN-CHUNG, JAMES J.R. CHEN,
TRISTAN A. CATINDIG, VICENTE B. AMADOR, ROCK A.C. HUANG, JEM S.C.
HUANG, MARIA TERESA SOLIVEN and VIRGILIO M. DEL ROSARIO, petitioners,

vs.

COURT OF APPEALS, HON. FRANCISCO X. VELEZ (Presiding Judge, Regional

Trail Court of Makati [Branch 57]) and ROBLECOR PHILIPPINES,
INC., respondents.

ROMERO, J.:

This is a special civil action for certiorari seeking to annul the Resolutions of the Court of
Appeals* dated October 22, 1990 and December 3, 1990 upholding the Orders of July 31, 1990
and August 23, 1990 of the Regional Trial Court of Makati, Branch 57, in Civil Case No. 90-
1335. Respondent Court of Appeals affirmed the ruling of the trial court that herein
petitioners, after submitting themselves for arbitration and agreeing to the terms and
conditions thereof, providing that the arbitration award shall be final and unappealable, are
precluded from seeking judicial review of subject arbitration award.

It appears that on May 17, 1989, petitioner Chung Fu Industries (Philippines) (Chung Fu for
brevity) and private respondent Roblecor Philippines, Inc. (Roblecor for short) forged a
construction agreement 1 whereby respondent contractor committed to construct and finish
on December 31, 1989, petitioner corporation's industrial/factory complex in Tanawan,
Tanza, Cavite for and in consideration of P42,000,000.00. In the event of disputes arising
from the performance of subject contract, it was stipulated therein that the issue(s) shall be
submitted for resolution before a single arbitrator chosen by both parties.

Apart from the aforesaid construction agreement, Chung Fu and Roblecor entered into two
(2) other ancillary contracts, to wit: one dated June 23, 1989, for the construction of a
dormitory and support facilities with a contract price of P3,875,285.00, to be completed on or
before October 31, 1989; 2 and the other dated August 12, 1989, for the installation of
electrical, water and hydrant systems at the plant site, commanding a price of P12.1 million
and requiring completion thereof one month after civil works have been finished. 3
However, respondent Roblecor failed to complete the work despite the extension of time
allowed it by Chung Fu. Subsequently, the latter had to take over the construction when it had
become evident that Roblecor was not in a position to fulfill its obligation.

Claiming an unsatisfied account of P10,500,000.00 and unpaid progress billings of

P2,370,179.23, Roblecor on May 18, 1990, filed a petition for Compulsory Arbitration with
prayer for Temporary Restraining Order before respondent Regional Trial Court, pursuant to
the arbitration clause in the construction agreement. Chung Fu moved to dismiss the petition
and further prayed for the quashing of the restraining order.

Subsequent negotiations between the parties eventually led to the formulation of an

arbitration agreement which, among others, provides:

2. The parties mutually agree that the arbitration shall proceed in accordance
with the following terms and conditions: —

xxx xxx xxx

d. The parties mutually agree that they will abide by the decision of
the arbitrator including any amount that may be awarded to either
party as compensation, consequential damage and/or interest
thereon;

e. The parties mutually agree that the decision of the arbitrator shall
be final and unappealable. Therefore, there shall be no further
judicial recourse if either party disagrees with the whole or any
part of the arbitrator's award.

f. As an exception to sub-paragraph (e) above, the parties mutually

agree that either party is entitled to seek judicial assistance for
purposes of enforcing the arbitrator's award;

xxx xxx xxx 4

(Emphasis supplied)

Respondent Regional Trial Court approved the arbitration agreement thru its Order of May
30, 1990. Thereafter, Engr. Willardo Asuncion was appointed as the sole arbitrator.

On June 30, 1990, Arbitrator Asuncion ordered petitioners to immediately pay respondent
contractor, the sum of P16,108,801.00. He further declared the award as final and
unappealable, pursuant to the Arbitration Agreement precluding judicial review of the award.

Consequently, Roblecor moved for the confirmation of said award. On the other hand, Chung
Fu moved to remand the case for further hearing and asked for a reconsideration of the
judgment award claiming that Arbitrator Asuncion committed twelve (12) instances of grave
error by disregarding the provisions of the parties' contract.
Respondent lower court denied Chung Fu's Motion to Remand thus compelling it to seek
reconsideration therefrom but to no avail. The trial court granted Roblecor's Motion for
Confirmation of Award and accordingly, entered judgment in conformity therewith.
Moreover, it granted the motion for the issuance of a writ of execution filed by respondent.

Chung Fu elevated the case via a petition for certiorari to respondent Court of Appeals. On
October 22,1990 the assailed resolution was issued. The respondent appellate court concurred
with the findings and conclusions of respondent trial court resolving that Chung Fu and its
officers, as signatories to the Arbitration Agreement are bound to observe the stipulations
thereof providing for the finality of the award and precluding any appeal therefrom.

A motion for reconsideration of said resolution was filed by petitioner, but it was similarly
denied by respondent Court of Appeals thru its questioned resolution of December 3, 1990.

Hence, the instant petition anchored on the following grounds:

First

Respondents Court of Appeals and trial Judge gravely abused their discretion
and/or exceeded their jurisdiction, as well as denied due process and substantial
justice to petitioners, — (a) by refusing to exercise their judicial authority and
legal duty to review the arbitration award, and (b) by declaring that petitioners
are estopped from questioning the arbitration award allegedly in view of the
stipulations in the parties' arbitration agreement that "the decision of the
arbitrator shall be final and unappealable" and that "there shall be no further
judicial recourse if either party disagrees with the whole or any part of the
arbitrator's award."

Second

Respondent Court of Appeals and trial Judge gravely abused their discretion
and/or exceeded their jurisdiction, as well as denied due process and substantial
justice to petitioner, by not vacating and annulling the award dated 30 June 1990
of the Arbitrator, on the ground that the Arbitrator grossly departed from the
terms of the parties' contracts and misapplied the law, and thereby exceeded the
authority and power delegated to him. (Rollo, p. 17)

Allow us to take a leaf from history and briefly trace the evolution of arbitration as a mode of
dispute settlement.

Because conflict is inherent in human society, much effort has been expended by men and
institutions in devising ways of resolving the same. With the progress of civilization, physical
combat has been ruled out and instead, more specific means have been evolved, such as
recourse to the good offices of a disinterested third party, whether this be a court or a private
individual or individuals.

Legal history discloses that "the early judges called upon to solve private conflicts were
primarily the arbiters, persons not specially trained but in whose morality, probity and good
sense the parties in conflict reposed full trust. Thus, in Republican
Rome, arbiter and judge (judex) were synonymous. The magistrate or praetor, after noting
down the conflicting claims of litigants, and clarifying the issues, referred them for decision to
a private person designated by the parties, by common agreement, or selected by them from
an apposite listing (the album judicium) or else by having the arbiter chosen by lot. The
judges proper, as specially trained state officials endowed with own power and jurisdiction,
and taking cognizance of litigations from beginning to end, only appeared under the Empire,
by the so-called cognitio extra ordinem." 5

Such means of referring a dispute to a third party has also long been an accepted alternative
to litigation at common law. 6

Sparse though the law and jurisprudence may be on the subject of arbitration in the
Philippines, it was nonetheless recognized in the Spanish Civil Code; specifically, the
provisions on compromises made applicable to arbitrations under Articles 1820 and
1821.7 Although said provisions were repealed by implication with the repeal of the Spanish
Law of Civil Procedure, 8 these and additional ones were reinstated in the present Civil
Code. 9

Arbitration found a fertile field in the resolution of labor-management disputes in the

Philippines. Although early on, Commonwealth Act 103 (1936) provided for compulsory
arbitration as the state policy to be administered by the Court of Industrial Relations, in time
such a modality gave way to voluntary arbitration. While not completely supplanting
compulsory arbitration which until today is practiced by government officials, the Industrial
Peace Act which was passed in 1953 as Republic Act No. 875, favored the policy of free
collective bargaining, in general, and resort to grievance procedure, in particular, as the
preferred mode of settling disputes in industry. It was accepted and enunciated more
explicitly in the Labor Code, which was passed on November 1, 1974 as Presidential Decree
No. 442, with the amendments later introduced by Republic Act No. 6715 (1989).

Whether utilized in business transactions or in employer-employee relations, arbitration was

gaining wide acceptance. A consensual process, it was preferred to orders imposed by
government upon the disputants. Moreover, court litigations tended to be time-consuming,
costly, and inflexible due to their scrupulous observance of the due process of law doctrine
and their strict adherence to rules of evidence.

As early as the 1920's, this Court declared:

In the Philippines fortunately, the attitude of the courts toward arbitration

agreements is slowly crystallizing into definite and workable form. . . . The rule
now is that unless the agreement is such as absolutely to close the doors of the
courts against the parties, which agreement would be void, the courts will look
with favor upon such amicable arrangements and will only with great reluctance
interfere to anticipate or nullify the action of the arbitrator. 10

That there was a growing need for a law regulating arbitration in general was acknowledged
when Republic Act No. 876 (1953), otherwise known as the Arbitration Law, was passed. "Said
Act was obviously adopted to
supplement — not to supplant — the New Civil Code on arbitration. It expressly declares that
"the provisions of chapters one and two, Title XIV, Book IV of the Civil Code shall remain in
force." 11

In recognition of the pressing need for an arbitral machinery for the early and expeditious
settlement of disputes in the construction industry, a Construction Industry Arbitration
Commission (CIAC) was created by Executive Order No. 1008, enacted on February 4, 1985.

In practice nowadays, absent an agreement of the parties to resolve their disputes via a
particular mode, it is the regular courts that remain the fora to resolve such matters. However,
the parties may opt for recourse to third parties, exercising their basic freedom to "establish
such stipulation, clauses, terms and conditions as they may deem convenient, provided they
are not contrary to law, morals, good customs, public order or public policy." 12 In such a case,
resort to the arbitration process may be spelled out by them in a contract in anticipation of
disputes that may arise between them. Or this may be stipulated in a submission agreement
when they are actually confronted by a dispute. Whatever be the case, such recourse to an
extrajudicial means of settlement is not intended to completely deprive the courts of
jurisdiction. In fact, the early cases on arbitration carefully spelled out the prevailing doctrine
at the time, thus: ". . . 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." 13

But certainly, the stipulation to refer all future disputes to an arbitrator or to submit an
ongoing dispute to one is valid. Being part of a contract between the parties, it is binding and
enforceable in court in case one of them neglects, fails or refuses to arbitrate. Going a step
further, in the event that they declare their intention to refer their differences to arbitration
first before taking court action, this constitutes a condition precedent, such that where a suit
has been instituted prematurely, the court shall suspend the same and the parties shall be
directed forthwith to proceed to arbitration. 14

A court action may likewise be proven where the arbitrator has not been selected by the
parties. 15

Under present law, may the parties who agree to submit their disputes to arbitration further
provide that the arbitrators' award shall be final, unappealable and executory?

Article 2044 of the Civil Code recognizes the validity of such stipulation, thus:

Any stipulation that the arbitrators' award or decision shall be final is valid,
without prejudice to Articles 2038, 2039 and 2040.

Similarly, the Construction Industry Arbitration Law provides that the arbitral award "shall be
final and inappealable except on questions of law which shall be appealable to the Supreme
Court." 16

Under the original Labor Code, voluntary arbitration awards or decisions were final,
unappealable and executory. "However, voluntary arbitration awards or decisions on money
claims, involving an amount exceeding One Hundred Thousand Pesos (P100,000.00) or
forty-percent (40%) of the paid-up capital of the respondent employer, whichever is lower,
maybe appealed to the National Labor Relations Commission on any of the following grounds:
(a) abuse of discretion; and (b) gross incompetence." 17 It is to be noted that the appeal in the
instances cited were to be made to the National Labor Relations Commission and not to the
courts.

With the subsequent deletion of the above-cited provision from the Labor Code, the voluntary
arbitrator is now mandated to render an award or decision within twenty (20) calendar days
from the date of submission of the dispute and such decision shall be final and executory after
ten (10) calendar days from receipt of the copy of the award or decision by the parties. 18

Where the parties agree that the decision of the arbitrator shall be final and unappealable as
in the instant case, the pivotal inquiry is whether subject arbitration award is indeed beyond
the ambit of the court's power of judicial review.

We rule in the negative. It is stated explicitly under Art. 2044 of the Civil Code that the finality
of the arbitrators' award is not absolute and without exceptions. Where the conditions
described in Articles 2038, 2039 and 2040 applicable to both compromises and arbitrations
are obtaining, the arbitrators' award may be annulled or rescinded. 19 Additionally, under
Sections 24 and 25 of the Arbitration Law, there are grounds for vacating, modifying or
rescinding an arbitrator's award. 20 Thus, if and when the factual circumstances referred to in
the above-cited provisions are present, judicial review of the award is properly warranted.

What if courts refuse or neglect to inquire into the factual milieu of an arbitrator's award to
determine whether it is in accordance with law or within the scope of his authority? How may
the power of judicial review be invoked?

This is where the proper remedy is certiorari under Rule 65 of the Revised Rules of Court. It
is to be borne in mind, however, that this action will lie only where a grave abuse of discretion
or an act without or in excess of jurisdiction on the part of the voluntary arbitrator is clearly
shown. For "the writ of certiorari is an extra-ordinary remedy and that certiorari jurisdiction
is not to be equated with appellate jurisdiction. In a special civil action of certiorari, the Court
will not engage in a review of the facts found nor even of the law as interpreted or applied by
the arbitrator unless the supposed errors of fact or of law are so patent and gross and
prejudicial as to amount to a grave abuse of discretion or an exces de pouvoir on the part of
the arbitrator." 21

Even decisions of administrative agencies which are declared "final" by law are not exempt
from judicial review when so warranted. Thus, in the case of Oceanic Bic Division (FFW), et
al. v. Flerida Ruth P. Romero, et al., 22 this Court had occasion to rule that:

. . . Inspite of statutory provisions making "final" the decisions of certain

administrative agencies, we have taken cognizance of petitions questioning these
decisions where want of jurisdiction, grave abuse of discretion, violation of due
process, denial of substantial justice or erroneous interpretation of the lawwere
brought to our attention . . . 23 (Emphasis ours).

It should be stressed, too, that voluntary arbitrators, by the nature of their functions, act in a
quasi-judicial capacity. 24 It stands to reason, therefore, that their decisions should not be
beyond the scope of the power of judicial review of this Court.
In the case at bar, petitioners assailed the arbitral award on the following grounds, most of
which allege error on the part of the arbitrator in granting compensation for various items
which apparently are disputed by said petitioners:

1. The Honorable Arbitrator committed grave error in failing to apply the terms
and conditions of the Construction Agreement, Dormitory Contract and Electrical
Contract, and in using instead the "practices" in the construction industry;

2. The Honorable Arbitrator committed grave error in granting extra

compensation to Roblecor for loss of productivity due to adverse weather
conditions;

3. The Honorable Arbitrator committed grave error in granting extra

compensation to Roblecor for loss due to delayed payment of progress billings;

4. The Honorable Arbitrator committed grave error in granting extra

compensation to Roblecor for loss of productivity due to the cement crisis;

5. The Honorable Arbitrator committed grave error in granting extra

compensation to Roblecor for losses allegedly sustained on account of the
failed coup d'état;

6. The Honorable Arbitrator committed grave error in granting to Roblecor the

amount representing the alleged unpaid billings of Chung Fu;

7. The Honorable Arbitrator committed grave error in granting to Roblecor the

amount representing the alleged extended overhead expenses;

8. The Honorable Arbitrator committed grave error in granting to Roblecor the

amount representing expenses for change order for site development outside the
area of responsibility of Roblecor;

9. The Honorable Arbitrator committed grave error in granting to Roblecor the

cost of warehouse No. 2;

10. The Honorable Arbitrator committed grave error in granting to Roblecor

extra compensation for airduct change in dimension;

11. The Honorable Arbitrator committed grave error in granting to Roblecor extra
compensation for airduct plastering; and

12. The Honorable Arbitrator committed grave error in awarding to Roblecor

attorney's fees.

After closely studying the list of errors, as well as petitioners' discussion of the same in their
Motion to Remand Case For Further Hearing and Reconsideration and Opposition to Motion
for Confirmation of Award, we find that petitioners have amply made out a case where the
voluntary arbitrator failed to apply the terms and provisions of the Construction Agreement
which forms part of the law applicable as between the parties, thus committing a grave abuse
of discretion. Furthermore, in granting unjustified extra compensation to respondent for
several items, he exceeded his powers — all of which would have constituted ground for
vacating the award under Section 24 (d) of the Arbitration Law.

But the respondent trial court's refusal to look into the merits of the case, despite prima
facie showing of the existence of grounds warranting judicial review, effectively deprived
petitioners of their opportunity to prove or substantiate their allegations. In so doing, the trial
court itself committed grave abuse of discretion. Likewise, the appellate court, in not giving
due course to the petition, committed grave abuse of discretion. Respondent courts should not
shirk from exercising their power to review, where under the applicable laws and
jurisprudence, such power may be rightfully exercised; more so where the objections raised
against an arbitration award may properly constitute grounds for annulling, vacating or
modifying said award under the laws on arbitration.

WHEREFORE, the petition is GRANTED. The Resolutions of the Court of Appeals dated
October 22, 1990 and December 3, 1990 as well as the Orders of respondent Regional Trial
Court dated July 31, 1990 and August 23, 1990, including the writ of execution issued
pursuant thereto, are hereby SET ASIDE. Accordingly, this case is REMANDED to the court of
origin for further hearing on this matter. All incidents arising therefrom are reverted to
the status quo ante until such time as the trial court shall have passed upon the merits of this
case. No costs.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 120105 March 27, 1998

BF CORPORATION, petitioner,
vs.
COURT OF APPEALS, SHANGRI-LA PROPERTIES, INC., RUFO B. COLAYCO,
ALFREDO C. RAMOS, MAXIMO G. LICAUCO III and BENJAMIN C.
RAMOS, respondents.

ROMERO, J.:

The basic issue in this petition for review on certiorari is whether or not the contract for the
construction of the EDSA Plaza between petitioner BF Corporation and respondent Shangri-la
Properties, Inc. embodies an arbitration clause in case of disagreement between the parties in
the implementation of contractual provisions.

Petitioner and respondent Shangri-la Properties, Inc. (SPI) entered into an agreement
whereby the latter engaged the former to construct the main structure of the "EDSA Plaza
Project," a shopping mall complex in the City of Mandaluyong. The construction work was in
progress when SPI decided to expand the project by engaging the services of petitioner again.
Thus, the parties entered into an agreement for the main contract works after which
construction work began.

However, petitioner incurred delay in the construction work that SPI considered as "serious
and substantial."1 On the other hand, according to petitioner, the construction works
"progressed in faithful compliance with the First Agreement until a fire broke out on
November 30, 1990 damaging Phase I" of the Project.2 Hence, SPI proposed the re-
negotiation of the agreement between them.

Consequently, on May 30, 1991, petitioner and SPI entered into a written agreement
denominated as "Agreement for the Execution of Builder's Work for the EDSA Plaza Project."
Said agreement would cover the construction work on said project as of May 1, 1991 until its
eventual completion.

According to SPI, petitioner "failed to complete the construction works and abandoned the
project."3 This resulted in disagreements between the parties as regards their respective
liabilities under the contract. On July 12, 1993, upon SPI's initiative, the parties' respective
representatives met in conference but they failed to come to an agreement.4
Barely two days later or on July 14, 1993, petitioner filed with the Regional Trial Court of
Pasig a complaint for collection of the balance due under the construction agreement. Named
defendants therein were SPI and members of its board of directors namely, Alfredo C. Ramos,
Rufo B. Calayco, Antonio B. Olbes, Gerardo O. Lanuza, Jr., Maximo G. Licauco III and
Benjamin C. Ramos.

On August 3, 1993, SPI and its co-defendants filed a motion to suspend proceedings instead of
filing an answer. The motion was anchored on defendants' allegation that the formal trade
contract for the construction of the project provided for a clause requiring prior resort to
arbitration before judicial intervention could be invoked in any dispute arising from the
contract. The following day, SPI submitted a copy of the conditions of the contract containing
the arbitration clause that it failed to append to its motion to suspend proceedings.

Petitioner opposed said motion claiming that there was no formal contract between the
parties although they entered into an agreement defining their rights and obligations in
undertaking the project. It emphasized that the agreement did not provide for arbitration and
therefore the court could not be deprived of jurisdiction conferred by law by the mere
allegation of the existence of an arbitration clause in the agreement between the parties.

In reply to said opposition, SPI insisted that there was such an arbitration clause in the
existing contract between petitioner and SPI. It alleged that suspension of proceedings would
not necessarily deprive the court of its jurisdiction over the case and that arbitration would
expedite rather than delay the settlement of the parties' respective claims against each other.

In a rejoinder to SPI's reply, petitioner reiterated that there was no arbitration clause in the
contract between the parties. It averred that granting that such a clause indeed formed part of
the contract, suspension of the proceedings was no longer proper. It added that defendants
should be declared in default for failure to file their answer within the reglementary period.

In its sur-rejoinder, SPI pointed out the significance of petitioner's admission of the due
execution of the "Articles of Agreement." Thus, on page D/6 thereof, the signatures of Rufo B.
Colayco, SPI president, and Bayani Fernando, president of petitioner appear, while page D/7
shows that the agreement is a public document duly notarized on November 15, 1991 by
Notary Public Nilberto R. Briones as document No. 345, page 70, book No. LXX, Series of
1991 of his notarial register.5

Thereafter, upon a finding that an arbitration clause indeed exists, the lower court6 denied the
motion to suspend proceedings, thus:

It appears from the said document that in the letter-agreement dated May 30,
1991 (Annex C, Complaint), plaintiff BF and defendant Shangri-La Properties,
Inc. agreed upon the terms and conditions of the Builders Work for the EDSA
Plaza Project (Phases I, II and Carpark), subject to the execution by the parties of
a formal trade contract. Defendants have submitted a copy of the alleged trade
contract, which is entitled "Contract Documents For Builder's Work Trade
Contractor" dated 01 May 1991, page 2 of which is entitled "Contents of Contract
Documents" with a list of the documents therein contained, and Section A thereof
consists of the abovementioned Letter-Agreement dated May 30, 1991. Section C
of the said Contract Documents is entitled "Articles of Agreement and Conditions
 of Contract" which, per its Index, consists of Part A (Articles of Agreement) and B
(Conditions of Contract). The said Articles of Agreement appears to have been
duly signed by President Rufo B. Colayco of Shangri-La Properties, Inc. and
President Bayani F. Fernando of BF and their witnesses, and was thereafter
acknowledged before Notary Public Nilberto R. Briones of Makati, Metro Manila
on November 15, 1991. The said Articles of Agreement also provides that the
"Contract Documents" therein listed "shall be deemed an integral part of this
Agreement", and one of the said documents is the "Conditions of Contract"
which contains the Arbitration Clause relied upon by the defendants in their
Motion to Suspend Proceedings.

This Court notes, however, that the 'Conditions of Contract' referred to, contains the following
provisions:

3. Contract Document.

Three copies of the Contract Documents referred to in the Articles of

Agreement shall be signed by the parties to the contract and
distributed to the Owner and the Contractor for their safe keeping."
(emphasis supplied).

And it is significant to note further that the said "Conditions of Contract" is not
duly signed by the parties on any page thereof — although it bears the initials of
BF's representatives (Bayani F. Fernando and Reynaldo M. de la Cruz) without
the initials thereon of any representative of Shangri-La Properties, Inc.

Considering the insistence of the plaintiff that the said Conditions of Contract
was not duly executed or signed by the parties, and the failure of the defendants
to submit any signed copy of the said document, this Court entertains serious
doubt whether or not the arbitration clause found in the said Conditions of
Contract is binding upon the parties to the Articles of Agreement." (Emphasis
supplied.)

The lower court then ruled that, assuming that the arbitration clause was valid and binding,
still, it was "too late in the day for defendants to invoke arbitration." It quoted the following
provision of the arbitration clause:

Notice of the demand for arbitration of a dispute shall be filed in writing with the
other party to the contract and a copy filed with the Project Manager. The
demand for arbitration shall be made within a reasonable time after the dispute
has arisen and attempts to settle amicably have failed; in no case, however, shall
the demand he made be later than the time of final payment except as otherwise
expressly stipulated in the contract.

Against the above backdrop, the lower court found that per the May 30, 1991 agreement, the
project was to be completed by October 31, 1991. Thereafter, the contractor would pay
P80,000 for each day of delay counted from November 1, 1991 with "liquified (sic) damages
up to a maximum of 5% of the total contract price."
The lower court also found that after the project was completed in accordance with the
agreement that contained a provision on "progress payment billing," SPI "took possession and
started operations thereof by opening the same to the public in November, 1991." SPI, having
failed to pay for the works, petitioner billed SPI in the total amount of P110,883,101.52,
contained in a demand letter sent by it to SPI on February 17, 1993. Instead of paying the
amount demanded, SPI set up its own claim of P220,000,000.00 and scheduled a conference
on that claim for July 12, 1993. The conference took place but it proved futile.

Upon the above facts, the lower court concluded:

Considering the fact that under the supposed Arbitration Clause invoked by
defendants, it is required that "Notice of the demand for arbitration of a dispute
shall be filed in writing with the other party . . . . in no case . . . . later than the
time of final payment . . . "which apparently, had elapsed, not only because
defendants had taken possession of the finished works and the plaintiff's billings
for the payment thereof had remained pending since November, 1991 up to the
filing of this case on July 14, 1993, but also for the reason that defendants have
failed to file any written notice of any demand for arbitration during the said long
period of one year and eight months, this Court finds that it cannot stay the
proceedings in this case as required by Sec. 7 of Republic Act No. 876, because
defendants are in default in proceeding with such arbitration.

The lower court denied SPI's motion for reconsideration for lack of merit and directed it and
the other defendants to file their responsive pleading or answer within fifteen (15) days from
notice.

Instead of filing an answer to the complaint, SPI filed a petition for certiorari under Rule 65
of the Rules of Court before the Court of Appeals. Said appellate court granted the petition,
annulled and set aside the orders and stayed the proceedings in the lower court. In so ruling,
the Court of Appeals held:

The reasons given by the respondent Court in denying petitioners' motion to

suspend proceedings are untenable.

1. The notarized copy of the articles of agreement attached as Annex A to

petitioners' reply dated August 26, 1993, has been submitted by them to the
respondent Court (Annex G, petition). It bears the signature of petitioner Rufo B.
Colayco, president of petitioner Shangri-La Properties, Inc., and of Bayani
Fernando, president of respondent Corporation (Annex G-1, petition). At page
D/4 of said articles of agreement it is expressly provided that the conditions of
contract are "deemed an integral part" thereof (page 188, rollo). And it is at pages
D/42 to D/44 of the conditions of contract that the provisions for arbitration are
found (Annexes G-3 to G-5, petition, pp. 227-229). Clause No. 35 on arbitration
specifically provides:

Provided always that in case any dispute or difference shall arise

between the Owner or the Project Manager on his behalf and the
Contractor, either during the progress or after the completion or
abandonment of the Works as to the construction of this Contract or
 as to any matter or thing of whatsoever nature arising thereunder or
in connection therewith (including any matter or being left by this
Contract to the discretion of the Project Manager or the withholding
by the Project Manager of any certificate to which the Contractor
may claim to be entitled or the measurement and valuation
mentioned in clause 30 (5) (a) of these Conditions' or the rights and
liabilities of the parties under clauses 25, 26, 32 or 33 of these
Conditions), the Owner and the Contractor hereby agree to exert all
efforts to settle their differences or dispute amicably. Failing these
efforts then such dispute or difference shall be referred to
Arbitration in accordance with the rules and procedures of the
Philippine Arbitration Law.

The fact that said conditions of contract containing the arbitration clause bear
only the initials of respondent Corporation's representatives, Bayani Fernando
and Reynaldo de la Cruz, without that of the representative of petitioner Shangri-
La Properties, Inc. does not militate against its effectivity. Said petitioner having
categorically admitted that the document, Annex A to its reply dated August 26,
1993 (Annex G, petition), is the agreement between the parties, the initial or
signature of said petitioner's representative to signify conformity to arbitration is
no longer necessary. The parties, therefore, should be allowed to submit their
dispute to arbitration in accordance with their agreement.

2. The respondent Court held that petitioners "are in default in proceeding with
such arbitration." It took note of "the fact that under the supposed Arbitration
Clause invoked by defendants, it is required that "Notice of the demand for
arbitration of a dispute shall be filed in writing with the other party . . . in no case
. . . later than the time of final payment," which apparently, had elapsed, not only
because defendants had taken possession of the finished works and the plaintiff's
billings for the payment thereof had remained pending since November, 1991 up
to the filing of this case on July 14, 1993, but also for the reason that defendants
have failed to file any written notice of any demand for arbitration during the said
long period of one year and eight months, . . . ."

Respondent Court has overlooked the fact that under the arbitration
clause —

Notice of the demand for arbitration dispute shall be filed in writing

with the other party to the contract and a copy filed with the Project
Manager. The demand for arbitration shall be made within a
reasonable time after the dispute has arisen and attempts to settle
amicably had failed; in no case, however, shall the demand be made
later than the time of final payment except as otherwise expressly
stipulated in the contract (emphasis supplied)

quoted in its order (Annex A, petition). As the respondent Court there said, after
the final demand to pay the amount of P110,883,101.52, instead of paying,
petitioners set up its own claim against respondent Corporation in the amount of
P220,000,000.00 and set a conference thereon on July 12, 1993. Said conference
 proved futile. The next day, July 14, 1993, respondent Corporation filed its
complaint against petitioners. On August 13, 1993, petitioners wrote to
respondent Corporation requesting arbitration. Under the circumstances, it
cannot be said that petitioners' resort to arbitration was made beyond reasonable
time. Neither can they be considered in default of their obligation to respondent
Corporation.

Hence, this petition before this Court. Petitioner assigns the following errors:

THE COURT OF APPEALS ERRED IN ISSUING THE EXTRAORDINARY WRIT

OF CERTIORARIALTHOUGH THE REMEDY OF APPEAL WAS AVAILABLE TO
RESPONDENTS.

THE COURT OF APPEALS ERRED IN FINDING GRAVE ABUSE OF

DISCRETION IN THE FACTUAL FINDINGS OF THE TRIAL COURT THAT:

(i) THE PARTIES DID NOT ENTER INTO AN

AGREEMENT TO ARBITRATE.

(ii) ASSUMING THAT THE PARTIES DID ENTER

INTO THE AGREEMENT TO ARBITRATE,
RESPONDENTS ARE ALREADY IN DEFAULT IN
INVOKING THE AGREEMENT TO ARBITRATE.

On the first assigned error, petitioner contends that the Order of the lower court denying the
motion to suspend proceedings "is a resolution of an incident on the merits." As such, upon
the continuation of the proceedings, the lower court would appreciate the evidence adduced in
their totality and thereafter render a decision on the merits that may or may not sustain the
existence of an arbitration clause. A decision containing a finding that the contract has no
arbitration clause can then be elevated to a higher court "in an ordinary appeal" where an
adequate remedy could be obtained. Hence, to petitioner, the Court of Appeals should have
dismissed the petition for certioraribecause the remedy of appeal would still be available to
private respondents at the proper time.7

The above contention is without merit.

The rule that the special civil action of certiorari may not be invoked as a substitute for the
remedy of appeal is succinctly reiterated in Ongsitco v. Court of Appeals8 as follows:

. . . . Countless times in the past, this Court has held that "where appeal is the
proper remedy, certiorariwill not lie." The writs of certiorari and prohibition are
remedies to correct lack or excess of jurisdiction or grave abuse of discretion
equivalent to lack of jurisdiction committed by a lower court. "Where the proper
remedy is appeal, the action for certiorari will not be entertained. . .
 . Certiorari is not a remedy for errors of judgment. Errors of judgment are
correctible by appeal, errors of jurisdiction are reviewable by certiorari."

Rule 65 is very clear. The extraordinary remedies of certiorari, prohibition

and mandamus are available only when "there is no appeal or any plain, speedy
and adequate remedy in the ordinary course of law . . . ." That is why they are
referred to as "extraordinary." . . . .

The Court has likewise ruled that "certiorari will not be issued to cure errors in proceedings
or correct erroneous conclusions of law or fact. As long as a court acts within its jurisdiction,
any alleged errors committed in the exercise of its jurisdiction will amount to nothing more
than errors of judgment which are reviewable by timely appeal and not by a special civil action
of certiorari."9

This is not exactly so in the instant case. While this Court does not deny the eventual
jurisdiction of the lower court over the controversy, the issue posed basically is whether the
lower court prematurely assumed jurisdiction over it. If the lower court indeed prematurely
assumed jurisdiction over the case, then it becomes an error of jurisdiction which is a proper
subject of a petition for certiorari before the Court of Appeals. And if the lower court does not
have jurisdiction over the controversy, then any decision or order it may render may be
annulled and set aside by the appellate court.

However, the question of jurisdiction, which is a question of law depends on the

determination of the existence of the arbitration clause, which is a question of fact. In the
instant case, the lower court found that there exists an arbitration clause. However, it ruled
that in contemplation of law, said arbitration clause does not exist.

The issue, therefore, posed before the Court of Appeals in a petition for certiorari is whether
the Arbitration Clause does not in fact exist. On its face, the the question is one of fact which is
not proper in a petition for certiorari.

The Court of Appeals found that an Arbitration Clause does in fact exist. In resolving said
question of fact, the Court of Appeals interpreted the construction of the subject contract
documents containing the Arbitration Clause in accordance with Republic Act No. 876
(Arbitration Law) and existing jurisprudence which will be extensively discussed hereunder.
In effect, the issue posed before the Court of Appeals was likewise a question of law. Being a
question of law, the private respondents rightfully invoked the special civil action
of certiorari.

It is that mode of appeal taken by private respondents before the Court of Appeals that is
being questioned by the petitioners before this Court. But at the heart of said issue is the
question of whether there exists an Arbitration Clause because if an Arbitration Clause does
not exist, then private respondents took the wrong mode of appeal before the Court of
Appeals.

For this Court to be able to resolve the question of whether private respondents took the
proper mode of appeal, which, incidentally, is a question of law, then it has to answer the core
issue of whether there exists an Arbitration Clause which, admittedly, is a question of fact.
Moreover, where a rigid application of the rule that certiorari cannot be a substitute for
appeal will result in a manifest failure or miscarriage of justice, the provisions of the Rules of
Court which are technical rules may be relaxed. 10 As we shall show hereunder, had the
Court of Appeals dismissed the petition for certiorari, the issue of whether or
not an arbitration clause exists in the contract would not have been resolved in
accordance with evidence extant in the record of the case. Consequently, this
would have resulted in a judicial rejection of a contractual provision agreed by
the parties to the contract.

In the same vein, this Court holds that the question of the existence of the
arbitration clause in the contract between petitioner and private respondents is
a legal issue that must be determined in this petition for review on certiorari.

Petitioner, while not denying that there exists an arbitration clause in the
contract in question, asserts that in contemplation of law there could not have
been one considering the following points. First, the trial court found that the
"conditions of contract" embodying the arbitration clause is not duly signed by
the parties. Second, private respondents misrepresented before the Court of
Appeals that they produced in the trial court a notarized duplicate original copy
of the construction agreement because what were submitted were mere
photocopies thereof. The contract(s) introduced in court by private respondents
were therefore "of dubious authenticity" because: (a) the Agreement for the
Execution of Builder's Work for the EDSA Plaza Project does not contain an
arbitration clause, (b) private respondents "surreptitiously attached as Annexes
"G-3" to "G-5" to their petition before the Court of Appeals but these documents
are not parts of the Agreement of the parties as "there was no formal trade
contract executed," (c) if the entire compilation of documents "is indeed a
formal trade contract," then it should have been duly notarized, (d) the
certification from the Records Management and Archives Office dated August
26, 1993 merely states that "the notarial record of Nilberto Briones . . . is
available in the files of (said) office as Notarial Registry Entry only," (e) the
same certification attests that the document entered in the notarial registry
pertains to the Articles of Agreement only without any other accompanying
documents, and therefore, it is not a formal trade contract, and (f) the
compilation submitted by respondents are a "mere hodge-podge of documents
and do not constitute a single intelligible agreement."

In other words, petitioner denies the existence of the arbitration clause

primarily on the ground that the representatives of the contracting corporations
did not sign the "Conditions of Contract" that contained the said clause. Its other
contentions, specifically that insinuating fraud as regards the alleged insertion
of the arbitration clause, are questions of fact that should have been threshed
out below.

This Court may as well proceed to determine whether the arbitration clause does
exist in the parties' contract. Republic Act No. 876 provides for the formal
requisites of an arbitration agreement as follows:
 Sec. 4. Form of arbitration agreement. — A contract to arbitrate a
controversy thereafter arising between the parties, as well as a
submission to arbitrate an existing controversy, shall be in writing
and subscribed by the party sought to be charged, or by his lawful
agent.

The making of a contract or submission for arbitration described in

section two hereof, providing for arbitration of any controversy, shall
be deemed a consent of the parties of the province or city where any
of the parties resides, to enforce such contract of submission.
(Emphasis supplied.).

The formal requirements of an agreement to arbitrate are therefore the

following: (a) it must be in writing and (b) it must be subscribed by the parties or
their representatives. There is no denying that the parties entered into a written
contract that was submitted in evidence before the lower court. To "subscribe"
means to write underneath, as one's name; to sign at the end of a
document. 11 That word may sometimes be construed to mean to give consent to
or to attest.12

The Court finds that, upon a scrutiny of the records of this case, these requisites
were complied with in the contract in question. The Articles of Agreement,
which incorporates all the other contracts and agreements between the parties,
was signed by representatives of both parties and duly notarized. The failure of
the private respondent's representative to initial the "Conditions of Contract"
would therefor not affect compliance with the formal requirements for
arbitration agreements because that particular portion of the covenants between
the parties was included by reference in the Articles of Agreement.

Petitioner's contention that there was no arbitration clause because the contract
incorporating said provision is part of a "hodge-podge" document, is therefore
untenable. A contract need not be contained in a single writing. It may be
collected from several different writings which do not conflict with each other
and which, when connected, show the parties, subject matter, terms and
consideration, as in contracts entered into by correspondence. 13 A contract may
be encompassed in several instruments even though every instrument is not
signed by the parties, since it is sufficient if the unsigned instruments are clearly
identified or referred to and made part of the signed instrument or instruments.
Similarly, a written agreement of which there are two copies, one signed by each
of the parties, is binding on both to the same extent as though there had been
only one copy of the agreement and both had signed it. 14

The flaw in petitioner's contentions therefore lies in its having segmented the
various components of the whole contract between the parties into several parts.
This notwithstanding, petitioner ironically admits the execution of the Articles
of Agreement. Notably, too, the lower court found that the said Articles of
Agreement "also provides that the 'Contract Documents' therein listed 'shall be
deemed an integral part of this Agreement,' and one of the said documents is the
'Conditions of Contract' which contains the Arbitration Clause.'" It is this
Articles of Agreement that was duly signed by Rufo B. Colayco, president of
private respondent SPI, and Bayani F. Fernando, president of petitioner
corporation. The same agreement was duly subscribed before notary public
Nilberto R. Briones. In other words, the subscription of the principal agreement
effectively covered the other documents incorporated by reference therein.

This Court likewise does not find that the Court of Appeals erred in ruling that
private respondents were not in default in invoking the provisions of the
arbitration clause which states that "(t)he demand for arbitration shall be made
within a reasonable time after the dispute has arisen and attempts to settle
amicably had failed." Under the factual milieu, private respondent SPI should
have paid its liabilities tinder the contract in accordance with its terms.
However, misunderstandings appeared to have cropped up between the parties
ostensibly brought about by either delay in the completion of the construction
work or by force majeure or the fire that partially gutted the project. The almost
two-year delay in paying its liabilities may not therefore be wholly ascribed to
private respondent SPI.

Besides, private respondent SPI's initiative in calling for a conference between

the parties was a step towards the agreed resort to arbitration. However,
petitioner posthaste filed the complaint before the lower court. Thus, while
private respondent SPI's request for arbitration on August 13, 1993 might appear
an afterthought as it was made after it had filed the motion to suspend
proceedings, it was because petitioner also appeared to act hastily in order to
resolve the controversy through the courts.

The arbitration clause provides for a "reasonable time" within which the parties
may avail of the relief under that clause. "Reasonableness" is a relative term and
the question of whether the time within which an act has to be done is
reasonable depends on attendant circumstances. 15 This Court finds that under
the circumstances obtaining in this case, a one-month period from the time the
parties held a conference on July 12, 1993 until private respondent SPI notified
petitioner that it was invoking the arbitration clause, is a reasonable time.
Indeed, petitioner may not be faulted for resorting to the court to claim what
was due it under the contract. However, we find its denial of the existence of the
arbitration clause as an attempt to cover up its misstep in hurriedly filing the
complaint before the lower court.

In this connection, it bears stressing that the lower court has not lost its
jurisdiction over the case. Section 7 of Republic Act No. 876 provides that
proceedings therein have only been stayed. After the special proceeding of
arbitration 16 has been pursued and completed, then the lower court may
confirm the award 17made by the arbitrator.

It should be noted that in this jurisdiction, arbitration has been held valid and
constitutional. Even before the approval on June 19, 1953 of Republic Act No.
876, this Court has countenanced the settlement of disputes through
arbitration. 18 Republic Act No. 876 was adopted to supplement the New Civil
Code's provisions on arbitration. 19 Its potentials as one of the alternative
dispute resolution methods that are now rightfully vaunted as "the wave of the
future" in international relations, is recognized worldwide. To brush aside a
contractual agreement calling for arbitration in case of disagreement between
the parties would therefore be a step backward.

WHEREFORE, the questioned Decision of the Court of Appeals is hereby

AFFIRMED and the petition for certiorari DENIED. This Decision is
immediately executory. Costs against petitioner.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 169332 February 11, 2008

ABS-CBN BROADCASTING CORPORATION, petitioner,

vs.
WORLD INTERACTIVE NETWORK SYSTEMS (WINS) JAPAN CO.,
LTD., respondent.

DECISION

CORONA, J.:

This petition for review on certiorari under Rule 45 of the Rules of Court seeks to set aside the
February 16, 2005 decision1 and August 16, 2005 resolution2 of the Court of Appeals (CA) in
CA-G.R. SP No. 81940.

On September 27, 1999, petitioner ABS-CBN Broadcasting Corporation entered into a

licensing agreement with respondent World Interactive Network Systems (WINS) Japan Co.,
Ltd., a foreign corporation licensed under the laws of Japan. Under the agreement,
respondent was granted the exclusive license to distribute and sublicense the distribution of
the television service known as "The Filipino Channel" (TFC) in Japan. By virtue thereof,
petitioner undertook to transmit the TFC programming signals to respondent which the latter
received through its decoders and distributed to its subscribers.

A dispute arose between the parties when petitioner accused respondent of inserting nine
episodes of WINS WEEKLY, a weekly 35-minute community news program for Filipinos in
Japan, into the TFC programming from March to May 2002.3 Petitioner claimed that these
were "unauthorized insertions" constituting a material breach of their agreement.
Consequently, on May 9, 2002,4 petitioner notified respondent of its intention to terminate
the agreement effective June 10, 2002.

Thereafter, respondent filed an arbitration suit pursuant to the arbitration clause of its
agreement with petitioner. It contended that the airing of WINS WEEKLY was made with
petitioner's prior approval. It also alleged that petitioner only threatened to terminate their
agreement because it wanted to renegotiate the terms thereof to allow it to demand higher
fees. Respondent also prayed for damages for petitioner's alleged grant of an exclusive
distribution license to another entity, NHK (Japan Broadcasting Corporation).5

The parties appointed Professor Alfredo F. Tadiar to act as sole arbitrator. They stipulated on
the following issues in their terms of reference (TOR)6:

1. Was the broadcast of WINS WEEKLY by the claimant duly authorized by the
respondent [herein petitioner]?
 2. Did such broadcast constitute a material breach of the agreement that is a ground for
termination of the agreement in accordance with Section 13 (a) thereof?

3. If so, was the breach seasonably cured under the same contractual provision of
Section 13 (a)?

4. Which party is entitled to the payment of damages they claim and to the other reliefs
prayed for?

xxx xxx xxx

The arbitrator found in favor of respondent.7 He held that petitioner gave its approval to
respondent for the airing of WINS WEEKLY as shown by a series of written exchanges
between the parties. He also ruled that, had there really been a material breach of the
agreement, petitioner should have terminated the same instead of sending a mere notice to
terminate said agreement. The arbitrator found that petitioner threatened to terminate the
agreement due to its desire to compel respondent to re-negotiate the terms thereof for higher
fees. He further stated that even if respondent committed a breach of the agreement, the same
was seasonably cured. He then allowed respondent to recover temperate damages, attorney's
fees and one-half of the amount it paid as arbitrator's fee.

Petitioner filed in the CA a petition for review under Rule 43 of the Rules of Court or, in the
alternative, a petition for certiorari under Rule 65 of the same Rules, with application for
temporary restraining order and writ of preliminary injunction. It was docketed as CA-G.R.
SP No. 81940. It alleged serious errors of fact and law and/or grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of the arbitrator.

Respondent, on the other hand, filed a petition for confirmation of arbitral award before the
Regional Trial Court (RTC) of Quezon City, Branch 93, docketed as Civil Case No. Q-04-
51822.

Consequently, petitioner filed a supplemental petition in the CA seeking to enjoin the RTC of
Quezon City from further proceeding with the hearing of respondent's petition for
confirmation of arbitral award. After the petition was admitted by the appellate court, the
RTC of Quezon City issued an order holding in abeyance any further action on respondent's
petition as the assailed decision of the arbitrator had already become the subject of an appeal
in the CA. Respondent filed a motion for reconsideration but no resolution has been issued by
the lower court to date.8

On February 16, 2005, the CA rendered the assailed decision dismissing ABS-CBN’s petition
for lack of jurisdiction. It stated that as the TOR itself provided that the arbitrator's decision
shall be final and unappealable and that no motion for reconsideration shall be filed, then the
petition for review must fail. It ruled that it is the RTC which has jurisdiction over questions
relating to arbitration. It held that the only instance it can exercise jurisdiction over an
arbitral award is an appeal from the trial court's decision confirming, vacating or modifying
the arbitral award. It further stated that a petition for certiorari under Rule 65 of the Rules of
Court is proper in arbitration cases only if the courts refuse or neglect to inquire into the facts
of an arbitrator's award. The dispositive portion of the CA decision read:
 WHEREFORE, the instant petition is hereby DISMISSED for lack of jurisdiction. The
application for a writ of injunction and temporary restraining order is
likewise DENIED. The Regional Trial Court of Quezon City Branch 93 is directed to
proceed with the trial for the Petition for Confirmation of Arbitral Award.

SO ORDERED.

Petitioner moved for reconsideration. The same was denied. Hence, this petition.

Petitioner contends that the CA, in effect, ruled that: (a) it should have first filed a petition to
vacate the award in the RTC and only in case of denial could it elevate the matter to the CA via
a petition for review under Rule 43 and (b) the assailed decision implied that an aggrieved
party to an arbitral award does not have the option of directly filing a petition for review
under Rule 43 or a petition for certiorari under Rule 65 with the CA even if the issues raised
pertain to errors of fact and law or grave abuse of discretion, as the case may be, and not
dependent upon such grounds as enumerated under Section 24 (petition to vacate an arbitral
award) of RA 876 (the Arbitration Law). Petitioner alleged serious error on the part of the CA.

The issue before us is whether or not an aggrieved party in a voluntary arbitration dispute
may avail of, directly in the CA, a petition for review under Rule 43 or a petition for certiorari
under Rule 65 of the Rules of Court, instead of filing a petition to vacate the award in the RTC
when the grounds invoked to overturn the arbitrator’s decision are other than those for a
petition to vacate an arbitral award enumerated under RA 876.

RA 876 itself mandates that it is the Court of First Instance, now the RTC, which has
jurisdiction over questions relating to arbitration,9 such as a petition to vacate an arbitral
award.

Section 24 of RA 876 provides for the specific grounds for a petition to vacate an award made
by an arbitrator:

Sec. 24. Grounds for vacating award. - In any one of the following cases, the
court must make an order vacating the award upon the petition of any party to
the controversy when such party proves affirmatively that in the arbitration
proceedings:

(a) The award was procured by corruption, fraud, or other undue means; or

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

(c) That the arbitrators were guilty of misconduct in refusing to postpone the hearing
upon sufficient cause shown, or in refusing to hear evidence pertinent and material to
the controversy; that one or more of the arbitrators was disqualified to act as such
under section nine hereof, and willfully refrained from disclosing such disqualifications
or of any other misbehavior by which the rights of any party have been materially
prejudiced; or
 (d) That the arbitrators exceeded their powers, or so imperfectly executed them, that a
mutual, final and definite award upon the subject matter submitted to them was not
made.

Based on the foregoing provisions, the law itself clearly provides that the RTC must issue an
order vacating an arbitral award only "in any one of the . . . cases" enumerated therein. Under
the legal maxim in statutory construction expressio unius est exclusio alterius, the explicit
mention of one thing in a statute means the elimination of others not specifically mentioned.
As RA 876 did not expressly provide for errors of fact and/or law and grave abuse of
discretion (proper grounds for a petition for review under Rule 43 and a petition for certiorari
under Rule 65, respectively) as grounds for maintaining a petition to vacate an arbitral award
in the RTC, it necessarily follows that a party may not avail of the latter remedy on the
grounds of errors of fact and/or law or grave abuse of discretion to overturn an arbitral award.

Adamson v. Court of Appeals10 gave ample warning that a petition to vacate filed in the RTC
which is not based on the grounds enumerated in Section 24 of RA 876 should be dismissed.
In that case, the trial court vacated the arbitral award seemingly based on grounds included in
Section 24 of RA 876 but a closer reading thereof revealed otherwise. On appeal, the CA
reversed the decision of the trial court and affirmed the arbitral award. In affirming the CA,
we held:

The Court of Appeals, in reversing the trial court's decision held that the nullification of
the decision of the Arbitration Committee was not based on the grounds provided by
the Arbitration Law and that xxx private respondents (petitioners herein) have failed to
substantiate with any evidence their claim of partiality. Significantly, even as
respondent judge ruled against the arbitrator's award, he could not find fault with their
impartiality and integrity. Evidently, the nullification of the award rendered at
the case at bar was not made on the basis of any of the grounds provided by
law.

xxx xxx xxx

It is clear, therefore, that the award was vacated not because of evident
partiality of the arbitrators but because the latter interpreted the contract in a way
which was not favorable to herein petitioners and because it considered that herein
private respondents, by submitting the controversy to arbitration, was seeking to renege
on its obligations under the contract.

xxx xxx xxx

It is clear then that the Court of Appeals reversed the trial court not because the
latter reviewed the arbitration award involved herein, but because the respondent
appellate court found that the trial court had no legal basis for vacating the
award. (Emphasis supplied).

In cases not falling under any of the aforementioned grounds to vacate an award, the Court
has already made several pronouncements that a petition for review under Rule 43 or a
petition for certiorari under Rule 65 may be availed of in the CA. Which one would depend on
the grounds relied upon by petitioner.
In Luzon Development Bank v. Association of Luzon Development Bank Employees,11 the
Court held that a voluntary arbitrator is properly classified as a "quasi-judicial
instrumentality" and is, thus, within the ambit of Section 9 (3) of the Judiciary Reorganization
Act, as amended. Under this section, the Court of Appeals shall exercise:

xxx xxx xxx

(3) Exclusive appellate jurisdiction over all final judgments, decisions, resolutions,
orders or awards of Regional Trial Courts and quasi-judicial
agencies, instrumentalities, boards or commissions, including the Securities and
Exchange Commission, the Employees’ Compensation Commission and the Civil
Service Commission, except those falling within the appellate jurisdiction of the
Supreme Court in accordance with the Constitution, the Labor Code of the Philippines
under Presidential Decree No. 442, as amended, the provisions of this Act and of
subparagraph (1) of the third paragraph and subparagraph (4) of the fourth paragraph
of Section 17 of the Judiciary Act of 1948. (Emphasis supplied)

As such, decisions handed down by voluntary arbitrators fall within the exclusive appellate
jurisdiction of the CA. This decision was taken into consideration in approving Section 1 of
Rule 43 of the Rules of Court.12 Thus:

SECTION 1. Scope. - This Rule shall apply to appeals from judgments or final orders of
the Court of Tax Appeals and from awards, judgments, final orders or resolutions of or
authorized by any quasi-judicial agency in the exercise of its quasi-judicial functions.
Among these agencies are the Civil Service Commission, Central Board of Assessment
Appeals, Securities and Exchange Commission, Office of the President, Land
Registration Authority, Social Security Commission, Civil Aeronautics Board, Bureau of
Patents, Trademarks and Technology Transfer, National Electrification Administration,
Energy Regulatory Board, National Telecommunications Commission, Department of
Agrarian Reform under Republic Act Number 6657, Government Service Insurance
System, Employees Compensation Commission, Agricultural Inventions Board,
Insurance Commission, Philippine Atomic Energy Commission, Board of Investments,
Construction Industry Arbitration Commission, and voluntary arbitrators
authorized by law. (Emphasis supplied)

This rule was cited in Sevilla Trading Company v. Semana,13 Manila Midtown Hotel v.
Borromeo,14 and Nippon Paint Employees Union-Olalia v. Court of Appeals.15 These cases
held that the proper remedy from the adverse decision of a voluntary arbitrator, if errors of
fact and/or law are raised, is a petition for review under Rule 43 of the Rules of Court. Thus,
petitioner's contention that it may avail of a petition for review under Rule 43 under the
circumstances of this case is correct.

As to petitioner's arguments that a petition for certiorari under Rule 65 may also be resorted
to, we hold the same to be in accordance with the Constitution and jurisprudence.

Section 1 of Article VIII of the 1987 Constitution provides that:

SECTION 1. The judicial power shall be vested in one Supreme Court and in such lower
courts as may be established by law.
 Judicial power includes the duty of the courts of justice to settle actual
controversies involving rights which are legally demandable and enforceable, and to
determine whether or not there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of any branch or
instrumentality of the Government. (Emphasis supplied)

As may be gleaned from the above stated provision, it is well within the power and jurisdiction
of the Court to inquire whether any instrumentality of the Government, such as a voluntary
arbitrator, has gravely abused its discretion in the exercise of its functions and prerogatives.
Any agreement stipulating that "the decision of the arbitrator shall be final and unappealable"
and "that no further judicial recourse if either party disagrees with the whole or any part of
the arbitrator's award may be availed of" cannot be held to preclude in proper cases the power
of judicial review which is inherent in courts.16 We will not hesitate to review a voluntary
arbitrator's award where there is a showing of grave abuse of authority or discretion and such
is properly raised in a petition for certiorari17 and there is no appeal, nor any plain, speedy
remedy in the course of law.18

Significantly, Insular Savings Bank v. Far East Bank and Trust Company19 definitively
outlined several judicial remedies an aggrieved party to an arbitral award may undertake:

(1) a petition in the proper RTC to issue an order to vacate the award on the grounds
provided for in Section 24 of RA 876;

(2) a petition for review in the CA under Rule 43 of the Rules of Court on questions of
fact, of law, or mixed questions of fact and law; and

(3) a petition for certiorari under Rule 65 of the Rules of Court should the arbitrator
have acted without or in excess of his jurisdiction or with grave abuse of discretion
amounting to lack or excess of jurisdiction.

Nevertheless, although petitioner’s position on the judicial remedies available to it was

correct, we sustain the dismissal of its petition by the CA. The remedy petitioner availed of,
entitled "alternative petition for review under Rule 43 or petition for certiorari under Rule
65," was wrong.

Time and again, we have ruled that the remedies of appeal and certiorari are mutually
exclusive and not alternative or successive.20

Proper issues that may be raised in a petition for review under Rule 43 pertain to errors of
fact, law or mixed questions of fact and law.21 While a petition for certiorari under Rule 65
should only limit itself to errors of jurisdiction, that is, grave abuse of discretion amounting to
a lack or excess of jurisdiction.22 Moreover, it cannot be availed of where appeal is the proper
remedy or as a substitute for a lapsed appeal.23

In the case at bar, the questions raised by petitioner in its alternative petition before the CA
were the following:
 A. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY
ABUSED HIS DISCRETION IN RULING THAT THE BROADCAST OF "WINS
WEEKLY" WAS DULY AUTHORIZED BY ABS-CBN.

B. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY

ABUSED HIS DISCRETION IN RULING THAT THE UNAUTHORIZED BROADCAST
DID NOT CONSTITUTE MATERIAL BREACH OF THE AGREEMENT.

C. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY

ABUSED HIS DISCRETION IN RULING THAT WINS SEASONABLY CURED THE
BREACH.

D. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY

ABUSED HIS DISCRETION IN RULING THAT TEMPERATE DAMAGES IN THE
AMOUNT OF P1,166,955.00 MAY BE AWARDED TO WINS.

E. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY

ABUSED HIS DISCRETION IN AWARDING ATTORNEY'S FEES IN THE
UNREASONABLE AMOUNT AND UNCONSCIONABLE AMOUNT OF P850,000.00.

F. THE ERROR COMMITTED BY THE SOLE ARBITRATOR IS NOT A SIMPLE

ERROR OF JUDGMENT OR ABUSE OF DISCRETION. IT IS GRAVE ABUSE OF
DISCRETION TANTAMOUNT TO LACK OR EXCESS OF JURISDICTION.

A careful reading of the assigned errors reveals that the real issues calling for the CA's
resolution were less the alleged grave abuse of discretion exercised by the arbitrator and more
about the arbitrator’s appreciation of the issues and evidence presented by the parties.
Therefore, the issues clearly fall under the classification of errors of fact and law — questions
which may be passed upon by the CA via a petition for review under Rule 43. Petitioner
cleverly crafted its assignment of errors in such a way as to straddle both judicial remedies,
that is, by alleging serious errors of fact and law (in which case a petition for review under
Rule 43 would be proper) and grave abuse of discretion (because of which a petition for
certiorari under Rule 65 would be permissible).

It must be emphasized that every lawyer should be familiar with the distinctions between the
two remedies for it is not the duty of the courts to determine under which rule the petition
should fall.24 Petitioner's ploy was fatal to its cause. An appeal taken either to this Court or the
CA by the wrong or inappropriate mode shall be dismissed.25Thus, the alternative petition
filed in the CA, being an inappropriate mode of appeal, should have been dismissed outright
by the CA.

WHEREFORE, the petition is hereby DENIED. The February 16, 2005 decision and August
16, 2005 resolution of the Court of Appeals in CA-G.R. SP No. 81940 directing the Regional
Trial Court of Quezon City, Branch 93 to proceed with the trial of the petition for confirmation
of arbitral award is AFFIRMED.

Costs against petitioner.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 175862 October 13, 2010

REAL BANK, INC., Petitioner,

vs.
SAMSUNG MABUHAY CORPORATION, Respondent.

DECISION

PEREZ, J.:

This is a Petition for Review under Rule 45 of the Rules of Court filed by petitioner Real Bank,
Inc., assailing the Decision1 of the Court of Appeals in CA-G.R. SP No. 73188 dated 18 August
2006, which granted the Petition filed by herein respondent Samsung Mabuhay Corporation
(respondent Samsung) and set aside the Orders dated 5 June 2002 and 2 August 2002 of the
Regional Trial Court (RTC), Branch 20 of Manila, which dismissed Civil Case No. 97-86265
for failure of respondent Samsung to appear at the scheduled mediation conference. Likewise
assailed is the Resolution2 of the appellate court dated 13 December 2006 denying petitioner
Real Bank, Inc.’s Motion for Reconsideration.

The generative facts are:

On 27 November 1997, respondent Samsung filed a Complaint3 for damages against petitioner
Real Bank, Inc. docketed as Civil Case No. 97-86265. The case was originally raffled to the
RTC, Branch 9 of Manila. In its complaint, respondent Samsung alleged:

Plaintiff SAMSUNG MABUHAY ELECTRONIC CORPORATION is a joint venture corporation

between SAMSUNG ELECTRONICS CO. LTD., a foreign corporation duly organized and
existing under Korean laws, and plaintiff MABUHAY ELECTRONICS CORPORATION, a
corporation organized and existing under Philippine laws x x x.

As a result of the Joint Venture Agreement, Samsung Mabuhay Electronics Corporation

became the exclusive distributor for Samsung products in the Philippines. 4

xxxx

2.1. Sometime in December of 1996, Conpinco Trading, a regular dealer of [respondent]

Samsung Mabuhay Corporation in Davao City, issued five (5) postdated [United
Coconut Planters Bank] UCPB checks payable to the order of Samsung Mabuhay
Corporation, to wit:

Check No. Date Amount

1869863 December 31, 1996 P 363,750.00
 1869864 December 31, 1996 400,000.00
1869865 January 30, 1997 800,000.00
1869866 February 28, 1997 800,000.00
1869867 March 30, 1997 599,093.20

These five (5) checks were picked-up by Reynaldo Senson, former Collection Supervisor
of Samsung Mabuhay Corporation for Visayas and Mindanao, at Conpinco Trading’s
place of business at J.P. Laurel Avenue, Bajada Drive, Davao City last December 14,
1996. x x x.

2.1.1. All of the five (5) checks were denominated to the "PAYEE’S ACCOUNT"
only, the payee being Mabuhay Electronics Corporation although the proceeds of
the checks were actually intended for Samsung Mabuhay Corporation. After the
Joint Venture Agreement, Samsung dealers were duly requested by Samsung
Mabuhay Corporation to make all checks payable to the order of Samsung
Mabuhay Corporation instead of Mabuhay Electronics Corporation. Nevertheless,
some dealers, like Conpinco Trading, still made out checks payable to Mabuhay
Electronics Corporation.

2.1.2. Plaintiff Samsung Mabuhay Corporation continued to received checks from

its local dealers payable to the order of Mabuhay Electronics Corporation.
Plaintiff [Samsung Mabuhay Corporation] deposited the said checks to its bank
account with Far East Bank and Trust Company (FEBTC), Adriatico Branch
under Account No. 0113-26238-8. FEBTC accepted for deposit into Samsung
Mabuhay Corporation’s account therein all checks payable to Mabuhay
Electronics Corporation.

2.2. Two (2) of the five (5) checks picked-up by Reynaldo Senson were remitted to
Samsung Mabuhay Corporation. These checks [1869866 and 1869867] in the total
amount of P1,399,093.20 were cleared by the drawee bank, UCPB, and the amount
credited to the account of Samsung Mabuhay Corporation with FEBTC.

2.3. However, the three (3) remaining UCPB checks, i.e., check nos. 1869863, 1869864,
and 1869865 amounting to P1,563,750.00, were not remitted by Reynaldo Senson to
Samsung Mabuhay Corporation. Instead, Reynaldo Senson, using an alias name,
Edgardo Bacea, opened an account with defendant Real Bank, Malolos, Bulacan branch
under the account name of one Mabuhay Electronics Company, a business entity in no
way related to plaintiff Mabuhay Electronics Corporation. Mabuhay Electronics
Company is a single proprietorship owned and managed by Reynaldo Senson, alias
Edgardo Bacea.

2.4. Reynaldo Senson, alias Edgardo Bacea, opened an account with defendant [Real
Bank] by presenting an identification card bearing Mabuhay Electronics Company, the
alias name Edgardo Bacea identifying him as the General Manager of Mabuhay
Electronics Company, and the photograph of Reynaldo Senson, x x x. Reynaldo Senson
 and Edgardo Bacea are one and the same person as shown in the identification card
issued by Samsung Mabuhay Corporation to Reynaldo Senson x x x.

2.5. Reynaldo Senson, alias Edgardo Bacea, through the negligence of defendant [Real
Bank], indorsed the checks and then deposited all the three (3) checks in the account of
Mabuhay Electronics Company under Savings Account No. 1102-01944-2. The dorsal
portion of the said checks (check nos. 1869863, 1869864, and 1869865) x x x and made
integral parts hereof.

2.6. Defendant [Real Bank] then sent the three (3) checks for clearing and for payment
through Far East Bank and Trust Company, Malolos, Bulacan Branch after stamping at
the back of the checks the usual endorsements: "ALL PRIOR ENDORSEMENT and/or
LACK OF ENDORSEMENT GUARANTEED." Conpinco Trading’s account with the
drawee bank, UCPB, was eventually debited for the value of the three (3) checks and
Mabuhay Electronics Company’s account with defendant [Real Bank] was credited for
the same amount although it was not the payee nor the person authorized by the payee.

2.7. Subsequently, Reynaldo Senson, alias Edgardo Bacea again through the negligence
of defendant bank, was able to withdraw the amount of P1,563,750.00. The value of the
three (3) checks were negligently credited by defendant [Real Bank] to the account of
Mabuhay Electronics Company, a single proprietorship, although the check was payable
only to Mabuhay Electronics Corporation, a juridical entity, and to no one else.

xxxx

2.9. Despite plaintiffs’ [Samsung Mabuhay Corporation’s] demands, defendant [Real

Bank] ignored and refused to reimburse them with the value of the three (3) checks.
Thus, plaintiffs were constrained to hire the legal services of the law firm of V.E. Del
Rosario and Partners.5

Petitioner Real Bank, Inc. filed its Answer6 on 23 February 1998, to which a Reply7 was filed
by respondent Samsung on 5 March 1998.

On 12 March 1998, respondent Samsung filed an Ex-Parte Motion To Set Case for Pre-Trial,
asking that the case be set for pre-trial.8 In a notice dated 24 March 1998, Judge Amelia Tria-
Infante (Judge Infante) of RTC, Br. 9 of Manila, set the case for pre-trial on 25 June 1998.9

Meantime, petitioner Real Bank, Inc. filed on 26 May 1998 a Motion to Admit Third Party
Complaint against Reynaldo A. Senson alias Edgardo Bacea, to which was attached the Third
Party Complaint.

On 22 June 1998, respondent Samsung filed its Pre-trial Brief. The pre-trial was originally set
on 25 June 1998 but was reset to 17 July 1998 upon motion of petitioner Real Bank, Inc. on
the ground that its Motion to Admit Third Party Complaint was still pending resolution. Thus,
the pre-trial was re-scheduled and reset to 10 September 1998.10

Petitioner Real Bank, Inc. once again moved for the resetting of the pre-trial conference
scheduled on 10 September 199811 on the same ground that its Motion to Admit Third Party
Complaint has yet to be resolved.
On 22 February 1999, the trial court issued an Order granting petitioner Real Bank, Inc.’s
Motion to Admit Third Party Complaint and also ordered that summons be issued to third-
party defendant Reynaldo A. Senson alias Edgardo Bacea.

On 25 May 1999, respondent Samsung filed a Motion to Dismiss the Third Party Complaint
for failure of petitioner Real Bank, Inc. to prosecute its case and Motion to Set the Case for
Pre-Trial.12 On the other hand, petitioner Real Bank, Inc. filed a Motion to Serve Summons by
Publication on the third-party defendant Reynaldo A. Senson alias Edgardo Bacea.

Citing the undue delay of Presiding Judge Infante in resolving the several motions pending
before her, respondent Samsung filed a Motion for her inhibition of Judge Infante on 20
September 1999.

On 15 March 2000, the Presiding Judge of Branch 9 issued an Order13 reading:

Before this Court are three (3) motions.

The Motion to Serve Summons by Publication is hereby GRANTED.

The Motion to Dismiss Third-Party Complaint is hereby DENIED and considering that this
Honorable Court can administer justice on this case with impartiality and without bias, the
Motion for Inhibition is likewise DENIED.

Let therefore, service of summons by publication be made on third-party defendant, Reynaldo

Senson alias Edgardo Bacea doing business under the name and style "Mabuhay Electronics
Company" in a newspaper of general circulation for three (3) consecutive weeks.

On 19 October 2000, the counsel of respondent Samsung, V.E. Del Rosario and Partners, filed
a Notice of Withdrawal of Appearance with the conformity of respondent Samsung. 14

For its part, petitioner Real Bank, Inc. filed a Motion To Declare Third-Party defendant
Reynaldo Senson in Default.

On 7 March 2001, the trial court issued an Order dated 17 March 2001 requiring both
petitioner Real Bank, Inc. and respondent Samsung to appear in a mediation proceeding set
on 3 April 2001.15 This Order of the trial court was sent to respondent Samsung’s former
counsel, V.E. Del Rosario and Partners which had at that time already filed a notice of
withdrawal of appearance.16

The mediation proceedings took place as scheduled on 3 April 2001 and Mediator Tammy
Ann C. Reyes, who handled the mediation proceedings submitted her report to the Court
stating therein that no action was taken on the case referred for mediation because
respondent Samsung failed to appear.17

On 4 June 2001, the new counsel of respondent Samsung (Ortega, Del Castillo, Bacorro,
Odulio, Calma and Carbonell) entered its appearance. This was filed and received by the court
on 6 June 2001.18
Subsequently, RTC Branch 9 of Manila, where the case was pending was designated as a
Family Court. Hence, the case was re-raffled to RTC Judge Marivic Balisi-Umali (Judge
Umali) of RTC Branch 20 of Manila.

On 5 June 2002, an Order was issued by Judge Umali of Branch 20 dismissing the complaint
of respondent Samsung for failure to appear at the mediation conference previously scheduled
by the trial judge of Branch 9 in her Order dated 17 March 2001.19

The Order of Judge Umali states:

This is a re-raffled case from Branch 9 of this Court, pursuant to Supreme Court’s Resolution
A.M. 99-11-07 dated February 1, 2000 and August 22, 2000 designating the Branch as a
Family Court.

Perusal of the record reveals that in its order dated March 7, 2001, the Court referred the case
for mediation, per Sec. 29, Rule 18, 1997 Rules on Civil Procedure and the Guidelines of the
Supreme Court dated November 16, 1999. On April 3, 2001, Mediator Tammy Ann C. Reyes,
who handled the mediation proceedings, submitted her Report to the Court stating therein
that no action was taken for the case referred for mediation because the plaintiff failed to
appear.

Mediation is part of pre-trial, Sec. 5, Rule 18, Rules of Court, explicitly provides that failure of
the plaintiff to appear at the pre-trial shall be ground for the dismissal of the action for non-
suit.

Premises considered the above-entitled case is hereby DISMISSED for non-suit.20

Respondent Samsung’s new counsel challenged the Order dated 5 June 2002 in a Motion for
Reconsideration alleging that the dismissal is improper and inappropriate as it was not
notified of the scheduled mediation conference. Besides, the notice of the scheduled
mediation was sent to the previous counsel of respondent Samsung who had already
withdrawn and not to the new lawyers.21

Judge Umali denied the Motion for Reconsideration of respondent Samsung in her Order
dated 2 August 2002.221avvphi1

Respondent Samsung then filed before the Court of Appeals a petition for certiorari under
Rule 65 of the Rules of Court docketed as CA-G.R. SP No. 73188. The Court of Appeals
rendered a decision in favor of respondent Samsung dated 18 August 2006, the fallo of which
reads:

WHEREFORE, in view of the foregoing, the Petition is hereby GRANTED. The Orders dated 5
June 2002 and 2 August 2002 are hereby REVERSED and SET ASIDE.23

The Court of Appeals explained its decision in this wise:

[R]espondent judge did not even peruse or verify the records of the case. Has she done so, she
would have discovered that the former counsel of petitioner to whom she sent the Notice of
the order had already withdrawn and that a new counsel for petitioner had already entered
their appearance. Likewise, she should have discovered that at that time the Order dated
March 7, 2001 was issued by RTC Br. 9, petitioner was no longer holding office at its given
address. This fact is clearly indicated in the Order of March 7, 2001 itself. Clearly, therefore,
respondent judge committed grave abuse of discretion amounting to excess or lack of
jurisdiction in issuing the Order dated June 5, 2002. 24

Petitioner Real Bank, Inc.’s Motion for Reconsideration was denied by the Court of Appeals in
a Resolution dated 13 December 2006.25

Hence, this petition.

Petitioner Real Bank, Inc. submits the following issues for our resolution.

I. WHETHER THE COURT OF APPEALS ERRED IN SETTING ASIDE THE ORDER

OF THE TRIAL COURT DISMISSING THE CASE BEFORE IT DUE TO THE FAILURE
OF RESPONDENT AND ITS COUNSEL TO ATTEND THE MEDIATION
CONFERENCE.

II. WHETHER THE COURT OF APPEALS ERRED IN HOLDING THAT

RESPONDENT WAS NOT NOTIFIED OF THE MEDIATION CONFERENCE.

III. WHETHER THE COURT OF APPEALS ERRED IN HOLDING THAT THE

WITHDRAWAL OF RESPONDENT’S COUNSEL WAS SUFFICIENT
NOTWITHSTANDING THE FACT THAT THE SAID WITHDRAWAL WAS NOT
APPROVED BY THE TRIAL COURT, AND DESPITE THE FACT THAT AT THE TIME,
RESPONDENT HAS NOT YET ENGAGED THE SERVICES OF A NEW COUNSEL.

IV. WHETHER THE COURT OF APPEALS ERRED IN NOT FINDING RESPONDENT

GUILTY OF NEGLIGENCE IN FAILING TO INQUIRE ABOUT THE STATUS OF ITS
CASE AND TO ENGAGE THE SERVICES OF A NEW COUNSEL FOR A PERIOD OF
ALMOST EIGHT (8) MONTHS.26

In this petition, it is petitioner Real Bank, Inc.’s position that RTC Branch 20 of Manila acted
properly in dismissing Civil Case No. 97-86265 for failure on the part of respondent Samsung
to appear on the scheduled mediation conference.

In Senarlo v. Judge Paderanga,27 this Court accentuated that mediation is part of pre-trial and
failure of the plaintiff to appear thereat merits sanction on the part of the absent party. This
court held:

A.M. No. 01-10-5-SC-PHILJA dated 16 October 2001, otherwise known as the Second Revised
Guidelines for the Implementation of Mediation Proceedings and Section 5, Rule 18 of the
Rules of Court grant judges the discretion to dismiss an action for failure of the plaintiff to
appear at mediation proceedings.

A.M. No. 01-10-5-SC-PHILJA considers mediation a part of pre-trial and provides sanctions
for the absent party:

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

Under Rule 18, Section 5 of the Rules of Court, failure of the plaintiff to appear at pre-trial
shall be cause for dismissal of the action:

Sec. 5. Effect of failure to appear. – The failure of the plaintiff to appear when so required
pursuant to the next preceding section shall be cause for dismissal of the action. The dismissal
shall be with prejudice, unless otherwise ordered by the court. A similar failure on the part of
the defendant shall be cause to allow the plaintiff to present his evidence ex parte and the
court to render judgment on the basis thereof.28

However, the ruling in Senarlo will not resolve the present case where the basic issue is
whether or not respondent’s Samsung non-appearance at the mediation proceedings is
justifiable from the records.

We sustain the ruling of the Court of Appeals.

Rule 138, section 26 of the Rules of Court outlines the procedure in case of withdrawal of
counsel. It states:

RULE 138
Attorneys and Admission to Bar

Sec. 26. Change of attorneys. – An attorney may retire at any time from any action or special
proceeding, by the written consent of his client filed in court. He may also retire at any time
from an action or special proceeding, without the consent of his client, should the court, on
notice to the client and attorney, and on hearing, determine that he ought to be allowed to
retire. In case of substitution, the name of the attorney newly employed shall be entered on
the docket of the court in place of the former one, and written notice of the change shall be
given to the adverse party.

Under the first sentence of Section 26, the withdrawal of counsel with the conformity of the
client is completed once the same is filed in court. No further action thereon by the court is
needed other than the mechanical act of the Clerk of Court of entering the name of the new
counsel in the docket and of giving written notice thereof to the adverse party.29

In this case, it is uncontroverted that the withdrawal of respondent Samsung’s original

counsel, V.E. Del Rosario and Partners on 19 October 2000, was with the client’s consent.
Thus, no approval thereof by the trial court was required because a court’s approval is
indispensable only if the withdrawal is without the client’s consent.30

It being daylight clear that the withdrawal of respondent Samsung’s original counsel was
sufficient as the same carried the stamp of approval of the client, the notice of mediation sent
to respondent Samsung’s original counsel was ineffectual as the same was sent at the time
when such counsel had already validly withdrawn its representation. Corollarily, the absence
of respondent Samsung during the scheduled mediation conference was excusable and
justified. Therefore, the trial court erroneously dismissed Civil Case No. 97-86265.

We cannot sustain petitioner Real Bank, Inc.’s argument that respondent Samsung was
negligent in the conduct of its case.

The calendar of hearings document the fact that respondent Samsung has been willing and
able to prosecute its case. Except for the lone instance, reasonable as already shown, of
absence during the scheduled mediation conference on 3 April 2001, respondent Samsung
had, till then, promptly and religiously attended the hearings set by the RTC. In fact,
respondent Samsung exhibited diligence and dispatch in prosecuting its case against
petitioner Real Bank, Inc. by immediately moving to set the case for pre-trial after it had filed
its reply and momently filing a motion for reconsideration of the RTC Order dismissing Civil
Case No. 97-86265.

The following observation of the Court of Appeals is worth noting:

As borne by the records, it is [petitioner] [Real Bank, Inc.] which asked for a resetting of the
pre-trial twice. On the other hand, the [respondent Samsung] was the one egging and
repeatedly requesting Presiding Judge Infante of Br. 9 to set the case for pre-trial. It has
reached the point that [respondent Samsung] got exasperated for the unreasonable delay of
the judge of RTC, Br. 9 in resolving the incidents pending before her that it was constrained to
file a motion for inhibition.31

Herein respondent Samsung instituted Civil Case No. 97-86265 before the RTC, to recover the
amount it claims to have lost due to the negligence of petitioner Real Bank, Inc., clearly a
property right. The substantive right of respondent Samsung to recover a due and
demandable obligation cannot be diminished by an unwarranted strictness in the application
of a rule of procedure.32

In Calalang v. Court of Appeals,33 this Court underscored that unless a party’s conduct is so
negligent, irresponsible, contumacious or dilatory as to provide substantial grounds for
dismissal for non-appearance, the court should consider lesser sanctions which would still
amount into achieving the desired end.1avvphi1

In Bank of the Philippine Islands v. Court of Appeals,34 we ruled that in the absence of a
pattern or scheme to delay the disposition of the case or a wanton failure to observe the
mandatory requirement of the rules, courts should decide to dispense rather than wield their
authority to dismiss.

While not at the fore of this case, it may be stated that the state of the court docket cannot
justify injudicious case dismissals. Inconsiderate dismissals, even without prejudice, do not
constitute a panacea or a solution to the congestion of court dockets; while they lend a
deceptive aura of efficiency to records of individual judges, they merely postpone the ultimate
reckoning between the parties. In the absence of clear lack of merit or intention to delay,
justice is better served by a brief continuance, trial on the merits, and final disposition of cases
before the court.35
Accordingly, the ends of justice and fairness would be best served if the parties in Civil Case
No. 97-86265 are given the full opportunity to thresh out the real issues in a full blown trial.
Besides, petitioner Real Bank, Inc. would not be prejudiced should the RTC proceed with Civil
Case No. 97-86265 as it is not stripped of any affirmative defenses nor deprived of due
process of law.36

WHEREFORE, premises considered, the instant petition is DENIED for lack of merit and the
Decision of the Court of Appeals in CA-G.R. SP No. 73188 dated 18 August 2006 and the
Resolution of the same court dated 13 December 2006 are AFFIRMED. This case is ordered
REMANDED to the RTC Manila, Branch 20 for continuation of proceedings until its
conclusion with utmost dispatch.

SO ORDERED.
G.R. No. 141833 March 26, 2003

LM POWER ENGINEERING CORPORATION, petitioner,

vs.
CAPITOL INDUSTRIAL CONSTRUCTION GROUPS, INC., respondent.

PANGANIBAN, J.:

Alternative dispute resolution methods or ADRs -- like arbitration, mediation, negotiation

and conciliation -- are encouraged by the Supreme Court. By enabling parties to resolve their
disputes amicably, they provide solutions that are less time-consuming, less tedious, less
confrontational, and more productive of goodwill and lasting relationships.1

The Case

Before us is a Petition for Review on Certiorari2 under Rule 45 of the Rules of Court, seeking
to set aside the January 28, 2000 Decision of the Court of Appeals3 (CA) in CA-GR CV No.
54232. The dispositive portion of the Decision reads as follows:

"WHEREFORE, the judgment appealed from is REVERSED and SET ASIDE. The
parties are ORDERED to present their dispute to arbitration in accordance with their
Sub-contract Agreement. The surety bond posted by [respondent] is [d]ischarged."4

The Facts

On February 22, 1983, Petitioner LM Power Engineering Corporation and Respondent Capitol
Industrial Construction Groups Inc. entered into a "Subcontract Agreement" involving
electrical work at the Third Port of Zamboanga.5

On April 25, 1985, respondent took over some of the work contracted to petitioner.6 Allegedly,
the latter had failed to finish it because of its inability to procure materials. 7

Upon completing its task under the Contract, petitioner billed respondent in the amount of
P6,711,813.90.8Contesting the accuracy of the amount of advances and billable
accomplishments listed by the former, the latter refused to pay. Respondent also took refuge
in the termination clause of the Agreement.9 That clause allowed it to set off the cost of the
work that petitioner had failed to undertake -- due to termination or take-over -- against the
amount it owed the latter.

Because of the dispute, petitioner filed with the Regional Trial Court (RTC) of Makati (Branch
141) a Complaint10 for the collection of the amount representing the alleged balance due it
under the Subcontract. Instead of submitting an Answer, respondent filed a Motion to
Dismiss,11 alleging that the Complaint was premature, because there was no prior recourse to
arbitration.

In its Order12 dated September 15, 1987, the RTC denied the Motion on the ground that the
dispute did not involve the interpretation or the implementation of the Agreement and was,
therefore, not covered by the arbitral clause.13
After trial on the merits, the RTC14 ruled that the take-over of some work items by respondent
was not equivalent to a termination, but a mere modification, of the Subcontract. The latter
was ordered to give full payment for the work completed by petitioner.

Ruling of the Court of Appeals

On appeal, the CA reversed the RTC and ordered the referral of the case to arbitration. The
appellate court held as arbitrable the issue of whether respondent’s take-over of some work
items had been intended to be a termination of the original contract under Letter "K" of the
Subcontract. It ruled likewise on two other issues: whether petitioner was liable under the
warranty clause of the Agreement, and whether it should reimburse respondent for the work
the latter had taken over.15

Hence, this Petition.16

The Issues

In its Memorandum, petitioner raises the following issues for the Court’s consideration:

"A

Whether or not there exist[s] a controversy/dispute between petitioner and respondent

regarding the interpretation and implementation of the Sub-Contract Agreement dated
February 22, 1983 that requires prior recourse to voluntary arbitration;

"B

In the affirmative, whether or not the requirements provided in Article III 1 of CIAC
Arbitration Rules regarding request for arbitration ha[ve] been complied with[.]"17

The Court’s Ruling

The Petition is unmeritorious.

First Issue:
Whether Dispute Is Arbitrable

Petitioner claims that there is no conflict regarding the interpretation or the implementation
of the Agreement. Thus, without having to resort to prior arbitration, it is entitled to collect
the value of the services it rendered through an ordinary action for the collection of a sum of
money from respondent. On the other hand, the latter contends that there is a need for prior
arbitration as provided in the Agreement. This is because there are some disparities between
the parties’ positions regarding the extent of the work done, the amount of advances and
billable accomplishments, and the set off of expenses incurred by respondent in its take-over
of petitioner’s work.

We side with respondent. Essentially, the dispute arose from the parties’ ncongruent positions
on whether certain provisions of their Agreement could be applied to the facts. The instant
case involves technical discrepancies that are better left to an arbitral body that has expertise
in those areas. In any event, the inclusion of an arbitration clause in a contract does not ipso
facto divest the courts of jurisdiction to pass upon the findings of arbitral bodies, because the
awards are still judicially reviewable under certain conditions.18

In the case before us, the Subcontract has the following arbitral clause:

"6. The Parties hereto agree that any dispute or conflict as regards to interpretation
and implementation of this Agreement which cannot be settled between [respondent]
and [petitioner] amicably shall be settled by means of arbitration x x x."19

Clearly, the resolution of the dispute between the parties herein requires a referral to the
provisions of their Agreement. Within the scope of the arbitration clause are discrepancies as
to the amount of advances and billable accomplishments, the application of the provision on
termination, and the consequent set-off of expenses.

A review of the factual allegations of the parties reveals that they differ on the following
questions: (1) Did a take-over/termination occur? (2) May the expenses incurred by
respondent in the take-over be set off against the amounts it owed petitioner? (3) How much
were the advances and billable accomplishments?

The resolution of the foregoing issues lies in the interpretation of the provisions of the
Agreement. According to respondent, the take-over was caused by petitioner’s delay in
completing the work. Such delay was in violation of the provision in the Agreement as to time
schedule:

"G. TIME SCHEDULE

"[Petitioner] shall adhere strictly to the schedule related to the WORK and complete the
WORK within the period set forth in Annex C hereof. NO time extension shall be
granted by [respondent] to [petitioner] unless a corresponding time extension is
granted by [the Ministry of Public Works and Highways] to the CONSORTIUM."20

Because of the delay, respondent alleges that it took over some of the work contracted to
petitioner, pursuant to the following provision in the Agreement:

"K. TERMINATION OF AGREEMENT

"[Respondent] has the right to terminate and/or take over this Agreement for any of
the following causes:

xxx xxx xxx

‘6. If despite previous warnings by [respondent], [petitioner] does not execute the
WORK in accordance with this Agreement, or persistently or flagrantly neglects
to carry out [its] obligations under this Agreement."21

Supposedly, as a result of the "take-over," respondent incurred expenses in excess of the

contracted price. It sought to set off those expenses against the amount claimed by petitioner
for the work the latter accomplished, pursuant to the following provision:
 "If the total direct and indirect cost of completing the remaining part of the WORK
exceed the sum which would have been payable to [petitioner] had it completed the
WORK, the amount of such excess [may be] claimed by [respondent] from either of the
following:

‘1. Any amount due [petitioner] from [respondent] at the time of the termination of this
Agreement."22

The issue as to the correct amount of petitioner’s advances and billable accomplishments
involves an evaluation of the manner in which the parties completed the work, the extent to
which they did it, and the expenses each of them incurred in connection therewith. Arbitrators
also need to look into the computation of foreign and local costs of materials, foreign and local
advances, retention fees and letters of credit, and taxes and duties as set forth in the
Agreement. These data can be gathered from a review of the Agreement, pertinent portions of
which are reproduced hereunder:

"C. CONTRACT PRICE AND TERMS OF PAYMENT

xxx xxx xxx

"All progress payments to be made by [respondent] to [petitioner] shall be subject to a

retention sum of ten percent (10%) of the value of the approved quantities. Any claims
by [respondent] on [petitioner] may be deducted by [respondent] from the progress
payments and/or retained amount. Any excess from the retained amount after
deducting [respondent’s] claims shall be released by [respondent] to [petitioner] after
the issuance of [the Ministry of Public Works and Highways] of the Certificate of
Completion and final acceptance of the WORK by [the Ministry of Public Works and
Highways].

xxx xxx xxx

"D. IMPORTED MATERIALS AND EQUIPMENT

"[Respondent shall open the letters of credit for the importation of equipment and
materials listed in Annex E hereof after the drawings, brochures, and other technical
data of each items in the list have been formally approved by [the Ministry of Public
Works and Highways]. However, petitioner will still be fully responsible for all
imported materials and equipment.

"All expenses incurred by [respondent], both in foreign and local currencies in

connection with the opening of the letters of credit shall be deducted from the Contract
Prices.

xxx xxx xxx

"N. OTHER CONDITIONS

xxx xxx xxx

 "2. All customs duties, import duties, contractor’s taxes, income taxes, and other taxes
that may be required by any government agencies in connection with this Agreement
shall be for the sole account of [petitioner]."23

Being an inexpensive, speedy and amicable method of settling disputes, 24 arbitration -- along
with mediation, conciliation and negotiation -- is encouraged by the Supreme Court. Aside
from unclogging judicial dockets, arbitration also hastens the resolution of disputes, especially
of the commercial kind.25 It is thus regarded as the "wave of the future" in international civil
and commercial disputes.26 Brushing aside a contractual agreement calling for arbitration
between the parties would be a step backward.27

Consistent with the above-mentioned policy of encouraging alternative dispute resolution

methods, courts should liberally construe arbitration clauses. Provided such clause is
susceptible of an interpretation that covers the asserted dispute, an order to arbitrate should
be granted.28 Any doubt should be resolved in favor of arbitration.29

Second Issue:
Prior Request for Arbitration

According to petitioner, assuming arguendo that the dispute is arbitrable, the failure to file a
formal request for arbitration with the Construction Industry Arbitration Commission (CIAC)
precluded the latter from acquiring jurisdiction over the question. To bolster its position,
petitioner even cites our ruling in Tesco Services Incorporated v. Vera.30 We are not
persuaded.

Section 1 of Article II of the old Rules of Procedure Governing Construction Arbitration

indeed required the submission of a request for arbitration, as follows:

"SECTION. 1. Submission to Arbitration -- Any party to a construction contract wishing

to have recourse to arbitration by the Construction Industry Arbitration Commission
(CIAC) shall submit its Request for Arbitration in sufficient copies to the Secretariat of
the CIAC; PROVIDED, that in the case of government construction contracts, all
administrative remedies available to the parties must have been exhausted within 90
days from the time the dispute arose."

Tesco was promulgated by this Court, using the foregoing provision as reference.

On the other hand, Section 1 of Article III of the new Rules of Procedure Governing
Construction Arbitration has dispensed with this requirement and recourse to the CIAC may
now be availed of whenever a contract "contains a clause for the submission of a future
controversy to arbitration," in this wise:

"SECTION 1. Submission to CIAC Jurisdiction — An arbitration clause in a construction

contract or a submission to arbitration of a construction dispute shall be deemed an
agreement to submit an existing or future controversy to CIAC jurisdiction,
notwithstanding the reference to a different arbitration institution or arbitral body in
such contract or submission. When a contract contains a clause for the submission of a
future controversy to arbitration, it is not necessary for the parties to enter into a
submission agreement before the claimant may invoke the jurisdiction of CIAC."
The foregoing amendments in the Rules were formalized by CIAC Resolution Nos. 2-91 and 3-
93.31

The difference in the two provisions was clearly explained in China Chang Jiang Energy
Corporation (Philippines) v. Rosal Infrastructure Builders et al.32 (an extended unsigned
Resolution) and reiterated in National Irrigation Administration v. Court of Appeals,33 from
which we quote thus:

"Under the present Rules of Procedure, for a particular construction contract to fall
within the jurisdiction of CIAC, it is merely required that the parties agree to submit the
same to voluntary arbitration Unlike in the original version of Section 1, as applied in
the Tesco case, the law as it now stands does not provide that the parties should agree
to submit disputes arising from their agreement specifically to the CIAC for the latter to
acquire jurisdiction over the same. Rather, it is plain and clear that as long as the
parties agree to submit to voluntary arbitration, regardless of what forum they may
choose, their agreement will fall within the jurisdiction of the CIAC, such that, even if
they specifically choose another forum, the parties will not be precluded from electing
to submit their dispute before the CIAC because this right has been vested upon each
party by law, i.e., E.O. No. 1008."34

Clearly, there is no more need to file a request with the CIAC in order to vest it with
jurisdiction to decide a construction dispute.

The arbitral clause in the Agreement is a commitment on the part of the parties to submit to
arbitration the disputes covered therein. Because that clause is binding, they are expected to
abide by it in good faith.35 And because it covers the dispute between the parties in the present
case, either of them may compel the other to arbitrate.36

Since petitioner has already filed a Complaint with the RTC without prior recourse to
arbitration, the proper procedure to enable the CIAC to decide on the dispute is to request the
stay or suspension of such action, as provided under RA 876 [the Arbitration Law]. 37

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against
petitioner.

SO ORDERED.
G.R. No. 152878 May 5, 2003

RIZAL COMMERCIAL BANKING CORPORATION, petitioner,

vs.
MAGWIN MARKETING CORPORATION, NELSON TIU, BENITO SY and
ANDERSON UY, respondents.

BELLOSILLO, J.:

WE ARE PERTURBED that this case should drag this Court in the banal attempts to decipher
the hazy and confused intent of the trial court in proceeding with what would have been a
simple, straightforward and hardly arguable collection case. Whether the dismissal without
prejudice for failure to prosecute was unconditionally reconsidered, reversed and set aside
to reinstate the civil case and have it ready for pre-trial are matters which should have been
clarified and resolved in the first instance by the court a quo. Unfortunately, this feckless
imprecision of the trial court became the soup stock of the parties and their lawyers to further
delay the case below when they could have otherwise put things in proper order efficiently and
effectively.

On 4 March 1999 petitioner Rizal Commercial Banking Corporation (RCBC) filed a complaint
for recovery of a sum of money with prayer for a writ of preliminary attachment against
respondents Magwin Marketing Corporation, Nelson Tiu, Benito Sy and Anderson Uy.1 On 26
April 1999, the trial court issued a writ of attachment.2 On 4 June 1999 the writ was returned
partially satisfied since only a parcel of land purportedly owned by defendant Benito Sy was
attached.3 In the meantime, summons was served on each of the defendants, respondents
herein, who filed their respective answers, except for defendant Gabriel Cheng who was
dropped without prejudice as party-defendant as his whereabouts could not be located.4 On 21
September 1999 petitioner moved for an alias writ of attachment which on 18 January 2000
the court a quo denied.5

Petitioner did not cause the case to be set for pre-trial.6 For about six (6) months thereafter,
discussions between petitioner and respondents Magwin Marketing Corporation, Nelson Tiu,
Benito Sy and Anderson Uy, as parties in Civil Case No. 99-518, were undertaken to
restructure the indebtedness of respondent Magwin Marketing Corporation.7 On 9 May 2000
petitioner approved a debt payment scheme for the corporation which on 15 May 2000 was
communicated to the latter by means of a letter dated 10 May 2000 for the conformity of its
officers, i.e., respondent Nelson Tiu as President/General Manager of Magwin Marketing
Corporation and respondent Benito Sy as Director thereof.8 Only respondent Nelson Tiu
affixed his signature on the letter to signify his agreement to the terms and conditions of the
restructuring.9

On 20 July 2000 the RTC of Makati City, on its own initiative, issued an Order dismissing
without prejudice Civil Case No. 99-518 for failure of petitioner as plaintiff therein to
"prosecute its action for an unreasonable length of time . . .."10 On 31 July 2000 petitioner
moved for reconsideration of the Order by informing the trial court of
respondents' unremitting desire to settle the case amicably through a loan restructuring
program.11 On 22 August 2000 petitioner notified the trial court of the acquiescence thereto of
respondent Nelson Tiu as an officer of Magwin Marketing Corporation and defendant in the
civil case.12
On 8 September 2000 the court a quo issued an Order reconsidering the dismissal without
prejudice of Civil Case No. 99-518 -

Acting on plaintiff's "Motion for Reconsideration" of the Order dated 20 July 2000
dismissing this case for failure to prosecute, it appearing that there was already
conformity to the restructuring of defendants' indebtedness with plaintiff by defendant
Nelson Tiu, President of defendant corporation per "Manifestation and Motion" filed by
plaintiff on 22 August 2000, there being probability of settlement among the parties, as
prayed for, the Order dated 20 July 2000 is hereby set aside.

Plaintiff is directed to submit the compromise agreement within 15 days from receipt
hereof. Failure on the part of plaintiff to submit the said agreement shall cause the
imposition of payment of the required docket fees for re-filing of this case.13

On 27 July 2000 petitioner filed in Civil Case No. 99-518 a Manifestation and Motion to Set
Case for Pre-Trial Conference alleging that "[t]o date, only defendant Nelson Tiu had affixed
his signature on the May 10, 2000 letter which informed the defendants that plaintiff [herein
petitioner] already approved defendant Magwin Marketing Corporations request for
restructuring of its loan obligations to plaintiff but subject to the terms and conditions
specified in said letter."14 This motion was followed on 5 October 2000 by
petitioner's Supplemental Motion to Plaintiffs Manifestation and Motion to Set Case for Pre-
Trial Conference affirming that petitioner "could not submit a compromise agreement
because only defendant Nelson Tiu had affixed his signature on the May 10, 2000 letter . .
.."15 Respondent Anderson Uy opposed the foregoing submissions of petitioner while
respondents Magwin Marketing Corporation, Nelson Tiu and Benito Sy neither contested nor
supported them.16

The trial court, in an undated Order (although a date was later inserted in the Order), denied
petitioner's motion to calendar Civil Case No. 99-518 for pre-trial stating that -

Acting on plaintiff's [herein petitioner] "Manifestation and Motion to Set Case for Pre-
Trial Conference," the "Opposition" filed by defendant Uy and the subsequent
"Supplemental Motion" filed by plaintiff; defendant Uy's "Opposition," and plaintiff's
"Reply;" for failure of the plaintiff to submit a compromise agreement pursuant to the
Order dated 8 September 2000 plaintiff's motion to set case for pre-trial conference is
hereby denied.17

On 15 November 2000 petitioner filed its Notice of Appeal from the 8 September
2000 Order of the trial court as well as its undated Order in Civil Case No. 99-518. On 16
November 2000 the trial court issued two (2) Orders, one of which inserted the date "6
November 2000" in the undated Order rejecting petitioner's motion for pre-trial in the civil
case, and the other denying due course to the Notice of Appeal on the ground that the "Orders
dated 8 September 2000 and 6 November 2000 are interlocutory orders and therefore, no
appeal may be taken . . .."18

On 7 December 2000 petitioner elevated the Orders dated 8 September 2000, 6 November
2000 and 16 November 2000 of the trial court to the Court of Appeals in a petition for
certiorari under Rule 65 of the Rules of Civil Procedure.19 In the main, petitioner argued that
the court a quo had no authority to compel the parties in Civil Case No. 99-518 to enter into
an amicable settlement nor to deny the holding of a pre-trial conference on the ground that no
compromise agreement was turned over to the court a quo.20

On 28 September 2001 the appellate court promulgated its Decision dismissing the petition
for lack of merit and affirming the assailed Orders of the trial court21 holding that -

. . . although the language of the September 8, 2000 Order may not be clear, yet, a
careful reading of the same would clearly show that the setting aside of the Order dated
July 20, 2000 which dismissed petitioner's complaint . . . for failure to prosecute its
action for an unreasonable length of time is dependent on the following conditions, to
wit: a) The submission of the compromise agreement by petitioner within fifteen (15)
days from notice; and b) Failure of petitioner to submit the said compromise agreement
shall cause the imposition of the payment of the required docket fees for the re-filing of
the case; so much so that the non-compliance by petitioner of condition no. 1 would
make condition no. 2 effective, especially that petitioner's manifestation and motion to
set case for pre-trial conference and supplemental motion . . . [were] denied by the
respondent judge in his Order dated November 6, 2000, which in effect means that the
Order dated July 20, 2000 was ultimately not set aside considering that a party need
not pay docket fees for the re-filing of a case if the original case has been revived and
reinstated.22

On 2 April 2002 reconsideration of the Decision was denied; hence, this petition.

In the instant case, petitioner maintains that the trial court cannot coerce the parties in Civil
Case No. 99-518 to execute a compromise agreement and penalize their failure to do so by
refusing to go forward with the pre-trial conference. To hold otherwise, so petitioner avers,
would violate Art. 2029 of the Civil Code which provides that "[t]he court shall endeavor to
persuade the litigants in a civil case to agree upon some fair compromise," and this Court's
ruling in Goldloop Properties, Inc. v. Court of Appeals23 where it was held that the trial court
cannot dismiss a complaint for failure of the parties to submit a compromise agreement.

On the other hand, respondent Anderson Uy filed his comment after several extensions
asserting that there are no special and important reasons for undertaking this review. He also
alleges that petitioner's attack is limited to the Order dated 8 September 2000 as to whether it
is conditional as the Court of Appeals so found and the applicability to this case of the ruling
in Goldloop Properties, Inc. v. Court of Appeals. Respondent Uy claims that
the Orderreconsidering the dismissal of Civil Case No. 99-518 without prejudice is on its face
contingent upon the submission of the compromise agreement which in the first place was the
principal reason of petitioner to justify the withdrawal of the Order declaring his failure to
prosecute the civil case. He further contends that the trial court did not force the parties in the
civil case to execute a compromise agreement, the truth being that it dismissed the complaint
therein for petitioner's dereliction.

Finally, respondent Uy contests the relevance of Goldloop Properties, Inc. v. Court of

Appeals, and refers to its incongruence with the instant case, i.e., that the complaint of
petitioner was dismissed for failure to prosecute and not for its reckless disregard to present
an amicable settlement as was the situation in Goldloop Properties, Inc., and that the
dismissal was without prejudice, in contrast with the dismissal with prejudice ordered in the
cited case. For their part, respondents Magwin Marketing Corporation, Nelson Tiu and Benito
Sy waived their right to file a comment on the instant petition and submitted the same for
resolution of this Court.24

The petition of Rizal Commercial Banking Corporation is meritorious. It directs our attention
to questions of substance decided by the courts a quo plainly in a way not in accord with
applicable precedents as well as the accepted and usual course of judicial proceedings; it
offers special and important reasons that demand the exercise of our power of supervision
and review. Furthermore, petitioner's objections to the proceedings below encompass not only
the Order of 8 September 2000 but include the cognate Orders of the trial court of 6 and 16
November 2000. This is evident from the prayer of the instant petition which seeks to reverse
and set aside the Decision of the appellate court and to direct the trial court to proceed with
the pre-trial conference in Civil Case No. 99-518. Evidently, the substantive issue involved
herein is whether the proceedings in the civil case should progress, a question which at
bottom embroils all the Orders affirmed by the Court of Appeals.

On the task at hand, we see no reason why RTC-Br. 135 of Makati City should stop short of
hearing the civil case on the merits. There is no substantial policy worth pursuing by requiring
petitioner to pay again the docket fees when it has already discharged this obligation
simultaneously with the filing of the complaint for collection of a sum of money. The
procedure for dismissed cases when re-filed is the same as though it was initially lodged, i.e.,
the filing of answer, reply, answer to counter-claim, including other foot-dragging maneuvers,
except for the rigmarole of raffling cases which is dispensed with since the re-filed complaint
is automatically assigned to the branch to which the original case pertained.25 A complaint
that is re-filed leads to the re-enactment of past proceedings with the concomitant full
attention of the same trial court exercising an immaculate slew of jurisdiction and control
over the case that was previously dismissed,26 which in the context of the instant case is a
waste of judicial time, capital and energy.

What judicial benefit do we derive from starting the civil case all over again, especially where
three (3) of the four (4) defendants, i.e., Magwin Marketing Corporation, Nelson Tiu and
Benito Sy, have not contested petitioner's plea before this Court and the courts a quo to
advance to pre-trial conference? Indeed, to continue hereafter with the resolution of
petitioner's complaint without the usual procedure for the re-filing thereof, we will save the
court a quoinvaluable time and other resources far outweighing the docket fees that petitioner
would be forfeiting should we rule otherwise.

Going over the specifics of this petition and the arguments of respondent Anderson Uy, we
rule that the Order of 8 September 2000 did not reserve conditions on the reconsideration
and reversal of the Order dismissing without prejudice Civil Case No. 99-518. This is quite
evident from its text which does not use words to signal an intent to impose riders on the
dispositive portion -

Acting on plaintiff's "Motion for Reconsideration" of the Order dated 20 July 2000
dismissing this case for failure to prosecute, it appearing that there was already
conformity to the restructuring of defendants' indebtedness with plaintiff by defendant
Nelson Tiu, President of defendant corporation per "Manifestation and Motion" filed by
plaintiff on 22 August 2000, there being probability of settlement among the parties, as
prayed for, the Order dated 20 July 2000 is hereby set aside.
 Plaintiff is directed to submit the compromise agreement within 15 days from receipt
hereof. Failure on the part of plaintiff to submit the said agreement shall cause the
imposition of payment of the required docket fees for re-filing of this case.27

Contrary to respondent Uy's asseverations, the impact of the second paragraph upon the first
is simply to illustrate what the trial court would do after setting aside the dismissal without
prejudice: submission of the compromise agreement for the consideration of the trial court.
Nothing in the second paragraph do we read that the reconsideration is subject to two (2)
qualifications. Certainly far from it, for in Goldloop Properties, Inc. v. Court of Appeals 28 a
similar directive, i.e., "[t]he parties are given a period of fifteen (15) days from today within
which to submit a Compromise Agreement," was held to mean that "should the parties fail in
their negotiations the proceedings would continue from where they left off." Goldloop
Properties, Inc. further said that its order, or a specie of it, did not constitute an agreement or
even an expectation of the parties that should they fail to settle their differences within the
stipulated number of days their case would be dismissed.

The addition of the second sentence in the second paragraph does not change the absolute
nullification of the dismissal without prejudice decreed in the first paragraph. The sentence
"[f]ailure on the part of plaintiff to submit the said agreement shall cause the imposition of
payment of the required docket fees for re-filing of this case" is not a directive to pay docket
fees but only a statement of the event that may result in its imposition. The reason for this is
that the trial court could not have possibly made such payment obligatory in the same civil
case, i.e., Civil Case No. 99-518, since docket fees are defrayed only after the dismissal
becomes final and executory and when the civil case is re-filed.

It must be emphasized however that once the dismissal attains the attribute of finality, the
trial court cannot impose legal fees anew because a final and executory dismissal although
without prejudice divests the trial court of jurisdiction over the civil case as well as any
residual power to order anything relative to the dismissed case; it would have to wait until the
complaint is docketed once again.29 On the other hand, if we are to concede that the trial court
retains jurisdiction over Civil Case No. 99-518 for it to issue the assailed Orders, a
continuation of the hearing thereon would not trigger a disbursement for docket fees on the
part of petitioner as this would obviously imply the setting aside of the order of dismissal and
the reinstatement of the complaint.

Indubitably, it is speculative to reckon the effectivity of the Order of dismissal without

prejudice to the presentation of the compromise agreement. If we are to admit that the
efficacy of the invalidation of the Order of dismissal is dependent upon this condition, then
we must inquire: from what date do we count the fifteen (15)-day reglementary period within
which the alleged revival of the order of dismissal began to run? Did it commence from the
lapse of the fifteen (15) days provided for in the Order of 8 September 2000? Or do we count
it from the 6 November 2000 Orderwhen the trial court denied the holding of a pre-trial
conference? Or must it be upon petitioner's receipt of the 16 November 2000 Order denying
due course to its Notice of Appeal? The court a quo could not have instituted an Order that
marked the proceedings before it with a shadow of instability and chaos rather than a
semblance of constancy and firmness.

The subsequent actions of the trial court also belie an intention to revive the Order of
dismissal without prejudice in the event that petitioner fails to submit a compromise
agreement. The Orders of 6 and 16 November 2000 plainly manifest that it was retaining
jurisdiction over the civil case, a fact which would not have been possible had the dismissal
without prejudice been resuscitated. Surely, the court a quo could not have denied on 6
November 2000 petitioner's motion to calendar Civil Case No. 99-518 for pre-trial if the
dismissal had been restored to life in the meantime. By then the dismissal without prejudice
would have already become final and executory so as to effectively remove the civil case from
the docket of the trial court.

The same is true with the Order of 16 November 2000 denying due course to
petitioner's Notice of Appeal. There would have been no basis for such exercise of discretion
because the jurisdiction of the court a quo over the civil case would have been discharged and
terminated by the presumed dismissal thereof. Moreover, we note the ground for denying due
course to the appeal: the "Orders dated 8 September 2000 and 6 November 2000 are
interlocutory orders and therefore, no appeal may be taken from . . .."30 This declaration
strongly suggests that something more was to be accomplished in the civil case, thus negating
the claim that the Order of dismissal without prejudice was resurrected upon the parties'
failure to yield a compromise agreement. A "final order" issued by a court has been defined as
one which disposes of the subject matter in its entirety or terminates a particular proceeding
or action, leaving nothing else to be done but to enforce by execution what has been
determined by the court, while an "interlocutory order" is one which does not dispose of a
case completely but leaves something more to be decided upon.31

Besides the semantic and consequential improbabilities of respondent Uy's argument, our
ruling in Goldloop Properties, Inc., is decisive of the instant case. In Goldloop Properties,
Inc., we reversed the action of the trial court in dismissing the complaint for failure of the
plaintiff to prosecute its case, which was in turn based on its inability to forge a compromise
with the other parties within fifteen (15) days from notice of the order to do so and held -

Since there is nothing in the Rules that imposes the sanction of dismissal for failing to
submit a compromise agreement, then it is obvious that the dismissal of the complaint
on the basis thereof amounts no less to a gross procedural infirmity assailable by
certiorari. For such submission could at most be directory and could not result in
throwing out the case for failure to effect a compromise. While a compromise is
encouraged, very strongly in fact, failure to consummate one does not warrant any
procedural sanction, much less an authority to jettison a civil complaint worth
P4,000,000.00 . . . Plainly, submission of a compromise agreement is never
mandatory, nor is it required by any rule.32

As also explained therein, the proper course of action that should have been taken by the
court a quo, upon manifestation of the parties of their willingness to discuss a settlement, was
to suspend the proceedings and allow them reasonable time to come to terms (a) If
willingness to discuss a possible compromise is expressed by one or both parties; or (b) If it
appears that one of the parties, before the commencement of the action or proceeding, offered
to discuss a possible compromise but the other party refused the offer, pursuant to Art. 2030
of the Civil Code. If despite efforts exerted by the trial court and the parties the negotiations
still fail, only then should the action continue as if no suspension had taken place.33

Ostensibly, while the rules allow the trial court to suspend its proceedings consistent with the
policy to encourage the use of alternative mechanisms of dispute resolution, in the instant
case, the trial court only gave the parties fifteen (15) days to conclude a deal. This was, to say
the least, a passive and paltry attempt of the court a quo in its task of persuading litigants to
agree upon a reasonable concession.34 Hence, if only to inspire confidence in the pursuit of a
middle ground between petitioner and respondents, we must not interpret the trial court's
Orders as dismissing the action on its own motion because the parties, specifically petitioner,
were anxious to litigate their case as exhibited in their several manifestations and motions.

We reject respondent Uy's contention that Goldloop Properties, Inc. v. Court of Appeals is
irrelevant to the case at bar on the dubious reasoning that the complaint of petitioner was
dismissed for failure to prosecute and not for the non-submission of a compromise agreement
which was the bone of contention in that case, and that the dismissal imposed in the instant
case was without prejudice, in contrast to the dismissal with prejudice decreed in the cited
case. To begin with, whether the dismissal is with or without prejudice if grievously erroneous
is detrimental to the cause of the affected party; Goldloop Properties, Inc. does not tolerate a
wrongful dismissal just because it was without prejudice. More importantly, the facts
in Goldloop Properties, Inc. involve, as in the instant case, a dismissal for failure to prosecute
on the ground of the parties' inability to come up with a compromise agreement within fifteen
(15) days from notice of the court's order therein. All told, the parallelism between them is
unmistakable.

Even if we are to accept on face value respondent's understanding of Goldloop Properties,

Inc. as solely about the failure to submit a compromise agreement, it is apparent that the
present case confronts a similar problem. Perhaps initially the issue was one of failure to
prosecute, as can be observed from the Order dated 20 July 2000, although later reversed
and set aside. But thereafter, in the Order of 6 November 2000, the trial court refused to
proceed to pre-trial owing to the "failure of the plaintiff to submit a compromise agreement
pursuant to the Order dated 8 September 2000." When the civil case was stalled on account of
the trial court's refusal to call the parties to a pre-trial conference, the reason or basis therefor
was the absence of a negotiated settlement - a circumstance that takes the case at bar within
the plain ambit of Goldloop Properties, Inc. In any event, given that the instant case merely
revolves around the search for a reasonable interpretation of the several Orders of the trial
court, i.e., as to whether the dismissal without prejudice was revived upon petitioner's
helplessness to perfect an out-of-court arrangement, with more reason must we employ the
ruling in Goldloop Properties, Inc. to resolve the parties' differences of opinion.

We also find nothing in the record to support respondent Uy's conclusion that petitioner has
been mercilessly delaying the prosecution of Civil Case No. 99-518 to warrant its dismissal. A
complaint may be dismissed due to plaintiff's fault: (a) if he fails to appear during a scheduled
trial, especially on the date for the presentation of his evidence in chief, or when so required at
the pre-trial; (b) if he neglects to prosecute his action for an unreasonable length of time; or
(c) if he does not comply with the rules or any order of the court. None of these was obtaining
in the civil case.

While there was a lull of about six (6) months in the prosecution of Civil Case No. 99-518, it
must be remembered that respondents themselves contributed largely to this delay. They
repeatedly asked petitioner to consider re-structuring the debt of respondent Magwin
Marketing Corporation to which petitioner graciously acceded. Petitioner approved a new
debt payment scheme that was sought by respondents, which it then communicated to
respondent Corporation through a letter for the conformity of the latter's officers, i.e.,
respondent Nelson Tiu as President/General Manager and respondent Benito Sy as Director
thereof. Regrettably, only respondent Nelson Tiu affixed his signature on the letter to signify
his concurrence with the terms and conditions of the arrangement. The momentary lag in the
civil case was aggravated when respondent Benito Sy for unknown and unexplained reasons
paid no heed to the adjustments in the indebtedness although curiously he has not opposed
before this Court or the courts a quo petitioner's desire to go ahead with the pre-trial
conference.

Admittedly, delay took place in this case but it was not an interruption that should have
entailed the dismissal of the complaint even if such was designated as without prejudice. To
constitute a sufficient ground for dismissal, the inattention of plaintiff to pursue his cause
must not only be prolonged but also be unnecessary and dilatory resulting in the trifling of
judicial processes. In the instant case, the adjournment was not only fleeting as it lasted less
than six (6) months but was also done in good faith to accommodate respondents' incessant
pleas to negotiate. Although the dismissal of a case for failure to prosecute is a matter
addressed to the sound discretion of the court, that judgment however must not be abused.
The availability of this recourse must be determined according to the procedural history of
each case, the situation at the time of the dismissal, and the diligence of plaintiff to proceed
therein.35Stress must also be laid upon the official directive that courts must endeavor to
convince parties in a civil case to consummate a fair settlement36 and to mitigate damages to
be paid by the losing party who has shown a sincere desire for such give-and-take.37 All things
considered, we see no compelling circumstances to uphold the dismissal of petitioner's
complaint regardless of its characterization as being without prejudice.

In fine, petitioner cannot be said to have lost interest in fighting the civil case to the end. A
court may dismiss a case on the ground of non prosequitur but the real test of the judicious
exercise of such power is whether under the circumstances plaintiff is chargeable with want of
fitting assiduousness in not acting on his complaint with reasonable promptitude. Unless a
party's conduct is so indifferent, irresponsible, contumacious or slothful as to provide
substantial grounds for dismissal, i.e., equivalent to default or non-appearance in the case, the
courts should consider lesser sanctions which would still amount to achieving the desired
end.38 In the absence of a pattern or scheme to delay the disposition of the case or of a wanton
failure to observe the mandatory requirement of the rules on the part of the plaintiff, as in the
case at bar, courts should decide to dispense rather than wield their authority to dismiss.39

Clearly, another creative remedy was available to the court a quo to attain a speedy
disposition of Civil Case No. 99-518 without sacrificing the course of justice. Since the failure
of petitioner to submit a compromise agreement was the refusal of just one of herein
respondents, i.e., Benito Sy, to sign his name on the conforme of the loan restructure
documents, and the common concern of the courts a quo was dispatch in the proceedings, the
holding of a pre-trial conference was the best-suited solution to the problem as this stage in a
civil action is where issues are simplified and the dispute quickly and genuinely reconciled. By
means of pre-trial, the trial court is fully empowered to sway the litigants to agree upon some
fair compromise.

Dismissing the civil case and compelling petitioner to re-file its complaint is a dangerous,
costly and circuitous route that may end up aggravating, not resolving, the disagreement. This
case management strategy is frighteningly deceptive because it does so at the expense of
petitioner whose cause of action, perhaps, may have already been admitted by its adverse
parties as shown by three (3) of four (4) defendants not willing to contest petitioner's
allegations, and more critically, since this approach promotes the useless and thankless
duplication of hard work already undertaken by the trial court. As we have aptly observed,
"[i]nconsiderate dismissals, even if without prejudice, do not constitute a panacea nor a
solution to the congestion of court dockets. While they lend a deceptive aura of efficiency to
records of individual judges, they merely postpone the ultimate reckoning between the
parties. In the absence of clear lack of merit or intention to delay, justice is better served by a
brief continuance, trial on the merits, and final disposition of the cases before the court."40

WHEREFORE, the Petition for Review is GRANTED. The Decision dated 28 September 2001
and Resolution dated 2 April 2002 of the Court of Appeals in CA-G.R. SP No. 62102 are
REVERSED and SET ASIDE.

The Orders dated 8 September 2000, 6 November 2000 and 16 November 2000 of the
Regional Trial Court, Branch 135, of Makati City, docketed as Civil Case No. 99-518, are also
REVERSED and SET ASIDE insofar as these Orders are interpreted to impose upon and
collect anew from petitioner RIZAL COMMERCIAL BANKING CORPORATION docket or
legal fees for its complaint, or to dismiss without prejudice Civil Case No. 99-518, or to
preclude the trial court from calling the parties therein to pre-trial conference, or from
proceeding thereafter with dispatch to resolve the civil case.

Civil Case No. 99-518 is deemed REINSTATED in, as it was never taken out from, the dockets
of the Regional Trial Court, Branch 135, of Makati City. The trial court is ORDERED to
exercise its jurisdiction over Civil Case No. 99-518, to CONDUCT the pre-trial conference
therein with dispatch, and to UNDERTAKE thereafter such other proceedings as may be
relevant, without petitioner being charged anew docket or other legal fees in connection with
its reinstatement. Costs against respondents.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 179328 December 23, 2009

RIZALINA P. POSITOS, Petitioner,

vs.
JACOB M. CHUA, Respondent.

DECISION

CARPIO MORALES, J.:

From the Decision of July 13, 20041 of the Court of Appeals reversing that of the Davao City
Regional Trial Court (RTC), Branch 10 dismissing without prejudice the complaint for
unlawful detainer filed by Jacob Chua (respondent), Rizalina Positos (petitioner) filed the
present petition for review on certiorari.

The following undisputed facts spawned the filing of the complaint by respondent against
petitioner.

Petitioner had since 1980 been occupying a portion of a parcel of land covered by Transfer
Certificate of Title No. T-2316862 situated in Leon Garcia St., Davao City. The land was
likewise occupied by members of the Sto. Tomas de Villanueva Settlers Association (the
Association), of which petitioner was a member. On December 26, 1994, the registered owner
of the land, Ansuico, Inc., transferred its rights and interests thereover to respondent.1awphi1

The Association thereupon filed a complaint against respondent for prohibitory injunction
before the RTC of Davao City. A compromise agreement was thereafter forged and approved
by the trial court wherein the Association agreed to vacate the premises provided respondent
extends financial assistance to its members.

Petitioner refused to abide by the compromise agreement, however, prompting respondent to

send her a demand letter to vacate the premises within fifteen (15) days from receipt thereof.

The conflict was referred for conciliation before the Lupon following Republic Act No. 7160
(R.A. 7160), "The Local Government Code." Respondent did not appear during the
proceedings but sent a representative on his behalf. No settlement having been reached,
respondent filed a complaint against petitioner for Unlawful Detainer with prayer for
damages and attorney’s fees before the Municipal Trial Court in Cities (MTCC), Davao City.

In her Answer to the complaint, petitioner alleged that the failure of respondent to appear
personally during the proceedings is equivalent to non-compliance with R.A. 7160 to thus
render the complaint dismissible; that respondent did not tolerate her occupancy; and that
the complaint must be dismissed for failure to state a cause of action.
During the preliminary conference before the MTCC, the parties stipulated on respondent’s
failure to personally appear during conciliation, the due existence of the Certificate to File
Action issued by the barangay captain, and the lack of lessor-lessee relationship between the
parties.3

By Decision of January 26, 1998, the MTCC rendered judgment in favor of respondent,
disposing as follows:

ACCORDINGLY, judgment is hereby rendered in favor of the plaintiff and against the
defendant ordering the latter:

1. To vacate the premises in question and turn over the possession thereof to the
plaintiff;

2. To pay the plaintiff the sum of P10,000.00 a month as a reasonable rental of the
premises starting January 25, 1997 until the defendant shall have vacated the same;

3. To pay the plaintiff the sum of P10,000.00 as attorney’s fees and P1,000.00 as
litigation expenses; and

4. To pay the costs of suit.

Defendant’s counterclaim is hereby DENIED for lack of merit.

SO ORDERED.4

Petitioner appealed to the RTC of Davao City. As she did not file a supersedeas bond to stay
the execution of its decision, the MTCC, upon motion of respondent, issued a Writ of
Execution, drawing petitioner to file a Petition for Certiorari and Prohibition with Prayer for
Injunctive Relief before the Davao City RTC.5

By Order of October 28, 1998,6 then RTC Executive Judge Jesus V. Quitain issued a
temporary restraining order (TRO) to stay the execution of the MTCC decision.

Meanwhile, Branch 8 of the Davao City RTC, acting on petitioner’s appeal, affirmed the MTCC
decision by Decision of March 2, 1999,7 it holding that since respondent was duly represented
in the conciliation proceedings by an attorney-in-fact, the Local Government Code was
substantially complied with.

Petitioner elevated the case to the Court of Appeals which issued the challenged Decision
dismissing withoutprejudice respondent’s complaint for unlawful detainer on the ground of
lack of cause of action, he having failed to comply with the barangay conciliation procedure.

Petitioner filed a motion for reconsideration of the appellate court’s decision, alleging that
during the pendency of the appeal she was dispossessed from the premises, hence, she prayed
that she be restored thereto. The appellate court, noting that respondent’s complaint was
dismissed without prejudice, petitioner’s cause of action should be ventilated in a separate
action. It thus denied petitioner’s motion for reconsideration. Hence, the present petition for
review on certiorari.
In the main, petitioner argues that to compel her to file a separate action for restoration to the
premises runs contrary to the avowed intent of the Rules of Court to promote just, speedy and
inexpensive disposition of every action and proceeding. And she cites Section 3, Rule 2 of the
Rules which provides that a party may not institute more than one suit for a single cause of
action.

Further, petitioner argues that since it is not disputed that she was in physical possession of
the premises when the complaint for unlawful detainer was filed, her possession must be
respected until the case is decided on the merits.

At the outset, petitioner’s present availment of a petition for review on certiorari under Rule
45 is doomed.

Section 1, Rule 41 of the Rules of Court provides that the remedy of appeal is not available
from an order dismissing an action without prejudice.8

Sec. 1. Subject of appeal. – An appeal may be taken from a judgment or final order that
completely disposes of the case, or of a particular matter therein when declared by these Rules
to be appealable.

No appeal may be taken from: x x x

(h) An order dismissing an action without prejudice.

In all the above instances where the judgment or final order is not appealable, the aggrieved
party may file an appropriate special civil action under Rule 65. (italics in the original,
emphasis and underscoring supplied)

Since the present petition prays for the modification of the appellate court’s decision, this
Court cannot treat it as one for certiorari, petitioner’s allegations therein not being
constitutive of grave abuse of discretion amounting to lack or excess of jurisdiction.

Procedural faux pas aside, the petition just the same fails.

As reflected above, respondent’s complaint was dismissed for failure to comply with the
conciliation process. Non-compliance affected the sufficiency of his cause of action and
rendered the complaint susceptible, as in fact it resulted to dismissal on the ground of
prematurity.

A dismissal without prejudice does not operate as a judgment on the merits, for there is no
unequivocal determination of the rights and obligations of the parties with respect to the
cause of action and subject matter thereof.

En passant, petitioner’s claim of dispossession during the pendency of her appeal, which
claim is disputed by respondent, is a question of fact which is not a proper subject for this
Court to decide, the general rule being that only questions of law can be raised before it.
Petitioner has not, however, presented convincing circumstances to take her case out from the
general rule.9
WHEREFORE, the petition is DENIED.

SO ORDERED.
.R. No. 126619 December 20, 2006

UNIWIDE SALES REALTY AND RESOURCES CORPORATION, petitioner,

vs.
TITAN-IKEDA CONSTRUCTION AND DEVELOPMENT
CORPORATION, respondent.

DECISION

TINGA, J.:

This Petition for Review on Certiorari under Rule 45 seeks the partial reversal of the 21
February 1996 Decision1 of the Court of Appeals Fifteenth Division in CA-G.R. SP No. 37957
which modified the 17 April 1995 Decision2 of the Construction Industry Arbitration
Commission (CIAC).

The case originated from an action for a sum of money filed by Titan-Ikeda Construction and
Development Corporation (Titan) against Uniwide Sales Realty and Resources Corporation
(Uniwide) with the Regional Trial Court (RTC), Branch 119,3 Pasay City arising from
Uniwide's non-payment of certain claims billed by Titan after completion of three projects
covered by agreements they entered into with each other. Upon Uniwide's motion to
dismiss/suspend proceedings and Titan's open court manifestation agreeing to the
suspension, Civil Case No. 98-0814 was suspended for it to undergo arbitration.4 Titan's
complaint was thus re-filed with the CIAC.5 Before the CIAC, Uniwide filed an answer which
was later amended and re-amended, denying the material allegations of the complaint, with
counterclaims for refund of overpayments, actual and exemplary damages, and attorney's
fees. The agreements between Titan and Uniwide are briefly described below.

PROJECT 1.6

The first agreement (Project 1) was a written "Construction Contract" entered into by Titan
and Uniwide sometime in May 1991 whereby Titan undertook to construct Uniwide's
Warehouse Club and Administration Building in Libis, Quezon City for a fee
of P120,936,591.50, payable in monthly progress billings to be certified to by Uniwide's
representative.7 The parties stipulated that the building shall be completed not later than 30
November 1991. As found by the CIAC, the building was eventually finished on 15 February
19928 and turned over to Uniwide.

PROJECT 2.

Sometime in July 1992, Titan and Uniwide entered into the second agreement (Project 2)
whereby the former agreed to construct an additional floor and to renovate the latter's
warehouse located at the EDSA Central Market Area in Mandaluyong City. There was no
written contract executed between the parties for this project. Construction was allegedly to
be on the basis of drawings and specifications provided by Uniwide's structural engineers. The
parties proceeded on the basis of a cost estimate of P21,301,075.77 inclusive of Titan's 20%
mark-up. Titan conceded in its complaint to having received P15,000,000.00 of this amount.
This project was completed in the latter part of October 1992 and turned over to Uniwide.

PROJECT 3.9

The parties executed the third agreement (Project 3) in May 1992. In a written "Construction
Contract," Titan undertook to construct the Uniwide Sales Department Store Building in
Kalookan City for the price of P118,000,000.00 payable in progress billings to be certified to
by Uniwide's representative.10 It was stipulated that the project shall be completed not later
than 28 February 1993. The project was completed and turned over to Uniwide in June 1993.

Uniwide asserted in its petition that: (a) it overpaid Titan for unauthorized additional works
in Project 1 and Project 3; (b) it is not liable to pay the Value-Added Tax (VAT) for Project 1;
(c) it is entitled to liquidated damages for the delay incurred in constructing Project 1 and
Project 3; and (d) it should not have been found liable for deficiencies in the defectively
constructed Project 2.

An Arbitral Tribunal consisting of a chairman and two members was created in accordance
with the CIAC Rules of Procedure Governing Construction Arbitration. It conducted a
preliminary conference with the parties and thereafter issued a Terms of Reference (TOR)
which was signed by the parties. The tribunal also conducted an ocular inspection, hearings,
and received the evidence of the parties consisting of affidavits which were subject to cross-
examination. On 17 April 1995, after the parties submitted their respective memoranda, the
Arbitral Tribunal promulgated a Decision,11 the decretal portion of which is as follows:

"WHEREFORE, judgment is hereby rendered as follows:

On Project 1 – Libis:

[Uniwide] is absolved of any liability for the claims made by [Titan] on this Project.

Project 2 – Edsa Central:

[Uniwide] is absolved of any liability for VAT payment on this project, the same being
for the account of the [Titan]. On the other hand, [Titan] is absolved of any liability on
the counterclaim for defective construction of this project.

[Uniwide] is held liable for the unpaid balance in the amount of P6,301,075.77 which is
ordered to be paid to the [Titan] with 12% interest per annum commencing from 19
December 1992 until the date of payment.

On Project 3 – Kalookan:

[Uniwide] is held liable for the unpaid balance in the amount of P5,158,364.63 which is
ordered to be paid to the [Titan] with 12% interest per annum commencing from 08
September 1993 until the date of payment.
 [Uniwide] is held liable to pay in full the VAT on this project, in such amount as may be
computed by the Bureau of Internal Revenue to be paid directly thereto. The BIR is
hereby notified that [Uniwide] Sales Realty and Resources Corporation has assumed
responsibility and is held liable for VAT payment on this project. This accordingly
exempts Claimant Titan-Ikeda Construction and Development Corporation from this
obligation.

Let a copy of this Decision be furnished the Honorable Aurora P. Navarette Recina,
Presiding Judge, Branch 119, Pasay City, in Civil Case No. 94-0814 entitled Titan-Ikeda
Construction Development Corporation, Plaintiff – versus – Uniwide Sales Realty and
Resources Corporation, Defendant, pending before said court for information and
proper action.

SO ORDERED."12

Uniwide filed a motion for reconsideration of the 17 April 1995 decision which was denied by
the CIAC in its Resolution dated 6 July 1995. Uniwide accordingly filed a petition for review
with the Court of Appeals,13 which rendered the assailed decision on 21 February 1996.
Uniwide's motion for reconsideration was likewise denied by the Court of Appeals in its
assailed Resolution14 dated 30 September 1996.

Hence, Uniwide comes to this Court via a petition for review under Rule 45. The issues
submitted for resolution of this Court are as follows:15 (1) Whether Uniwide is entitled to a
return of the amount it allegedly paid by mistake to Titan for additional works done on Project
1; (2) Whether Uniwide is liable for the payment of the Value-Added Tax (VAT) on Project 1;
(3) Whether Uniwide is entitled to liquidated damages for Projects 1 and 3; and (4) Whether
Uniwide is liable for deficiencies in Project 2.

As a rule, findings of fact of administrative agencies and quasi-judicial bodies, which have
acquired expertise because their jurisdiction is confined to specific matters, are generally
accorded not only respect, but also finality, especially when affirmed by the Court of
Appeals.16 In particular, factual findings of construction arbitrators are final and conclusive
and not reviewable by this Court on appeal.17 This rule, however admits of certain exceptions.

In David v. Construction Industry and Arbitration Commission,18 we ruled that, as

exceptions, factual findings of construction arbitrators may be reviewed by this Court when
the petitioner proves affirmatively that: (1) the award was procured by corruption, fraud or
other undue means; (2) there was evident partiality or corruption of the arbitrators or of any
of them; (3) the arbitrators were guilty of misconduct in refusing to hear evidence pertinent
and material to the controversy; (4) one or more of the arbitrators were disqualified to act as
such under Section nine of Republic Act No. 876 and willfully refrained from disclosing such
disqualifications or of any other misbehavior by which the rights of any party have been
materially prejudiced; or (5) the arbitrators exceeded their powers, or so imperfectly executed
them, that a mutual, final and definite award upon the subject matter submitted to them was
not made.19

Other recognized exceptions are as follows: (1) when there is a very clear showing of grave
abuse of discretion20resulting in lack or loss of jurisdiction as when a party was deprived of a
fair opportunity to present its position before the Arbitral Tribunal or when an award is
obtained through fraud or the corruption of arbitrators,21 (2) when the findings of the Court of
Appeals are contrary to those of the CIAC,22 and (3) when a party is deprived of administrative
due process.23

Thus, in Hi-Precision Steel Center, Inc. v. Lim Kim Builders, Inc.,24 we refused to review the
findings of fact of the CIAC for the reason that petitioner was requiring the Court to go over
each individual claim and counterclaim submitted by the parties in the CIAC. A review of the
CIAC's findings of fact would have had the effect of "setting at naught the basic objective of a
voluntary arbitration and would reduce arbitration to a largely inutile institution." Further,
petitioner therein failed to show any serious error of law amounting to grave abuse of
discretion resulting in lack of jurisdiction on the part of the Arbitral Tribunal, in either the
methods employed or the results reached by the Arbitral Tribunal, in disposing of the detailed
claims of the respective parties. In Metro Construction, Inc. v. Chatham Properties, Inc.,25 we
reviewed the findings of fact of the Court of Appeals because its findings on the issue of
whether petitioner therein was in delay were contrary to the findings of the CIAC. Finally,
in Megaworld Globus Asia, Inc. v. DSM Construction and Development Corporation,26 we
declined to depart from the findings of the Arbitral Tribunal considering that the
computations, as well as the propriety of the awards, are unquestionably factual issues that
have been discussed by the Arbitral Tribunal and affirmed by the Court of Appeals.

In the present case, only the first issue presented for resolution of this Court is a question of
law while the rest are factual in nature. However, we do not hesitate to inquire into these
factual issues for the reason that the CIAC and the Court of Appeals, in some matters, differed
in their findings.

We now proceed to discuss the issues in seriatim.

Payment by Mistake for Project 1

The first issue refers to the P5,823,481.75 paid by Uniwide for additional works done on
Project 1. Uniwide asserts that Titan was not entitled to be paid this amount because the
additional works were without any written authorization.

It should be noted that the contracts do not contain stipulations on "additional works,"
Uniwide's liability for "additional works," and prior approval as a requirement before Titan
could perform "additional works."

Nonetheless, Uniwide cites Article (Art. ) 1724 of the New Civil Code as basis for its claim that
it is not liable to pay for "additional works" it did not authorize or agree upon in writing. The
provision states:

Art. 1724. The contractor who undertakes to build a structure or any other work for a
stipulated price, in conformity with plans and specifications agreed upon with the
landowner, can neither withdraw from the contract nor demand an increase in the price
on account of the higher cost of labor or materials, save when there has been a change
in the plans and specifications, provided:

(1) Such change has been authorized by the proprietor in writing; and
 (2) The additional price to be paid to the contractor has been determined in writing by
both parties.

The Court of Appeals did take note of this provision, but deemed it inapplicable to the case at
bar because Uniwide had already paid, albeit with unwritten reservations, for the "additional
works." The provision would have been operative had Uniwide refused to pay for the costs of
the "additional works." Instead, the Court of Appeals applied Art. 142327 of the New Civil Code
and characterized Uniwide's payment of the said amount as a voluntary fulfillment of a
natural obligation. The situation was characterized as being akin to Uniwide being a debtor
who paid a debt even while it knew that it was not legally compelled to do so. As such debtor,
Uniwide could no longer demand the refund of the amount already paid.

Uniwide counters that Art. 1724 makes no distinction as to whether payment for the
"additional works" had already been made. It claims that it had made the payments, subject to
reservations, upon the false representation of Titan-Ikeda that the "additional works" were
authorized in writing. Uniwide characterizes the payment as a "mistake," and not a
"voluntary" fulfillment under Art. 1423 of the Civil Code. Hence, it urges the application,
instead, of the principle of solutio indebiti under Arts. 215428 and 215629 of the Civil Code.

To be certain, this Court has not been wont to give an expansive construction of Art. 1724,
denying, for example, claims that it applies to constructions made of ship vessels, 30 or that it
can validly deny the claim for payment of professional fees to the architect.31 The present
situation though presents a thornier problem. Clearly, Art. 1724 denies, as a matter of right,
payment to the contractor for additional works which were not authorized in writing by the
proprietor, and the additional price of which was not determined in writing by the parties.

Yet the distinction pointed out by the Court of Appeals is material. The issue is no longer
centered on the right of the contractor to demand payment for additional works undertaken
because payment, whether mistaken or not, was already made by Uniwide. Thus, it would not
anymore be incumbent on Titan to establish that it had the right to demand or receive such
payment.

But, even if the Court accepts Art. 1724 as applicable in this case, such recognition does
not ipso facto accord Uniwide the right to be reimbursed for payments already made, since
Art. 1724 does not effect such right of reimbursement. It has to be understood that Art. 1724
does not preclude the payment to the contractor who performs additional works without any
prior written authorization or agreement as to the price for such works if the owner decides
anyway to make such payment. What the provision does preclude is the right of the contractor
to insist upon payment for unauthorized additional works.

Accordingly, Uniwide, as the owner who did pay the contractor for such additional works even
if they had not been authorized in writing, has to establish its own right to reimbursement not
under Art. 1724, but under a different provision of law. Uniwide's burden of establishing its
legal right to reimbursement becomes even more crucial in the light of the general
presumption contained in Section 3(f), Rule 131 of the Rules of Court that "money paid by one
to another was due to the latter."

Uniwide undertakes such a task before this Court, citing the provisions on solutio
indebiti under Arts. 2154 and 2156 of the Civil Code. However, it is not enough to prove that
the payments made by Uniwide to Titan were "not due" because there was no prior
authorization or agreement with respect to additional works. There is a further requirement
that the payment by the debtor was made either through mistake or under a cloud of doubt. In
short, for the provisions on solutio indebiti to apply, there has to be evidence establishing the
frame of mind of the payor at the time the payment was made.32

The CIAC refused to acknowledge that the additional works on Project 1 were indeed
unauthorized by Uniwide. Neither did the Court of Appeals arrive at a contrary determination.
There would thus be some difficulty for this Court to agree with this most basic premise
submitted by Uniwide that it did not authorize the additional works on Project 1 undertaken
by Titan. Still, Uniwide does cite testimonial evidence from the record alluding to a concession
by employees of Titan that these additional works on Project 1 were either authorized or
documented.33

Yet even conceding that the additional works on Project 1 were not authorized or committed
into writing, the undisputed fact remains that Uniwide paid for these additional works. Thus,
to claim a refund of payments made under the principle of solutio indebiti, Uniwide must be
able to establish that these payments were made through mistake. Again, this is a factual
matter that would have acquired a mantle of invulnerability had it been determined by both
the CIAC and the Court of Appeals. However, both bodies failed to arrive at such a conclusion.
Moreover, Uniwide is unable to direct our attention to any pertinent part of the record that
would indeed establish that the payments were made by reason of mistake.

We note that Uniwide alleged in its petition that the CIAC award in favor of Titan in the
amount P5,158,364.63 as the unpaid balance in Project 3 included claims for additional works
of P1,087,214.18 for which no written authorization was presented. Unfortunately, this issue
was not included in its memorandum as one of the issues submitted for the resolution of the
Court.

Liability for the Value-Added Tax (VAT)

The second issue takes us into an inquiry on who, under the law, is liable for the payment of
the VAT, in the absence of a written stipulation on the matter. Uniwide claims that the VAT
was already included in the contract price for Project 1. Citing Secs. 99 and 102 of the National
Internal Revenue Code, Uniwide asserts that VAT, being an indirect tax, may be shifted to the
buyer by including it in the cash or selling price and it is entirely up to the buyer to agree or
not to agree to absorb the VAT.34 Thus, Uniwide concludes, if there is no provision in the
contract as to who should pay the VAT, it is presumed that it would be the seller.35

The contract for Project 1 is silent on which party should shoulder the VAT while the contract
for Project 3 contained a provision to the effect that Uniwide is the party responsible for the
payment of the VAT.36 Thus, when Uniwide paid the amount of P2,400,000.00 as billed by
Titan for VAT, it assumed that it was the VAT for Project 3. However, the CIAC and the Court
of Appeals found that the same was for Project 1.

We agree with the conclusions of both the CIAC and the Court of Appeals that the amount
of P2,400,000.00 was paid by Uniwide as VAT for Project 1. This conclusion was drawn from
an Order of Payment37 dated 7 October 1992 wherein Titan billed Uniwide the amount
of P2,400,000.00 as "Value Added Tax based on P60,000,000.00 Contract," computed on
the basis of 4% of P60,000,000.00. Said document which was approved by the President of
Uniwide expressly indicated that the project involved was the "UNIWIDE SALES
WAREHOUSE CLUB & ADMIN BLDG." located at "90 E. RODRIGUEZ JR. AVE., LIBIS,
Q.C." The reduced base for the computation of the tax, according to the Court of Appeals, was
an indication that the parties agreed to pass the VAT for Project 1 to Uniwide but based on a
lower contract price. Indeed, the CIAC found as follows:

Without any documentary evidence than Exhibit "H" to show the extent of tax liability
assumed by [Uniwide], the Tribunal holds that the parties is [sic] obliged to pay only a
share of the VAT payment up to P60,000,000.00 out of the total contract price
of P120,936,591.50. As explained by Jimmy Gow, VAT is paid on labor only for
construction contracts since VAT had already been paid on the materials
purchased. Since labor costs is [sic] proportionately placed at 60%-40% of
the contract price, simplified accounting computes VAT at 4% of the
contract price. Whatever is the balance for VAT that remains to be paid on Project 1 –
Libis shall remain the obligation of [Titan]. (Emphasis supplied.) 38

Liquidated Damages

On the third issue of liquidated damages, the CIAC rejected such claim while the Court of
Appeals held that the matter should be left for determination in future proceedings where the
issue has been made clear.

In rejecting Uniwide's claim for liquidated damages, the CIAC held that there is no legal basis
for passing upon and resolving Uniwide's claim for the following reasons: (1) no claim for
liquidated damages arising from the alleged delay was ever made by Uniwide at any time
before the commencement of Titan's complaint; (2) the claim for liquidated damages was not
included in the counterclaims stated in Uniwide's answer to Titan's complaint; (3) the claim
was not formulated as an issue to be resolved by the CIAC in the TOR; 39 and (4) no attempt
was made to modify the TOR to accommodate the same as an issue to be resolved.

Uniwide insists that the CIAC should have applied Section 5, Rule 10 of the Rules of
Court.40 On this matter, the Court of Appeals held that the CIAC is an arbitration body, which
is not necessarily bound by the Rules of Court. Also, the Court of Appeals found that the issue
has never been made concrete enough to make Titan and the CIAC aware that it will be an
issue. In fact, Uniwide only introduced and quantified its claim for liquidated damages in its
Memorandum submitted to the CIAC at the end of the arbitration proceeding. The Court of
Appeals also noted that the only evidence on record to prove delay in the construction of
Project 1 is the testimony of Titan's engineer regarding the date of completion of the project
while the only evidence of delay in the construction of Project 3 is the affidavit of Uniwide's
President.

According to Uniwide, the ruling of the Court of Appeals on the issue of liquidated damages
goes against the established judicial policy that a court should always strive to settle in one
proceeding the entire controversy leaving no root or branch to bear the seeds of future
litigations.41 Uniwide claims that the required evidence for an affirmative ruling on its claim is
already on the record. It cites the pertinent provisions of the written contracts which
contained deadlines for liquidated damages. Uniwide also noted that the evidence show that
Project 1 was completed either on 15 February 1992, as found by the CIAC, or 12 March 1992,
as shown by Titan's own evidence, while Project 3, according to Uniwide's President, was
completed in June 1993. Furthermore, Uniwide asserts, the CIAC should have applied
procedural rules such as Section 5, Rule 10 with more liberality because it was an
administrative tribunal free from the rigid technicalities of regular courts.42

On this point, the CIAC held:

The Rule of Procedure Governing Construction Arbitration promulgated by the CIAC

contains no provision on the application of the Rules of Court to arbitration
proceedings, even in a suppletory capacity. Hypothetically admitting that there is such a
provision, suppletory application is made only if it would not contravene a specific
provision in the arbitration rules and the spirit thereof. The Tribunal holds that such
importation of the Rules of Court provision on amendment to conform to
evidence would contravene the spirit, if not the letter of the CIAC rules. This
is for the reason that the formulation of the Terms of Reference is done with the active
participation of the parties and their counsel themselves. The TOR is further required to
be signed by all the parties, their respective counsel and all the members of the Arbitral
Tribunal. Unless the issues thus carefully formulated in the Terms of Reference were
expressly showed [sic] to be amended, issues outside thereof may not be resolved. As
already noted in the Decision, "no attempt was ever made by the [Uniwide] to modify
the TOR in order to accommodate the issues related to its belated counterclaim" on this
issue. (Emphasis supplied.)

Arbitration has been defined as "an arrangement for taking and abiding by the judgment of
selected persons in some disputed matter, instead of carrying it to established tribunals of
justice, and is intended to avoid the formalities, the delay, the expense and vexation of
ordinary litigation."43 Voluntary arbitration, on the other hand, involves the reference of a
dispute to an impartial body, the members of which are chosen by the parties themselves,
which parties freely consent in advance to abide by the arbitral award issued after proceedings
where both parties had the opportunity to be heard. The basic objective is to provide a speedy
and inexpensive method of settling disputes by allowing the parties to avoid the formalities,
delay, expense and aggravation which commonly accompany ordinary litigation, especially
litigation which goes through the entire hierarchy of courts.44 As an arbitration body, the
CIAC can only resolve issues brought before it by the parties through the TOR which functions
similarly as a pre-trial brief. Thus, if Uniwide's claim for liquidated damages was not raised as
an issue in the TOR or in any modified or amended version of it, the CIAC cannot make a
ruling on it. The Rules of Court cannot be used to contravene the spirit of the CIAC rules,
whose policy and objective is to "provide a fair and expeditious settlement of construction
disputes through a non-judicial process which ensures harmonious and friendly relations
between or among the parties."45

Further, a party may not be deprived of due process of law by an amendment of the complaint
as provided in Section 5, Rule 10 of the Rules of Court. In this case, as noted by the Court of
Appeals, Uniwide only introduced and quantified its claim for liquidated damages in its
memorandum submitted to the CIAC at the end of the arbitration proceeding. Verily, Titan
was not given a chance to present evidence to counter Uniwide's claim for liquidated damages.

Uniwide alludes to an alleged judicial admission made by Engr. Luzon Tablante wherein he
stated that Project 1 was completed on 10 March 1992. It now claims that by virtue of Engr.
Tablante's statement, Titan had admitted that it was in delay. We disagree. The testimony of
Engr. Tablante was offered only to prove that Project 1 was indeed completed. It was not
offered to prove the fact of delay. It must be remembered that the purpose for which evidence
is offered must be specified because such evidence may be admissible for several purposes
under the doctrine of multiple admissibility, or may be admissible for one purpose and not for
another, otherwise the adverse party cannot interpose the proper objection. Evidence
submitted for one purpose may not be considered for any other purpose.46Furthermore, even
assuming, for the sake of argument, that said testimony on the date of completion of Project 1
is admitted, the establishment of the mere fact of delay is not sufficient for the imposition of
liquidated damages. It must further be shown that delay was attributable to the contractor if
not otherwise justifiable. Contrarily, Uniwide's belated claim constitutes an admission that
the delay was justified and implies a waiver of its right to such damages.

Project 2: "as-built" plans, overpricing, defective construction

To determine whether or not Uniwide is liable for the unpaid balance of P6,301,075.77 for
Project 2, we need to resolve four sub-issues, namely: (1) whether or not it was necessary for
Titan to submit "as-built" plans before it can be paid by Uniwide; (2) whether or not there was
overpricing of the project; (3) whether or not the P15,000,000.00 paid by Uniwide to Titan
for Project 2 constitutes full payment; and (4) whether or not Titan can be held liable for
defective construction of Project 2.

The CIAC, as affirmed by the Court of Appeals, held Uniwide liable for deficiency relating to
Project 2 in the amount of P6,301,075.77. It is nonetheless alleged by Uniwide that Titan
failed to submit any "as-built" plans for Project 2, such plans allegedly serving as a condition
precedent for payment. Uniwide further claims that Titan had substantially overcharged
Uniwide for Project 2, there being uncontradicted expert testimony that the total cost of
Project 2 did not exceed P7,812,123.60. Furthermore, Uniwide alleged that the works
performed were structurally defective, as evidenced by the structural damage on four columns
as observed on ocular inspection by the CIAC and confirmed by Titan's project manager.

On the necessity of submitting "as-built" plans, this Court rules that the submission of such
plans is not a pre-requisite for Titan to be paid by Uniwide. The argument that said plans are
required by Section 308 of Presidential Decree No. 1098 (National Building Code) and by
Section 2.11 of its Implementing Rules before payment can be made is untenable. The purpose
of the law is "to safeguard life, health, property, and public welfare, consistent with the
principles of sound environmental management and control." The submission of these plans
is necessary only in furtherance of the law's purpose by setting minimum standards and
requirements to control the "location, site, design, quality of materials, construction, use,
occupancy, and maintenance" of buildings constructed and not as a requirement for payment
to the contractor.47 The testimony of Engr. Tablante to the effect that the "as-built" plans are
required before payment can be claimed by Titan is a mere legal conclusion which is not
binding on this Court.

Uniwide claims that, according to one of its consultants, the true price for Project 2 is
only P7,812,123.60. The CIAC and the Court of Appeals, however, found the testimony of this
consultant suspect and ruled that the total contract price for Project 2 is P21,301,075.77. The
CIAC held:
 The Cost Estimate for Architectural and Site Development Works for the EDSA Central,
Dau Branch Project (Exhibit "2-A" for [Uniwide] and made as a common exhibit by
[Titan] who had it marked at [sic] its own Exhibit "U"), which was admittedly prepared
by Fermindoza and Associates, [Uniwide]'s own architects, shows that the amount
of P17,750,896.48 was arrived at. Together with the agreed upon mark-up of 20% on
said amount, the total project cost was P21,301,075.77.

The Tribunal holds that the foregoing document is binding upon the [Uniwide], it being
the mode agreed upon by which its liability for the project cost was to be
determined.48 (Emphasis supplied.)

Indeed, Uniwide is bound by the amount indicated in the above document. Claims of
connivance or fraudulent conspiracy between Titan and Uniwide's representatives which, it is
alleged, grossly exaggerated the price may properly be dismissed. As held by the CIAC:

The Tribunal holds that [Uniwide] has not introduced any evidence to sustain its charge
of fraudulent conspiracy. As a matter of fact, [Uniwide]'s own principal witness, Jimmy
Gow, admitted on cross-examination that he does not have any direct evidence to prove
his charge of connivance or complicity between the [Titan] and his own representatives.
He only made that conclusion by the process of his own "logical reasoning" arising from
his consultation with other contractors who gave him a much lower estimate for the
construction of the Dau Project. There is thus no reason to invalidate the binding
character of Exhibit "2-A" which, it is significant to point out, is [Uniwide]'s own
evidence.49 (Emphasis supplied.)

Accordingly, deducting the P15,000,000.00 already paid by Uniwide from the total contract
price of P21,301,075.77, the unpaid balance due for Project 2 is P6,301,075.77. This is the
same amount reflected in the Order of Payment prepared by Uniwide's representative, Le
Consultech, Inc. and signed by no less than four top officers and architects of Le Consultech,
Inc. endorsing for payment by Uniwide to Titan the amount of P6,301,075.77.50

Uniwide asserts that Titan should not have been allowed to recover on Project 2 because the
said project was defective and would require repairs in the amount of P800,000.00. It claims
that the CIAC and the Court of Appeals should have applied Nakpil and Sons v. Court of
Appeals51 and Art. 1723 of the New Civil Code holding a contractor responsible for damages if
the edifice constructed falls within fifteen years from completion on account of defects in the
construction or the use of materials of inferior quality furnished by him or due to any
violation of the terms of the contract.

On this matter, the CIAC conducted an ocular inspection of the premises on 30 January 1995.
What transpired in the said ocular inspection is described thus:

On 30 January 1995, an ocular inspection was conducted by the Arbitral Tribunal as

requested by [Uniwide]. Photographs were taken of the alleged construction defects, an
actual ripping off of the plaster of a certain column to expose the alleged structural
defect that is claimed to have resulted in its being "heavily damaged" was done,
clarificatory questions were asked and manifestations on observations were made by
the parties and their respective counsels. The entire proceedings were recorded on tape
 and subsequently transcribed. The photographs and transcript of the ocular inspection
form part of the records and considered as evidence.52

And, according to these evidence, the CIAC concluded as follows:

It is likewise the holding of this Tribunal that [Uniwide]'s counterclaim of defective

construction has not been sufficiently proven. The credibility of Engr. Cruz, [Uniwide]'s
principal witness on this issue, has been severely impaired. During the ocular
inspection of the premises, he gave such assurance of the soundness of his opinion as
an expert that a certain column was heavily damaged judging from the external cracks
that was readily apparent x x x

xxxx

On insistence of the Tribunal, the plaster was chipped off and revealed a structurally
sound column x x x

Further, it turns out that what was being passed off as a defective construction by
[Titan], was in fact an old column, as admitted by Mr. Gow himself x x x x 53 (Emphasis
supplied.)

Uniwide had the burden of proving that there was defective construction in Project 2 but it
failed to discharge this burden. Even the credibility of its own witness was severely impaired.
Further, it was found that the concrete slab placed by Titan was not attached to the old
columns where cracks were discovered. The CIAC held that the post-tensioning of the new
concrete slab could not have caused any of the defects manifested by the old columns. We are
bound by this finding of fact by the CIAC.

It is worthy to stress our ruling in Hi-Precision Steel Center, Inc. v. Lim Kim Steel Builders,
Inc.54 which was reiterated in David v. Construction Industry and Arbitration
Commission,55 that:

x x x Executive Order No. 1008 created an arbitration facility to which the construction
industry in the Philippines can have recourse. The Executive Order was enacted to
encourage the early and expeditious settlement of disputes in the
construction industry, a public policy the implementation of which is
necessary and important for the realization of national development goals.

Aware of the objective of voluntary arbitration in the labor field, in the construction
industry, and in any other area for that matter, the Court will not assist one or the other
or even both parties in any effort to subvert or defeat that objective for their private
purposes. The Court will not review the factual findings of an arbitral tribunal upon the
artful allegation that such body had "misapprehended facts" and will not pass upon
issues which are, at bottom, issues of fact, no matter how cleverly disguised they might
be as "legal questions." The parties here had recourse to arbitration and chose the
arbitrators themselves; they must have had confidence in such arbitrators. The Court
will not, therefore, permit the parties to relitigate before it the issues of facts previously
presented and argued before the Arbitral Tribunal, save only where a clear showing is
made that, in reaching its factual conclusions, the Arbitral Tribunal committed an error
 so egregious and hurtful to one party as to constitute a grave abuse of discretion
resulting in lack or loss of jurisdiction. Prototypical examples would be factual
conclusions of the Tribunal which resulted in deprivation of one or the other party of a
fair opportunity to present its position before the Arbitral Tribunal, and an award
obtained through fraud or the corruption of arbitrators. Any other, more relaxed rule
would result in setting at naught the basic objective of a voluntary arbitration and
would reduce arbitration to a largely inutile institution. (Emphasis supplied.)

WHEREFORE, premises considered, the petition is DENIED and the Decision of the Court of
Appeals dated 21 February 1996 in CA-G.R. SP No. 37957 is hereby AFFIRMED.

SO ORDERED.
G.R. No. 132848-49 June 26, 2001

PHILROCK, INC., petitioner,

vs.
CONSTRUCTION INDUSTRY ARBITRATION COMMISSION and Spouses
VICENTE and NELIA CID, respondents.

PANGANIBAN, J.:

Courts encourage the use of alternative methods of dispute resolution. When parties agree to
settle their disputes arising from or connected with construction contracts, the Construction
Industry Arbitration Commission (CIAC) acquires primary jurisdiction. It may resolve not
only the merits of such controversies; when appropriate, it may also award damages,
interests, attorney’s fees and expenses of litigation.

The Case

Before us is a Petition for Review under Rule 45 of the Rules of Court. The Petition seeks the
reversal of the July 9, 1997 Decision1 and the February 24, 1998 Resolution of the Court of
Appeals (CA) in the consolidated cases docketed as CA-GR SP Nos. 39781 and 42443. The
assailed Decision disposed as follows:

"WHEREFORE, judgment is hereby rendered DENYING the petitions and,

accordingly, AFFIRMING in totothe CIAC’s decision. Costs against petitioner."2

The assailed Resolution ruled in this wise:

"Considering that the matters raised and discussed in the motion for reconsideration
filed by appellant’s counsel are substantially the same arguments which the Court had
passed upon and resolved in the decision sought to be reconsidered, and there being no
new issue raised, the subject motion is hereby DENIED."3

The Facts

The undisputed facts of the consolidated cases are summarized by the CA as follows:

"On September 14, 1992, the Cid spouses, herein private respondents, filed a Complaint
for damages against Philrock and seven of its officers and engineers with the Regional
Trial Court of Quezon City, Branch 82.

"On December 7, 1993, the initial trial date, the trial court issued an Order dismissing
the case and referring the same to the CIAC because the Cid spouses and Philrock had
filed an Agreement to Arbitrate with the CIAC.

"Thereafter, preliminary conferences were held among the parties and their appointed
arbitrators. At these conferences, disagreements arose as to whether moral and
exemplary damages and tort should be included as an issue along with breach of
contract, and whether the seven officers and engineers of Philrock who are not parties
to the Agreement to Arbitrate should be included in the arbitration proceedings. No
common ground could be reached by the parties, hence, on April 2, 1994, both the Cid
spouses and Philrock requested that the case be remanded to the trial court. On April
13, 1994, the CIAC issued an Order stating, thus:

'x x x the Arbitral Tribunal hereby formally dismisses the above-captioned case
for referral to Branch 82 of the Regional Trial Court, Quezon City where it first
originated.

SO ORDERED.'

"The Cid spouses then filed with said Branch of the Regional Trial Court of Quezon City
a Motion To Set Case for Hearing which motion was opposed by Philrock.

"On June 13, 1995, the trial court declared that it no longer had jurisdiction over the
case and ordered the records of the case to be remanded anew to the CIAC for arbitral
proceedings.

"Pursuant to the aforementioned Order of the Regional Trial C[o]urt of Quezon City,
the CIAC resumed conducting preliminary conferences. On August 21, 1995, herein
[P]etitioner Philrock requested to suspend the proceedings until the court clarified its
ruling in the Order dated June 13, 1995. Philrock argued that said Order was based on a
mistaken premise that 'the proceedings in the CIAC fell through because of the refusal
of [Petitioner] Philrock to include the issue of damages therein,' whereas the true
reason for the withdrawal of the case from the CIAC was due to Philrock's opposition to
the inclusion of its seven officers and engineers, who did not give their consent to
arbitration, as party defendants. On the other hand, private respondent Nelia Cid
manifested that she was willing to exclude the seven officers and engineers of Philrock
as parties to the case so as to facilitate or expedite the proceedings. With such
manifestation from the Cid spouses, the Arbitral Tribunal denied Philrock's request for
the suspension of the proceedings. Philrock's counsel agreed to the continuation of the
proceedings but reserved the right to file a pleading elucidating the position he [had]
raised regarding the Court's Order dated June 13, 1995. The parties then proceeded to
finalize, approve and sign the Terms of Reference. Philrock's counsel and
representative, Atty. Pericles C. Consunji affixed his signature to said Terms of
Reference which stated that 'the parties agree that their differences be settled by an
Arbitral Tribunal x x x x' (p. 9, Terms of Reference, p. 200, Rollo).

"On September 12, 1995, [P]etitioner Philrock filed its Motion to Dismiss, alleging
therein that the CIAC had lost jurisdiction to hear the arbitration case due to the
parties' withdrawal of their consent to arbitrate. The motion was denied by x x x CIAC
per Order dated September 22, 1995. On November 8, public respondent ordered the
parties to appear before it on November 28, 1995 for the continuation of the arbitral
proceedings, and on February 7, 1996, public respondent directed [P]etitioner Philrock
to set two hearing dates in the month of February to present its evidence and to pay all
fees assessed by it, otherwise x x x Philrock would be deemed to have waived its right to
present evidence.
 "Hence, petitioner instituted the petition for certiorari but while said petition was
pending, the CIAC rendered its Decision dated September 24, 1996, the dispositive
portion of which reads, as follows:

'WHEREFORE, judgment is hereby rendered in favor of the Claimant, directing

Respondent to pay Claimant as follows:

1. P23,276.25 representing the excess cash payment for materials ordered by the
Claimants, (No. 7 of admitted facts) plus interests thereon at the rate of 6% per
annum from September 26, 1995 to the date payment is made.

2. P65,000.00 representing retrofitting costs.

3. P13,404.54 representing refund of the value of delivered but unworkable

concrete mix that was laid to waste.

4. P50,000.00 representing moral damages.

5. P50,000.00 representing nominal damages.

6. P50,000.00 representing attorney's fees and expenses of litigation.

7. P144,756.80 representing arbitration fees, minus such amount that may

already have been paid to CIAC by respondent.

"Let a copy of this Decision be furnished the Honorable Salvador C. Ceguera, presiding
judge, Branch 82 of Regional Trial Court of Quezon City who referred this case to the
Construction Industry Arbitration Commission for arbitration and proper disposition.'
(pp. 44-45, Rollo, CA-G.R. SP No. 42443) "4

Before the CA, petitioner filed a Petition for Review, docketed as CA-GR SP No. 42443,
contesting the jurisdiction of the CIAC and assailing the propriety of the monetary awards in
favor of respondent spouses. This Petition was consolidated by the CA with CA-GR SP No.
39781, a Petition for Certiorari earlier elevated by petitioner questioning the jurisdiction of
the CIAC.

Ruling of the Court of Appeals

The CA upheld the jurisdiction of the CIAC5 over the dispute between petitioner and private
respondent. Under Executive Order No. 1008, the CIAC acquires jurisdiction when the parties
agree to submit their dispute to voluntary arbitration. Thus, in the present case, its
jurisdiction continued despite its April 13, 1994 Order referring the case back to the Regional
Trial Court (RTC) of Quezon City, Branch 82, the court of origin. The CIAC’s action was based
on the principle that once acquired, jurisdiction remains "until the full termination of the case
unless a law provides the contrary." No such "full termination" of the case was evident in the
said Order; nor did the CIAC or private respondents intend to put an end to the case.

Besides, according to Section 3 of the Rules of Procedure Governing Construction Arbitration,

technical rules of law or procedure are not applicable in a single arbitration or arbitral
tribunal. Thus, the "dismissal" could not have divested the CIAC of jurisdiction to ascertain
the facts of the case, arrive at a judicious resolution of the dispute and enforce its award or
decision.

Since the issues concerning the monetary awards were questions of fact, the CA held that
those awards were inappropriate in a petition for certiorari. Such questions are final and not
appealable according to Section 19 of EO 1008, which provides that "arbitral awards shall be x
x x final and [u]nappealable except on questions of law which shall be appealable to the
Supreme Court x x x." Nevertheless, the CA reviewed the records and found that the awards
were supported by substantial evidence. In matters falling under the field of expertise of
quasi-judicial bodies, their findings of fact are accorded great respect when supported by
substantial evidence.

Hence, this Petition.6

Issues

The petitioner, in its Memorandum, raises the following issues:

"A.

Whether or not the CIAC could take jurisdiction over the case of Respondent Cid spouses
against Petitioner Philrock after the case had been dismissed by both the RTC and the CIAC.

"B.

Whether or not Respondent Cid spouses have a cause of action against Petitioner Philrock.

"C.

Whether or not the awarding of the amount of P23,276.75 for materials ordered by
Respondent Spouses Cid plus interest thereon at the rate of 6% from 26 September 1995 is
proper.

"D.

Whether or not the awarding of the amount of P65,000.00 as retrofitting costs is proper.

"E.

Whether or not the awarding of the amount of P1,340,454 for the value of the delivered but
the allegedly unworkable concrete which was wasted is proper.

"F.

Whether or not the awarding o[f] moral and nominal damages and attorney's fees and
expenses of litigation in favor of respondents is proper.

"G.
Whether or not Petitioner Philrock should be held liable for the payment of arbitration fees." 7

In sum, petitioner imputes reversible error to the CA (1) for upholding the jurisdiction of the
CIAC after the latter had dismissed the case and referred it to the regular court, (2) for ruling
that respondent spouses had a cause of action against petitioner, and (3) for sustaining the
award of damages.

This Court’s Ruling

The Petition has no merit.

First Issue:

Jurisdiction

Petitioner avers that the CIAC lost jurisdiction over the arbitration case after both parties had
withdrawn their consent to arbitrate. The June 13, 1995 RTC Order remanding the case to the
CIAC for arbitration was allegedly an invalid mode of referring a case for arbitration.

We disagree. Section 4 of Executive Order 1008 expressly vests in the CIAC original and
exclusive jurisdiction over disputes arising from or connected with construction contracts
entered into by parties that have agreed to submit their dispute to voluntary arbitration. 8

It is undisputed that the parties submitted themselves to the jurisdiction of the Commission
by virtue of their Agreement to Arbitrate dated November 24, 1993. Signatories to the
Agreement were Atty. Ismael J. Andres and Perry Y. Uy (president of Philippine Rock
Products, Inc.) for petitioner, and Nelia G. Cid and Atty. Esteban A. Bautista for respondent
spouses.9

Petitioner claims, on the other hand, that this Agreement was withdrawn by respondents on
April 8, 1994, because of the exclusion of the seven engineers of petitioners in the arbitration
case. This withdrawal became the basis for the April 13, 1994 CIAC Order dismissing the
arbitration case and referring the dispute back to the RTC. Consequently, the CIAC was
divested of its jurisdiction to hear and decide the case.

This contention is untenable. First, private respondents removed the obstacle to the
continuation of the arbitration, precisely by withdrawing their objection to the exclusion of
the seven engineers. Second, petitioner continued participating in the arbitration even after
the CIAC Order had been issued. It even concluded and signed the Terms of Reference10 on
August 21, 1995, in which the parties stipulated the circumstances leading to the dispute;
summarized their respective positions, issues, and claims; and identified the composition of
the tribunal of arbitrators. The document clearly confirms both parties’ intention and
agreement to submit the dispute to voluntary arbitration. In view of this fact, we fail to see
how the CIAC could have been divested of its jurisdiction.

Finally, as pointed out by the solicitor general, petitioner maneuvered to avoid the RTC’s final
resolution of the dispute by arguing that the regular court also lost jurisdiction after the
arbitral tribunal’s April 13, 1994 Order referring the case back to the RTC. In so doing,
petitioner conceded and estopped itself from further questioning the jurisdiction of the CIAC.
The Court will not countenance the effort of any party to subvert or defeat the objective of
voluntary arbitration for its own private motives. After submitting itself to arbitration
proceedings and actively participating therein, petitioner is estopped from assailing the
jurisdiction of the CIAC, merely because the latter rendered an adverse decision. 11

Second Issue:

Cause of Action

Petitioner contends that respondent spouses were negligent in not engaging the services of an
engineer or architect who should oversee their construction, in violation of Section 308 of the
National Building Code. It adds that even if the concrete it delivered was defective,
respondent spouses should bear the loss arising from their illegal operation. In short, it
alleges that they had no cause of action against it.

We disagree. Cause of action is defined as an act or omission by which a party violates the
right of another.12 A complaint is deemed to have stated a cause of action provided it has
indicated the following: (1) the legal right of the plaintiff, (2) the correlative obligation of the
defendant, and (3) the act or the omission of the defendant in violation of the said legal
right.13 The cause of action against petitioner was clearly established. Respondents were
purchasers of ready-mix concrete from petitioner. The concrete delivered by the latter turned
out to be of substandard quality. As a result, respondents sustained damages when the
structures they built using such cement developed cracks and honeycombs. Consequently, the
construction of their residence had to be stopped.

Further, the CIAC Decision clearly spelled out respondents’ cause of action against petitioner,
as follows:

"Accordingly, this Tribunal finds that the mix was of the right proportions at the time it
left the plant. This, however, does not necessarily mean that all of the concrete mix
delivered had remained workable when it reached the jobsite. It should be noted that
there is no evidence to show that all the transit mixers arrived at the site within the
allowable time that would ensure the workability of the concrete mix delivered.

"On the other hand, there is sufficiently strong evidence to show that difficulties were
encountered in the pouring of concrete mix from certain transit mixers necessitating
the [addition] of water and physically pushing the mix, obviously because the same
[was] no longer workable. This Tribunal holds that the unworkability of said concrete
mix has been firmly established.

"There is no dispute, however, to the fact that there are defects in some areas of the
poured structures. In this regard, this Tribunal holds that the only logical reason is that
the unworkable concrete was the one that was poured in the defective sections."14

Third Issue:

Monetary Awards
Petitioner assails the monetary awards given by the arbitral tribunal for alleged lack of basis
in fact and in law. The solicitor general counters that the basis for petitioner’s assigned errors
with regard to the monetary awards is purely factual and beyond the review of this Court.
Besides, Section 19, EO 1008, expressly provides that monetary awards by the CIAC are final
and unappealable.

We disagree with the solicitor general. As pointed out earlier, factual findings of quasi-judicial
bodies that have acquired expertise are generally accorded great respect and even finality, if
they are supported by substantial evidence.15 The Court, however, has consistently held that
despite statutory provisions making the decisions of certain administrative agencies "final," it
still takes cognizance of petitions showing want of jurisdiction, grave abuse of discretion,
violation of due process, denial of substantial justice or erroneous interpretation of the
law.16 Voluntary arbitrators, by the nature of their functions, act in a quasi-judicial capacity,
such that their decisions are within the scope of judicial review.17

Petitioner protests the award to respondent spouses of P23,276.25 as excess payment with six
percent interest beginning September 26, 1995. It alleges that this item was neither raised as
an issue by the parties during the arbitration case, nor was its justification discussed in the
CIAC Decision. It further contends that it could not be held liable for interest, because it had
earlier tendered a check in the same amount to respondent spouses, who refused to receive it.

Petitioner’s contentions are completely untenable. Respondent Nelia G. Cid had already
raised the issue of overpayment even prior to the formal arbitration. In paragraph 9 of the
Terms of Reference, she stated:

"9. Claimants were assured that the problem and her demands had been the subject of
several staff meetings and that Arteche was very much aware of it, a memorandum
having been submitted citing all the demands of [c]laimants. This assurance was made
on July 31, 1992 when Respondents Secillano, Martillano and Lomibao came to see
Claimant Nelia Cid and offered to refund P23,276.25, [t]he difference between the
billing by Philrock’s Marketing Department in the amount of P125,586.25 and the
amount charged by Philrock's Batching Plant Department in the amount of
only P102,586.25, which [c]laimant refused to accept by saying, ‘Saka na lang’."18

The same issue was discussed during the hearing before the arbitration tribunal on December
19, 1995.19 It was also mentioned in that tribunal’s Decision dated September 24, 1996.20

The payment of interest is based on Article 2209 of the Civil Code, which provides that if the
obligation consists of the payment of a sum of money, and the debtor incurs delay, the
indemnity for damages shall be the payment of legal interest which is six per cent per annum,
in the absence of a stipulation of the rate.

Awards for Retrofitting Costs, Wasted Unworkable

But Delivered Concrete, and Arbitration Fees

Petitioner maintains that the defects in the concrete structure were due to respondent
spouses’ failure to secure the services of an engineer or architect to supervise their project.
Hence, it claims that the award for retrofitting cost was without legal basis. It also denies
liability for the wasted unworkable but delivered concrete, for which the arbitral court
awarded P13,404.54. Finally, it complains against the award of litigation expenses, inasmuch
as the case should not have been instituted at all had respondents complied with the
requirements of the National Building Code.

We are unconvinced. Not only did respondents disprove the contention of petitioner; they also
showed that they sustained damages due to the defective concrete it had delivered. These were
items of actual damages they sustained due to its breach of contract.

Moral and Nominal Damages, Attorney’s Fees and Costs

Petitioner assails the award of moral damages, claiming no malice or bad faith on its part.

We disagree. Respondents were deprived of the comfort and the safety of a house and were
exposed to the agony of witnessing the wastage and the decay of the structure for more than
seven years. In her Memorandum, Respondent Nelia G. Cid describes her family’s sufferings
arising from the unreasonable delay in the construction of their residence, as follows: "The
family lives separately for lack of space to stay in. Mrs. Cid is staying in a small dingy bodega,
while her son occupies another makeshift room. Their only daughter stayed with her aunt
from 1992 until she got married in 1996. x x x."21 The Court also notes that during the
pendency of the case, Respondent Vicente Cid died without seeing the completion of their
home.22 Under the circumstances, the award of moral damages is proper.

Petitioner also contends that nominal damages should not have been granted, because it did
not breach its obligation to respondent spouses.

Nominal damages are recoverable only if no actual or substantial damages resulted from the
breach, or no damage was or can be shown.23 Since actual damages have been proven by
private respondents for which they were amply compensated, they are no longer entitled to
nominal damages.

Petitioner protests the grant of attorney’s fees, arguing that respondent spouses did not
engage the services of legal counsel. Also, it contends that attorney’s fees and litigation
expenses are awarded only if the opposing party acted in gross and evident bad faith in
refusing to satisfy plaintiff’s valid, just and demandable claim.

We disagree. The award is not only for attorney’s fees, but also for expenses of litigation.
Hence, it does not matter if respondents represented themselves in court, because it is
obvious that they incurred expenses in pursuing their action before the CIAC, as well as the
regular and the appellate courts. We find no reason to disturb this award.1âwphi1.nêt

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED; however,
the award of nominal damages is DELETED for lack of legal basis. Costs against petitioner.

SO ORDERED.
G.R. No. 155001 May 5, 2003

DEMOSTHENES P. AGAN, JR., JOSEPH B. CATAHAN, JOSE MARI B.

REUNILLA, MANUEL ANTONIO B. BOÑE, MAMERTO S. CLARA, REUEL E.
DIMALANTA, MORY V. DOMALAON, CONRADO G. DIMAANO, LOLITA R.
HIZON, REMEDIOS P. ADOLFO, BIENVENIDO C. HILARIO, MIASCOR
WORKERS UNION - NATIONAL LABOR UNION (MWU-NLU), and PHILIPPINE
AIRLINES EMPLOYEES ASSOCIATION (PALEA), petitioners,
vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA
INTERNATIONAL AIRPORT AUTHORITY, DEPARTMENT OF
TRANSPORTATION AND COMMUNICATIONS and SECRETARY LEANDRO M.
MENDOZA, in his capacity as Head of the Department of Transportation and
Communications, respondents,
MIASCOR GROUNDHANDLING CORPORATION, DNATA-WINGS AVIATION
SYSTEMS CORPORATION, MACROASIA-EUREST SERVICES, INC.,
MACROASIA-MENZIES AIRPORT SERVICES CORPORATION, MIASCOR
CATERING SERVICES CORPORATION, MIASCOR AIRCRAFT MAINTENANCE
CORPORATION, and MIASCOR LOGISTICS CORPORATION, petitioners-in-
intervention,

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

G.R. No. 155547 May 5, 2003

SALACNIB F. BATERINA, CLAVEL A. MARTINEZ and CONSTANTINO G.

JARAULA, petitioners,
vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA
INTERNATIONAL AIRPORT AUTHORITY, DEPARTMENT OF
TRANSPORTATION AND COMMUNICATIONS, DEPARTMENT OF PUBLIC
WORKS AND HIGHWAYS, SECRETARY LEANDRO M. MENDOZA, in his
capacity as Head of the Department of Transportation and Communications, and
SECRETARY SIMEON A. DATUMANONG, in his capacity as Head of the
Department of Public Works and Highways, respondents,
JACINTO V. PARAS, RAFAEL P. NANTES, EDUARDO C. ZIALCITA, WILLY
BUYSON VILLARAMA, PROSPERO C. NOGRALES, PROSPERO A. PICHAY, JR.,
HARLIN CAST ABAYON, and BENASING O. MACARANBON, respondents-
intervenors,

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

G.R. No. 155661 May 5, 2003

CEFERINO C. LOPEZ, RAMON M. SALES, ALFREDO B. VALENCIA, MA. TERESA

V. GAERLAN, LEONARDO DE LA ROSA, DINA C. DE LEON, VIRGIE CATAMIN
RONALD SCHLOBOM, ANGELITO SANTOS, MA. LUISA M. PALCON and
SAMAHANG MANGGAGAWA SA PALIPARAN NG PILIPINAS (SMPP), petitioners,
vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA
INTERNATIONAL AIRPORT AUTHORITY, DEPARTMENT OF
TRANSPORTATION AND COMMUNICATIONS, SECRETARY LEANDRO M.
MENDOZA, in his capacity as Head of the Department of Transportation and
Communications, respondents.

PUNO, J.:

Petitioners and petitioners-in-intervention filed the instant petitions for prohibition under
Rule 65 of the Revised Rules of Court seeking to prohibit the Manila International Airport
Authority (MIAA) and the Department of Transportation and Communications (DOTC) and
its Secretary from implementing the following agreements executed by the Philippine
Government through the DOTC and the MIAA and the Philippine International Air Terminals
Co., Inc. (PIATCO): (1) the Concession Agreement signed on July 12, 1997, (2) the Amended
and Restated Concession Agreement dated November 26, 1999, (3) the First Supplement to
the Amended and Restated Concession Agreement dated August 27, 1999, (4) the Second
Supplement to the Amended and Restated Concession Agreement dated September 4, 2000,
and (5) the Third Supplement to the Amended and Restated Concession Agreement dated
June 22, 2001 (collectively, the PIATCO Contracts).

The facts are as follows:

In August 1989, the DOTC engaged the services of Aeroport de Paris (ADP) to conduct a
comprehensive study of the Ninoy Aquino International Airport (NAIA) and determine
whether the present airport can cope with the traffic development up to the year 2010.
The study consisted of two parts: first, traffic forecasts, capacity of existing facilities,
NAIA future requirements, proposed master plans and development plans; and second,
presentation of the preliminary design of the passenger terminal building. The ADP
submitted a Draft Final Report to the DOTC in December 1989.

Some time in 1993, six business leaders consisting of John Gokongwei, Andrew
Gotianun, Henry Sy, Sr., Lucio Tan, George Ty and Alfonso Yuchengco met with then
President Fidel V. Ramos to explore the possibility of investing in the construction and
operation of a new international airport terminal. To signify their commitment to
pursue the project, they formed the Asia's Emerging Dragon Corp. (AEDC) which was
registered with the Securities and Exchange Commission (SEC) on September 15, 1993.

On October 5, 1994, AEDC submitted an unsolicited proposal to the Government

through the DOTC/MIAA for the development of NAIA International Passenger
Terminal III (NAIA IPT III) under a build-operate-and-transfer arrangement pursuant
to RA 6957 as amended by RA 7718 (BOT Law).1

On December 2, 1994, the DOTC issued Dept. Order No. 94-832 constituting the
Prequalification Bids and Awards Committee (PBAC) for the implementation of the NAIA IPT
III project.

On March 27, 1995, then DOTC Secretary Jose Garcia endorsed the proposal of AEDC to the
National Economic and Development Authority (NEDA). A revised proposal, however, was
forwarded by the DOTC to NEDA on December 13, 1995. On January 5, 1996, the NEDA
Investment Coordinating Council (NEDA ICC) – Technical Board favorably endorsed the
project to the ICC – Cabinet Committee which approved the same, subject to certain
conditions, on January 19, 1996. On February 13, 1996, the NEDA passed Board Resolution
No. 2 which approved the NAIA IPT III project.

On June 7, 14, and 21, 1996, DOTC/MIAA caused the publication in two daily newspapers of
an invitation for competitive or comparative proposals on AEDC's unsolicited proposal, in
accordance with Sec. 4-A of RA 6957, as amended. The alternative bidders were required to
submit three (3) sealed envelopes on or before 5:00 p.m. of September 20, 1996. The first
envelope should contain the Prequalification Documents, the second envelope the Technical
Proposal, and the third envelope the Financial Proposal of the proponent.

On June 20, 1996, PBAC Bulletin No. 1 was issued, postponing the availment of the Bid
Documents and the submission of the comparative bid proposals. Interested firms were
permitted to obtain the Request for Proposal Documents beginning June 28, 1996, upon
submission of a written application and payment of a non-refundable fee of P50,000.00
(US$2,000).

The Bid Documents issued by the PBAC provided among others that the proponent must have
adequate capability to sustain the financing requirement for the detailed engineering, design,
construction, operation, and maintenance phases of the project. The proponent would be
evaluated based on its ability to provide a minimum amount of equity to the project, and its
capacity to secure external financing for the project.

On July 23, 1996, the PBAC issued PBAC Bulletin No. 2 inviting all bidders to a pre-bid
conference on July 29, 1996.

On August 16, 1996, the PBAC issued PBAC Bulletin No. 3 amending the Bid Documents. The
following amendments were made on the Bid Documents:

a. Aside from the fixed Annual Guaranteed Payment, the proponent shall include in its
financial proposal an additional percentage of gross revenue share of the Government,
as follows:

i. First 5 years 5.0%

ii. Next 10 years 7.5%
iii. Next 10 years 10.0%

b. The amount of the fixed Annual Guaranteed Payment shall be subject of the price
challenge. Proponent may offer an Annual Guaranteed Payment which need not be of
equal amount, but payment of which shall start upon site possession.

c. The project proponent must have adequate capability to sustain the financing
requirement for the detailed engineering, design, construction, and/or operation and
maintenance phases of the project as the case may be. For purposes of pre-qualification,
this capability shall be measured in terms of:
 i. Proof of the availability of the project proponent and/or the consortium to
provide the minimum amount of equity for the project; and

ii. a letter testimonial from reputable banks attesting that the project proponent
and/or the members of the consortium are banking with them, that the project
proponent and/or the members are of good financial standing, and have
adequate resources.

d. The basis for the prequalification shall be the proponent's compliance with the
minimum technical and financial requirements provided in the Bid Documents and the
IRR of the BOT Law. The minimum amount of equity shall be 30% of the Project Cost.

e. Amendments to the draft Concession Agreement shall be issued from time to time.
Said amendments shall only cover items that would not materially affect the
preparation of the proponent's proposal.

On August 29, 1996, the Second Pre-Bid Conference was held where certain clarifications
were made. Upon the request of prospective bidder People's Air Cargo & Warehousing Co.,
Inc (Paircargo), the PBAC warranted that based on Sec. 11.6, Rule 11 of the Implementing
Rules and Regulations of the BOT Law, only the proposed Annual Guaranteed Payment
submitted by the challengers would be revealed to AEDC, and that the challengers' technical
and financial proposals would remain confidential. The PBAC also clarified that the list of
revenue sources contained in Annex 4.2a of the Bid Documents was merely indicative and
that other revenue sources may be included by the proponent, subject to approval by
DOTC/MIAA. Furthermore, the PBAC clarified that only those fees and charges denominated
as Public Utility Fees would be subject to regulation, and those charges which would be
actually deemed Public Utility Fees could still be revised, depending on the outcome of
PBAC's query on the matter with the Department of Justice.

In September 1996, the PBAC issued Bid Bulletin No. 5, entitled "Answers to the Queries of
PAIRCARGO as Per Letter Dated September 3 and 10, 1996." Paircargo's queries and the
PBAC's responses were as follows:

1. It is difficult for Paircargo and Associates to meet the required minimum equity
requirement as prescribed in Section 8.3.4 of the Bid Documents considering that the
capitalization of each member company is so structured to meet the requirements and
needs of their current respective business undertaking/activities. In order to comply
with this equity requirement, Paircargo is requesting PBAC to just allow each member
of (sic) corporation of the Joint Venture to just execute an agreement that embodies a
commitment to infuse the required capital in case the project is awarded to the Joint
Venture instead of increasing each corporation's current authorized capital stock just
for prequalification purposes.

In prequalification, the agency is interested in one's financial capability at the time of

prequalification, not future or potential capability.

A commitment to put up equity once awarded the project is not enough to establish that
"present" financial capability. However, total financial capability of all member
 companies of the Consortium, to be established by submitting the respective
companies' audited financial statements, shall be acceptable.

2. At present, Paircargo is negotiating with banks and other institutions for the
extension of a Performance Security to the joint venture in the event that the
Concessions Agreement (sic) is awarded to them. However, Paircargo is being
required to submit a copy of the draft concession as one of the documentary
requirements. Therefore, Paircargo is requesting that they'd (sic) be furnished copy of
the approved negotiated agreement between the PBAC and the AEDC at the soonest
possible time.

A copy of the draft Concession Agreement is included in the Bid Documents. Any
material changes would be made known to prospective challengers through bid
bulletins. However, a final version will be issued before the award of contract.

The PBAC also stated that it would require AEDC to sign Supplement C of the Bid Documents
(Acceptance of Criteria and Waiver of Rights to Enjoin Project) and to submit the same with
the required Bid Security.

On September 20, 1996, the consortium composed of People's Air Cargo and Warehousing
Co., Inc. (Paircargo), Phil. Air and Grounds Services, Inc. (PAGS) and Security Bank Corp.
(Security Bank) (collectively, Paircargo Consortium) submitted their competitive proposal to
the PBAC. On September 23, 1996, the PBAC opened the first envelope containing the
prequalification documents of the Paircargo Consortium. On the following day, September 24,
1996, the PBAC prequalified the Paircargo Consortium.

On September 26, 1996, AEDC informed the PBAC in writing of its reservations as regards the
Paircargo Consortium, which include:

a. The lack of corporate approvals and financial capability of PAIRCARGO;

b. The lack of corporate approvals and financial capability of PAGS;

c. The prohibition imposed by RA 337, as amended (the General Banking Act) on the
amount that Security Bank could legally invest in the project;

d. The inclusion of Siemens as a contractor of the PAIRCARGO Joint Venture, for

prequalification purposes; and

e. The appointment of Lufthansa as the facility operator, in view of the Philippine

requirement in the operation of a public utility.

The PBAC gave its reply on October 2, 1996, informing AEDC that it had considered the issues
raised by the latter, and that based on the documents submitted by Paircargo and the
established prequalification criteria, the PBAC had found that the challenger, Paircargo, had
prequalified to undertake the project. The Secretary of the DOTC approved the finding of the
PBAC.
The PBAC then proceeded with the opening of the second envelope of the Paircargo
Consortium which contained its Technical Proposal.

On October 3, 1996, AEDC reiterated its objections, particularly with respect to Paircargo's
financial capability, in view of the restrictions imposed by Section 21-B of the General Banking
Act and Sections 1380 and 1381 of the Manual Regulations for Banks and Other Financial
Intermediaries. On October 7, 1996, AEDC again manifested its objections and requested that
it be furnished with excerpts of the PBAC meeting and the accompanying technical evaluation
report where each of the issues they raised were addressed.

On October 16, 1996, the PBAC opened the third envelope submitted by AEDC and the
Paircargo Consortium containing their respective financial proposals. Both proponents
offered to build the NAIA Passenger Terminal III for at least $350 million at no cost to the
government and to pay the government: 5% share in gross revenues for the first five years of
operation, 7.5% share in gross revenues for the next ten years of operation, and 10% share in
gross revenues for the last ten years of operation, in accordance with the Bid Documents.
However, in addition to the foregoing, AEDC offered to pay the government a total of P135
million as guaranteed payment for 27 years while Paircargo Consortium offered to pay the
government a total of P17.75 billion for the same period.

Thus, the PBAC formally informed AEDC that it had accepted the price proposal submitted by
the Paircargo Consortium, and gave AEDC 30 working days or until November 28, 1996
within which to match the said bid, otherwise, the project would be awarded to Paircargo.

As AEDC failed to match the proposal within the 30-day period, then DOTC Secretary Amado
Lagdameo, on December 11, 1996, issued a notice to Paircargo Consortium regarding AEDC's
failure to match the proposal.

On February 27, 1997, Paircargo Consortium incorporated into Philippine International

Airport Terminals Co., Inc. (PIATCO).

AEDC subsequently protested the alleged undue preference given to PIATCO and reiterated
its objections as regards the prequalification of PIATCO.

On April 11, 1997, the DOTC submitted the concession agreement for the second-pass
approval of the NEDA-ICC.

On April 16, 1997, AEDC filed with the Regional Trial Court of Pasig a Petition for Declaration
of Nullity of the Proceedings, Mandamus and Injunction against the Secretary of the DOTC,
the Chairman of the PBAC, the voting members of the PBAC and Pantaleon D. Alvarez, in his
capacity as Chairman of the PBAC Technical Committee.

On April 17, 1997, the NEDA-ICC conducted an ad referendum to facilitate the approval, on a
no-objection basis, of the BOT agreement between the DOTC and PIATCO. As the ad
referendum gathered only four (4) of the required six (6) signatures, the NEDA merely noted
the agreement.

On July 9, 1997, the DOTC issued the notice of award for the project to PIATCO.
On July 12, 1997, the Government, through then DOTC Secretary Arturo T. Enrile, and
PIATCO, through its President, Henry T. Go, signed the "Concession Agreement for the Build-
Operate-and-Transfer Arrangement of the Ninoy Aquino International Airport Passenger
Terminal III" (1997 Concession Agreement). The Government granted PIATCO the franchise
to operate and maintain the said terminal during the concession period and to collect the fees,
rentals and other charges in accordance with the rates or schedules stipulated in the 1997
Concession Agreement. The Agreement provided that the concession period shall be for
twenty-five (25) years commencing from the in-service date, and may be renewed at the
option of the Government for a period not exceeding twenty-five (25) years. At the end of the
concession period, PIATCO shall transfer the development facility to MIAA.

On November 26, 1998, the Government and PIATCO signed an Amended and Restated
Concession Agreement (ARCA). Among the provisions of the 1997 Concession Agreement that
were amended by the ARCA were: Sec. 1.11 pertaining to the definition of "certificate of
completion"; Sec. 2.05 pertaining to the Special Obligations of GRP; Sec. 3.02 (a) dealing with
the exclusivity of the franchise given to the Concessionaire; Sec. 4.04 concerning the
assignment by Concessionaire of its interest in the Development Facility; Sec. 5.08 (c) dealing
with the proceeds of Concessionaire's insurance; Sec. 5.10 with respect to the temporary take-
over of operations by GRP; Sec. 5.16 pertaining to the taxes, duties and other imposts that
may be levied on the Concessionaire; Sec. 6.03 as regards the periodic adjustment of public
utility fees and charges; the entire Article VIII concerning the provisions on the termination of
the contract; and Sec. 10.02 providing for the venue of the arbitration proceedings in case a
dispute or controversy arises between the parties to the agreement.

Subsequently, the Government and PIATCO signed three Supplements to the ARCA. The First
Supplement was signed on August 27, 1999; the Second Supplement on September 4, 2000;
and the Third Supplement on June 22, 2001 (collectively, Supplements).

The First Supplement to the ARCA amended Sec. 1.36 of the ARCA defining "Revenues" or
"Gross Revenues"; Sec. 2.05 (d) of the ARCA referring to the obligation of MIAA to provide
sufficient funds for the upkeep, maintenance, repair and/or replacement of all airport
facilities and equipment which are owned or operated by MIAA; and further providing
additional special obligations on the part of GRP aside from those already enumerated in Sec.
2.05 of the ARCA. The First Supplement also provided a stipulation as regards the
construction of a surface road to connect NAIA Terminal II and Terminal III in lieu of the
proposed access tunnel crossing Runway 13/31; the swapping of obligations between GRP and
PIATCO regarding the improvement of Sales Road; and the changes in the timetable. It also
amended Sec. 6.01 (c) of the ARCA pertaining to the Disposition of Terminal Fees; Sec. 6.02
of the ARCA by inserting an introductory paragraph; and Sec. 6.02 (a) (iii) of the ARCA
referring to the Payments of Percentage Share in Gross Revenues.

The Second Supplement to the ARCA contained provisions concerning the clearing, removal,
demolition or disposal of subterranean structures uncovered or discovered at the site of the
construction of the terminal by the Concessionaire. It defined the scope of works; it provided
for the procedure for the demolition of the said structures and the consideration for the same
which the GRP shall pay PIATCO; it provided for time extensions, incremental and
consequential costs and losses consequent to the existence of such structures; and it provided
for some additional obligations on the part of PIATCO as regards the said structures.
Finally, the Third Supplement provided for the obligations of the Concessionaire as regards
the construction of the surface road connecting Terminals II and III.

Meanwhile, the MIAA which is charged with the maintenance and operation of the NAIA
Terminals I and II, had existing concession contracts with various service providers to offer
international airline airport services, such as in-flight catering, passenger handling, ramp and
ground support, aircraft maintenance and provisions, cargo handling and warehousing, and
other services, to several international airlines at the NAIA. Some of these service providers
are the Miascor Group, DNATA-Wings Aviation Systems Corp., and the MacroAsia Group.
Miascor, DNATA and MacroAsia, together with Philippine Airlines (PAL), are the dominant
players in the industry with an aggregate market share of 70%.

On September 17, 2002, the workers of the international airline service providers, claiming
that they stand to lose their employment upon the implementation of the questioned
agreements, filed before this Court a petition for prohibition to enjoin the enforcement of said
agreements.2

On October 15, 2002, the service providers, joining the cause of the petitioning workers, filed
a motion for intervention and a petition-in-intervention.

On October 24, 2002, Congressmen Salacnib Baterina, Clavel Martinez and Constantino
Jaraula filed a similar petition with this Court.3

On November 6, 2002, several employees of the MIAA likewise filed a petition assailing the
legality of the various agreements.4

On December 11, 2002. another group of Congressmen, Hon. Jacinto V. Paras, Rafael P.
Nantes, Eduardo C. Zialcita, Willie B. Villarama, Prospero C. Nograles, Prospero A. Pichay,
Jr., Harlin Cast Abayon and Benasing O. Macaranbon, moved to intervene in the case as
Respondents-Intervenors. They filed their Comment-In-Intervention defending the validity of
the assailed agreements and praying for the dismissal of the petitions.

During the pendency of the case before this Court, President Gloria Macapagal Arroyo, on
November 29, 2002, in her speech at the 2002 Golden Shell Export Awards at Malacañang
Palace, stated that she will not "honor (PIATCO) contracts which the Executive Branch's legal
offices have concluded (as) null and void."5

Respondent PIATCO filed its Comments to the present petitions on November 7 and 27,
2002. The Office of the Solicitor General and the Office of the Government Corporate Counsel
filed their respective Comments in behalf of the public respondents.

On December 10, 2002, the Court heard the case on oral argument. After the oral argument,
the Court then resolved in open court to require the parties to file simultaneously their
respective Memoranda in amplification of the issues heard in the oral arguments within 30
days and to explore the possibility of arbitration or mediation as provided in the challenged
contracts.

In their consolidated Memorandum, the Office of the Solicitor General and the Office of the
Government Corporate Counsel prayed that the present petitions be given due course and that
judgment be rendered declaring the 1997 Concession Agreement, the ARCA and the
Supplements thereto void for being contrary to the Constitution, the BOT Law and its
Implementing Rules and Regulations.

On March 6, 2003, respondent PIATCO informed the Court that on March 4, 2003 PIATCO
commenced arbitration proceedings before the International Chamber of Commerce,
International Court of Arbitration (ICC) by filing a Request for Arbitration with the
Secretariat of the ICC against the Government of the Republic of the Philippines acting
through the DOTC and MIAA.

In the present cases, the Court is again faced with the task of resolving complicated issues
made difficult by their intersecting legal and economic implications. The Court is aware of the
far reaching fall out effects of the ruling which it makes today. For more than a century and
whenever the exigencies of the times demand it, this Court has never shirked from its solemn
duty to dispense justice and resolve "actual controversies involving rights which are legally
demandable and enforceable, and to determine whether or not there has been grave abuse of
discretion amounting to lack or excess of jurisdiction."6 To be sure, this Court will not begin to
do otherwise today.

We shall first dispose of the procedural issues raised by respondent PIATCO which they
allege will bar the resolution of the instant controversy.

Petitioners' Legal Standing to File

the present Petitions

a. G.R. Nos. 155001 and 155661

In G.R. No. 155001 individual petitioners are employees of various service providers7 having
separate concession contracts with MIAA and continuing service agreements with various
international airlines to provide in-flight catering, passenger handling, ramp and ground
support, aircraft maintenance and provisions, cargo handling and warehousing and other
services. Also included as petitioners are labor unions MIASCOR Workers Union-National
Labor Union and Philippine Airlines Employees Association. These petitioners filed the
instant action for prohibition as taxpayers and as parties whose rights and interests stand to
be violated by the implementation of the PIATCO Contracts.

Petitioners-Intervenors in the same case are all corporations organized and existing under
Philippine laws engaged in the business of providing in-flight catering, passenger handling,
ramp and ground support, aircraft maintenance and provisions, cargo handling and
warehousing and other services to several international airlines at the Ninoy Aquino
International Airport. Petitioners-Intervenors allege that as tax-paying international airline
and airport-related service operators, each one of them stands to be irreparably injured by the
implementation of the PIATCO Contracts. Each of the petitioners-intervenors have separate
and subsisting concession agreements with MIAA and with various international airlines
which they allege are being interfered with and violated by respondent PIATCO.

In G.R. No. 155661, petitioners constitute employees of MIAA and Samahang Manggagawa sa
Paliparan ng Pilipinas - a legitimate labor union and accredited as the sole and exclusive
bargaining agent of all the employees in MIAA. Petitioners anchor their petition for
prohibition on the nullity of the contracts entered into by the Government and PIATCO
regarding the build-operate-and-transfer of the NAIA IPT III. They filed the petition as
taxpayers and persons who have a legitimate interest to protect in the implementation of the
PIATCO Contracts.

Petitioners in both cases raise the argument that the PIATCO Contracts contain stipulations
which directly contravene numerous provisions of the Constitution, specific provisions of the
BOT Law and its Implementing Rules and Regulations, and public policy. Petitioners contend
that the DOTC and the MIAA, by entering into said contracts, have committed grave abuse of
discretion amounting to lack or excess of jurisdiction which can be remedied only by a writ of
prohibition, there being no plain, speedy or adequate remedy in the ordinary course of law.

In particular, petitioners assail the provisions in the 1997 Concession Agreement and the
ARCA which grant PIATCO the exclusive right to operate a commercial international
passenger terminal within the Island of Luzon, except those international airports already
existing at the time of the execution of the agreement. The contracts further provide that upon
the commencement of operations at the NAIA IPT III, the Government shall cause the closure
of Ninoy Aquino International Airport Passenger Terminals I and II as international
passenger terminals. With respect to existing concession agreements between MIAA and
international airport service providers regarding certain services or operations, the 1997
Concession Agreement and the ARCA uniformly provide that such services or operations will
not be carried over to the NAIA IPT III and PIATCO is under no obligation to permit such
carry over except through a separate agreement duly entered into with PIATCO.8

With respect to the petitioning service providers and their employees, upon the
commencement of operations of the NAIA IPT III, they allege that they will be effectively
barred from providing international airline airport services at the NAIA Terminals I and II as
all international airlines and passengers will be diverted to the NAIA IPT III. The petitioning
service providers will thus be compelled to contract with PIATCO alone for such services, with
no assurance that subsisting contracts with MIAA and other international airlines will be
respected. Petitioning service providers stress that despite the very competitive market, the
substantial capital investments required and the high rate of fees, they entered into their
respective contracts with the MIAA with the understanding that the said contracts will be in
force for the stipulated period, and thereafter, renewed so as to allow each of the petitioning
service providers to recoup their investments and obtain a reasonable return thereon.

Petitioning employees of various service providers at the NAIA Terminals I and II and of
MIAA on the other hand allege that with the closure of the NAIA Terminals I and II as
international passenger terminals under the PIATCO Contracts, they stand to lose
employment.

The question on legal standing is whether such parties have "alleged such a personal stake in
the outcome of the controversy as to assure that concrete adverseness which sharpens the
presentation of issues upon which the court so largely depends for illumination of difficult
constitutional questions."9 Accordingly, it has been held that the interest of a person assailing
the constitutionality of a statute must be direct and personal. He must be able to show, not
only that the law or any government act is invalid, but also that he sustained or is in imminent
danger of sustaining some direct injury as a result of its enforcement, and not merely that he
suffers thereby in some indefinite way. It must appear that the person complaining has been
or is about to be denied some right or privilege to which he is lawfully entitled or that he is
about to be subjected to some burdens or penalties by reason of the statute or act complained
of.10

We hold that petitioners have the requisite standing. In the above-mentioned cases,
petitioners have a direct and substantial interest to protect by reason of the implementation of
the PIATCO Contracts. They stand to lose their source of livelihood, a property right which is
zealously protected by the Constitution. Moreover, subsisting concession agreements between
MIAA and petitioners-intervenors and service contracts between international airlines and
petitioners-intervenors stand to be nullified or terminated by the operation of the NAIA IPT
III under the PIATCO Contracts. The financial prejudice brought about by the PIATCO
Contracts on petitioners and petitioners-intervenors in these cases are legitimate interests
sufficient to confer on them the requisite standing to file the instant petitions.

b. G.R. No. 155547

In G.R. No. 155547, petitioners filed the petition for prohibition as members of the House of
Representatives, citizens and taxpayers. They allege that as members of the House of
Representatives, they are especially interested in the PIATCO Contracts, because the contracts
compel the Government and/or the House of Representatives to appropriate funds necessary
to comply with the provisions therein.11 They cite provisions of the PIATCO Contracts which
require disbursement of unappropriated amounts in compliance with the contractual
obligations of the Government. They allege that the Government obligations in the PIATCO
Contracts which compel government expenditure without appropriation is a curtailment of
their prerogatives as legislators, contrary to the mandate of the Constitution that "[n]o money
shall be paid out of the treasury except in pursuance of an appropriation made by law."12

Standing is a peculiar concept in constitutional law because in some cases, suits are not
brought by parties who have been personally injured by the operation of a law or any other
government act but by concerned citizens, taxpayers or voters who actually sue in the public
interest. Although we are not unmindful of the cases of Imus Electric Co. v. Municipality
of Imus13 and Gonzales v. Raquiza14 wherein this Court held that appropriation must be
made only on amounts immediately demandable, public interest demands that we take
a more liberal view in determining whether the petitioners suing as legislators,
taxpayers and citizens have locus standi to file the instant petition. In
Kilosbayan, Inc. v. Guingona,15 this Court held "[i]n line with the liberal policy of this
Court on locus standi, ordinary taxpayers, members of Congress, and even association of
planters, and non-profit civic organizations were allowed to initiate and prosecute actions
before this Court to question the constitutionality or validity of laws, acts, decisions, rulings,
or orders of various government agencies or instrumentalities."16 Further, "insofar as
taxpayers' suits are concerned . . . (this Court) is not devoid of discretion as to whether or
not it should be entertained."17 As such ". . . even if, strictly speaking, they [the petitioners] are
not covered by the definition, it is still within the wide discretion of the Court to waive the
requirement and so remove the impediment to its addressing and resolving the serious
constitutional questions raised."18 In view of the serious legal questions involved and their
impact on public interest, we resolve to grant standing to the petitioners.

Other Procedural Matters

Respondent PIATCO further alleges that this Court is without jurisdiction to review the
instant cases as factual issues are involved which this Court is ill-equipped to resolve.
Moreover, PIATCO alleges that submission of this controversy to this Court at the first
instance is a violation of the rule on hierarchy of courts. They contend that trial courts have
concurrent jurisdiction with this Court with respect to a special civil action for prohibition and
hence, following the rule on hierarchy of courts, resort must first be had before the trial
courts.

After a thorough study and careful evaluation of the issues involved, this Court is of the view
that the crux of the instant controversy involves significant legal questions. The facts
necessary to resolve these legal questions are well established and, hence, need not be
determined by a trial court.

The rule on hierarchy of courts will not also prevent this Court from assuming jurisdiction
over the cases at bar. The said rule may be relaxed when the redress desired cannot be
obtained in the appropriate courts or where exceptional and compelling circumstances justify
availment of a remedy within and calling for the exercise of this Court's primary jurisdiction. 19

It is easy to discern that exceptional circumstances exist in the cases at bar that call for
the relaxation of the rule. Both petitioners and respondents agree that these cases are
of transcendental importance as they involve the construction and operation of the
country's premier international airport. Moreover, the crucial issues submitted for resolution
are of first impression and they entail the proper legal interpretation of key provisions of the
Constitution, the BOT Law and its Implementing Rules and Regulations. Thus, considering
the nature of the controversy before the Court, procedural bars may be lowered to give way for
the speedy disposition of the instant cases.

Legal Effect of the Commencement

of Arbitration Proceedings by

PIATCO

There is one more procedural obstacle which must be overcome. The Court is aware that
arbitration proceedings pursuant to Section 10.02 of the ARCA have been filed at the instance
of respondent PIATCO. Again, we hold that the arbitration step taken by PIATCO will not oust
this Court of its jurisdiction over the cases at bar.

In Del Monte Corporation-USA v. Court of Appeals,20 even after finding that the arbitration
clause in the Distributorship Agreement in question is valid and the dispute between the
parties is arbitrable, this Court affirmed the trial court's decision denying petitioner's Motion
to Suspend Proceedings pursuant to the arbitration clause under the contract. In so ruling,
this Court held that as contracts produce legal effect between the parties, their assigns and
heirs, only the parties to the Distributorship Agreement are bound by its terms, including the
arbitration clause stipulated therein. This Court ruled that arbitration proceedings could be
called for but only with respect to the parties to the contract in question. Considering that
there are parties to the case who are neither parties to the Distributorship Agreement nor
heirs or assigns of the parties thereto, this Court, citing its previous ruling in Salas, Jr. v.
Laperal Realty Corporation,21 held that to tolerate the splitting of proceedings by allowing
arbitration as to some of the parties on the one hand and trial for the others on the other hand
would, in effect, result in multiplicity of suits, duplicitous procedure and
unnecessary delay.22 Thus, we ruled that the interest of justice would best be served if the
trial court hears and adjudicates the case in a single and complete proceeding.

It is established that petitioners in the present cases who have presented legitimate
interests in the resolution of the controversy are not parties to the PIATCO Contracts.
Accordingly, they cannot be bound by the arbitration clause provided for in the ARCA and
hence, cannot be compelled to submit to arbitration proceedings. A speedy and decisive
resolution of all the critical issues in the present controversy, including those
raised by petitioners, cannot be made before an arbitral tribunal. The object of
arbitration is precisely to allow an expeditious determination of a dispute. This objective
would not be met if this Court were to allow the parties to settle the cases by arbitration as
there are certain issues involving non-parties to the PIATCO Contracts which the arbitral
tribunal will not be equipped to resolve.

Now, to the merits of the instant controversy.

Is PIATCO a qualified bidder?

Public respondents argue that the Paircargo Consortium, PIATCO's predecessor, was not a
duly pre-qualified bidder on the unsolicited proposal submitted by AEDC as the Paircargo
Consortium failed to meet the financial capability required under the BOT Law and the Bid
Documents. They allege that in computing the ability of the Paircargo Consortium to meet the
minimum equity requirements for the project, the entire net worth of Security Bank, a
member of the consortium, should not be considered.

PIATCO relies, on the other hand, on the strength of the Memorandum dated October 14,
1996 issued by the DOTC Undersecretary Primitivo C. Cal stating that the Paircargo
Consortium is found to have a combined net worth of P3,900,000,000.00, sufficient to meet
the equity requirements of the project. The said Memorandum was in response to a letter
from Mr. Antonio Henson of AEDC to President Fidel V. Ramos questioning the financial
capability of the Paircargo Consortium on the ground that it does not have the financial
resources to put up the required minimum equity of P2,700,000,000.00. This contention is
based on the restriction under R.A. No. 337, as amended or the General Banking Act that a
commercial bank cannot invest in any single enterprise in an amount more than 15% of its net
worth. In the said Memorandum, Undersecretary Cal opined:

The Bid Documents, as clarified through Bid Bulletin Nos. 3 and 5, require that
financial capability will be evaluated based on total financial capability of all the
member companies of the [Paircargo] Consortium. In this connection, the Challenger
was found to have a combined net worth of P3,926,421,242.00 that could support a
project costing approximately P13 Billion.

It is not a requirement that the net worth must be "unrestricted." To impose that as a
requirement now will be nothing less than unfair.
 The financial statement or the net worth is not the sole basis in establishing financial
capability. As stated in Bid Bulletin No. 3, financial capability may also be established
by testimonial letters issued by reputable banks. The Challenger has complied with this
requirement.

To recap, net worth reflected in the Financial Statement should not be taken as the
amount of the money to be used to answer the required thirty percent (30%) equity of
the challenger but rather to be used in establishing if there is enough basis to believe
that the challenger can comply with the required 30% equity. In fact, proof of sufficient
equity is required as one of the conditions for award of contract (Section 12.1 IRR of the
BOT Law) but not for pre-qualification (Section 5.4 of the same document).23

Under the BOT Law, in case of a build-operate-and-transfer arrangement, the contract

shall be awarded to the bidder "who, having satisfied the minimum financial,
technical, organizational and legal standards" required by the law, has
submitted the lowest bid and most favorable terms of the project.24 Further, the 1994
Implementing Rules and Regulations of the BOT Law provide:

Section 5.4 Pre-qualification Requirements.

xxx xxx xxx

c. Financial Capability: The project proponent must have adequate capability to sustain
the financing requirements for the detailed engineering design, construction and/or
operation and maintenance phases of the project, as the case may be. For purposes of
pre-qualification, this capability shall be measured in terms of (i) proof of the ability
of the project proponent and/or the consortium to provide a minimum
amount of equity to the project, and (ii) a letter testimonial from reputable
banks attesting that the project proponent and/or members of the
consortium are banking with them, that they are in good financial
standing, and that they have adequate resources. The government agency/LGU
concerned shall determine on a project-to-project basis and before pre-qualification,
the minimum amount of equity needed. (emphasis supplied)

Pursuant to this provision, the PBAC issued PBAC Bulletin No. 3 dated August 16, 1996
amending the financial capability requirements for pre-qualification of the project proponent
as follows:

6. Basis of Pre-qualification

The basis for the pre-qualification shall be on the compliance of the proponent to the
minimum technical and financial requirements provided in the Bid Documents and in
the IRR of the BOT Law, R.A. No. 6957, as amended by R.A. 7718.

The minimum amount of equity to which the proponent's financial capability will be
based shall be thirty percent (30%) of the project cost instead of the twenty
percent (20%) specified in Section 3.6.4 of the Bid Documents. This is to
correlate with the required debt-to-equity ratio of 70:30 in Section 2.01a of the draft
 concession agreement. The debt portion of the project financing should not exceed 70%
of the actual project cost.

Accordingly, based on the above provisions of law, the Paircargo Consortium or any
challenger to the unsolicited proposal of AEDC has to show that it possesses the
requisite financial capability to undertake the project in the minimum amount of
30% of the project cost through (i) proof of the ability to provide a minimum amount of
equity to the project, and (ii) a letter testimonial from reputable banks attesting that the
project proponent or members of the consortium are banking with them, that they are in good
financial standing, and that they have adequate resources.

As the minimum project cost was estimated to be US$350,000,000.00 or roughly

P9,183,650,000.00,25 the Paircargo Consortium had to show to the satisfaction of the PBAC
that it had the ability to provide the minimum equity for the project in the amount of at
least P2,755,095,000.00.

Paircargo's Audited Financial Statements as of 1993 and 1994 indicated that it had a net worth
of P2,783,592.00 and P3,123,515.00 respectively.26 PAGS' Audited Financial Statements as of
1995 indicate that it has approximately P26,735,700.00 to invest as its equity for the
project.27 Security Bank's Audited Financial Statements as of 1995 show that it has a net worth
equivalent to its capital funds in the amount of P3,523,504,377.00.28

We agree with public respondents that with respect to Security Bank, the entire amount of
its net worth could not be invested in a single undertaking or enterprise, whether allied or
non-allied in accordance with the provisions of R.A. No. 337, as amended or the General
Banking Act:

Sec. 21-B. The provisions in this or in any other Act to the contrary notwithstanding, the
Monetary Board, whenever it shall deem appropriate and necessary to further national
development objectives or support national priority projects, may authorize a
commercial bank, a bank authorized to provide commercial banking
services, as well as a government-owned and controlled bank, to operate
under an expanded commercial banking authority and by virtue thereof
exercise, in addition to powers authorized for commercial banks, the
powers of an Investment House as provided in Presidential Decree No. 129,
invest in the equity of a non-allied undertaking, or own a majority or all of the
equity in a financial intermediary other than a commercial bank or a bank authorized to
provide commercial banking services: Provided, That (a) the total investment in
equities shall not exceed fifty percent (50%) of the net worth of the bank; (b) the
equity investment in any one enterprise whether allied or non-allied shall
not exceed fifteen percent (15%) of the net worth of the bank; (c) the equity
investment of the bank, or of its wholly or majority-owned subsidiary, in a single non-
allied undertaking shall not exceed thirty-five percent (35%) of the total equity in the
enterprise nor shall it exceed thirty-five percent (35%) of the voting stock in that
enterprise; and (d) the equity investment in other banks shall be deducted from the
investing bank's net worth for purposes of computing the prescribed ratio of net worth
to risk assets.

xxx xxx xxx

Further, the 1993 Manual of Regulations for Banks provides:

SECTION X383. Other Limitations and Restrictions. — The following limitations and
restrictions shall also apply regarding equity investments of banks.

a. In any single enterprise. — The equity investments of banks in any single enterprise
shall not exceed at any time fifteen percent (15%) of the net worth of the investing bank
as defined in Sec. X106 and Subsec. X121.5.

Thus, the maximum amount that Security Bank could validly invest in the Paircargo
Consortium is only P528,525,656.55, representing 15% of its entire net worth. The total net
worth therefore of the Paircargo Consortium, after considering the maximum
amounts that may be validly invested by each of its members is P558,384,871.55 or only
6.08% of the project cost,29 an amount substantially less than the prescribed minimum
equity investment required for the project in the amount of P2,755,095,000.00 or 30% of the
project cost.

The purpose of pre-qualification in any public bidding is to determine, at the earliest

opportunity, the ability of the bidder to undertake the project. Thus, with respect to the
bidder's financial capacity at the pre-qualification stage, the law requires the government
agency to examine and determine the ability of the bidder to fund the entire cost of the
project by considering the maximum amounts that each bidder may invest in the
project at the time of pre-qualification.

The PBAC has determined that any prospective bidder for the construction, operation and
maintenance of the NAIA IPT III project should prove that it has the ability to provide equity
in the minimum amount of 30% of the project cost, in accordance with the 70:30 debt-to-
equity ratio prescribed in the Bid Documents. Thus, in the case of Paircargo Consortium, the
PBAC should determine the maximum amounts that each member of the consortium may
commit for the construction, operation and maintenance of the NAIA IPT III project at the
time of pre-qualification. With respect to Security Bank, the maximum amount which
may be invested by it would only be 15% of its net worth in view of the restrictions imposed by
the General Banking Act. Disregarding the investment ceilings provided by applicable law
would not result in a proper evaluation of whether or not a bidder is pre-qualified to
undertake the project as for all intents and purposes, such ceiling or legal restriction
determines the true maximum amount which a bidder may invest in the project.

Further, the determination of whether or not a bidder is pre-qualified to undertake the project
requires an evaluation of the financial capacity of the said bidder at the time the bid is
submitted based on the required documents presented by the bidder. The PBAC should not
be allowed to speculate on the future financial ability of the bidder to undertake the
project on the basis of documents submitted. This would open doors to abuse and defeat the
very purpose of a public bidding. This is especially true in the case at bar which involves the
investment of billions of pesos by the project proponent. The relevant government authority is
duty-bound to ensure that the awardee of the contract possesses the minimum required
financial capability to complete the project. To allow the PBAC to estimate the bidder's future
financial capability would not secure the viability and integrity of the project. A restrictive and
conservative application of the rules and procedures of public bidding is necessary not only to
protect the impartiality and regularity of the proceedings but also to ensure the financial and
technical reliability of the project. It has been held that:

The basic rule in public bidding is that bids should be evaluated based on the required
documents submitted before and not after the opening of bids. Otherwise, the
foundation of a fair and competitive public bidding would be defeated. Strict
observance of the rules, regulations, and guidelines of the bidding process
is the only safeguard to a fair, honest and competitive public bidding.30

Thus, if the maximum amount of equity that a bidder may invest in the project at the
time the bids are submittedfalls short of the minimum amounts required to be put up by
the bidder, said bidder should be properly disqualified. Considering that at the pre-
qualification stage, the maximum amounts which the Paircargo Consortium may invest in the
project fell short of the minimum amounts prescribed by the PBAC, we hold that Paircargo
Consortium was not a qualified bidder. Thus the award of the contract by the PBAC to the
Paircargo Consortium, a disqualified bidder, is null and void.

While it would be proper at this juncture to end the resolution of the instant controversy, as
the legal effects of the disqualification of respondent PIATCO's predecessor would come into
play and necessarily result in the nullity of all the subsequent contracts entered by it in
pursuance of the project, the Court feels that it is necessary to discuss in full the pressing
issues of the present controversy for a complete resolution thereof.

II

Is the 1997 Concession Agreement valid?

Petitioners and public respondents contend that the 1997 Concession Agreement is invalid as
it contains provisions that substantially depart from the draft Concession Agreement included
in the Bid Documents. They maintain that a substantial departure from the draft Concession
Agreement is a violation of public policy and renders the 1997 Concession Agreement null and
void.

PIATCO maintains, however, that the Concession Agreement attached to the Bid Documents
is intended to be a draft, i.e., subject to change, alteration or modification, and that this
intention was clear to all participants, including AEDC, and DOTC/MIAA. It argued further
that said intention is expressed in Part C (6) of Bid Bulletin No. 3 issued by the PBAC which
states:

6. Amendments to the Draft Concessions Agreement

Amendments to the Draft Concessions Agreement shall be issued from time to time.
Said amendments shall only cover items that would not materially affect the
preparation of the proponent's proposal.

By its very nature, public bidding aims to protect the public interest by giving the public the
best possible advantages through open competition. Thus:
 Competition must be legitimate, fair and honest. In the field of government contract
law, competition requires, not only `bidding upon a common standard, a common
basis, upon the same thing, the same subject matter, the same undertaking,' but also
that it be legitimate, fair and honest; and not designed to injure or defraud
the government.31

An essential element of a publicly bidded contract is that all bidders must be on equal footing.
Not simply in terms of application of the procedural rules and regulations imposed by the
relevant government agency, but more importantly, on the contract bidded upon. Each bidder
must be able to bid on the same thing. The rationale is obvious. If the winning bidder is
allowed to later include or modify certain provisions in the contract awarded such that the
contract is altered in any material respect, then the essence of fair competition in the public
bidding is destroyed. A public bidding would indeed be a farce if after the contract is awarded,
the winning bidder may modify the contract and include provisions which are favorable to it
that were not previously made available to the other bidders. Thus:

It is inherent in public biddings that there shall be a fair competition among the
bidders. The specifications in such biddings provide the common ground or basis for
the bidders. The specifications should, accordingly, operate equally or indiscriminately
upon all bidders.32

The same rule was restated by Chief Justice Stuart of the Supreme Court of Minnesota:

The law is well settled that where, as in this case, municipal authorities can only let a
contract for public work to the lowest responsible bidder, the proposals and
specifications therefore must be so framed as to permit free and full competition. Nor
can they enter into a contract with the best bidder containing substantial
provisions beneficial to him, not included or contemplated in the terms
and specifications upon which the bids were invited.33

In fact, in the PBAC Bid Bulletin No. 3 cited by PIATCO to support its argument that the draft
concession agreement is subject to amendment, the pertinent portion of which was quoted
above, the PBAC also clarified that "[s]aid amendments shall only cover items that
would not materially affect the preparation of the proponent's proposal."

While we concede that a winning bidder is not precluded from modifying or amending certain
provisions of the contract bidded upon, such changes must not constitute substantial or
material amendments that would alter the basic parameters of the contract and
would constitute a denial to the other bidders of the opportunity to bid on the
same terms. Hence, the determination of whether or not a modification or amendment of a
contract bidded out constitutes a substantial amendment rests on whether the contract, when
taken as a whole, would contain substantially different terms and conditions that would have
the effect of altering the technical and/or financial proposals previously submitted by other
bidders. The alterations and modifications in the contract executed between the government
and the winning bidder must be such as to render such executed contract to be an entirely
different contract from the one that was bidded upon.

In the case of Caltex (Philippines), Inc. v. Delgado Brothers, Inc.,34 this Court quoted
with approval the ruling of the trial court that an amendment to a contract awarded through
public bidding, when such subsequent amendment was made without a new public bidding, is
null and void:

The Court agrees with the contention of counsel for the plaintiffs that the due execution
of a contract after public bidding is a limitation upon the right of the contracting parties
to alter or amend it without another public bidding, for otherwise what would a
public bidding be good for if after the execution of a contract after public
bidding, the contracting parties may alter or amend the contract, or even
cancel it, at their will?Public biddings are held for the protection of the public, and
to give the public the best possible advantages by means of open competition between
the bidders. He who bids or offers the best terms is awarded the contract subject of the
bid, and it is obvious that such protection and best possible advantages to the public
will disappear if the parties to a contract executed after public bidding may alter or
amend it without another previous public bidding.35

Hence, the question that comes to fore is this: is the 1997 Concession Agreement the same
agreement that was offered for public bidding, i.e., the draft Concession Agreement attached
to the Bid Documents? A close comparison of the draft Concession Agreement attached to the
Bid Documents and the 1997 Concession Agreement reveals that the documents differ in at
least two material respects:

a. Modification on the Public

Utility Revenues and Non-Public

Utility Revenues that may be

collected by PIATCO

The fees that may be imposed and collected by PIATCO under the draft Concession
Agreement and the 1997 Concession Agreement may be classified into three distinct
categories: (1) fees which are subject to periodic adjustment of once every two years in
accordance with a prescribed parametric formula and adjustments are made effective only
upon written approval by MIAA; (2) fees other than those included in the first category which
maybe adjusted by PIATCO whenever it deems necessary without need for consent of
DOTC/MIAA; and (3) new fees and charges that may be imposed by PIATCO which have not
been previously imposed or collected at the Ninoy Aquino International Airport Passenger
Terminal I, pursuant to Administrative Order No. 1, Series of 1993, as amended. The glaring
distinctions between the draft Concession Agreement and the 1997 Concession Agreement lie
in the types of fees included in each category and the extent of the supervision and regulation
which MIAA is allowed to exercise in relation thereto.

For fees under the first category, i.e., those which are subject to periodic adjustment in
accordance with a prescribed parametric formula and effective only upon written approval by
MIAA, the draft Concession Agreementincludes the following:36

(1) aircraft parking fees;

(2) aircraft tacking fees;

 (3) groundhandling fees;

(4) rentals and airline offices;

(5) check-in counter rentals; and

(6) porterage fees.

Under the 1997 Concession Agreement, fees which are subject to adjustment and effective
upon MIAA approval are classified as "Public Utility Revenues" and include: 37

(1) aircraft parking fees;

(2) aircraft tacking fees;

(3) check-in counter fees; and

(4) Terminal Fees.

The implication of the reduced number of fees that are subject to MIAA approval is best
appreciated in relation to fees included in the second category identified above. Under
the 1997 Concession Agreement, fees which PIATCO may adjust whenever it deems
necessary without need for consent of DOTC/MIAA are "Non-Public Utility Revenues" and is
defined as "all other income not classified as Public Utility Revenues derived from operations
of the Terminal and the Terminal Complex."38 Thus, under the 1997 Concession Agreement,
ground handling fees, rentals from airline offices and porterage fees are no longer subject to
MIAA regulation.

Further, under Section 6.03 of the draft Concession Agreement, MIAA reserves the right
to regulate (1) lobby and vehicular parking fees and (2) other new fees and charges that may
be imposed by PIATCO. Such regulation may be made by periodic adjustment and is effective
only upon written approval of MIAA. The full text of said provision is quoted below:

Section 6.03. Periodic Adjustment in Fees and Charges. Adjustments in the aircraft
parking fees, aircraft tacking fees, groundhandling fees, rentals and airline offices,
check-in-counter rentals and porterage fees shall be allowed only once every two years
and in accordance with the Parametric Formula attached hereto as Annex F. Provided
that adjustments shall be made effective only after the written express approval of the
MIAA. Provided, further, that such approval of the MIAA, shall be contingent only on
the conformity of the adjustments with the above said parametric formula. The first
adjustment shall be made prior to the In-Service Date of the Terminal.

The MIAA reserves the right to regulate under the foregoing terms and
conditions the lobby and vehicular parking fees and other new fees and
charges as contemplated in paragraph 2 of Section 6.01 if in its judgment
the users of the airport shall be deprived of a free option for the services
they cover.39

On the other hand, the equivalent provision under the 1997 Concession Agreement reads:
 Section 6.03 Periodic Adjustment in Fees and Charges.

xxx xxx xxx

(c) Concessionaire shall at all times be judicious in fixing fees and charges constituting
Non-Public Utility Revenues in order to ensure that End Users are not unreasonably
deprived of services. While the vehicular parking fee, porterage fee and
greeter/well wisher fee constitute Non-Public Utility Revenues of
Concessionaire, GRP may intervene and require Concessionaire to explain
and justify the fee it may set from time to time, if in the reasonable opinion of
GRP the said fees have become exorbitant resulting in the unreasonable deprivation of
End Users of such services.40

Thus, under the 1997 Concession Agreement, with respect to (1) vehicular parking fee, (2)
porterage fee and (3) greeter/well wisher fee, all that MIAA can do is to require PIATCO
to explain and justify the fees set by PIATCO. In the draft Concession
Agreement, vehicular parking fee is subject to MIAA regulation and approval under the
second paragraph of Section 6.03 thereof while porterage fee is covered by the first paragraph
of the same provision. There is an obvious relaxation of the extent of control and regulation by
MIAA with respect to the particular fees that may be charged by PIATCO.

Moreover, with respect to the third category of fees that may be imposed and collected by
PIATCO, i.e., new fees and charges that may be imposed by PIATCO which have not been
previously imposed or collected at the Ninoy Aquino International Airport Passenger
Terminal I, under Section 6.03 of the draft Concession Agreement MIAA has reserved the
right to regulate the same under the same conditions that MIAA may regulate fees under the
first category, i.e., periodic adjustment of once every two years in accordance with a
prescribed parametric formula and effective only upon written approval by MIAA. However,
under the 1997 Concession Agreement, adjustment of fees under the third category is not
subject to MIAA regulation.

With respect to terminal fees that may be charged by PIATCO,41 as shown earlier, this was
included within the category of "Public Utility Revenues" under the 1997 Concession
Agreement. This classification is significant because under the 1997 Concession
Agreement, "Public Utility Revenues" are subject to an "Interim Adjustment" of fees upon
the occurrence of certain extraordinary events specified in the agreement.42 However, under
the draft Concession Agreement, terminal fees are not included in the types of fees that
may be subject to "Interim Adjustment."43

Finally, under the 1997 Concession Agreement, "Public Utility Revenues," except
terminal fees, are denominated in US Dollars44 while payments to the Government are in
Philippine Pesos. In the draft Concession Agreement,no such stipulation was included.
By stipulating that "Public Utility Revenues" will be paid to PIATCO in US Dollars while
payments by PIATCO to the Government are in Philippine currency under the 1997
Concession Agreement, PIATCO is able to enjoy the benefits of depreciations of the Philippine
Peso, while being effectively insulated from the detrimental effects of exchange rate
fluctuations.
When taken as a whole, the changes under the 1997 Concession Agreement with respect to
reduction in the types of fees that are subject to MIAA regulation and the relaxation of such
regulation with respect to other fees are significant amendments that substantially distinguish
the draft Concession Agreement from the 1997 Concession Agreement. The 1997
Concession Agreement, in this respect, clearly gives PIATCO more favorable
terms than what was available to other bidders at the time the contract was
bidded out. It is not very difficult to see that the changes in the 1997 Concession Agreement
translate to direct and concrete financial advantages for PIATCO which were not
available at the time the contract was offered for bidding. It cannot be denied that under the
1997 Concession Agreement only "Public Utility Revenues" are subject to MIAA regulation.
Adjustments of all other fees imposed and collected by PIATCO are entirely within its control.
Moreover, with respect to terminal fees, under the 1997 Concession Agreement, the same is
further subject to "Interim Adjustments" not previously stipulated in the draft Concession
Agreement. Finally, the change in the currency stipulated for "Public Utility Revenues" under
the 1997 Concession Agreement, except terminal fees, gives PIATCO an added benefit which
was not available at the time of bidding.

b. Assumption by the

Government of the liabilities of

PIATCO in the event of the latter's

default thereof

Under the draft Concession Agreement, default by PIATCO of any of its obligations to
creditors who have provided, loaned or advanced funds for the NAIA IPT III project does not
result in the assumption by the Government of these liabilities. In fact, nowhere in the said
contract does default of PIATCO's loans figure in the agreement. Such default does not
directly result in any concomitant right or obligation in favor of the Government.

However, the 1997 Concession Agreement provides:

Section 4.04 Assignment.

xxx xxx xxx

(b) In the event Concessionaire should default in the payment of an Attendant Liability,
and the default has resulted in the acceleration of the payment due date of the
Attendant Liability prior to its stated date of maturity, the Unpaid Creditors and
Concessionaire shall immediately inform GRP in writing of such default. GRP shall,
within one hundred eighty (180) Days from receipt of the joint written notice of the
Unpaid Creditors and Concessionaire, either (i) take over the Development Facility and
assume the Attendant Liabilities, or (ii) allow the Unpaid Creditors, if qualified, to be
substituted as concessionaire and operator of the Development Facility in accordance
with the terms and conditions hereof, or designate a qualified operator acceptable to
GRP to operate the Development Facility, likewise under the terms and conditions of
this Agreement; Provided that if at the end of the 180-day period GRP shall not have
served the Unpaid Creditors and Concessionaire written notice of its choice, GRP shall
 be deemed to have elected to take over the Development Facility with the concomitant
assumption of Attendant Liabilities.

(c) If GRP should, by written notice, allow the Unpaid Creditors to be substituted as
concessionaire, the latter shall form and organize a concession company qualified to
take over the operation of the Development Facility. If the concession company should
elect to designate an operator for the Development Facility, the concession company
shall in good faith identify and designate a qualified operator acceptable to GRP within
one hundred eighty (180) days from receipt of GRP's written notice. If the concession
company, acting in good faith and with due diligence, is unable to designate a qualified
operator within the aforesaid period, then GRP shall at the end of the 180-day period
take over the Development Facility and assume Attendant Liabilities.

The term "Attendant Liabilities" under the 1997 Concession Agreement is defined as:

Attendant Liabilities refer to all amounts recorded and from time to time outstanding in
the books of the Concessionaire as owing to Unpaid Creditors who have
provided, loaned or advanced funds actually used for the Project, including
all interests, penalties, associated fees, charges, surcharges, indemnities,
reimbursements and other related expenses, and further including amounts owed by
Concessionaire to its suppliers, contractors and sub-contractors.

Under the above quoted portions of Section 4.04 in relation to the definition of "Attendant
Liabilities," default by PIATCO of its loans used to finance the NAIA IPT III project
triggers the occurrence of certain events that leads to the assumption by the
Government of the liability for the loans. Only in one instance may the Government
escape the assumption of PIATCO's liabilities, i.e., when the Government so elects and allows
a qualified operator to take over as Concessionaire. However, this circumstance is
dependent on the existence and availability of a qualified operator who is willing
to take over the rights and obligations of PIATCO under the contract, a
circumstance that is not entirely within the control of the Government.

Without going into the validity of this provision at this juncture, suffice it to state that Section
4.04 of the 1997 Concession Agreement may be considered a form of security for the loans
PIATCO has obtained to finance the project, an option that was not made available in the
draft Concession Agreement. Section 4.04 is an important amendment to the 1997 Concession
Agreement because it grants PIATCO a financial advantage or benefit which was not
previously made available during the bidding process. This financial advantage is a
significant modification that translates to better terms and conditions for PIATCO.

PIATCO, however, argues that the parties to the bidding procedure acknowledge that the draft
Concession Agreement is subject to amendment because the Bid Documents permit financing
or borrowing. They claim that it was the lenders who proposed the amendments to the draft
Concession Agreement which resulted in the 1997 Concession Agreement.

We agree that it is not inconsistent with the rationale and purpose of the BOT Law to allow
the project proponent or the winning bidder to obtain financing for the project, especially in
this case which involves the construction, operation and maintenance of the NAIA IPT III.
Expectedly, compliance by the project proponent of its undertakings therein would involve a
substantial amount of investment. It is therefore inevitable for the awardee of the contract to
seek alternate sources of funds to support the project. Be that as it may, this Court maintains
that amendments to the contract bidded upon should always conform to the general policy on
public bidding if such procedure is to be faithful to its real nature and purpose. By its very
nature and characteristic, competitive public bidding aims to protect the public interest by
giving the public the best possible advantages through open competition.45 It has been held
that the three principles in public bidding are (1) the offer to the public; (2) opportunity for
competition; and (3) a basis for the exact comparison of bids. A regulation of the matter which
excludes any of these factors destroys the distinctive character of the system and thwarts the
purpose of its adoption.46 These are the basic parameters which every awardee of a contract
bidded out must conform to, requirements of financing and borrowing notwithstanding. Thus,
upon a concrete showing that, as in this case, the contract signed by the government and the
contract-awardee is an entirely different contract from the contract bidded, courts should not
hesitate to strike down said contract in its entirety for violation of public policy on public
bidding. A strict adherence on the principles, rules and regulations on public bidding must be
sustained if only to preserve the integrity and the faith of the general public on the procedure.

Public bidding is a standard practice for procuring government contracts for public service
and for furnishing supplies and other materials. It aims to secure for the government the
lowest possible price under the most favorable terms and conditions, to curtail favoritism in
the award of government contracts and avoid suspicion of anomalies and it places all bidders
in equal footing.47 Any government action which permits any substantial variance
between the conditions under which the bids are invited and the contract
executed after the award thereof is a grave abuse of discretion amounting to lack
or excess of jurisdiction which warrants proper judicial action.

In view of the above discussion, the fact that the foregoing substantial amendments were
made on the 1997 Concession Agreement renders the same null and void for
being contrary to public policy. These amendments convert the 1997 Concession
Agreement to an entirely different agreement from the contract bidded out or the draft
Concession Agreement. It is not difficult to see that the amendments on (1) the types of fees or
charges that are subject to MIAA regulation or control and the extent thereof and (2) the
assumption by the Government, under certain conditions, of the liabilities of
PIATCO directly translates concrete financial advantages to PIATCO that were
previously not available during the bidding process. These amendments cannot be
taken as merely supplements to or implementing provisions of those already existing in the
draft Concession Agreement. The amendments discussed above present new terms and
conditions which provide financial benefit to PIATCO which may have altered the technical
and financial parameters of other bidders had they known that such terms were available.

III

Direct Government Guarantee

Article IV, Section 4.04(b) and (c), in relation to Article 1.06, of the 1997 Concession
Agreement provides:

Section 4.04 Assignment

 xxx xxx xxx

(b) In the event Concessionaire should default in the payment of an Attendant

Liability, and the default resulted in the acceleration of the payment due date of the
Attendant Liability prior to its stated date of maturity, the Unpaid Creditors and
Concessionaire shall immediately inform GRP in writing of such default. GRP shall
within one hundred eighty (180) days from receipt of the joint written notice of the
Unpaid Creditors and Concessionaire, either (i) take over the Development Facility
and assume the Attendant Liabilities, or (ii) allow the Unpaid Creditors, if
qualified to be substituted as concessionaire and operator of the Development facility in
accordance with the terms and conditions hereof, or designate a qualified operator
acceptable to GRP to operate the Development Facility, likewise under the terms and
conditions of this Agreement; Provided, that if at the end of the 180-day period GRP
shall not have served the Unpaid Creditors and Concessionaire written notice of its
choice, GRP shall be deemed to have elected to take over the Development
Facility with the concomitant assumption of Attendant Liabilities.

(c) If GRP, by written notice, allow the Unpaid Creditors to be substituted as

concessionaire, the latter shall form and organize a concession company qualified to
takeover the operation of the Development Facility. If the concession company should
elect to designate an operator for the Development Facility, the concession company
shall in good faith identify and designate a qualified operator acceptable to GRP within
one hundred eighty (180) days from receipt of GRP's written notice. If the concession
company, acting in good faith and with due diligence, is unable to designate a qualified
operator within the aforesaid period, then GRP shall at the end of the 180-day
period take over the Development Facility and assume Attendant Liabilities.

….

Section 1.06. Attendant Liabilities

Attendant Liabilities refer to all amounts recorded and from time to time
outstanding in the books of the Concessionaire as owing to Unpaid
Creditors who have provided, loaned or advanced funds actually used for the Project,
including all interests, penalties, associated fees, charges, surcharges, indemnities,
reimbursements and other related expenses, and further including amounts owed by
Concessionaire to its suppliers, contractors and sub-contractors.48

It is clear from the above-quoted provisions that Government, in the event that PIATCO
defaults in its loan obligations, is obligated to pay "all amounts recorded and from
time to time outstanding from the books" of PIATCO which the latter owes to its
creditors.49 These amounts include "all interests, penalties, associated fees, charges,
surcharges, indemnities, reimbursements and other related expenses."50 This obligation of the
Government to pay PIATCO's creditors upon PIATCO's default would arise if the Government
opts to take over NAIA IPT III. It should be noted, however, that even if the Government
chooses the second option, which is to allow PIATCO's unpaid creditors operate NAIA IPT III,
the Government is still at a risk of being liable to PIATCO's creditors should the latter be
unable to designate a qualified operator within the prescribed period.51 In effect, whatever
option the Government chooses to take in the event of PIATCO's failure to fulfill
its loan obligations, the Government is still at a risk of assuming PIATCO's
outstanding loans. This is due to the fact that the Government would only be free from
assuming PIATCO's debts if the unpaid creditors would be able to designate a qualified
operator within the period provided for in the contract. Thus, the Government's
assumption of liability is virtually out of its control. The Government under the
circumstances provided for in the 1997 Concession Agreement is at the mercy of the existence,
availability and willingness of a qualified operator. The above contractual provisions
constitute a direct government guarantee which is prohibited by law.

One of the main impetus for the enactment of the BOT Law is the lack of government funds to
construct the infrastructure and development projects necessary for economic growth and
development. This is why private sector resources are being tapped in order to finance these
projects. The BOT law allows the private sector to participate, and is in fact encouraged to do
so by way of incentives, such as minimizing the unstable flow of returns,52 provided that the
government would not have to unnecessarily expend scarcely available funds for the project
itself. As such, direct guarantee, subsidy and equity by the government in these projects are
strictly prohibited.53 This is but logical for if the government would in the end still
be at a risk of paying the debts incurred by the private entity in the BOT projects,
then the purpose of the law is subverted.

Section 2(n) of the BOT Law defines direct guarantee as follows:

(n) Direct government guarantee — An agreement whereby the government or any of its
agencies or local government units assume responsibility for the repayment of debt
directly incurred by the project proponent in implementing the project in case
of a loan default.

Clearly by providing that the Government "assumes" the attendant liabilities, which consists
of PIATCO's unpaid debts, the 1997 Concession Agreement provided for a direct government
guarantee for the debts incurred by PIATCO in the implementation of the NAIA IPT III
project. It is of no moment that the relevant sections are subsumed under the title of
"assignment". The provisions providing for direct government guarantee which is prohibited
by law is clear from the terms thereof.

The fact that the ARCA superseded the 1997 Concession Agreement did not cure this fatal
defect. Article IV, Section 4.04(c), in relation to Article I, Section 1.06, of the ARCA provides:

Section 4.04 Security

xxx xxx xxx

(c) GRP agrees with Concessionaire (PIATCO) that it shall negotiate in good faith
and enter into direct agreement with the Senior Lenders, or with an agent of
such Senior Lenders (which agreement shall be subject to the approval of the Bangko
Sentral ng Pilipinas), in such form as may be reasonably acceptable to both GRP and
Senior Lenders, with regard, inter alia, to the following parameters:

xxx xxx xxx

 (iv) If the Concessionaire [PIATCO] is in default under a payment
obligation owed to the Senior Lenders, and as a result thereof the Senior
Lenders have become entitled to accelerate the Senior Loans, the Senior Lenders
shall have the right to notify GRP of the same, and without prejudice to any other
rights of the Senior Lenders or any Senior Lenders' agent may have (including
without limitation under security interests granted in favor of the Senior
Lenders), to either in good faith identify and designate a nominee which is
qualified under sub-clause (viii)(y) below to operate the Development Facility
[NAIA Terminal 3] or transfer the Concessionaire's [PIATCO] rights and
obligations under this Agreement to a transferee which is qualified under sub-
clause (viii) below;

xxx xxx xxx

(vi) if the Senior Lenders, acting in good faith and using reasonable efforts, are
unable to designate a nominee or effect a transfer in terms and conditions
satisfactory to the Senior Lenders within one hundred eighty (180) days after
giving GRP notice as referred to respectively in (iv) or (v) above, then GRP and
the Senior Lenders shall endeavor in good faith to enter into any other
arrangement relating to the Development Facility [NAIA Terminal 3] (other than
a turnover of the Development Facility [NAIA Terminal 3] to GRP) within the
following one hundred eighty (180) days. If no agreement relating to the
Development Facility [NAIA Terminal 3] is arrived at by GRP and the Senior
Lenders within the said 180-day period, then at the end thereof
the Development Facility [NAIA Terminal 3] shall be transferred by
the Concessionaire [PIATCO] to GRP or its designee and GRP shall
make a termination payment to Concessionaire [PIATCO] equal to the
Appraised Value (as hereinafter defined) of the Development Facility
[NAIA Terminal 3] or the sum of the Attendant Liabilities, if greater.
Notwithstanding Section 8.01(c) hereof, this Agreement shall be deemed
terminated upon the transfer of the Development Facility [NAIA Terminal 3] to
GRP pursuant hereto;

xxx xxx xxx

Section 1.06. Attendant Liabilities

Attendant Liabilities refer to all amounts in each case supported by verifiable

evidence from time to time owed or which may become owing by
Concessionaire [PIATCO] to Senior Lenders or any other persons or
entities who have provided, loaned, or advanced funds or provided financial
facilities to Concessionaire [PIATCO] for the Project [NAIA Terminal
3], including, without limitation, all principal, interest, associated fees,
charges, reimbursements, and other related expenses (including the fees,
charges and expenses of any agents or trustees of such persons or entities), whether
payable at maturity, by acceleration or otherwise, and further including amounts owed
by Concessionaire [PIATCO] to its professional consultants and advisers, suppliers,
contractors and sub-contractors.54
It is clear from the foregoing contractual provisions that in the event that PIATCO fails to
fulfill its loan obligations to its Senior Lenders, the Government is obligated to directly
negotiate and enter into an agreement relating to NAIA IPT III with the Senior Lenders,
should the latter fail to appoint a qualified nominee or transferee who will take the place of
PIATCO. If the Senior Lenders and the Government are unable to enter into an agreement
after the prescribed period, the Government must then pay PIATCO, upon transfer of NAIA
IPT III to the Government, termination payment equal to the appraised value of the
project or the value of the attendant liabilities whichever is greater. Attendant
liabilities as defined in the ARCA includes all amounts owed or thereafter may be owed by
PIATCO not only to the Senior Lenders with whom PIATCO has defaulted in its loan
obligations but to all other persons who may have loaned, advanced funds or provided any
other type of financial facilities to PIATCO for NAIA IPT III. The amount of PIATCO's debt
that the Government would have to pay as a result of PIATCO's default in its loan obligations -
- in case no qualified nominee or transferee is appointed by the Senior Lenders and no other
agreement relating to NAIA IPT III has been reached between the Government and the Senior
Lenders -- includes, but is not limited to, "all principal, interest, associated fees, charges,
reimbursements, and other related expenses . . . whether payable at maturity, by acceleration
or otherwise."55

It is clear from the foregoing that the ARCA provides for a direct guarantee by
the government to pay PIATCO's loans not only to its Senior Lenders but all
other entities who provided PIATCO funds or services upon PIATCO's default in
its loan obligation with its Senior Lenders. The fact that the Government's obligation to
pay PIATCO's lenders for the latter's obligation would only arise after the Senior Lenders fail
to appoint a qualified nominee or transferee does not detract from the fact that, should the
conditions as stated in the contract occur, the ARCA still obligates the Government to pay any
and all amounts owed by PIATCO to its lenders in connection with NAIA IPT III. Worse, the
conditions that would make the Government liable for PIATCO's debts is triggered by
PIATCO's own default of its loan obligations to its Senior Lenders to which loan contracts the
Government was never a party to. The Government was not even given an option as to what
course of action it should take in case PIATCO defaulted in the payment of its senior loans.
The Government, upon PIATCO's default, would be merely notified by the Senior Lenders of
the same and it is the Senior Lenders who are authorized to appoint a qualified nominee or
transferee. Should the Senior Lenders fail to make such an appointment, the Government is
then automatically obligated to "directly deal and negotiate" with the Senior Lenders
regarding NAIA IPT III. The only way the Government would not be liable for PIATCO's debt
is for a qualified nominee or transferee to be appointed in place of PIATCO to continue the
construction, operation and maintenance of NAIA IPT III. This "pre-condition", however, will
not take the contract out of the ambit of a direct guarantee by the government as the
existence, availability and willingness of a qualified nominee or transferee is totally out of the
government's control. As such the Government is virtually at the mercy of
PIATCO (that it would not default on its loan obligations to its Senior Lenders), the Senior
Lenders (that they would appoint a qualified nominee or transferee or agree to some other
arrangement with the Government) and the existence of a qualified nominee or transferee
who is able and willing to take the place of PIATCO in NAIA IPT III.

The proscription against government guarantee in any form is one of the policy
considerations behind the BOT Law. Clearly, in the present case, the ARCA obligates the
Government to pay for all loans, advances and obligations arising out of financial facilities
extended to PIATCO for the implementation of the NAIA IPT III project should PIATCO
default in its loan obligations to its Senior Lenders and the latter fails to appoint a qualified
nominee or transferee. This in effect would make the Government liable for PIATCO's loans
should the conditions as set forth in the ARCA arise. This is a form of direct government
guarantee.

The BOT Law and its implementing rules provide that in order for an unsolicited proposal for
a BOT project may be accepted, the following conditions must first be met: (1) the project
involves a new concept in technology and/or is not part of the list of priority projects, (2) no
direct government guarantee, subsidy or equity is required, and (3) the government
agency or local government unit has invited by publication other interested parties to a public
bidding and conducted the same.56 The failure to meet any of the above conditions will result
in the denial of the proposal. It is further provided that the presence of direct government
guarantee, subsidy or equity will "necessarily disqualify a proposal from being treated and
accepted as an unsolicited proposal."57 The BOT Law clearly and strictly prohibits direct
government guarantee, subsidy and equity in unsolicited proposals that the mere inclusion of
a provision to that effect is fatal and is sufficient to deny the proposal. It stands to reason
therefore that if a proposal can be denied by reason of the existence of direct government
guarantee, then its inclusion in the contract executed after the said proposal has been
accepted is likewise sufficient to invalidate the contract itself. A prohibited provision, the
inclusion of which would result in the denial of a proposal cannot, and should not, be allowed
to later on be inserted in the contract resulting from the said proposal. The basic rules of
justice and fair play alone militate against such an occurrence and must not, therefore, be
countenanced particularly in this instance where the government is exposed to the risk of
shouldering hundreds of million of dollars in debt.

This Court has long and consistently adhered to the legal maxim that those that cannot be
done directly cannot be done indirectly.58 To declare the PIATCO contracts valid
despite the clear statutory prohibition against a direct government guarantee
would not only make a mockery of what the BOT Law seeks to prevent -- which is
to expose the government to the risk of incurring a monetary obligation
resulting from a contract of loan between the project proponent and its lenders
and to which the Government is not a party to -- but would also render the BOT
Law useless for what it seeks to achieve –- to make use of the resources of the
private sector in the "financing, operation and maintenance of infrastructure
and development projects"59which are necessary for national growth and
development but which the government, unfortunately, could ill-afford to
finance at this point in time.

IV

Temporary takeover of business affected with public interest

Article XII, Section 17 of the 1987 Constitution provides:

Section 17. In times of national emergency, when the public interest so requires, the
State may, during the emergency and under reasonable terms prescribed by it,
 temporarily take over or direct the operation of any privately owned public utility or
business affected with public interest.

The above provision pertains to the right of the State in times of national emergency, and in
the exercise of its police power, to temporarily take over the operation of any business affected
with public interest. In the 1986 Constitutional Commission, the term "national emergency"
was defined to include threat from external aggression, calamities or national disasters, but
not strikes "unless it is of such proportion that would paralyze government service."60 The
duration of the emergency itself is the determining factor as to how long the temporary
takeover by the government would last.61 The temporary takeover by the government extends
only to the operation of the business and not to the ownership thereof. As such
the government is not required to compensate the private entity-owner of the
said business as there is no transfer of ownership, whether permanent or temporary.
The private entity-owner affected by the temporary takeover cannot, likewise, claim just
compensation for the use of the said business and its properties as the temporary takeover by
the government is in exercise of its police power and not of its power of eminent domain.

Article V, Section 5.10 (c) of the 1997 Concession Agreement provides:

Section 5.10 Temporary Take-over of operations by GRP.

….

(c) In the event the development Facility or any part thereof and/or the operations of
Concessionaire or any part thereof, become the subject matter of or be included in any
notice, notification, or declaration concerning or relating to acquisition, seizure or
appropriation by GRP in times of war or national emergency, GRP shall, by written
notice to Concessionaire, immediately take over the operations of the Terminal and/or
the Terminal Complex. During such take over by GRP, the Concession Period shall be
suspended; provided, that upon termination of war, hostilities or national emergency,
the operations shall be returned to Concessionaire, at which time, the Concession
period shall commence to run again. Concessionaire shall be entitled to
reasonable compensation for the duration of the temporary take over by
GRP, which compensation shall take into account the reasonable cost for
the use of the Terminal and/or Terminal Complex, (which is in the amount
at least equal to the debt service requirements of Concessionaire, if the
temporary take over should occur at the time when Concessionaire is still servicing
debts owed to project lenders), any loss or damage to the Development Facility, and
other consequential damages. If the parties cannot agree on the reasonable
compensation of Concessionaire, or on the liability of GRP as aforesaid, the matter shall
be resolved in accordance with Section 10.01 [Arbitration]. Any amount determined to
be payable by GRP to Concessionaire shall be offset from the amount next payable by
Concessionaire to GRP.62

PIATCO cannot, by mere contractual stipulation, contravene the Constitutional

provision on temporary government takeover and obligate the government to
pay "reasonable cost for the use of the Terminal and/or Terminal
Complex."63 Article XII, section 17 of the 1987 Constitution envisions a situation wherein the
exigencies of the times necessitate the government to "temporarily take over or direct the
operation of any privately owned public utility or business affected with public interest." It is
the welfare and interest of the public which is the paramount consideration in determining
whether or not to temporarily take over a particular business. Clearly, the State in effecting
the temporary takeover is exercising its police power. Police power is the "most essential,
insistent, and illimitable of powers."64 Its exercise therefore must not be unreasonably
hampered nor its exercise be a source of obligation by the government in the absence of
damage due to arbitrariness of its exercise.65 Thus, requiring the government to pay
reasonable compensation for the reasonable use of the property pursuant to the operation of
the business contravenes the Constitution.

Regulation of Monopolies

A monopoly is "a privilege or peculiar advantage vested in one or more persons or companies,
consisting in the exclusive right (or power) to carry on a particular business or trade,
manufacture a particular article, or control the sale of a particular commodity." 66 The
1987 Constitution strictly regulates monopolies, whether private or public, and even
provides for their prohibition if public interest so requires. Article XII, Section 19 of the 1987
Constitution states:

Sec. 19. The state shall regulate or prohibit monopolies when the public interest so
requires. No combinations in restraint of trade or unfair competition shall be allowed.

Clearly, monopolies are not per se prohibited by the Constitution but may be permitted to
exist to aid the government in carrying on an enterprise or to aid in the performance of
various services and functions in the interest of the public.67 Nonetheless, a
determination must first be made as to whether public interest requires a monopoly. As
monopolies are subject to abuses that can inflict severe prejudice to the public, they are
subject to a higher level of State regulation than an ordinary business undertaking.

In the cases at bar, PIATCO, under the 1997 Concession Agreement and the ARCA, is granted
the "exclusive rightto operate a commercial international passenger terminal within the
Island of Luzon" at the NAIA IPT III.68 This is with the exception of already existing
international airports in Luzon such as those located in the Subic Bay Freeport Special
Economic Zone ("SBFSEZ"), Clark Special Economic Zone ("CSEZ") and in Laoag City. 69 As
such, upon commencement of PIATCO's operation of NAIA IPT III, Terminals 1 and 2 of
NAIA would cease to function as international passenger terminals. This, however, does not
prevent MIAA to use Terminals 1 and 2 as domestic passenger terminals or in any other
manner as it may deem appropriate except those activities that would compete with NAIA IPT
III in the latter's operation as an international passenger terminal.70 The right granted to
PIATCO to exclusively operate NAIA IPT III would be for a period of twenty-five (25)
years from the In-Service Date71 and renewable for another twenty-five (25) years at the
option of the government.72 Both the 1997 Concession Agreement and the ARCA
further provide that, in view of the exclusive right granted to PIATCO, the
concession contracts of the service providers currently servicing Terminals 1 and
2 would no longer be renewed and those concession contracts whose expiration
are subsequent to the In-Service Date would cease to be effective on the said
date.73
The operation of an international passenger airport terminal is no doubt an undertaking
imbued with public interest. In entering into a Build–Operate-and-Transfer contract for the
construction, operation and maintenance of NAIA IPT III, the government has determined
that public interest would be served better if private sector resources were used in its
construction and an exclusive right to operate be granted to the private entity undertaking the
said project, in this case PIATCO. Nonetheless, the privilege given to PIATCO is subject to
reasonable regulation and supervision by the Government through the MIAA, which is the
government agency authorized to operate the NAIA complex, as well as DOTC, the
department to which MIAA is attached.74

This is in accord with the Constitutional mandate that a monopoly which is not prohibited
must be regulated.75 While it is the declared policy of the BOT Law to encourage private sector
participation by "providing a climate of minimum government regulations,"76 the same does
not mean that Government must completely surrender its sovereign power to protect public
interest in the operation of a public utility as a monopoly. The operation of said public utility
can not be done in an arbitrary manner to the detriment of the public which it seeks to serve.
The right granted to the public utility may be exclusive but the exercise of the right cannot run
riot. Thus, while PIATCO may be authorized to exclusively operate NAIA IPT III as an
international passenger terminal, the Government, through the MIAA, has the right and the
duty to ensure that it is done in accord with public interest. PIATCO's right to operate NAIA
IPT III cannot also violate the rights of third parties.

Section 3.01(e) of the 1997 Concession Agreement and the ARCA provide:

3.01 Concession Period

xxx xxx xxx

(e) GRP confirms that certain concession agreements relative to certain

services and operations currently being undertaken at the Ninoy Aquino International
Airport passenger Terminal I have a validity period extending beyond the In-
Service Date. GRP through DOTC/MIAA, confirms that these services and
operations shall not be carried over to the Terminal and the Concessionaire is
under no legal obligation to permit such carry-over except through a separate
agreement duly entered into with Concessionaire. In the event Concessionaire becomes
involved in any litigation initiated by any such concessionaire or operator, GRP
undertakes and hereby holds Concessionaire free and harmless on full indemnity basis
from and against any loss and/or any liability resulting from any such litigation,
including the cost of litigation and the reasonable fees paid or payable to
Concessionaire's counsel of choice, all such amounts shall be fully deductible by way of
an offset from any amount which the Concessionaire is bound to pay GRP under this
Agreement.

During the oral arguments on December 10, 2002, the counsel for the petitioners-in-
intervention for G.R. No. 155001 stated that there are two service providers whose
contracts are still existing and whose validity extends beyond the In-Service Date. One
contract remains valid until 2008 and the other until 2010.77
We hold that while the service providers presently operating at NAIA Terminal 1 do not have
an absolute right for the renewal or the extension of their respective contracts, those contracts
whose duration extends beyond NAIA IPT III's In-Service-Date should not be unduly
prejudiced. These contracts must be respected not just by the parties thereto but also by third
parties. PIATCO cannot, by law and certainly not by contract, render a valid and binding
contract nugatory. PIATCO, by the mere expedient of claiming an exclusive right to operate,
cannot require the Government to break its contractual obligations to the service providers. In
contrast to the arrastre and stevedoring service providers in the case of Anglo-Fil Trading
Corporation v. Lazaro78 whose contracts consist of temporary hold-over permits, the
affected service providers in the cases at bar, have a valid and binding contract with the
Government, through MIAA, whose period of effectivity, as well as the other terms and
conditions thereof, cannot be violated.

In fine, the efficient functioning of NAIA IPT III is imbued with public interest. The
provisions of the 1997 Concession Agreement and the ARCA did not strip government, thru
the MIAA, of its right to supervise the operation of the whole NAIA complex, including NAIA
IPT III. As the primary government agency tasked with the job,79 it is MIAA's responsibility to
ensure that whoever by contract is given the right to operate NAIA IPT III will do so within
the bounds of the law and with due regard to the rights of third parties and above all, the
interest of the public.

VI

CONCLUSION

In sum, this Court rules that in view of the absence of the requisite financial capacity of the
Paircargo Consortium, predecessor of respondent PIATCO, the award by the PBAC of the
contract for the construction, operation and maintenance of the NAIA IPT III is null and void.
Further, considering that the 1997 Concession Agreement contains material and substantial
amendments, which amendments had the effect of converting the 1997 Concession Agreement
into an entirely different agreement from the contract bidded upon, the 1997 Concession
Agreement is similarly null and void for being contrary to public policy. The provisions under
Sections 4.04(b) and (c) in relation to Section 1.06 of the 1997 Concession Agreement and
Section 4.04(c) in relation to Section 1.06 of the ARCA, which constitute a direct government
guarantee expressly prohibited by, among others, the BOT Law and its Implementing Rules
and Regulations are also null and void. The Supplements, being accessory contracts to the
ARCA, are likewise null and void.

WHEREFORE, the 1997 Concession Agreement, the Amended and Restated Concession
Agreement and the Supplements thereto are set aside for being null and void.

SO ORDERED.
G.R. No. 146717 May 19, 2006

TRANSFIELD PHILIPPINES, INC., Petitioner,

vs.
LUZON HYDRO CORPORATION, AUSTRALIA AND NEW ZEALAND BANKING
GROUP LIMITED and SECURITY BANK CORPORATION, Respondents.

RESOLUTION

TINGA, J.:

The adjudication of this case proved to be a two-stage process as its constituent parts involve
two segregate but equally important issues. The first stage relating to the merits of the case,
specifically the question of the propriety of calling on the securities during the pendency of the
arbitral proceedings, was resolved in favor of Luzon Hydro Corporation (LHC) with the
Court’s Decision1 of 22 November 2004. The second stage involving the issue of forum-
shopping on which the Court required the parties to submit their respective memoranda2 is
disposed of in this Resolution.

The disposal of the forum-shopping charge is crucial to the parties to this case on account of
its profound effect on the final outcome of the international arbitral proceedings which they
have chosen as their principal dispute resolution mechanism.3

LHC claims that Transfield Philippines, Inc. (TPI) is guilty of forum-shopping when it filed
the following suits:

1. Civil Case No. 04-332 filed on 19 March 2004, pending before the Regional Trial
Court (RTC) of Makati, Branch 56 for confirmation, recognition and enforcement of the
Third Partial Award in case 11264 TE/MW, ICC International Court of Arbitration,
entitled Transfield Philippines, Inc. v. Luzon Hydro Corporation.4

2. ICC Case No. 11264/TE/MW, Transfield Philippines, Inc. v. Luzon Hydro

Corporation filed before the International Court of Arbitration, International Chamber
of Commerce (ICC) a request for arbitration dated 3 November 2000 pursuant to the
Turnkey Contract between LHC and TPI;

3. G.R. No. 146717, Transfield Philippines, Inc. v. Luzon Hydro Corporation, Australia
and New Zealand Banking Group Limited and Security Bank Corp. filed on 5 February
2001, which was an appeal by certiorari with prayer for TRO/preliminary prohibitory
and mandatory injunction, of the Court of Appeals Decision dated 31 January 2001 in
CA-G.R. SP No. 61901.

a. CA-G.R. SP No. 61901 was a petition for review of the Decision in Civil Case
No. 00-1312, wherein TPI claimed that LHC’s call on the securities was
premature considering that the issue of default has not yet been resolved with
finality; the petition was however denied by the Court of Appeals;

b. Civil Case No. 00-1312 was a complaint for injunction with prayer for
temporary restraining order and/or writ of preliminary injunction dated 5
 November 2000, which sought to restrain LHC from calling on the securities and
respondent banks from transferring or paying of the securities; the complaint was
denied by the RTC.

On the other hand, TPI claims that it is LHC which is guilty of forum-shopping when it raised
the issue of forum-shopping not only in this case, but also in Civil Case No. 04-332, and even
asked for the dismissal of the other case based on this ground. Moreover, TPI argues that LHC
is relitigating in Civil Case No. 04-332 the very same causes of action in ICC Case No.
11264/TE/MW, and even manifesting therein that it will present evidence earlier presented
before the arbitral tribunal.5

Meanwhile, ANZ Bank and Security Bank moved to be excused from filing a memorandum.
They claim that with the finality of the Court’s Decision dated 22 November 2004, any
resolution by the Court on the issue of forum-shopping will not materially affect their role as
the banking entities involved are concerned.6 The Court granted their respective motions.

On 1 August 2005, TPI moved to set the case for oral argument, positing that the resolution of
the Court on the issue of forum-shopping may have significant implications on the
interpretation of the Alternative Dispute Resolution Act of 2004, as well as the viability of
international commercial arbitration as an alternative mode of dispute resolution in the
country.7 Said motion was opposed by LHC in its opposition filed on 2 September 2005, with
LHC arguing that the respective memoranda of the parties are sufficient for the Court to
resolve the issue of forum-shopping.8 On 28 October 2005, TPI filed its Manifestation and
Reiterative Motion9 to set the case for oral argument, where it manifested that the
International Chamber of Commerce (ICC) arbitral tribunal had issued its Final Award
ordering LHC to pay TPI US$24,533,730.00 (including the US$17,977,815.00 proceeds of the
two standby letters of credit). TPI also submitted a copy thereof with a Supplemental
Petition10 to the Regional Trial Court (RTC), seeking recognition and enforcement of the said
award.11

The essence of forum-shopping is the filing of multiple suits involving the same parties for the
same cause of action, either simultaneously or successively, for the purpose of obtaining a
favorable judgment.12 Forum-shopping has likewise been defined as the act of a party against
whom an adverse judgment has been rendered in one forum, seeking and possibly getting a
favorable opinion in another forum, other than by appeal or the special civil action of
certiorari, or the institution of two or more actions or proceedings grounded on the same
cause on the supposition that one or the other court would make a favorable disposition. 13

Thus, for forum-shopping to exist, there must be (a) identity of parties, or at least such parties
as represent the same interests in both actions; (b) identity of rights asserted and relief prayed
for, the relief being founded on the same facts; and (c) the identity of the two preceding
particulars is such that any judgment rendered in the other action will, regardless of which
party is successful, amount to res judicata in the action under consideration.14

There is no identity of causes of action between and among the arbitration case, the instant
petition, and Civil Case No. 04-332.

The arbitration case, ICC Case No. 11264 TE/MW, is an arbitral proceeding commenced
pursuant to the Turnkey Contract between TPI and LHC, to determine the primary issue of
whether the delays in the construction of the project were excused delays, which would
consequently render valid TPI’s claims for extension of time to finish the project. Together
with the primary issue to be settled in the arbitration case is the equally important question of
monetary awards to the aggrieved party.

On the other hand, Civil Case No. 00-1312, the precursor of the instant petition, was filed to
enjoin LHC from calling on the securities and respondent banks from transferring or paying
the securities in case LHC calls on them. However, in view of the fact that LHC collected the
proceeds, TPI, in its appeal and petition for review asked that the same be returned and
placed in escrow pending the resolution of the disputes before the ICC arbitral tribunal.15

While the ICC case thus calls for a thorough review of the facts which led to the delay in the
construction of the project, as well as the attendant responsibilities of the parties therein, in
contrast, the present petition puts in issue the propriety of drawing on the letters of credit
during the pendency of the arbitral case, and of course, absent a final determination by the
ICC Arbitral tribunal. Moreover, as pointed out by TPI, it did not pray for the return of the
proceeds of the letters of credit. What it asked instead is that the said moneys be placed in
escrow until the final resolution of the arbitral case. Meanwhile, in Civil Case No. 04-332, TPI
no longer seeks the issuance of a provisional relief, but rather the issuance of a writ of
execution to enforce the Third Partial Award.

Neither is there an identity of parties between and among the three (3) cases. The ICC case
only involves TPI and LHC logically since they are the parties to the Turnkey Contract. In
comparison, the instant petition includes Security Bank and ANZ Bank, the banks sought to
be enjoined from releasing the funds of the letters of credit. The Court agrees with TPI that it
would be ineffectual to ask the ICC to issue writs of preliminary injunction against Security
Bank and ANZ Bank since these banks are not parties to the arbitration case, and that the ICC
Arbitral tribunal would not even be able to compel LHC to obey any writ of preliminary
injunction issued from its end.16 Civil Case No. 04-322, on the other hand, logically involves
TPI and LHC only, they being the parties to the arbitration agreement whose partial award is
sought to be enforced.

As a fundamental point, the pendency of arbitral proceedings does not foreclose resort to the
courts for provisional reliefs. The Rules of the ICC, which governs the parties’ arbitral dispute,
allows the application of a party to a judicial authority for interim or conservatory
measures.17 Likewise, Section 14 of Republic Act (R.A.) No. 876 (The Arbitration
Law)18 recognizes the rights of any party to petition the court to take measures to safeguard
and/or conserve any matter which is the subject of the dispute in arbitration. In addition, R.A.
9285, otherwise known as the "Alternative Dispute Resolution Act of 2004," allows the filing
of provisional or interim measures with the regular courts whenever the arbitral tribunal has
no power to act or to act effectively.19

TPI’s verified petition in Civil Case No. 04-332, filed on 19 March 2004, was captioned as one
"For: Confirmation, Recognition and Enforcement of Foreign Arbitral Award in Case 11264
TE/MW, ICC International Court of Arbitration, ‘Transfield Philippines, Inc. v. Luzon Hydro
Corporation (Place of arbitration: Singapore)."20 In the said petition, TPI prayed:

1. That the THIRD PARTIAL AWARD dated February 18, 2004 in Case No.
11264/TE/MW made by the ICC International Court of Arbitration, the signed original
 copy of which is hereto attached as Annex "H" hereof, be confirmed, recognized and
enforced in accordance with law.

2. That the corresponding writ of execution to enforce Question 31 of the said Third
Partial Award, be issued, also in accordance with law.

3. That TPI be granted such other relief as may be deemed just and equitable, and
allowed, in accordance with law.21

The pertinent portion of the Third Partial Award22 relied upon by TPI were the answers to
Questions 10 to 26, to wit:

"Question 30 Did TPI [LHC] wrongfully draw upon the security?

Yes

"Question 31 Is TPI entitled to have returned to it any sum wrongfully taken by LHC for
liquidated damages?

Yes

"Question 32 Is TPI entitled to any acceleration costs?

TPI is entitled to the reasonable costs TPI incurred after Typhoon Zeb as a result of LHC’s 5
February 1999 Notice to Correct.23

According to LHC, the filing of the above case constitutes forum-shopping since it is the same
claim for the return of US$17.9 Million which TPI made before the ICC Arbitral Tribunal and
before this Court. LHC adds that while Civil Case No. 04-332 is styled as an action for money,
the Third Partial Award used as basis of the suit does not authorize TPI to seek a writ of
execution for the sums drawn on the letters of credit. Said award does not even contain an
order for the payment of money, but instead has reserved the quantification of the amounts
for a subsequent determination, LHC argues. In fact, even the Fifth Partial Award,24 dated 30
March 2005, does not contain such orders. LHC insists that the declarations or the partial
awards issued by the ICC Arbitral Tribunal do not constitute orders for the payment of money
and are not intended to be enforceable as such, but merely constitute amounts which will be
included in the Final Award and will be taken into account in determining the actual amount
payable to the prevailing party.25

R.A. No. 9825 provides that international commercial arbitrations shall be governed shall be
governed by the Model Law on International Commercial Arbitration ("Model Law") adopted
by the United Nations Commission on International Trade Law (UNCITRAL).26 The
UNCITRAL Model Law provides:

ARTICLE 35. Recognition and enforcement

(1) An arbitral award, irrespective of the country in which it was made, shall be
recognized as binding and, upon application in writing to the competent court, shall be
enforced subject to the provisions of this article and of article 36.
 (2) The party relying on an award or applying for its enforcement shall supply the duly
authenticated original award or a duly certified copy thereof, and the original
arbitration agreement referred to in article 7 or a duly certified copy thereof. If the
award or agreement is not made in an official language of this State, the party shall
supply a duly certified translation thereof into such language.

Moreover, the New York Convention,27 to which the Philippines is a signatory, governs the
recognition and enforcement of foreign arbitral awards. The applicability of the New York
Convention in the Philippines was confirmed in Section 42 of R.A. 9285. Said law also
provides that the application for the recognition and enforcement of such awards shall be filed
with the proper RTC. While TPI’s resort to the RTC for recognition and enforcement of the
Third Partial Award is sanctioned by both the New York Convention and R.A. 9285, its
application for enforcement, however, was premature, to say the least. True, the ICC Arbitral
Tribunal had indeed ruled that LHC wrongfully drew upon the securities, yet there is no order
for the payment or return of the proceeds of the said securities. In fact, Paragraph 2142, which
is the final paragraph of the Third Partial Award, reads:

2142. All other issues, including any issues as to quantum and costs, are reserved to a future
award.28

Meanwhile, the tribunal issued its Fifth Partial Award29 on 30 March 2005. It contains,
among others, a declaration that while LHC wrongfully drew on the securities, the drawing
was made in good faith, under the mistaken assumption that the contractor, TPI, was in
default. Thus, the tribunal ruled that while the amount drawn must be returned, TPI is not
entitled to any damages or interests due to LHC’s drawing on the securities.30 In the Fifth
Partial Award, the tribunal ordered:

6. Order

6.1 General

166. This Fifth Partial Award deals with many issues of quantum.1avvphil.net However, it
does not resolve them all. The outstanding quantum issues will be determined in a
future award. It will contain a reconciliation of the amounts awarded to each party and a
determination of the net amount payable to Claimant or Respondent, as the case may be.

167. In view of this the Tribunal will make no orders for payment in this Fifth Partial Award.
The Tribunal will make a number of declarations concerning the quantum issues it has
resolved in this Award together with the outstanding liability issues. The declarations do
not constitute orders for the payment of money and are not intended to be
enforceable as such. They merely constitute amounts which will be included in
the Final Award and will be taken into account in determining the actual amount
payable.31 (Emphasis Supplied.)

Further, in the Declarations part of the award, the tribunal held:

6.2 Declarations

168. The Tribunal makes the following declarations:

 xxx

3. LHC is liable to repay TPI the face value of the securities drawn down by it, namely,
$17,977,815. It is not liable for any further damages claimed by TPI in respect of the
drawdown of the securities.

x x x.32

Finally, on 9 August 2005, the ICC Arbitral tribunal issued its Final Award, in essence
awarding US$24,533,730.00, which included TPI’s claim of U$17,977,815.00 for the return of
the securities from LHC.33

The fact that the ICC Arbitral tribunal included the proceeds of the securities shows that it
intended to make a final determination/award as to the said issue only in the Final Award and
not in the previous partial awards. This supports LHC’s position that when the Third Partial
Award was released and Civil Case No. 04-332 was filed, TPI was not yet authorized to seek
the issuance of a writ of execution since the quantification of the amounts due to TPI had not
yet been settled by the ICC Arbitral tribunal. Notwithstanding the fact that the amount of
proceeds drawn on the securities was not disputed the application for the enforcement of the
Third Partial Award was precipitately filed. To repeat, the declarations made in the Third
Partial Award do not constitute orders for the payment of money.

Anent the claim of TPI that it was LHC which committed forum-shopping, suffice it to say that
its bare allegations are not sufficient to sustain the charge.

WHEREFORE, the Court RESOLVES to DISMISS the charges of forum-shopping filed by

both parties against each other.

No pronouncement as to costs.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 143581 January 7, 2008

KOREA TECHNOLOGIES CO., LTD., petitioner,

vs.
HON. ALBERTO A. LERMA, in his capacity as Presiding Judge of Branch 256 of
Regional Trial Court of Muntinlupa City, and PACIFIC GENERAL STEEL
MANUFACTURING CORPORATION, respondents.

DECISION

VELASCO, JR., J.:

In our jurisdiction, the policy is to favor alternative methods of resolving disputes, particularly
in civil and commercial disputes. Arbitration along with mediation, conciliation, and
negotiation, being inexpensive, speedy and less hostile methods have long been favored by
this Court. The petition before us puts at issue an arbitration clause in a contract mutually
agreed upon by the parties stipulating that they would submit themselves to arbitration in a
foreign country. Regrettably, instead of hastening the resolution of their dispute, the parties
wittingly or unwittingly prolonged the controversy.

Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean corporation which is engaged
in the supply and installation of Liquefied Petroleum Gas (LPG) Cylinder manufacturing
plants, while private respondent Pacific General Steel Manufacturing Corp. (PGSMC) is a
domestic corporation.

On March 5, 1997, PGSMC and KOGIES executed a Contract1 whereby KOGIES would set up
an LPG Cylinder Manufacturing Plant in Carmona, Cavite. The contract was executed in the
Philippines. On April 7, 1997, the parties executed, in Korea, an Amendment for Contract No.
KLP-970301 dated March 5, 19972 amending the terms of payment. The contract and its
amendment stipulated that KOGIES will ship the machinery and facilities necessary for
manufacturing LPG cylinders for which PGSMC would pay USD 1,224,000. KOGIES would
install and initiate the operation of the plant for which PGSMC bound itself to pay USD
306,000 upon the plant’s production of the 11-kg. LPG cylinder samples. Thus, the total
contract price amounted to USD 1,530,000.

On October 14, 1997, PGSMC entered into a Contract of Lease3 with Worth Properties, Inc.
(Worth) for use of Worth’s 5,079-square meter property with a 4,032-square meter
warehouse building to house the LPG manufacturing plant. The monthly rental was PhP
322,560 commencing on January 1, 1998 with a 10% annual increment clause. Subsequently,
the machineries, equipment, and facilities for the manufacture of LPG cylinders were shipped,
delivered, and installed in the Carmona plant. PGSMC paid KOGIES USD 1,224,000.
However, gleaned from the Certificate4 executed by the parties on January 22, 1998, after the
installation of the plant, the initial operation could not be conducted as PGSMC encountered
financial difficulties affecting the supply of materials, thus forcing the parties to agree that
KOGIES would be deemed to have completely complied with the terms and conditions of the
March 5, 1997 contract.

For the remaining balance of USD306,000 for the installation and initial operation of the
plant, PGSMC issued two postdated checks: (1) BPI Check No. 0316412 dated January 30,
1998 for PhP 4,500,000; and (2) BPI Check No. 0316413 dated March 30, 1998 for PhP
4,500,000.5

When KOGIES deposited the checks, these were dishonored for the reason "PAYMENT
STOPPED." Thus, on May 8, 1998, KOGIES sent a demand letter6 to PGSMC threatening
criminal action for violation of Batas Pambansa Blg.22 in case of nonpayment. On the same
date, the wife of PGSMC’s President faxed a letter dated May 7, 1998 to KOGIES’ President
who was then staying at a Makati City hotel. She complained that not only did KOGIES deliver
a different brand of hydraulic press from that agreed upon but it had not delivered several
equipment parts already paid for.

On May 14, 1998, PGSMC replied that the two checks it issued KOGIES were fully funded but
the payments were stopped for reasons previously made known to KOGIES.7

On June 1, 1998, PGSMC informed KOGIES that PGSMC was canceling their Contract dated
March 5, 1997 on the ground that KOGIES had altered the quantity and lowered the quality of
the machineries and equipment it delivered to PGSMC, and that PGSMC would dismantle and
transfer the machineries, equipment, and facilities installed in the Carmona plant. Five days
later, PGSMC filed before the Office of the Public Prosecutor an Affidavit-Complaint
for Estafa docketed as I.S. No. 98-03813 against Mr. Dae Hyun Kang, President of KOGIES.

On June 15, 1998, KOGIES wrote PGSMC informing the latter that PGSMC could not
unilaterally rescind their contract nor dismantle and transfer the machineries and equipment
on mere imagined violations by KOGIES. It also insisted that their disputes should be settled
by arbitration as agreed upon in Article 15, the arbitration clause of their contract.

On June 23, 1998, PGSMC again wrote KOGIES reiterating the contents of its June 1, 1998
letter threatening that the machineries, equipment, and facilities installed in the plant would
be dismantled and transferred on July 4, 1998. Thus, on July 1, 1998, KOGIES instituted an
Application for Arbitration before the Korean Commercial Arbitration Board (KCAB) in Seoul,
Korea pursuant to Art. 15 of the Contract as amended.

On July 3, 1998, KOGIES filed a Complaint for Specific Performance, docketed as Civil Case
No. 98-1178 against PGSMC before the Muntinlupa City Regional Trial Court (RTC). The RTC
granted a temporary restraining order (TRO) on July 4, 1998, which was subsequently
extended until July 22, 1998. In its complaint, KOGIES alleged that PGSMC had initially
admitted that the checks that were stopped were not funded but later on claimed that it
stopped payment of the checks for the reason that "their value was not received" as the former
allegedly breached their contract by "altering the quantity and lowering the quality of the
machinery and equipment" installed in the plant and failed to make the plant operational
although it earlier certified to the contrary as shown in a January 22, 1998 Certificate.
Likewise, KOGIES averred that PGSMC violated Art. 15 of their Contract, as amended, by
unilaterally rescinding the contract without resorting to arbitration. KOGIES also asked that
PGSMC be restrained from dismantling and transferring the machinery and equipment
installed in the plant which the latter threatened to do on July 4, 1998.

On July 9, 1998, PGSMC filed an opposition to the TRO arguing that KOGIES was not entitled
to the TRO since Art. 15, the arbitration clause, was null and void for being against public
policy as it ousts the local courts of jurisdiction over the instant controversy.

On July 17, 1998, PGSMC filed its Answer with Compulsory Counterclaim9 asserting that it
had the full right to dismantle and transfer the machineries and equipment because it had
paid for them in full as stipulated in the contract; that KOGIES was not entitled to the PhP
9,000,000 covered by the checks for failing to completely install and make the plant
operational; and that KOGIES was liable for damages amounting to PhP 4,500,000 for
altering the quantity and lowering the quality of the machineries and equipment. Moreover,
PGSMC averred that it has already paid PhP 2,257,920 in rent (covering January to July
1998) to Worth and it was not willing to further shoulder the cost of renting the premises of
the plant considering that the LPG cylinder manufacturing plant never became operational.

After the parties submitted their Memoranda, on July 23, 1998, the RTC issued an Order
denying the application for a writ of preliminary injunction, reasoning that PGSMC had paid
KOGIES USD 1,224,000, the value of the machineries and equipment as shown in the
contract such that KOGIES no longer had proprietary rights over them. And finally, the RTC
held that Art. 15 of the Contract as amended was invalid as it tended to oust the trial court or
any other court jurisdiction over any dispute that may arise between the parties. KOGIES’
prayer for an injunctive writ was denied.10 The dispositive portion of the Order stated:

WHEREFORE, in view of the foregoing consideration, this Court believes and so holds
that no cogent reason exists for this Court to grant the writ of preliminary injunction to
restrain and refrain defendant from dismantling the machineries and facilities at the lot
and building of Worth Properties, Incorporated at Carmona, Cavite and transfer the
same to another site: and therefore denies plaintiff’s application for a writ of
preliminary injunction.

On July 29, 1998, KOGIES filed its Reply to Answer and Answer to Counterclaim.11 KOGIES
denied it had altered the quantity and lowered the quality of the machinery, equipment, and
facilities it delivered to the plant. It claimed that it had performed all the undertakings under
the contract and had already produced certified samples of LPG cylinders. It averred that
whatever was unfinished was PGSMC’s fault since it failed to procure raw materials due to
lack of funds. KOGIES, relying on Chung Fu Industries (Phils.), Inc. v. Court of
Appeals,12 insisted that the arbitration clause was without question valid.

After KOGIES filed a Supplemental Memorandum with Motion to Dismiss 13 answering

PGSMC’s memorandum of July 22, 1998 and seeking dismissal of PGSMC’s counterclaims,
KOGIES, on August 4, 1998, filed its Motion for Reconsideration14 of the July 23, 1998 Order
denying its application for an injunctive writ claiming that the contract was not merely for
machinery and facilities worth USD 1,224,000 but was for the sale of an "LPG manufacturing
plant" consisting of "supply of all the machinery and facilities" and "transfer of technology"
for a total contract price of USD 1,530,000 such that the dismantling and transfer of the
machinery and facilities would result in the dismantling and transfer of the very plant itself to
the great prejudice of KOGIES as the still unpaid owner/seller of the plant. Moreover,
KOGIES points out that the arbitration clause under Art. 15 of the Contract as amended was a
valid arbitration stipulation under Art. 2044 of the Civil Code and as held by this Court
in Chung Fu Industries (Phils.), Inc.15

In the meantime, PGSMC filed a Motion for Inspection of Things16 to determine whether there
was indeed alteration of the quantity and lowering of quality of the machineries and
equipment, and whether these were properly installed. KOGIES opposed the motion positing
that the queries and issues raised in the motion for inspection fell under the coverage of the
arbitration clause in their contract.

On September 21, 1998, the trial court issued an Order (1) granting PGSMC’s motion for
inspection; (2) denying KOGIES’ motion for reconsideration of the July 23, 1998 RTC Order;
and (3) denying KOGIES’ motion to dismiss PGSMC’s compulsory counterclaims as these
counterclaims fell within the requisites of compulsory counterclaims.

On October 2, 1998, KOGIES filed an Urgent Motion for Reconsideration17 of the September
21, 1998 RTC Order granting inspection of the plant and denying dismissal of PGSMC’s
compulsory counterclaims.

Ten days after, on October 12, 1998, without waiting for the resolution of its October 2, 1998
urgent motion for reconsideration, KOGIES filed before the Court of Appeals (CA) a petition
for certiorari18 docketed as CA-G.R. SP No. 49249, seeking annulment of the July 23, 1998
and September 21, 1998 RTC Orders and praying for the issuance of writs of prohibition,
mandamus, and preliminary injunction to enjoin the RTC and PGSMC from inspecting,
dismantling, and transferring the machineries and equipment in the Carmona plant, and to
direct the RTC to enforce the specific agreement on arbitration to resolve the dispute.

In the meantime, on October 19, 1998, the RTC denied KOGIES’ urgent motion for
reconsideration and directed the Branch Sheriff to proceed with the inspection of the
machineries and equipment in the plant on October 28, 1998.19

Thereafter, KOGIES filed a Supplement to the Petition20 in CA-G.R. SP No. 49249 informing
the CA about the October 19, 1998 RTC Order. It also reiterated its prayer for the issuance of
the writs of prohibition, mandamus and preliminary injunction which was not acted upon by
the CA. KOGIES asserted that the Branch Sheriff did not have the technical expertise to
ascertain whether or not the machineries and equipment conformed to the specifications in
the contract and were properly installed.

On November 11, 1998, the Branch Sheriff filed his Sheriff’s Report21 finding that the
enumerated machineries and equipment were not fully and properly installed.

The Court of Appeals affirmed the trial court and declared

the arbitration clause against public policy

On May 30, 2000, the CA rendered the assailed Decision22 affirming the RTC Orders and
dismissing the petition for certiorari filed by KOGIES. The CA found that the RTC did not
gravely abuse its discretion in issuing the assailed July 23, 1998 and September 21, 1998
Orders. Moreover, the CA reasoned that KOGIES’ contention that the total contract price for
USD 1,530,000 was for the whole plant and had not been fully paid was contrary to the
finding of the RTC that PGSMC fully paid the price of USD 1,224,000, which was for all the
machineries and equipment. According to the CA, this determination by the RTC was a factual
finding beyond the ambit of a petition for certiorari.

On the issue of the validity of the arbitration clause, the CA agreed with the lower court that
an arbitration clause which provided for a final determination of the legal rights of the parties
to the contract by arbitration was against public policy.

On the issue of nonpayment of docket fees and non-attachment of a certificate of non-forum

shopping by PGSMC, the CA held that the counterclaims of PGSMC were compulsory ones
and payment of docket fees was not required since the Answer with counterclaim was not an
initiatory pleading. For the same reason, the CA said a certificate of non-forum shopping was
also not required.

Furthermore, the CA held that the petition for certiorari had been filed prematurely since
KOGIES did not wait for the resolution of its urgent motion for reconsideration of the
September 21, 1998 RTC Order which was the plain, speedy, and adequate remedy available.
According to the CA, the RTC must be given the opportunity to correct any alleged error it has
committed, and that since the assailed orders were interlocutory, these cannot be the subject
of a petition for certiorari.

Hence, we have this Petition for Review on Certiorari under Rule 45.

The Issues

Petitioner posits that the appellate court committed the following errors:

a. PRONOUNCING THE QUESTION OF OWNERSHIP OVER THE MACHINERY AND

FACILITIES AS "A QUESTION OF FACT" "BEYOND THE AMBIT OF A PETITION
FOR CERTIORARI" INTENDED ONLY FOR CORRECTION OF ERRORS OF
JURISDICTION OR GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF
(SIC) EXCESS OF JURISDICTION, AND CONCLUDING THAT THE TRIAL COURT’S
FINDING ON THE SAME QUESTION WAS IMPROPERLY RAISED IN THE
PETITION BELOW;

b. DECLARING AS NULL AND VOID THE ARBITRATION CLAUSE IN ARTICLE 15

OF THE CONTRACT BETWEEN THE PARTIES FOR BEING "CONTRARY TO PUBLIC
POLICY" AND FOR OUSTING THE COURTS OF JURISDICTION;

c. DECREEING PRIVATE RESPONDENT’S COUNTERCLAIMS TO BE ALL

COMPULSORY NOT NECESSITATING PAYMENT OF DOCKET FEES AND
CERTIFICATION OF NON-FORUM SHOPPING;

d. RULING THAT THE PETITION WAS FILED PREMATURELY WITHOUT WAITING

FOR THE RESOLUTION OF THE MOTION FOR RECONSIDERATION OF THE
ORDER DATED SEPTEMBER 21, 1998 OR WITHOUT GIVING THE TRIAL COURT
AN OPPORTUNITY TO CORRECT ITSELF;
 e. PROCLAIMING THE TWO ORDERS DATED JULY 23 AND SEPTEMBER 21, 1998
NOT TO BE PROPER SUBJECTS OF CERTIORARI AND PROHIBITION FOR BEING
"INTERLOCUTORY IN NATURE;"

f. NOT GRANTING THE RELIEFS AND REMEDIES PRAYED FOR IN HE (SIC)

PETITION AND, INSTEAD, DISMISSING THE SAME FOR ALLEGEDLY "WITHOUT
MERIT."23

The Court’s Ruling

The petition is partly meritorious.

Before we delve into the substantive issues, we shall first tackle the procedural issues.

The rules on the payment of docket fees for counterclaims

and cross claims were amended effective August 16, 2004

KOGIES strongly argues that when PGSMC filed the counterclaims, it should have paid docket
fees and filed a certificate of non-forum shopping, and that its failure to do so was a fatal
defect.

We disagree with KOGIES.

As aptly ruled by the CA, the counterclaims of PGSMC were incorporated in its Answer with
Compulsory Counterclaim dated July 17, 1998 in accordance with Section 8 of Rule 11, 1997
Revised Rules of Civil Procedure, the rule that was effective at the time the Answer with
Counterclaim was filed. Sec. 8 on existing counterclaim or cross-claim states, "A compulsory
counterclaim or a cross-claim that a defending party has at the time he files his answer shall
be contained therein."

On July 17, 1998, at the time PGSMC filed its Answer incorporating its counterclaims against
KOGIES, it was not liable to pay filing fees for said counterclaims being compulsory in nature.
We stress, however, that effective August 16, 2004 under Sec. 7, Rule 141, as amended by A.M.
No. 04-2-04-SC, docket fees are now required to be paid in compulsory counterclaim or cross-
claims.

As to the failure to submit a certificate of forum shopping, PGSMC’s Answer is not an

initiatory pleading which requires a certification against forum shopping under Sec. 524 of
Rule 7, 1997 Revised Rules of Civil Procedure. It is a responsive pleading, hence, the courts a
quo did not commit reversible error in denying KOGIES’ motion to dismiss PGSMC’s
compulsory counterclaims.

Interlocutory orders proper subject of certiorari

Citing Gamboa v. Cruz,25 the CA also pronounced that "certiorari and Prohibition are neither
the remedies to question the propriety of an interlocutory order of the trial court."26 The CA
erred on its reliance on Gamboa. Gamboa involved the denial of a motion to acquit in a
criminal case which was not assailable in an action for certiorari since the denial of a motion
to quash required the accused to plead and to continue with the trial, and whatever objections
the accused had in his motion to quash can then be used as part of his defense and
subsequently can be raised as errors on his appeal if the judgment of the trial court is adverse
to him. The general rule is that interlocutory orders cannot be challenged by an
appeal.27 Thus, in Yamaoka v. Pescarich Manufacturing Corporation, we held:

The proper remedy in such cases is an ordinary appeal from an adverse

judgment on the merits, incorporating in said appeal the grounds for assailing the
interlocutory orders. Allowing appeals from interlocutory orders would result in the
‘sorry spectacle’ of a case being subject of a counterproductive ping-pong to and from
the appellate court as often as a trial court is perceived to have made an error in any of
its interlocutory rulings. However, where the assailed interlocutory order was issued
with grave abuse of discretion or patently erroneous and the remedy of appeal would
not afford adequate and expeditious relief, the Court allows certiorari as a mode of
redress.28

Also, appeals from interlocutory orders would open the floodgates to endless occasions for
dilatory motions. Thus, where the interlocutory order was issued without or in excess of
jurisdiction or with grave abuse of discretion, the remedy is certiorari. 29

The alleged grave abuse of discretion of the respondent court equivalent to lack of jurisdiction
in the issuance of the two assailed orders coupled with the fact that there is no plain, speedy,
and adequate remedy in the ordinary course of law amply provides the basis for allowing the
resort to a petition for certiorari under Rule 65.

Prematurity of the petition before the CA

Neither do we think that KOGIES was guilty of forum shopping in filing the petition for
certiorari. Note that KOGIES’ motion for reconsideration of the July 23, 1998 RTC Order
which denied the issuance of the injunctive writ had already been denied. Thus, KOGIES’ only
remedy was to assail the RTC’s interlocutory order via a petition for certiorari under Rule 65.

While the October 2, 1998 motion for reconsideration of KOGIES of the September 21, 1998
RTC Order relating to the inspection of things, and the allowance of the compulsory
counterclaims has not yet been resolved, the circumstances in this case would allow an
exception to the rule that before certiorari may be availed of, the petitioner must have filed a
motion for reconsideration and said motion should have been first resolved by the court a
quo. The reason behind the rule is "to enable the lower court, in the first instance, to pass
upon and correct its mistakes without the intervention of the higher court."30

The September 21, 1998 RTC Order directing the branch sheriff to inspect the plant,
equipment, and facilities when he is not competent and knowledgeable on said matters is
evidently flawed and devoid of any legal support. Moreover, there is an urgent necessity to
resolve the issue on the dismantling of the facilities and any further delay would prejudice the
interests of KOGIES. Indeed, there is real and imminent threat of irreparable destruction or
substantial damage to KOGIES’ equipment and machineries. We find the resort to certiorari
based on the gravely abusive orders of the trial court sans the ruling on the October 2, 1998
motion for reconsideration to be proper.

The Core Issue: Article 15 of the Contract

We now go to the core issue of the validity of Art. 15 of the Contract, the arbitration clause. It
provides:

Article 15. Arbitration.—All disputes, controversies, or differences which may arise

between the parties, out of or in relation to or in connection with this Contract or for
the breach thereof, shall finally be settled by arbitration in Seoul, Korea in accordance
with the Commercial Arbitration Rules of the Korean Commercial Arbitration
Board. The award rendered by the arbitration(s) shall be final and
binding upon both parties concerned. (Emphasis supplied.)

Petitioner claims the RTC and the CA erred in ruling that the arbitration clause is null and
void.

Petitioner is correct.

Established in this jurisdiction is the rule that the law of the place where the contract is made
governs. Lex loci contractus. The contract in this case was perfected here in the Philippines.
Therefore, our laws ought to govern. Nonetheless, Art. 2044 of the Civil Code sanctions the
validity of mutually agreed arbitral clause or the finality and binding effect of an arbitral
award. Art. 2044 provides, "Any stipulation that the arbitrators’ award or decision
shall be final, is valid, without prejudice to Articles 2038, 2039 and 2040." (Emphasis
supplied.)

Arts. 2038,31 2039,32 and 204033 abovecited refer to instances where a compromise or an
arbitral award, as applied to Art. 2044 pursuant to Art. 2043,34 may be voided, rescinded, or
annulled, but these would not denigrate the finality of the arbitral award.

The arbitration clause was mutually and voluntarily agreed upon by the parties. It has not
been shown to be contrary to any law, or against morals, good customs, public order, or public
policy. There has been no showing that the parties have not dealt with each other on equal
footing. We find no reason why the arbitration clause should not be respected and complied
with by both parties. In Gonzales v. Climax Mining Ltd.,35 we held that submission to
arbitration is a contract and that a clause in a contract providing that all matters in dispute
between the parties shall be referred to arbitration is a contract.36 Again in Del Monte
Corporation-USA v. Court of Appeals, we likewise ruled that "[t]he 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."37

Arbitration clause not contrary to public policy

The arbitration clause which stipulates that the arbitration must be done in Seoul, Korea in
accordance with the Commercial Arbitration Rules of the KCAB, and that the arbitral award is
final and binding, is not contrary to public policy. This Court has sanctioned the validity of
arbitration clauses in a catena of cases. In the 1957 case of Eastboard Navigation Ltd. v. Juan
Ysmael and Co., Inc.,38 this Court had occasion to rule that an arbitration clause to resolve
differences and breaches of mutually agreed contractual terms is valid. In BF Corporation v.
Court of Appeals, we held that "[i]n this jurisdiction, arbitration has been held valid and
constitutional. Even before the approval on June 19, 1953 of Republic Act No. 876, this Court
has countenanced the settlement of disputes through arbitration. Republic Act No. 876 was
adopted to supplement the New Civil Code’s provisions on arbitration."39 And in LM Power
Engineering Corporation v. Capitol Industrial Construction Groups, Inc., we declared that:

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.40

Having said that the instant arbitration clause is not against public policy, we come to the
question on what governs an arbitration clause specifying that in case of any dispute arising
from the contract, an arbitral panel will be constituted in a foreign country and the arbitration
rules of the foreign country would govern and its award shall be final and binding.

RA 9285 incorporated the UNCITRAL Model law

to which we are a signatory

For domestic arbitration proceedings, we have particular agencies to arbitrate disputes arising
from contractual relations. In case a foreign arbitral body is chosen by the parties, the
arbitration rules of our domestic arbitration bodies would not be applied. As signatory to the
Arbitration Rules of the UNCITRAL Model Law on International Commercial Arbitration41 of
the United Nations Commission on International Trade Law (UNCITRAL) in the New York
Convention on June 21, 1985, the Philippines committed itself to be bound by the Model Law.
We have even incorporated the Model Law in Republic Act No. (RA) 9285, otherwise known
as the Alternative Dispute Resolution Act of 2004 entitled 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. Secs.
19 and 20 of Chapter 4 of the Model Law are the pertinent provisions:

CHAPTER 4 - INTERNATIONAL COMMERCIAL ARBITRATION

SEC. 19. Adoption of the Model Law on International Commercial Arbitration.––

International commercial arbitration shall be governed by the Model Law on
International Commercial Arbitration (the "Model Law") adopted by the United
Nations Commission on International Trade Law on June 21, 1985 (United Nations
Document A/40/17) and recommended for enactment by the General Assembly in
Resolution No. 40/72 approved on December 11, 1985, copy of which is hereto attached
as Appendix "A".

SEC. 20. Interpretation of Model Law.––In interpreting the Model Law, regard shall
be had to its international origin and to the need for uniformity in its interpretation and
resort may be made to the travaux preparatoriesand the report of the Secretary
General of the United Nations Commission on International Trade Law dated March
 25, 1985 entitled, "International Commercial Arbitration: Analytical Commentary on
Draft Trade identified by reference number A/CN. 9/264."

While RA 9285 was passed only in 2004, it nonetheless applies in the instant case since it is a
procedural law which has a retroactive effect. Likewise, KOGIES filed its application for
arbitration before the KCAB on July 1, 1998 and it is still pending because no arbitral award
has yet been rendered. Thus, RA 9285 is applicable to the instant case. Well-settled is the rule
that procedural laws are construed to be applicable to actions pending and undetermined at
the time of their passage, and are deemed retroactive in that sense and to that extent. As a
general rule, the retroactive application of procedural laws does not violate any personal
rights because no vested right has yet attached nor arisen from them.42

Among the pertinent features of RA 9285 applying and incorporating the UNCITRAL Model
Law are the following:

(1) The RTC must refer to arbitration in proper cases

Under Sec. 24, the RTC does not have jurisdiction over disputes that are properly the subject
of arbitration pursuant to an arbitration clause, and mandates the referral to arbitration in
such cases, thus:

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 than 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.

(2) Foreign arbitral awards must be confirmed by the RTC

Foreign arbitral awards while mutually stipulated by the parties in the arbitration clause to be
final and binding are not immediately enforceable or cannot be implemented immediately.
Sec. 3543 of the UNCITRAL Model Law stipulates the requirement for the arbitral award to be
recognized by a competent court for enforcement, which court under Sec. 36 of the
UNCITRAL Model Law may refuse recognition or enforcement on the grounds provided for.
RA 9285 incorporated these provisos to Secs. 42, 43, and 44 relative to Secs. 47 and 48, thus:

SEC. 42. Application of the New York Convention.––The New York Convention shall
govern the recognition and enforcement of arbitral awards covered by said Convention.

The recognition and enforcement of such arbitral awards shall be filed with
the Regional Trial Court in accordance with the rules of procedure to be
promulgated by the Supreme Court. Said procedural rules shall provide that the party
relying on the award or applying for its enforcement shall file with the court the original
or authenticated copy of the award and the arbitration agreement. If the award or
agreement is not made in any of the official languages, the party shall supply a duly
certified translation thereof into any of such languages.

The applicant shall establish that the country in which foreign arbitration award was
made in party to the New York Convention.
 xxxx

SEC. 43. Recognition and Enforcement of Foreign Arbitral Awards Not Covered by the
New York Convention.––The recognition and enforcement of foreign arbitral awards
not covered by the New York Convention shall be done in accordance with procedural
rules to be promulgated by the Supreme Court. The Court may, on grounds of comity
and reciprocity, recognize and enforce a non-convention award as a convention award.

SEC. 44. Foreign Arbitral Award Not Foreign Judgment.––A foreign arbitral award
when confirmed by a court of a foreign country, shall be recognized and enforced as a
foreign arbitral award and not as a judgment of a foreign court.

A foreign arbitral award, when confirmed by the Regional Trial Court, shall be enforced
in the same manner as final and executory decisions of courts of law of the Philippines

xxxx

SEC. 47. Venue and Jurisdiction.––Proceedings for recognition and enforcement of an

arbitration agreement or for vacations, setting aside, correction or modification of an
arbitral award, and any application with a court for arbitration assistance and
supervision shall be deemed as special proceedings and shall be filed with the Regional
Trial Court (i) where arbitration proceedings are conducted; (ii) where the asset to be
attached or levied upon, or the act to be enjoined is located; (iii) where any of the
parties to the dispute resides or has his place of business; or (iv) in the National Judicial
Capital Region, at the option of the applicant.

SEC. 48. Notice of Proceeding to Parties.––In a special proceeding for recognition and
enforcement of an arbitral award, the Court shall send notice to the parties at their
address of record in the arbitration, or if any part cannot be served notice at such
address, at such party’s last known address. The notice shall be sent al least fifteen (15)
days before the date set for the initial hearing of the application.

It is now clear that foreign arbitral awards when confirmed by the RTC are deemed not as a
judgment of a foreign court but as a foreign arbitral award, and when confirmed, are enforced
as final and executory decisions of our courts of law.

Thus, it can be gleaned that the concept of a final and binding arbitral award is similar to
judgments or awards given by some of our quasi-judicial bodies, like the National Labor
Relations Commission and Mines Adjudication Board, whose final judgments are stipulated
to be final and binding, but not immediately executory in the sense that they may still be
judicially reviewed, upon the instance of any party. Therefore, the final foreign arbitral awards
are similarly situated in that they need first to be confirmed by the RTC.

(3) The RTC has jurisdiction to review foreign arbitral awards

Sec. 42 in relation to Sec. 45 of RA 9285 designated and vested the RTC with specific
authority and jurisdiction to set aside, reject, or vacate a foreign arbitral award on grounds
provided under Art. 34(2) of the UNCITRAL Model Law. Secs. 42 and 45 provide:
 SEC. 42. Application of the New York Convention.––The New York Convention shall
govern the recognition and enforcement of arbitral awards covered by said Convention.

The recognition and enforcement of such arbitral awards shall be filed with
the Regional Trial Court in accordance with the rules of procedure to be
promulgated by the Supreme Court. Said procedural rules shall provide that the party
relying on the award or applying for its enforcement shall file with the court the original
or authenticated copy of the award and the arbitration agreement. If the award or
agreement is not made in any of the official languages, the party shall supply a duly
certified translation thereof into any of such languages.

The applicant shall establish that the country in which foreign arbitration award was
made is party to the New York Convention.

If the application for rejection or suspension of enforcement of an award has been

made, the Regional Trial Court may, if it considers it proper, vacate its decision and
may also, on the application of the party claiming recognition or enforcement of the
award, order the party to provide appropriate security.

xxxx

SEC. 45. Rejection of a Foreign Arbitral Award.––A party to a foreign arbitration

proceeding may oppose an application for recognition and enforcement of the arbitral
award in accordance with the procedures and rules to be promulgated by the Supreme
Court only on those grounds enumerated under Article V of the New York Convention.
Any other ground raised shall be disregarded by the Regional Trial Court.

Thus, while the RTC does not have jurisdiction over disputes governed by arbitration
mutually agreed upon by the parties, still the foreign arbitral award is subject to judicial
review by the RTC which can set aside, reject, or vacate it. In this sense, what this Court held
in Chung Fu Industries (Phils.), Inc. relied upon by KOGIES is applicable insofar as the
foreign arbitral awards, while final and binding, do not oust courts of jurisdiction since these
arbitral awards are not absolute and without exceptions as they are still judicially reviewable.
Chapter 7 of RA 9285 has made it clear that all arbitral awards, whether domestic or foreign,
are subject to judicial review on specific grounds provided for.

(4) Grounds for judicial review different in domestic and foreign arbitral awards

The differences between a final arbitral award from an international or foreign arbitral
tribunal and an award given by a local arbitral tribunal are the specific grounds or conditions
that vest jurisdiction over our courts to review the awards.

For foreign or international arbitral awards which must first be confirmed by the RTC, the
grounds for setting aside, rejecting or vacating the award by the RTC are provided under Art.
34(2) of the UNCITRAL Model Law.

For final domestic arbitral awards, which also need confirmation by the RTC pursuant to Sec.
23 of RA 87644 and shall be recognized as final and executory decisions of the RTC,45 they may
only be assailed before the RTC and vacated on the grounds provided under Sec. 25 of RA
876.46

(5) RTC decision of assailed foreign arbitral award appealable

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.

PGSMC has remedies to protect its interests

Thus, based on the foregoing features of RA 9285, PGSMC must submit to the foreign
arbitration as it bound itself through the subject contract. While it may have misgivings on the
foreign arbitration done in Korea by the KCAB, it has available remedies under RA 9285. Its
interests are duly protected by the law which requires that the arbitral award that may be
rendered by KCAB must be confirmed here by the RTC before it can be enforced.

With our disquisition above, petitioner is correct in its contention that an arbitration clause,
stipulating that the arbitral award is final and binding, does not oust our courts of jurisdiction
as the international arbitral award, the award of which is not absolute and without exceptions,
is still judicially reviewable under certain conditions provided for by the UNCITRAL Model
Law on ICA as applied and incorporated in RA 9285.

Finally, it must be noted that there is nothing in the subject Contract which provides that the
parties may dispense with the arbitration clause.

Unilateral rescission improper and illegal

Having ruled that the arbitration clause of the subject contract is valid and binding on the
parties, and not contrary to public policy; consequently, being bound to the contract of
arbitration, a party may not unilaterally rescind or terminate the contract for whatever cause
without first resorting to arbitration.

What this Court held in University of the Philippines v. De Los Angeles47 and reiterated in
succeeding cases,48 that the act of treating a contract as rescinded on account of infractions by
the other contracting party is valid albeit provisional as it can be judicially assailed, is not
applicable to the instant case on account of a valid stipulation on arbitration. Where an
arbitration clause in a contract is availing, neither of the parties can unilaterally treat the
contract as rescinded since whatever infractions or breaches by a party or differences arising
from the contract must be brought first and resolved by arbitration, and not through an
extrajudicial rescission or judicial action.

The issues arising from the contract between PGSMC and KOGIES on whether the equipment
and machineries delivered and installed were properly installed and operational in the plant
in Carmona, Cavite; the ownership of equipment and payment of the contract price; and
whether there was substantial compliance by KOGIES in the production of the samples, given
the alleged fact that PGSMC could not supply the raw materials required to produce the
sample LPG cylinders, are matters proper for arbitration. Indeed, we note that on July 1,
1998, KOGIES instituted an Application for Arbitration before the KCAB in Seoul, Korea
pursuant to Art. 15 of the Contract as amended. Thus, it is incumbent upon PGSMC to abide
by its commitment to arbitrate.

Corollarily, the trial court gravely abused its discretion in granting PGSMC’s Motion for
Inspection of Things on September 21, 1998, as the subject matter of the motion is under the
primary jurisdiction of the mutually agreed arbitral body, the KCAB in Korea.

In addition, whatever findings and conclusions made by the RTC Branch Sheriff from the
inspection made on October 28, 1998, as ordered by the trial court on October 19, 1998, is of
no worth as said Sheriff is not technically competent to ascertain the actual status of the
equipment and machineries as installed in the plant.

For these reasons, the September 21, 1998 and October 19, 1998 RTC Orders pertaining to the
grant of the inspection of the equipment and machineries have to be recalled and nullified.

Issue on ownership of plant proper for arbitration

Petitioner assails the CA ruling that the issue petitioner raised on whether the total contract
price of USD 1,530,000 was for the whole plant and its installation is beyond the ambit of a
Petition for Certiorari.

Petitioner’s position is untenable.

It is settled that questions of fact cannot be raised in an original action for

certiorari.49 Whether or not there was full payment for the machineries and equipment and
installation is indeed a factual issue prohibited by Rule 65.

However, what appears to constitute a grave abuse of discretion is the order of the RTC in
resolving the issue on the ownership of the plant when it is the arbitral body (KCAB) and not
the RTC which has jurisdiction and authority over the said issue. The RTC’s determination of
such factual issue constitutes grave abuse of discretion and must be reversed and set aside.

RTC has interim jurisdiction to protect the rights of the parties

Anent the July 23, 1998 Order denying the issuance of the injunctive writ paving the way for
PGSMC to dismantle and transfer the equipment and machineries, we find it to be in order
considering the factual milieu of the instant case.

Firstly, while the issue of the proper installation of the equipment and machineries might well
be under the primary jurisdiction of the arbitral body to decide, yet the RTC under Sec. 28 of
RA 9285 has jurisdiction to hear and grant interim measures to protect vested rights of the
parties. Sec. 28 pertinently provides:

SEC. 28. Grant of interim Measure of Protection.—(a) It is not incompatible with

an arbitration agreement for a party to request, before constitution of the
tribunal, from a Court to grant such measure. After constitution of the arbitral
tribunal and during arbitral proceedings, a request for an interim measure of
protection, or modification thereof, may be made with the arbitral or to the extent
that the arbitral tribunal has no power to act or is unable to act effectivity,
the request may be made with the Court. The arbitral tribunal is deemed
constituted when the sole arbitrator or the third arbitrator, who has been nominated,
has accepted the nomination and written communication of said nomination and
acceptance has been received by the party making the request.

(b) The following rules on interim or provisional relief shall be observed:

Any party may request that provisional relief be granted against the adverse party.

Such relief may be granted:

(i) to prevent irreparable loss or injury;

(ii) to provide security for the performance of any obligation;

(iii) to produce or preserve any evidence; or

(iv) to compel any other appropriate act or omission.

(c) The order granting provisional relief may be conditioned upon the provision of
security or any act or omission specified in the order.

(d) Interim or provisional relief is requested by written application transmitted by

reasonable means to the Court or arbitral tribunal as the case may be and the party
against whom the relief is sought, describing in appropriate detail the precise relief, the
party against whom the relief is requested, the grounds for the relief, and the evidence
supporting the request.

(e) The order shall be binding upon the parties.

(f) Either party may apply with the Court for assistance in implementing or enforcing
an interim measure ordered by an arbitral tribunal.
 (g) A party who does not comply with the order shall be liable for all damages resulting
from noncompliance, including all expenses, and reasonable attorney's fees, paid in
obtaining the order’s judicial enforcement. (Emphasis ours.)

Art. 17(2) of the UNCITRAL Model Law on ICA defines an "interim measure" of protection as:

Article 17. Power of arbitral tribunal to order interim measures

xxx xxx xxx

(2) An interim measure is any temporary measure, whether in the form of an award
or in another form, by which, at any time prior to the issuance of the award by which
the dispute is finally decided, the arbitral tribunal orders a party to:

(a) Maintain or restore the status quo pending determination of the dispute;

(b) Take action that would prevent, or refrain from taking action that is likely to cause,
current or imminent harm or prejudice to the arbitral process itself;

(c) Provide a means of preserving assets out of which a subsequent award may be
satisfied; or

(d) Preserve evidence that may be relevant and material to the resolution of the dispute.

Art. 17 J of UNCITRAL Model Law on ICA also grants courts power and jurisdiction to issue
interim measures:

Article 17 J. Court-ordered interim measures

A court shall have the same power of issuing an interim measure in relation to
arbitration proceedings, irrespective of whether their place is in the territory of this
State, as it has in relation to proceedings in courts. The court shall exercise such power
in accordance with its own procedures in consideration of the specific features of
international arbitration.

In the recent 2006 case of Transfield Philippines, Inc. v. Luzon Hydro Corporation, we were
explicit that even "the pendency of an arbitral proceeding does not foreclose resort to the
courts for provisional reliefs." We explicated this way:

As a fundamental point, the pendency of arbitral proceedings does not foreclose resort
to the courts for provisional reliefs. The Rules of the ICC, which governs the parties’
arbitral dispute, allows the application of a party to a judicial authority for interim or
conservatory measures. Likewise, Section 14 of Republic Act (R.A.) No. 876 (The
Arbitration Law) recognizes the rights of any party to petition the court to take
measures to safeguard and/or conserve any matter which is the subject of the dispute in
arbitration. In addition, R.A. 9285, otherwise known as the "Alternative Dispute
Resolution Act of 2004," allows the filing of provisional or interim measures with the
regular courts whenever the arbitral tribunal has no power to act or to act effectively.50
It is thus beyond cavil that the RTC has authority and jurisdiction to grant interim measures
of protection.

Secondly, considering that the equipment and machineries are in the possession of PGSMC, it
has the right to protect and preserve the equipment and machineries in the best way it can.
Considering that the LPG plant was non-operational, PGSMC has the right to dismantle and
transfer the equipment and machineries either for their protection and preservation or for the
better way to make good use of them which is ineluctably within the management discretion
of PGSMC.

Thirdly, and of greater import is the reason that maintaining the equipment and machineries
in Worth’s property is not to the best interest of PGSMC due to the prohibitive rent while the
LPG plant as set-up is not operational. PGSMC was losing PhP322,560 as monthly rentals or
PhP3.87M for 1998 alone without considering the 10% annual rent increment in maintaining
the plant.

Fourthly, and corollarily, while the KCAB can rule on motions or petitions relating to the
preservation or transfer of the equipment and machineries as an interim measure, yet on
hindsight, the July 23, 1998 Order of the RTC allowing the transfer of the equipment and
machineries given the non-recognition by the lower courts of the arbitral clause, has accorded
an interim measure of protection to PGSMC which would otherwise been irreparably
damaged.

Fifth, KOGIES is not unjustly prejudiced as it has already been paid a substantial amount
based on the contract. Moreover, KOGIES is amply protected by the arbitral action it has
instituted before the KCAB, the award of which can be enforced in our jurisdiction through
the RTC. Besides, by our decision, PGSMC is compelled to submit to arbitration pursuant to
the valid arbitration clause of its contract with KOGIES.

PGSMC to preserve the subject equipment and machineries

Finally, while PGSMC may have been granted the right to dismantle and transfer the subject
equipment and machineries, it does not have the right to convey or dispose of the same
considering the pending arbitral proceedings to settle the differences of the parties. PGSMC
therefore must preserve and maintain the subject equipment and machineries with the
diligence of a good father of a family51 until final resolution of the arbitral proceedings and
enforcement of the award, if any.

WHEREFORE, this petition is PARTLY GRANTED, in that:

(1) The May 30, 2000 CA Decision in CA-G.R. SP No. 49249 is REVERSED and SET
ASIDE;

(2) The September 21, 1998 and October 19, 1998 RTC Orders in Civil Case No. 98-117
are REVERSED and SET ASIDE;

(3) The parties are hereby ORDERED to submit themselves to the arbitration of their
dispute and differences arising from the subject Contract before the KCAB; and
(4) PGSMC is hereby ALLOWED to dismantle and transfer the equipment and machineries,
if it had not done so, and ORDERED to preserve and maintain them until the finality of
whatever arbitral award is given in the arbitration proceedings.

No pronouncement as to costs.

SO ORDERED.
 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 complaint 42 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.
G.R. No. 161957 February 28, 2005

JORGE GONZALES and PANEL OF ARBITRATORS, petitioners,

vs.
CLIMAX MINING LTD., CLIMAX-ARIMCO MINING CORP., and AUSTRALASIAN
PHILIPPINES MINING INC.,respondents.

DECISION

TINGA, J.:

Petitioner Jorge Gonzales, as claimowner of mineral deposits located within the Addendum
Area of Influence in Didipio, in the provinces of Quirino and Nueva Vizcaya, entered into a co-
production, joint venture and/or production-sharing letter-agreement designated as the May
14, 1987 Letter of Intent with Geophilippines, Inc, and Inmex Ltd. Under the agreement,
petitioner, as claimowner, granted to Geophilippines, Inc. and Inmex Ltd. collectively, the
exclusive right to explore and survey the mining claims for a period of thirty-six (36) months
within which the latter could decide to take an operating agreement on the mining claims
and/or develop, operate, mine and otherwise exploit the mining claims and market any and
all minerals that may be derived therefrom.

On 28 February 1989, the parties to the May 14, 1987 Letter of Intent renegotiated the same
into the February 28, 1989 Agreement whereby the exploration of the mining claims was
extended for another period of three years.

On 9 March 1991, petitioner Gonzales, Arimco Mining Corporation, Geophilippines Inc.,

Inmex Ltd., and Aumex Philippines, Inc. signed a document designated as the Addendum to
the May 14, 1987 Letter of Intent and February 28, 1989 Agreement with Express Adhesion
Thereto (hereafter, the Addendum Contract).1 Under the Addendum Contract, Arimco Mining
Corporation would apply to the Government of the Philippines for permission to mine the
claims as the Government’s contractor under a Financial and Technical Assistance
Agreement (FTAA). On 20 June 1994, Arimco Mining Corporation obtained the FTAA2 and
carried out work under the FTAA.

Respondents executed the Operating and Financial Accommodation Contract3 (between

Climax-Arimco Mining Corporation and Climax Mining Ltd., as first parties, and Australasian
Philippines Mining Inc., as second party) dated 23 December 1996 and Assignment,
Accession Agreement4 (between Climax-Arimco Mining Corporation and Australasian
Philippines Mining Inc.) dated 3 December 1996. Respondent Climax Mining Corporation
(Climax) and respondent Australasian Philippines Mining Inc. (APMI) entered into
a Memorandum of Agreement5 dated 1 June 1991 whereby the former transferred its FTAA to
the latter.

On 8 November 1999, petitioner Gonzales filed before the Panel of Arbitrators, Region II,
Mines and Geosciences Bureau of the Department of Environment and Natural Resources,
against respondents Climax-Arimco Mining Corporation (Climax-Arimco), Climax, and
APMI,6 a Complaint7 seeking the declaration of nullity or termination of the Addendum
Contract, the FTAA, the Operating and Financial Accommodation Contract, the Assignment,
Accession Agreement, and the Memorandum of Agreement. Petitioner Gonzales prayed for
an unspecified amount of actual and exemplary damages plus attorney’s fees and for the
issuance of a temporary restraining order and/or writ of preliminary injunction to restrain or
enjoin respondents from further implementing the questioned agreements. He sought said
releifs on the grounds of "FRAUD, OPPRESSION and/or VIOLATION of Section 2, Article XII
of the CONSTITUTION perpetrated by these foreign RESPONDENTS, conspiring and
confederating with one another and with each other…."8

On 21 February 2001, the Panel of Arbitrators dismissed the Complaint for lack of
jurisdiction. Petitioner moved for reconsideration and this was granted on 18 October 2001,
the Panel believing that the case involved a dispute involving rights to mining areas and a
dispute involving surface owners, occupants and claim owners/concessionaires. According to
the Panel, although the issue raised in the Complaint appeared to be purely civil in nature and
should be within the jurisdiction of the regular courts, a ruling on the validity of the assailed
contracts would result to the grant or denial of mining rights over the properties; therefore,
the question on the validity of the contract amounts to a mining conflict or dispute. Hence, the
Panel granted the Motion for Reconsideration with regard to the issues of nullity,
termination, withdrawal or damages, but with regard to the constitutionality of
the Addendum Agreement and FTAA, it held that it had no jurisdiction.9

Respondents filed their motion for reconsideration but this was denied on 25 June 2002. The
Panel of Arbitrators maintained that there was a mining dispute between the parties since the
subject matter of the Complaint arose from contracts between the parties which involve the
exploration and exploitation of minerals over the disputed area.10

Respondents assailed the orders of the Panel of Arbitrators via a petition for certiorari before
the Court of Appeals.1ªvvphi1.nét

On 30 July 2003, the Court of Appeals granted the petition, declaring that the Panel of
Arbitrators did not have jurisdiction over the complaint filed by petitioner.11 The jurisdiction
of the Panel of Arbitrators, said the Court of Appeals, is limited only to the resolution of
mining disputes, defined as those which raise a question of fact or matter requiring the
technical knowledge and experience of mining authorities. It was found that the complaint
alleged fraud, oppression and violation of the Constitution, which called for the interpretation
and application of laws, and did not involve any mining dispute. The Court of Appeals also
observed that there were no averments relating to particular acts constituting fraud and
oppression. It added that since the Addendum Contract was executed in 1991, the action to
annul it should have been brought not later than 1995, as the prescriptive period for an action
for annulment is four years from the time of the discovery of the fraud.12 When petitioner filed
his complaint before the Panel in 1999, his action had already prescribed. Also, the Court of
Appeals noted that fraud and duress only make a contract voidable,13 not inexistent, hence the
contract remains valid until annulled. The Court of Appeals was of the opinion that the
petition should have been settled through arbitration under Republic Act No. 876 (The
Arbitration Law) as stated in Clause 19.1 of the Addendum Contract. The Court of Appeals
therefore declared as invalid the orders dated 18 October 2001 and 25 June 2002 issued by
the Panel of Arbitrators. On 28 January 2004, the Court of Appeals denied petitioner’s motion
for reconsideration for lack of merit.14
Petitioner filed on 22 March 2004 this Petition for Review on Certiorari Under Rule
45 assailing the decision and resolution of the Court of Appeals. Petitioner raises the following
issues:

A. PROCEDURAL GROUND

THE HONORABLE COURT OF APPEALS SHOULD HAVE SUMMARILY DISMISSED

RESPONDENTS’ PETITION A QUO FOR FAILURE TO COMPLY WITH PROCEDURAL
REQUIREMENTS.

I.

WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE

RULES AND ESTABLISHED JURISPRUDENCE WHEN IT DID NOT DISMISS THE
PETITION A QUODESPITE RESPONDENTS’ FAILURE TO COMPLY WITH THE
RULES ON DISCLOSURE IN THE "VERIFICATION AND CERTIFICATION"
PORTION OF THEIR PETITION A QUO.

II.

WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE RULES AND
ESTABLISHED JURISPRUDENCE WHEN IT DID NOT DISMISS THE PETITION A
QUO FILED BY RESPONDENT CLIMAX DESPITE THE LACK OF THE REQUISITE
AUTHORITY TO FILE THE PETITION A QUO.

B. SUBSTANTIVE GROUND

THE HONORABLE COURT OF APPEALS ERRED IN GRANTING THE PETITION A QUO

FILED BY RESPONDENTS AND IN DENYING MOTION FOR RECONSIDERATION FILED
BY PETITIONER FOR UTTER LACK OF BASIS IN FACT AND IN LAW.

I.

WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE

RULES AND ESTABLISHED JURISPRUDENCE WHEN IT HELD THAT PETITIONER
CEDED HIS CLAIMS OVER THE MINERAL DEPOSITS LOCATED WITHIN THE
ADDENDUM AREA OF INFLUENCE.

II.

WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE

RULES AND ESTABLISHED JURISPRUDENCE WHEN IT HELD THAT THE PANEL
OF ARBITRATORS IS BEREFT OF JURISDICTION OVER THE SUBJECT MATTER
OF CASE NO. 058.

III.

WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE

RULES AND ESTABLISHED JURISPRUDENCE WHEN IT HELD THAT THE
 COMPLAINT FILED BY THE PETITIONER FAILED TO ALLEGE ULTIMATE FACTS
OR PARTICULARS OF FRAUD.

IV.

WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE

RULES AND ESTABLISHED JURISPRUDENCE WHEN IT HELD THAT PETITIONER
AND RESPONDENTS SHOULD SUBMIT TO ARBITRATION UNDER R.A. 876.

V.

WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE

RULES AND ESTABLISHED JURISPRUDENCE WHEN IT HELD THAT THE ACTION
TO DECLARE THE NULLITY OF THE ADDENDUM CONTRACT, FTAA, OFAC AND
AAAA ON THE GROUND OF FRAUD HAS PRESCRIBED.

The issues for resolution in this petition for review are:

(a) Whether there was forum-shopping on the part of respondents for their failure to
disclose to this Court their filing of a Petition to Compel for Arbitration before the
Regional Trial Court of Makati City, Branch 148, which is currently pending.

(b) Whether counsel for respondent Climax had authority to file the petition for
certiorari before the Court of Appeals considering that the signor of the petition for
certiorari’s Verification and Certification of Non-forum Shopping was not authorized to
sign the same in behalf of respondent Climax.

(c) Whether the complaint filed by petitioner raises a mining dispute over which the
Panel of Arbitrators has jurisdiction, or a judicial question which should properly be
brought before the regular courts.

(d) Whether the dispute between the parties should be brought for arbitration under
Rep. Act No. 876.

Let us deal first with procedural matters.

Petitioner claims that respondents are guilty of forum-shopping for failing to disclose before
this Court that they had filed a Petition to Compel for Arbitration before the RTC of Makati
City. However, it cannot be determined from petitioner’s mere allegations in the Petition that
the Petition to Compel for Arbitration instituted by respondent Climax-Arimco, involves
related causes of action and the grant of the same or substantially the same reliefs as those
involved in the instant case. Petitioner did not attach copies of the Petition to Compel for
Arbitration or any order or resolution of the RTC of Makati City related to that case.

Furthermore, it can be gleaned from the nature of the two actions that the issues in the case
before the RTC of Makati City and in the petition for certiorari before the Court of Appeals are
different. A petition for certiorari raises the issue of whether or not there was grave abuse of
discretion, while the Petition to Compel for Arbitration seeks the implementation of the
arbitration clause in the agreement between the parties.
Petitioner next alleges that there was no authority granted by respondent Climax to the law
firm of Sycip Salazar Hernandez & Gatmaitan to file the petition before the Court of Appeals.
There is allegedly no Secretary’s Certificate from respondent Climax attached to the petition.
The Verification and Certification only contains a statement made by one Marianne M.
Manzanas that she is "also the authorized representative of [respondent Climax]" without
presenting further proof of such authority. Hence, it is argued that as to respondent Climax,
the petition filed before the Court of Appeals is an unauthorized act and the assailed orders of
the Panel of Arbitrators have become final.

Under Section 3, Rule 46 of the Rules of Court, a petitioner is required to submit, together
with the petition, a sworn certification of non-forum shopping, and failure to comply with this
requirement is sufficient ground for dismissal of the petition. The requirement that petitioner
should sign the certificate of non-forum shopping applies even to corporations, the Rules of
Court making no distinction between natural and juridical persons. The signatory in the case
of the corporation should be "a duly authorized director or officer of the corporation" who has
knowledge of the matter being certified.15 If, as in this case, the petitioner is a corporation, a
board resolution authorizing a corporate officer to execute the certification against forum-
shopping is necessary. A certification not signed by a duly authorized person renders the
petition subject to dismissal.16

On this point, we have to agree with petitioner.l^vvphi1.net There appears to be no

subsequent compliance with the requirement to attach a board resolution authorizing the
signor Marianne M. Manzanas to file the petition in behalf of respondent Climax. Respondent
also failed to refute this in its Comment.17 However, this latter issue becomes irrelevant in the
light of our decision to deny this petition for review for lack of jurisdiction by the Panel of
Arbitrators over the complaint filed by petitioner, as will be discussed below.

We now come to the meat of the case which revolves mainly around the question of
jurisdiction by the Panel of Arbitrators: Does the Panel of Arbitrators have jurisdiction over
the complaint for declaration of nullity and/or termination of the subject contracts on the
ground of fraud, oppression and violation of the Constitution? This issue may be distilled into
the more basic question of whether the Complaint raises a mining dispute or a judicial
question.

A judicial question is a question that is proper for determination by the courts, as opposed to a
moot question or one properly decided by the executive or legislative branch.18 A judicial
question is raised when the determination of the question involves the exercise of a judicial
function; that is, the question involves the determination of what the law is and what the legal
rights of the parties are with respect to the matter in controversy.19 1a\^/phi1.net

On the other hand, a mining dispute is a dispute involving (a) rights to mining areas, (b)
mineral agreements, FTAAs, or permits, and (c) surface owners, occupants and
claimholders/concessionaires.20 Under Republic Act No. 7942 (otherwise known as the
Philippine Mining Act of 1995), the Panel of Arbitrators has exclusive and original jurisdiction
to hear and decide these mining disputes.21 The Court of Appeals, in its questioned decision,
correctly stated that the Panel’s jurisdiction is limited only to those mining disputes which
raise questions of fact or matters requiring the application of technological knowledge and
experience.22
In Pearson v. Intermediate Appellate Court,23 this Court observed that the trend has been to
make the adjudication of mining cases a purely administrative matter.24 Decisions25 of the
Supreme Court on mining disputes have recognized a distinction between (1) the primary
powers granted by pertinent provisions of law to the then Secretary of Agriculture and Natural
Resources (and the bureau directors) of an executive or administrative nature, such as
granting of license, permits, lease and contracts, or approving, rejecting, reinstating or
canceling applications, or deciding conflicting applications, and (2) controversies or
disagreements of civil or contractual nature between litigants which are questions of a judicial
nature that may be adjudicated only by the courts of justice. This distinction is carried on even
in Rep. Act No. 7942.

The Complaint charged respondents with disregarding and ignoring the provisions of
the Addendum Contract, violating the purpose and spirit of the May 14, 1987 Letter of
Intent and February 28, 1989 Agreement, and acting in a fraudulent and oppressive manner
against petitioner and practicing fraud and deception against the Government.26 Petitioner
alleged in his Complaint that under the original agreements (the May 14, 1987 Letter of
Intent and February 28, 1989 Agreement) respondent Climax-Arimco had committed to
complete the Bankable Feasibility Study by 28 February 1992, but the same was not
accomplished. Instead, respondent Climax-Arimco, through false and insidious
representations and machinations by alleging technical and financial capacity, induced
petitioner to enter into the Addendum Contract and the FTAA in order to repeatedly extend
the option period within which to conduct the feasibility study. In essence, petitioner alleges
that respondents, conspiring and confederating with one another, misrepresented under
the Addendum Contract and FTAA that respondent Climax-Arimco possessed financial and
technical capacity to put the project into commercial production, when in truth it had no such
qualification whatsoever to do so. By so doing, respondents have allegedly caused damage not
only to petitioner but also to the Republic of the Philippines.27

It is apparent that the Panel of Arbitrators is bereft of jurisdiction over the Complaint filed by
petitioner. The basic issue in petitioner’s Complaint is the presence of fraud or
misrepresentation allegedly attendant to the execution of the Addendum Contract and the
other contracts emanating from it, such that the contracts are rendered invalid and not
binding upon the parties. It avers that petitioner was misled by respondents into agreeing to
the Addendum Contract. This constitutes fraud which vitiated petitioner’s consent, and under
Article 1390 of the Civil Code, is one of the grounds for the annulment of a voidable contract.
Voidable or annullable contracts, before they are set aside, are existent, valid, and binding,
and are effective and obligatory between the parties.28 They can be ratified.29

Petitioner insists that the Complaint is actually one for the declaration of nullity of void
contracts. He argues that respondents, by their lack of financial and technical competence to
carry out the mining project, do not qualify to enter into a co-production, joint venture or
production sharing agreement with the Government, in circumvention of and in patent
violation of the spirit and purpose of the Constitution, particularly Section 2, Article XII
thereof. Petitioner relies on the Civil Code for support:30

Art. 1409. The following contracts are inexistent and void from the beginning:

(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public
order or public policy;
 ....

(7) Those expressly prohibited or declared void by law.

....

Petitioner asserts that for circumventing and being in patent violation of the Constitution,
the Addendum Contract, the FTAA and the other contracts are void contracts. As such, they
do not produce any effect and cannot be ratified.

However, whether the case involves void or voidable contracts is still a judicial question. It
may, in some instances, involve questions of fact especially with regard to the determination
of the circumstances of the execution of the contracts. But the resolution of the validity or
voidness of the contracts remains a legal or judicial question as it requires the exercise of
judicial function. It requires the ascertainment of what laws are applicable to the dispute, the
interpretation and application of those laws, and the rendering of a judgment based thereon.
Clearly, the dispute is not a mining conflict. It is essentially judicial. The complaint was not
merely for the determination of rights under the mining contracts since the very validity of
those contracts is put in issue.

The Complaint is not about a dispute involving rights to mining areas, nor is it a dispute
involving claimholders or concessionaires. The main question raised was the validity of
the Addendum Contract, the FTAA and the subsequent contracts. The question as to the
rights of petitioner or respondents to the mining area pursuant to these contracts, as well as
the question of whether or not petitioner had ceded his mining claims in favor of respondents
by way of execution of the questioned contracts, is merely corollary to the main issue, and
may not be resolved without first determining the main issue.

The Complaint is also not what is contemplated by Rep. Act No. 7942 when it says the dispute
should involve FTAAs. The Complaint is not exclusively within the jurisdiction of the Panel of
Arbitrators just because, or for as long as, the dispute involves an FTAA.
The Complaint raised the issue of the constitutionality of the FTAA, which is definitely a
judicial question. The question of constitutionality is exclusively within the jurisdiction of the
courts to resolve as this would clearly involve the exercise of judicial power. The Panel of
Arbitrators does not have jurisdiction over such an issue since it does not involve the
application of technical knowledge and expertise relating to mining. This the Panel of
Arbitrators has even conceded in its Orders dated 18 October 2001 and 25 June 2002. At this
juncture, it is worthy of note that in a case,31 which was resolved only on 1 December 2004,
this Court upheld the validity of the FTAA entered into by the Republic of the Philippines and
WMC (Philippines), Inc. and constitutionality of Rep. Act No. 7942 and DENR Administrative
Order 96-40.32 In fact, the Court took the case on an original petition, recognizing "the
exceptional character of the situation and the paramount public interest involved, as well as
the necessity for a ruling to put an end to the uncertainties plaguing the mining industry and
the affected communities as a result of doubts case upon the constitutionality and validity of
the Mining Act, the subject FTAA and future FTAAs, and the need to avert a multiplicity of
suits."33

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.

Petitioner also disagrees with the Court of Appeals’ ruling that the case should be brought for
arbitration under Rep. Act 876, pursuant to the arbitration clause in the Addendum
Contract which states that "[a]ll disputes arising out of or in connection with the Contract,
which cannot be settled amicably among the Parties, shall finally be settled under R.A. 876."
He points out that respondents Climax and APMI are not parties to the Addendum
Contract and are thus not bound by the arbitration clause in said contract.

We agree that the case should not be brought under the ambit of the Arbitration Law, but for a
different reason. The question of validity of the contract containing the agreement to submit
to arbitration will affect the applicability of the arbitration clause itself. A party cannot rely on
the contract and claim rights or obligations under it and at the same time impugn its existence
or validity. Indeed, litigants are enjoined from taking inconsistent positions. As previously
discussed, the complaint should have been filed before the regular courts as it involved issues
which are judicial in nature.

WHEREFORE, in view of the foregoing, the Petition for Review on Certiorari Under Rule
45 is DENIED. The Orders dated 18 October 2001 and 25 June 2002 of the Panel of
Arbitrators are SET ASIDE. Costs against petitioner Jorge Gonzales.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 175404 January 31, 2011

CARGILL PHILIPPINES, INC., Petitioner,

vs.
SAN FERNANDO REGALA TRADING, INC., Respondent.

DECISION

PERALTA, J.:

Before us is a petition for review on certiorari seeking to reverse and set aside the
Decision1 dated July 31, 2006 and the Resolution2 dated November 13, 2006 of the Court of
Appeals (CA) in CA G.R. SP No. 50304.

The factual antecedents are as follows:

On June 18, 1998, respondent San Fernando Regala Trading, Inc. filed with the Regional Trial
Court (RTC) of Makati City a Complaint for Rescission of Contract with Damages 3 against
petitioner Cargill Philippines, Inc. In its Complaint, respondent alleged that it was engaged in
buying and selling of molasses and petitioner was one of its various sources from whom it
purchased molasses. Respondent alleged that it entered into a contract dated July 11, 1996
with petitioner, wherein it was agreed upon that respondent would purchase from petitioner
12,000 metric tons of Thailand origin cane blackstrap molasses at the price of US$192 per
metric ton; that the delivery of the molasses was to be made in January/February 1997 and
payment was to be made by means of an Irrevocable Letter of Credit payable at sight, to be
opened by September 15, 1996; that sometime prior to September 15, 1996, the parties agreed
that instead of January/February 1997, the delivery would be made in April/May 1997 and
that payment would be by an Irrevocable Letter of Credit payable at sight, to be opened upon
petitioner's advice. Petitioner, as seller, failed to comply with its obligations under the
contract, despite demands from respondent, thus, the latter prayed for rescission of the
contract and payment of damages.

On July 24, 1998, petitioner filed a Motion to Dismiss/Suspend Proceedings and To Refer
Controversy to Voluntary Arbitration,4 wherein it argued that the alleged contract between the
parties, dated July 11, 1996, was never consummated because respondent never returned the
proposed agreement bearing its written acceptance or conformity nor did respondent open
the Irrevocable Letter of Credit at sight. Petitioner contended that the controversy between
the parties was whether or not the alleged contract between the parties was legally in
existence and the RTC was not the proper forum to ventilate such issue. It claimed that the
contract contained an arbitration clause, to wit:

ARBITRATION
Any dispute which the Buyer and Seller may not be able to settle by mutual agreement shall be
settled by arbitration in the City of New York before the American Arbitration Association.
The Arbitration Award shall be final and binding on both parties.5

that respondent must first comply with the arbitration clause before resorting to court, thus,
the RTC must either dismiss the case or suspend the proceedings and direct the parties to
proceed with arbitration, pursuant to Sections 66 and 77 of Republic Act (R.A.) No. 876, or the
Arbitration Law.

Respondent filed an Opposition, wherein it argued that the RTC has jurisdiction over the
action for rescission of contract and could not be changed by the subject arbitration clause. It
cited cases wherein arbitration clauses, such as the subject clause in the contract, had been
struck down as void for being contrary to public policy since it provided that the arbitration
award shall be final and binding on both parties, thus, ousting the courts of jurisdiction.

In its Reply, petitioner maintained that the cited decisions were already inapplicable, having
been rendered prior to the effectivity of the New Civil Code in 1950 and the Arbitration Law in
1953.

In its Rejoinder, respondent argued that the arbitration clause relied upon by petitioner is
invalid and unenforceable, considering that the requirements imposed by the provisions of
the Arbitration Law had not been complied with.

By way of Sur-Rejoinder, petitioner contended that respondent had even clarified that the
issue boiled down to whether the arbitration clause contained in the contract subject of the
complaint is valid and enforceable; that the arbitration clause did not violate any of the cited
provisions of the Arbitration Law.

On September 17, 1998, the RTC rendered an Order,8 the dispositive portion of which reads:

Premises considered, defendant's "Motion To Dismiss/Suspend Proceedings and To Refer

Controversy To Voluntary Arbitration" is hereby DENIED. Defendant is directed to file its
answer within ten (10) days from receipt of a copy of this order.9

In denying the motion, the RTC found that there was no clear basis for petitioner's plea to
dismiss the case, pursuant to Section 7 of the Arbitration Law. The RTC said that the
provision directed the court concerned only to stay the action or proceeding brought upon an
issue arising out of an agreement providing for the arbitration thereof, but did not impose the
sanction of dismissal. However, the RTC did not find the suspension of the proceedings
warranted, since the Arbitration Law contemplates an arbitration proceeding that must be
conducted in the Philippines under the jurisdiction and control of the RTC; and before an
arbitrator who resides in the country; and that the arbitral award is subject to court approval,
disapproval and modification, and that there must be an appeal from the judgment of the
RTC. The RTC found that the arbitration clause in question contravened these
procedures, i.e., the arbitration clause contemplated an arbitration proceeding in New York
before a non-resident arbitrator (American Arbitration Association); that the arbitral award
shall be final and binding on both parties. The RTC said that to apply Section 7 of the
Arbitration Law to such an agreement would result in disregarding the other sections of the
same law and rendered them useless and mere surplusages.
Petitioner filed its Motion for Reconsideration, which the RTC denied in an Order10 dated
November 25, 1998.

Petitioner filed a petition for certiorari with the CA raising the sole issue that the RTC acted in
excess of jurisdiction or with grave abuse of discretion in refusing to dismiss or at least
suspend the proceedings a quo, despite the fact that the party's agreement to arbitrate had not
been complied with.

Respondent filed its Comment and Reply. The parties were then required to file their
respective Memoranda.

On July 31, 2006, the CA rendered its assailed Decision denying the petition and affirming the
RTC Orders.

In denying the petition, the CA found that stipulation providing for arbitration in contractual
obligation is both valid and constitutional; that arbitration as an alternative mode of dispute
resolution has long been accepted in our jurisdiction and expressly provided for in the Civil
Code; that R.A. No. 876 (the Arbitration Law) also expressly authorized the arbitration of
domestic disputes. The CA found error in the RTC's holding that Section 7 of R.A. No. 876 was
inapplicable to arbitration clause simply because the clause failed to comply with the
requirements prescribed by the law. The CA found that there was nothing in the Civil Code, or
R.A. No. 876, that require that arbitration proceedings must be conducted only in the
Philippines and the arbitrators should be Philippine residents. It also found that the RTC
ruling effectively invalidated not only the disputed arbitration clause, but all other agreements
which provide for foreign arbitration. The CA did not find illegal or against public policy the
arbitration clause so as to render it null and void or ineffectual.

Notwithstanding such findings, the CA still held that the case cannot be brought under the
Arbitration Law for the purpose of suspending the proceedings before the RTC, since in its
Motion to Dismiss/Suspend proceedings, petitioner alleged, as one of the grounds thereof,
that the subject contract between the parties did not exist or it was invalid; that the said
contract bearing the arbitration clause was never consummated by the parties, thus, it was
proper that such issue be first resolved by the court through an appropriate trial; that the
issue involved a question of fact that the RTC should first resolve. Arbitration is not proper
when one of the parties repudiated the existence or validity of the contract.

Petitioner's motion for reconsideration was denied in a Resolution dated November 13, 2006.

Hence, this petition.

Petitioner alleges that the CA committed an error of law in ruling that arbitration cannot
proceed despite the fact that: (a) it had ruled, in its assailed decision, that the arbitration
clause is valid, enforceable and binding on the parties; (b) the case of Gonzales v. Climax
Mining Ltd.11 is inapplicable here; (c) parties are generally allowed, under the Rules of Court,
to adopt several defenses, alternatively or hypothetically, even if such

defenses are inconsistent with each other; and (d) the complaint filed by respondent with the
trial court is premature.
Petitioner alleges that the CA adopted inconsistent positions when it found the arbitration
clause between the parties as valid and enforceable and yet in the same breath decreed that
the arbitration cannot proceed because petitioner assailed the existence of the entire
agreement containing the arbitration clause. Petitioner claims the inapplicability of the
cited Gonzales case decided in 2005, because in the present case, it was respondent who had
filed the complaint for rescission and damages with the RTC, which based its cause of action
against petitioner on the alleged agreement dated July 11, 2006 between the parties; and that
the same agreement contained the arbitration clause sought to be enforced by petitioner in
this case. Thus, whether petitioner assails the genuineness and due execution of the
agreement, the fact remains that the agreement sued upon provides for an arbitration clause;
that respondent cannot use the provisions favorable to him and completely disregard those
that are unfavorable, such as the arbitration clause.

Petitioner contends that as the defendant in the RTC, it presented two alternative
defenses, i.e., the parties had not entered into any agreement upon which respondent as
plaintiff can sue upon; and, assuming that such agreement existed, there was an arbitration
clause that should be enforced, thus, the dispute must first be submitted to arbitration before
an action can be instituted in court. Petitioner argues that under Section 1(j) of Rule 16 of the
Rules of Court, included as a ground to dismiss a complaint is when a condition precedent for
filing the complaint has not been complied with; and that submission to arbitration when
such has been agreed upon is one such condition precedent. Petitioner submits that the
proceedings in the RTC must be dismissed, or at least suspended, and the parties be ordered
to proceed with arbitration.

On March 12, 2007, petitioner filed a Manifestation12 saying that the CA's rationale in
declining to order arbitration based on the 2005 Gonzales ruling had been modified upon a
motion for reconsideration decided in 2007; that the CA decision lost its legal basis, because it
had been ruled that the arbitration agreement can be implemented notwithstanding that one
of the parties thereto repudiated the contract which contained such agreement based on the
doctrine of separability.

In its Comment, respondent argues that certiorari under Rule 65 is not the remedy against an
order denying a Motion to Dismiss/Suspend Proceedings and To Refer Controversy to
Voluntary Arbitration. It claims that the Arbitration Law which petitioner invoked as basis for
its Motion prescribed, under its Section 29, a remedy, i.e., appeal by a petition for review
on certiorari under Rule 45. Respondent contends that the Gonzales case, which was decided
in 2007, is inapplicable in this case, especially as to the doctrine of separability enunciated
therein. Respondent argues that even if the existence of the contract and the arbitration clause
is conceded, the decisions of the RTC and the CA declining referral of the dispute between the
parties to arbitration would still be correct. This is so because respondent's complaint filed in
Civil Case No. 98-1376 presents the principal issue of whether under the facts alleged in the
complaint, respondent is entitled to rescind its contract with petitioner and for the latter to
pay damages; that such issue constitutes a judicial question or one that requires the exercise
of judicial function and cannot be the subject of arbitration.

Respondent contends that Section 8 of the Rules of Court, which allowed a defendant to adopt
in the same action several defenses, alternatively or hypothetically, even if such defenses are
inconsistent with each other refers to allegations in the pleadings, such as complaint,
counterclaim, cross-claim, third-party complaint, answer, but not to a motion to dismiss.
Finally, respondent claims that petitioner's argument is premised on the existence of a
contract with respondent containing a provision for arbitration. However, its reliance on the
contract, which it repudiates, is inappropriate.

In its Reply, petitioner insists that respondent filed an action for rescission and damages on
the basis of the contract, thus, respondent admitted the existence of all the provisions
contained thereunder, including the arbitration clause; that if respondent relies on said
contract for its cause of action against petitioner, it must also consider itself bound by the rest
of the terms and conditions contained thereunder notwithstanding that respondent may find
some provisions to be adverse to its position; that respondent’s citation of the Gonzales case,
decided in 2005, to show that the validity of the contract cannot be the subject of the
arbitration proceeding and that it is the RTC which has the jurisdiction to resolve the situation
between the parties herein, is not correct since in the resolution of the Gonzales' motion for
reconsideration in 2007, it had been ruled that an arbitration agreement is effective
notwithstanding the fact that one of the parties thereto repudiated the main contract which
contained it.

We first address the procedural issue raised by respondent that petitioner’s petition
for certiorari under Rule 65 filed in the CA against an RTC Order denying a Motion to
Dismiss/Suspend Proceedings and to Refer Controversy to Voluntary Arbitration was a wrong
remedy invoking Section 29 of R.A. No. 876, which provides:

Section 29.

x x x An appeal may be taken from an order made in a proceeding under this Act, or from a
judgment entered upon an award through certiorari proceedings, but such appeals shall be
limited to question of law. x x x.

To support its argument, respondent cites the case of Gonzales v. Climax Mining
Ltd.13 (Gonzales case), wherein we ruled the impropriety of a petition for certiorari under
Rule 65 as a mode of appeal from an RTC Order directing the parties to arbitration.

We find the cited case not in point.

In the Gonzales case, Climax-Arimco filed before the RTC of Makati a petition to compel
arbitration under R.A. No. 876, pursuant to the arbitration clause found in the Addendum
Contract it entered with Gonzales. Judge Oscar Pimentel of the RTC of Makati then directed
the parties to arbitration proceedings. Gonzales filed a petition for certiorari with Us
contending that Judge Pimentel acted with grave abuse of discretion in immediately ordering
the parties to proceed with arbitration despite the proper, valid and timely raised argument in
his Answer with counterclaim that the Addendum Contract containing the arbitration clause
was null and void. Climax-Arimco assailed the mode of review availed of by Gonzales, citing
Section 29 of R.A. No. 876 contending that certiorariunder Rule 65 can be availed of only if
there was no appeal or any adequate remedy in the ordinary course of law; that R.A. No. 876
provides for an appeal from such order. We then ruled that Gonzales' petition
for certiorari should be dismissed as it was filed in lieu of an appeal by certiorari which was
the prescribed remedy under R.A. No. 876 and the petition was filed far beyond the
reglementary period.
We found that Gonzales’ petition for certiorari raises a question of law, but not a question of
jurisdiction; that Judge Pimentel acted in accordance with the procedure prescribed in R.A.
No. 876 when he ordered Gonzales to proceed with arbitration and appointed a sole arbitrator
after making the determination that there was indeed an arbitration agreement. It had been
held that as long as a court acts within its jurisdiction and does not gravely abuse its
discretion in the exercise thereof, any supposed error committed by it will amount to nothing
more than an error of judgment reviewable by a timely appeal and not assailable by a special
civil action of certiorari.14

In this case, petitioner raises before the CA the issue that the respondent Judge acted in
excess of jurisdiction or with grave abuse of discretion in refusing to dismiss, or at least
suspend, the proceedings a quo, despite the fact that the party’s agreement to arbitrate had
not been complied with. Notably, the RTC found the existence of the arbitration clause, since
it said in its decision that "hardly disputed is the fact that the arbitration clause in question
contravenes several provisions of the Arbitration Law x x x and to apply Section 7 of the
Arbitration Law to such an agreement would result in the disregard of the afore-cited sections
of the Arbitration Law and render them useless and mere surplusages." However,
notwithstanding the finding that an arbitration agreement existed, the RTC denied
petitioner's motion and directed petitioner to file an answer.

In La Naval Drug Corporation v. Court of Appeals,15 it was held that R.A. No. 876 explicitly
confines the court’s authority only to the determination of whether or not there is an
agreement in writing providing for arbitration. In the affirmative, the statute ordains that the
court shall issue an order summarily directing the parties to proceed with the arbitration in
accordance with the terms thereof. If the court, upon the other hand, finds that no such
agreement exists, the proceedings shall be dismissed.

In issuing the Order which denied petitioner's Motion to Dismiss/Suspend Proceedings and to
Refer Controversy to Voluntary Arbitration, the RTC went beyond its authority of determining
only the issue of whether or not there is an agreement in writing providing for arbitration by
directing petitioner to file an answer, instead of ordering the parties to proceed to arbitration.
In so doing, it acted in excess of its jurisdiction and since there is no plain, speedy, and
adequate remedy in the ordinary course of law, petitioner’s resort to a petition for certiorari is
the proper remedy.

We now proceed to the substantive issue of whether the CA erred in finding that this case
cannot be brought under the arbitration law for the purpose of suspending the proceedings in
the RTC.

We find merit in the petition.

Arbitration, as an alternative mode of settling disputes, has long been recognized and
accepted in our jurisdiction.16R.A. No. 87617 authorizes arbitration of domestic disputes.
Foreign arbitration, as a system of settling commercial disputes of an international character,
is likewise recognized.18 The enactment of R.A. No. 9285 on April 2, 2004 further
institutionalized the use of alternative dispute resolution systems, including arbitration, in the
settlement of disputes.19
A contract is required for arbitration to take place and to be binding.20 Submission to
arbitration is a contract 21 and a clause in a contract providing that all matters in dispute
between the parties shall be referred to arbitration is a contract.22 The provision to submit to
arbitration any dispute arising therefrom and the relationship of the parties is part of the
contract and is itself a contract.23

In this case, the contract sued upon by respondent provides for an arbitration clause, to wit:

ARBITRATION

Any dispute which the Buyer and Seller may not be able to settle by mutual agreement shall be
settled by arbitration in the City of New York before the American Arbitration Association,
The Arbitration Award shall be final and binding on both parties.

The CA ruled that arbitration cannot be ordered in this case, since petitioner alleged that the
contract between the parties did not exist or was invalid and arbitration is not proper when
one of the parties repudiates the existence or validity of the contract. Thus, said the CA:

Notwithstanding our ruling on the validity and enforceability of the assailed arbitration clause
providing for foreign arbitration, it is our considered opinion that the case at bench still
cannot be brought under the Arbitration Law for the purpose of suspending the proceedings
before the trial court. We note that in its Motion to Dismiss/Suspend Proceedings, etc,
petitioner Cargill alleged, as one of the grounds thereof, that the alleged contract between the
parties do not legally exist or is invalid. As posited by petitioner, it is their contention that the
said contract, bearing the arbitration clause, was never consummated by the parties. That
being the case, it is but proper that such issue be first resolved by the court through an
appropriate trial. The issue involves a question of fact that the trial court should first resolve.

Arbitration is not proper when one of the parties repudiates the existence or validity of the
contract. Apropos is Gonzales v. Climax Mining Ltd., 452 SCRA 607, (G.R.No.161957), where
the Supreme Court held that:

The question of validity of the contract containing the agreement to submit to

arbitration will affect the applicability of the arbitration clause itself. A party
cannot rely on the contract and claim rights or obligations under it and at the
same time impugn its existence or validity. Indeed, litigants are enjoined from
taking inconsistent positions....

Consequently, the petitioner herein cannot claim that the contract was never consummated
and, at the same time, invokes the arbitration clause provided for under the contract which it
alleges to be non-existent or invalid. Petitioner claims that private respondent's complaint
lacks a cause of action due to the absence of any valid contract between the parties.
Apparently, the arbitration clause is being invoked merely as a fallback position. The
petitioner must first adduce evidence in support of its claim that there is no valid contract
between them and should the court a quo find the claim to be meritorious, the parties may
then be spared the rigors and expenses that arbitration in a foreign land would surely entail. 24

However, the Gonzales case,25 which the CA relied upon for not ordering arbitration, had been
modified upon a motion for reconsideration in this wise:
x x x The adjudication of the petition in G.R. No. 167994 effectively modifies part
of the Decision dated 28 February 2005 in G.R. No. 161957. Hence, we now hold
that the validity of the contract containing the agreement to submit to
arbitration does not affect the applicability of the arbitration clause itself. A
contrary ruling would suggest that a party's mere repudiation of the main
contract is sufficient to avoid arbitration. That is exactly the situation that the
separability doctrine, as well as jurisprudence applying it, seeks to avoid. We add
that when it was declared in G.R. No. 161957 that the case should not be brought for
arbitration, it should be clarified that the case referred to is the case actually filed by Gonzales
before the DENR Panel of Arbitrators, which was for the nullification of the main contract on
the ground of fraud, as it had already been determined that the case should have been brought
before the regular courts involving as it did judicial issues.26

In so ruling that the validity of the contract containing the arbitration agreement does not
affect the applicability of the arbitration clause itself, we then applied the doctrine of
separability, thus:

The doctrine of separability, or severability as other writers call it, enunciates that an
arbitration agreement is independent of the main contract. The arbitration agreement is to be
treated as a separate agreement and the arbitration agreement does not automatically
terminate when the contract of which it is a part comes to an end.

The separability of the arbitration agreement is especially significant to the determination of

whether the invalidity of the main contract also nullifies the arbitration clause. Indeed, the
doctrine denotes that the invalidity of the main contract, also referred to as the "container"
contract, does not affect the validity of the arbitration agreement. Irrespective of the fact that
the main contract is invalid, the arbitration clause/agreement still remains valid and
enforceable.27

Respondent argues that the separability doctrine is not applicable in petitioner's case, since in
the Gonzales case, Climax-Arimco sought to enforce the arbitration clause of its contract with
Gonzales and the former's move was premised on the existence of a valid contract; while
Gonzales, who resisted the move of Climax-Arimco for arbitration, did not deny the existence
of the contract but merely assailed the validity thereof on the ground of fraud and oppression.
Respondent claims that in the case before Us, petitioner who is the party insistent on
arbitration also claimed in their Motion to Dismiss/Suspend Proceedings that the contract
sought by respondent to be rescinded did not exist or was not consummated; thus, there is no
room for the application of the separability doctrine, since there is no container or main
contract or an arbitration clause to speak of.

We are not persuaded.

Applying the Gonzales ruling, an arbitration agreement which forms part of the main contract
shall not be regarded as invalid or non-existent just because the main contract is invalid or did
not come into existence, since the arbitration agreement shall be treated as a separate
agreement independent of the main contract. To reiterate. a contrary ruling would suggest
that a party's mere repudiation of the main contract is sufficient to avoid arbitration and that
is exactly the situation that the separability doctrine sought to avoid. Thus, we find that even
the party who has repudiated the main contract is not prevented from enforcing its arbitration
clause.

Moreover, it is worthy to note that respondent filed a complaint for rescission of contract and
damages with the RTC. In so doing, respondent alleged that a contract exists between
respondent and petitioner. It is that contract which provides for an arbitration clause which
states that "any dispute which the Buyer and Seller may not be able to settle by mutual
agreement shall be settled before the City of New York by the American Arbitration
Association. The arbitration agreement clearly expressed the parties' intention that any
dispute between them as buyer and seller should be referred to arbitration. It is for the
arbitrator and not the courts to decide whether a contract between the parties exists or is
valid.

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.

In Gonzales, petitioner Gonzales filed a complaint before the Panel of Arbitrators, Region II,
Mines and Geosciences Bureau, of the Department of Environment and Natural Resources
(DENR) against respondents Climax- Mining Ltd, Climax-Arimco and Australasian
Philippines Mining Inc, seeking the declaration of nullity or termination of the addendum
contract and the other contracts emanating from it on the grounds of fraud and oppression.
The Panel dismissed the complaint for lack of jurisdiction. However, the Panel, upon
petitioner's motion for reconsideration, ruled that it had jurisdiction over the dispute
maintaining that it was a mining dispute, since the subject complaint arose from a contract
between the parties which involved the exploration and exploitation of minerals over the
disputed area.1âwphi1 Respondents assailed the order of the Panel of Arbitrators via a
petition for certiorari before the CA. The CA granted the petition and declared that the Panel
of Arbitrators did not have jurisdiction over the complaint, since its jurisdiction was limited to
the resolution of mining disputes, such as those which raised a question of fact or matter
requiring the technical knowledge and experience of mining authorities and not when the
complaint alleged fraud and oppression which called for the interpretation and application of
laws. The CA further ruled that the petition should have been settled through arbitration
under R.A. No. 876 − the Arbitration Law − as provided under the addendum contract.

On a review on certiorari, we affirmed the CA’s finding that the Panel of Arbitrators who,
under R.A. No. 7942 of the Philippine Mining Act of 1995, has exclusive and original
jurisdiction to hear and decide mining disputes, such as mining areas, mineral agreements,
FTAAs or permits and surface owners, occupants and claimholders/concessionaires, is bereft
of jurisdiction over the complaint for declaration of nullity of the addendum contract; thus,
the Panels' jurisdiction is limited only to those mining disputes which raised question of facts
or matters requiring the technical knowledge and experience of mining authorities. We then
said:

In Pearson v. Intermediate Appellate Court, this Court observed that the trend has been to
make the adjudication of mining cases a purely administrative matter. Decisions of the
Supreme Court on mining disputes have recognized a distinction between (1) the primary
powers granted by pertinent provisions of law to the then Secretary of Agriculture and Natural
Resources (and the bureau directors) of an executive or administrative nature, such as
granting of license, permits, lease and contracts, or approving, rejecting, reinstating or
canceling applications, or deciding conflicting applications, and (2) controversies or
disagreements of civil or contractual nature between litigants which are questions of a judicial
nature that may be adjudicated only by the courts of justice. This distinction is carried on even
in Rep. Act No. 7942.28

We found that since the complaint filed before the DENR Panel of Arbitrators charged
respondents with disregarding and ignoring the addendum contract, and acting in a
fraudulent and oppressive manner against petitioner, the complaint filed before the Panel was
not a dispute involving rights to mining areas, or was it a dispute involving claimholders or
concessionaires, but essentially judicial issues. We then said that the Panel of Arbitrators did
not have jurisdiction over such issue, since it does not involve the application of technical
knowledge and expertise relating to mining. It is in this context that we said that:

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.29

In fact, We even clarified in our resolution on Gonzales’ motion for reconsideration that
"when we declared that the case should not be brought for arbitration, it should be clarified
that the case referred to is the case actually filed by Gonzales before the DENR Panel of
Arbitrators, which was for the nullification of the main contract on the ground of fraud, as it
had already been determined that the case should have been brought before the regular courts
involving as it did judicial issues." We made such clarification in our resolution of the motion
for reconsideration after ruling that the parties in that case can proceed to arbitration under
the Arbitration Law, as provided under the Arbitration Clause in their Addendum Contract.

WHEREFORE, the petition is GRANTED. The Decision dated July 31, 2006 and the
Resolution dated November 13, 2006 of the Court of Appeals in CA-G.R. SP No. 50304
are REVERSED and SET ASIDE. The parties are
hereby ORDERED to SUBMIT themselves to the arbitration of their dispute, pursuant to
their July 11, 1996 agreement.
SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. Nos. 147925-26 June 8, 2009

ELPIDIO S. UY, doing business under the name and style EDISON
DEVELOPMENT & CONSTRUCTION,Petitioner,
vs.
PUBLIC ESTATES AUTHORITY and the HONORABLE COURT OF
APPEALS, Respondents.

DECISION

NACHURA, J.:

Petitioner Elpidio S. Uy (Uy) appeals by certiorari the Joint Decision 1 dated September 25,
2000 and the Joint Resolution2 dated April 25, 2001 of the Court of Appeals (CA) in the
consolidated cases CA-G.R. SP Nos. 59308 and 59849.

Respondent Public Estates Authority (PEA) was designated as project manager by the Bases
Conversion Development Authority (BCDA), primarily tasked to develop its 105-hectare
demilitarized lot in Fort Bonifacio, Taguig City into a first-class memorial park to be known as
Heritage Park. PEA then engaged the services of Makati Development Corporation (MDC) to
undertake the horizontal works on the project; and Uy, doing business under the name and
style Edison Development and Construction (EDC), to do the landscaping.

For a contract price of Three Hundred Fifty-Five Million Eighty Thousand One Hundred
Forty-One and 15/100 Pesos (₱355,080,141.15), PEA and EDC signed the Landscaping and
Construction Agreement3 on November 20, 1996. EDC undertook to complete the landscaping
works in four hundred fifty (450) days commencing on the date of receipt of the notice to
proceed.

EDC received the notice to proceed on December 3, 1996;4 and three (3) days after, or on
December 6, 1996,5 it commenced the mobilization of the equipment and manpower needed
for the project. PEA, however, could not deliver any work area to EDC because the horizontal
works of MDC were still ongoing. EDC commenced the landscaping works only on January 7,
1997 when PEA finally made an initial delivery of a work area.

PEA continuously incurred delay in the turnover of work areas. Resultantly, the contract
period of 450 days was extended to 693 days. PEA also failed to turn over the entire 105-
hectare work area due to the presence of squatters. Thus, on March 15, 1999, the PEA Project
Management Office (PEA-PMO) issued Change Order No. 2-LC,6 excluding from the contract
the 45-square-meter portion of the park occupied by squatters.

In view of the delay in the delivery of work area, EDC claimed additional cost from the PEA-
PMO amounting to ₱181,338,056.30. Specifically, Uy alleged that he incurred additional
rental costs for the equipment, which were kept on standby, and labor costs for the idle
manpower. He added that the delay by PEA caused the topsoil at the original supplier to be
depleted; thus, he was compelled to obtain the topsoil from a farther source, thereby incurring
extra costs. He also claims that he had to mobilize water trucks for the plants and trees which
had already been delivered to the site. Furthermore, it became necessary to construct a
nursery shade to protect and preserve the young plants and trees prior to actual transplanting
to the landscaped area. The PEA-PMO evaluated the EDC’s claim and arrived at a lesser
amount of ₱146,484,910.7 The evaluation of PEA-PMO was then referred to the Heritage Park
Executive Committee (ExCom) for approval.

On November 12, 1999, the Performance Audit Committee (PAC) reviewed the progress
report submitted by the works engineer and noted that the EDC’s landscaping works were
behind schedule by twenty percent (20%). The PAC considered this delay unreasonable and
intolerable, and immediately recommended to BCDA the termination of the landscaping
contract.8 The BCDA adopted PAC’s recommendation and demanded from PEA the
termination of the contract with EDC. In compliance, PEA terminated the agreement on
November 29, 1999.

PEA fully paid all the progress billings up to August 26, 1999, but it did not heed EDC’s
additional claims. Consequently, Uy filed a Complaint9 with the Construction Industry
Arbitration Commission (CIAC), docketed as CIAC Case No. 02-2000.

On May 16, 2000, the CIAC rendered a Decision,10 the dispositive portion of which reads:

WHEREFORE, Judgment is hereby rendered in favor of the [Petitioner]

Contractor ELPIDIO S. UY and Award is hereby made on its monetary claims as follows:

Respondent PUBLIC ESTATES AUTHORITY is directed to pay the [petitioner] the

following amounts:

₱19,604,132.06 --- for the cost of idle time of equipment.

2,275,721.00 --- for the cost of idled manpower.
6,050,165.05 --- for the construction of the nursery shade net area.
605,016.50 --- for attorney’s fees.

Interest on the amount of ₱6,050,165.05 as cost for the construction of the nursery shade
net area shall be paid at the rate of 6% per annum from the date the Complaint was filed on 12
January 2000. Interest on the total amount of ₱21,879,853.06 for the cost of idled
manpower and equipment shall be paid at the same rate of 6% per annum from the date this
Decision is promulgated. After finality of this Decision, interest at the rate of 12% per annum
shall be paid on the total of these 3 awards amounting to ₱27,930,018.11 until full payment
of the awarded amount shall have been made, "this interim period being deemed to be at that
time already a forbearance of credit" (Eastern Shipping Lines, Inc. v. Court of Appeals, et
al., 243 SCRA 78 [1994]; Keng Hua Paper Products Co., Inc. v. Court of Appeals, 286 SCRA
257 [1998]; Crismina Garments, Inc. v. Court of Appeals, G.R. No. 128721, March 9, 1999).
SO ORDERED.11

Uy received the CIAC decision on June 7, 2000. On June 16, 2000, Uy filed a motion for
correction of computation,12 followed by an amended motion for correction of
computation,13 on July 21, 2000. The CIAC, however, failed to resolve Uy’s motion and
amended motion within the 30-day period as provided in its rules, and Uy considered it as
denial of the motion.

Hence, on July 24, 2000, Uy filed a petition for review14 with the CA, docketed as CA-G.R. SP
No. 59849. Uy’s petition was consolidated with CA-G.R. SP No. 59308, the earlier petition
filed by PEA, assailing the same CIAC decision.

On August 1, 2000, the CIAC issued an Order15 denying Uy’s motion for correction of
computation.

On September 25, 2000, the CA rendered the now assailed Joint Decision dismissing both
petitions on both technical and substantive grounds. PEA’s petition was dismissed because
the verification thereof was defective. Uy’s petition, on the other hand, was dismissed upon a
finding that it was belatedly filed. Further, the CA found no sufficient basis to warrant the
reversal of the CIAC ruling, which it held is based on clear provisions of the contract, the
evidence on record and relevant law and jurisprudence.

The CA disposed thus:

WHEREFORE, premises considered, the petitions in CA-G.R. SP No. 59308, entitled "Public
Estates Authority v. Elpidio S. Uy, doing business under the name and style of
Edison [D]evelopment & Construction," and CA-G.R. SP No. 59849, "Elpidio S. Uy,
doing business under the name and style of Edison [D]evelopment &
Construction v. Public Estates Authority," are both hereby DENIED DUE COURSE
and accordingly DISMISSED, for lack of merit.

Consequently, the Award/Decision issued by the Construction Industry Arbitration

Commission on May 16, 2000 in CIAC Case No. 02-2000, entitled "Elpidio S. Uy, doing
business under the name and style of Edison [D]evelopment & Construction v.
Public Estates Authority," is hereby AFFIRMED in toto.

No pronouncement as to costs.

SO ORDERED.16

PEA and Uy filed motions for reconsideration. Subsequently, PEA filed with the CA an Urgent
Motion for Issuance of a Temporary Restraining Order and/or Writ of Preliminary
Injunction,17 seeking to enjoin the CIAC from proceeding with CIAC Case No. 03-2001, which
Uy had subsequently filed. PEA alleged that the case involved claims arising from the same
Landscaping and Construction Agreement, subject of the cases pending with the CA.

On April 25, 2001, the CA issued the assailed Joint Resolution, thus:
WHEREFORE, the present Motion/s for Reconsideration in CA-G.R. SP No. 59308 and CA-
G.R. SP No. 59849 are hereby both DENIED, for lack of merit.

Accordingly, let an injunction issue permanently enjoining the Construction Industry

Arbitration Commission from proceeding with CIAC CASE NO. 03-2001, entitled ELPIDIO
S. UY, doing business under the name and style of EDISON DEVELOPMENT &

CONSTRUCTION v. PUBLIC ESTATES AUTHORITY and/or HONORABLE

CARLOS P. DOBLE.

SO ORDERED.18

PEA and Uy then came to us with their respective petitions for review assailing the CA ruling.
PEA’s petition was docketed as G.R. Nos. 147933-34, while that of Uy was docketed as G.R.
Nos. 147925-26. The petitions, however, were not consolidated.

On December 12, 2001, this Court resolved G.R. Nos. 147933-34 in this wise:

WHEREFORE, in view of the foregoing, the petition for review is DENIED. The Motion to
Consolidate this petition with G.R. No. 147925-26 is also DENIED.

SO ORDERED.19

Thus, what remains for us to resolve is Uy’s petition, raising the following issues:

WHETHER OR NOT RESPONDENT COURT OF APPEALS HAS DEPARTED FROM THE

ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS IN DISMISSING
PETITIONER UY’S PETITION IN CA-G.R. SP NO. 59849 ON THE ALLEGED GROUND OF
NON-COMPLIANCE WITH THE REGLEMENTARY PERIOD IN FILING AN APPEAL

II

WHETHER OR NOT THE RESPONDENT COURT OF APPEALS, IN AFFIRMING THE

DECISION OF THE CIAC ARBITRAL TRIBUNAL INSOFAR AS IT DENIED CERTAIN
CLAIMS OF PETITIONER UY, HAS DECIDED A QUESTION OF SUBSTANCE NOT IN
ACCORDANCE WITH LAW AND THE APPLICABLE DECISIONS OF THE HONORABLE
COURT

III

WHETHER OR NOT THE RESPONDENT COURT OF APPEALS ACTED WITHOUT OR IN

EXCESS OF ITS JURISDICTION OR WITH GRAVE ABUSE OF DISCRETION AMOUNTING
TO LACK OR EXCESS OF JURISDICTION WHEN IT ENJOINED THE PROCEEDINGS IN
CIAC CASE NO. 03-2001 IN ITS JOINT RESOLUTION DATED 25 APRIL 2000, WHICH
CASE IS TOTALLY DIFFERENT FROM THE CASE A QUO20

We will deal first with the procedural issue.

Appeals from judgment of the CIAC shall be taken to the CA by filing a petition for review
within fifteen (15) days from the receipt of the notice of award, judgment, final order or
resolution, or from the date of its last publication if publication is required by law for its
effectivity, or of the denial of petitioner’s motion for new trial or reconsideration duly filed in
accordance with the governing law of the court or agency a quo.21

Admittedly, Uy received the CIAC decision on June 7, 2000; that instead of filing a verified
petition for review with the CA, Uy filed a motion for correction of computation on June 16,
2000, pursuant to Section 9, Article XV of the Rules of Procedure Governing Construction
Arbitration:

Section 9. Motion for Reconsideration. – As a matter of policy, no motion for reconsideration

shall be allowed. Any of the parties may, however, file a motion for correction within fifteen
(15) days from receipt of the award upon any of the following grounds:

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.

The filing of the motion for correction shall interrupt the running of the period for appeal.

With the filing of the motion for correction, the running of the period to appeal was effectively
interrupted.

CIAC was supposed to resolve the motion for correction of computation within 30 days from
the time the comment or opposition thereto was submitted. In Uy’s case, no resolution was
issued despite the lapse of the 30-day period, and Uy considered it as a denial of his motion.
Accordingly, he elevated his case to the CA on July 24, 2000. But not long thereafter, or on
August 1, 2000, the CIAC issued an Order22 denying the motion for correction of
computation.

Obviously, when Uy filed his petition for review with the CA, the period to appeal had not yet
lapsed; it was interrupted by the pendency of his motion for computation. There is no basis,
therefore, to conclude that the petition was belatedly filed.

The foregoing notwithstanding, inasmuch as the CA resolved the petition on the merits, we
now confront the substantive issue – the propriety of the CA’s affirmance of the CIAC
decision.

Uy cries foul on the award granted by CIAC, and affirmed by the CA. He posits that PEA
already admitted its liability, pegged at ₱146,484,910.10, in its memorandum dated January
6, 2000. Thus, he faults the CA for awarding a lesser amount.

We meticulously reviewed the records before us and failed to discern any admission of
liability on the part of PEA.

The PEA-PMO evaluation dated January 6, 2000,23 where PEA allegedly admitted its liability,
reads in full:
 MEMORANDUM

For : Mr. Jaime R. Millan

Project Manager
Heritage Park Project
Subject: EDC’s Various Claim
Landscape Development Works

Revision shall be made on our evaluation dated 28 December 1999 concerning various claims
of contractor EDC-Landscape Development Works (Package IV), particularly on the claim on
Project Equipment on Standby (item a of the earlier evaluation).

Reference to item 4 of the Terms and Conditions of 1998 ACEL Rate Equipment Guidebook,
the CMO inadvertently did not consider are the wages and salaries of standby operator/driver
corresponding to the equipment standby being claimed.

Thus, the corresponding gross amount to be incorporated shall be ₱4,925,600.00 computed

based on the total man-months of each standby equipment being claimed.

A tabulation of the claims is shown hereinbelow:

Works
PMO
Nature of Claim EDC Claim Engineer
Evaluation
Evaluation
a. Project ₱95,740,834.30 67,422,840.40 81,851,396.08
Equipment
on Standby
Equipment 4,925,600.00
Operator/Driver
b. Manpower on 28,165,022.00 2,275,721.00 2,275,721.00
Standby
c. Topsoil Add’l 37,780,200.00 37,780,200.00 37,780,200.00
Hauling
Distance
d. Water Truck 19,652,000.00 15,467,800.00 19,652,000.00
Operating Cost
Total ₱181,338,056.30 122,946,561.40 146,484,917.[08]

Further, it is being specified that the PMO maintains the earlier notes of the CMO in its memo
of 18 October 1999 and that legal interpretations on each item of claims is likewise enjoined.

Attached are pertinent documents for your review and reference

(Sgd.) (Sgd.)
ROGELIO H. IGNACIO FLORO C. URCIA
 PMO-B Asst. Project Manager

By no stretch of the imagination can we consider this memorandum an admission of liability

on the part of PEA. First, nowhere in the memorandum does it say that PEA is admitting its
liability. The evaluation contained in the above memorandum is merely a verification of the
accuracy of EDC’s claims. As a matter of fact, the evaluation is still subject for review by the
project manager, whose decision on the matter requires the approval of the Heritage Park
ExCom. Second, Messrs. Ignacio and Urcia had no legal authority to make admissions on
behalf of PEA. Thus, even assuming that the evaluation contained in the memorandum was in
the nature of an admission, the same cannot bind PEA. Third, Uy filed his complaint with the
CIAC because PEA did not act on EDC’s various claims. This supports our conclusion that
PEA never admitted, but on the contrary denied, whatever additional liabilities were claimed
by Uy under the landscaping contract.

Neither do we find any admission of liability on the part of PEA during the proceedings before
the CIAC. What was admitted by PEA was that PMO evaluated the claim at the lesser amount
of ₱146,484,910 (Exh. "S").24 The admission of the evaluation made by PEA cannot translate
to an admission of liability. There is simply no basis for Uy to claim that PEA had admitted its
liability.

This issue disposed of, we now resolve Uy’s claims on the basis of the evidence presented.

Uy claims ₱95,740,834.30 as the standby equipment cost. CIAC, however, did not agree and
granted only ₱19,604,132.06 as the cost of standby equipment using its so-called equitable
method:

[Uy] had mobilized manpower and equipment sufficient to do the landscaping works for the
entire 105 hectares. The unilateral reduction in scope of work made by [PEA] thus laid idle the
men and equipment of [Uy] in direct proportion to said reduction. In effect, therefore, Uy had
on hand manpower and equipment amounting to 42.85% in excess of that necessary to
perform the landscaping works for the reduced scope of work. [Uy] thus suffered costs in
terms of excess manpower and equipment in proportion to the reduced scope of work.

xxxx

The total contract period – original extensions – to complete the landscaping works for the
entire 105 hectares is 693 days. The reduction in scope of work 42.85% laid idle his equipment
by the same percentage of 42.85[%] or 296.95 days. Since [Uy] calculated his claim for idled
equipment on a per month basis, it is necessary to convert this into months. 296.95 days is
equivalent of 9.89 months. Multiplied by the rate of ₱1,982,217.60 per month of delay, this
would translate to ₱19,604,132.06 as the cost of idle time for equipment by reason of the
[delay].25

Upon review of the records before us, we find a need to modify, by increasing, the award for
standby equipment cost.

CIAC found that PEA incurred delays in the turnover of work areas:
The first delay was the turn-over of a portion of Area 1 A that was made on 17 April 1997. The
start of work on that area was scheduled for March, 1997. There was, therefore, a delay of
about one month. The second delay was the turn-over of a portion of Area 2 A that was made
on 20 October 1997. The start of work on that area was scheduled for May, 1997. There was,
therefore, a delay of about five months. The third delay was the turn-over of a portion of Area
2 B that was made on 05 March 1998. The start of work on that area was scheduled for mid-
February 1997. There was, therefore, a delay of more than one (1) year. Altogether,

the several periods of delayed turn-over of work areas total one year and six months or 546
days.26

Surely, on the days that EDC was waiting for the turn over of additional work areas, it was
paying rentals for the equipment on standby. Yet, CIAC completely ignored these delays in
determining the cost of equipment on standby, reasoning that:

It must be pointed out, however, that the division of the vast area to be landscaped into
distinct work areas with different start of work schedules under the PERT-CPM, [Uy] could
easily have shifted his equipment from an area where the delivery was delayed to the area
where there was an advanced turn-over.27

This is wrong.

Records establish that EDC promptly commenced the landscaping work on every area that
was turned over. EDC, in fact, shifted its equipment where there was an advance delivery, if
only to minimize the additional expenses incurred by reason of the long delays in the turnover
of the other work areas. Thus, in addition to the award of ₱19,604,132.06 for cost of idle time
for equipment by reason of the reduction of scope of work,

Uy is entitled to the cost of idle time for equipment by reason of the delay incurred in the
delivery of work areas.

The period of owner-caused delay was 546 days or 18.2 months. The rate given by the
Association of Carriers and Equipment Lessors (ACEL), Inc., and which was also used as basis
by CIAC in granting the costs for equipment on standby, was ₱1,982,271.60 per month of
delay. Considering that PEA was in delay for 564 days or 18.2 months, Uy is entitled to an
additional award of ₱36,076,360.32. Accordingly, he is entitled to an aggregate amount of
₱55,680,492.38 for the equipment rentals on standby.

As to the awards of ₱2,275,721.00, for the cost of idle manpower, and ₱6,050,165.05, for the
construction of the nursery shade net area, we find no reason to disturb the same, as Uy never
raised this issue in his petition.

Next, we resolve Uy’s claims for costs for additional hauling distance of topsoil and for
mobilization of water truck.

The approved hauling cost of topsoil was only ₱12.00/kilometer or ₱120.00 for the 10 kms
original source. Uy, however, claims that due to the delay in delivery of work areas, the
original source became depleted; hence, he was constrained to haul topsoil from another
source located at a much farther distance of 40 kms. Uy insists that the exhaustion of topsoil
at the original source was solely attributable to the delay in the turnover of the project site.
Thus, he claims from PEA the increased cost of topsoil amounting to ₱37,780,200.00.

Article 1724 of the Civil Code provides:

ART. 1724. The contractor who undertakes to build a structure or any other work for a
stipulated price, in conformity with plans and specifications agreed upon with the land-owner,
can neither withdraw from the contract nor demand an increase in the price on account of the
higher cost of labor or materials, save when there has been a change in the plans and
specifications, provided:

(1) Such change has been authorized by the proprietor in writing; and

(2) The additional price to be paid to the contractor has been determined in writing by
both parties.

By this article, a written authorization from the owner is required before the contractor can
validly recover his claim. The evident purpose of the provision is to avoid litigation for added
costs incurred by reason of additions or changes in the original plan. Undoubtedly, it was
adopted to serve as a safeguard or a substantive condition precedent to recovery.28

This provision is echoed in the Landscaping Contract, viz.:

ARTICLE IX
CHANGE OF WORK

xxxx

9.3. Under no circumstances shall PEA be held liable for the payment of change of work
undertaken without the written approval of the PEA General Manager x x x.

ARTICLE X
EXTRA WORK

xxxx

10.3. Under no circumstances shall PEA be held liable for the payment of extra work
undertaken without the written approval of the PEA General Manager to perform the said
work.29

Admittedly, EDC did not secure the required written approval of PEA’s general manager
before obtaining the topsoil from a farther source. As pointed out by the CIAC:

There is no change order authorizing payment for the increased cost upon which this claim is
based. There is, therefore, no legal right based upon contract (the landscaping agreement or a
change order) that would impose such a liability upon [PEA]. In a lump sum contract, as that
entered into by the parties, the matter of how the contractor had made [a] computation to
arrive at [a] bid that he submits is completely irrelevant. The contract amount of delivered
topsoil is ₱780.00 per truckload of 5.5 cubic meters sourced from a distance of [10] km. or
100 [meters]. There is nothing in Exhibit "L" or in the landscaping contract (Exhibit "A") that
would indicate an agreement of [PEA] to pay for the increase in hauling cost if the source of
topsoil exceeds 10 kilometers. Corollarily, there is also nothing therein to show that [PEA]
would also be entitled to decrease said costs by paying less if the distance would have been
less than 10 kilometers. Had there been such a counterpart provision, there might have been
more arguable claim for [Uy]. Unfortunately, no such provision exists. 30

In Powton Conglomerate, Inc. v. Agcolicol,31 we emphasized:

The written consent of the owner to the increased costs sought by the respondent is not a
mere formal requisite, but a vital precondition to the validity of a subsequent contract
authorizing a higher or additional contract price. Moreover, the safeguards enshrined in the
provisions of Article 1724 are not only intended to obviate future misunderstandings but also
to give the parties a chance to decide whether to bind one’s self to or withdraw from a
contract.

By proceeding to obtain topsoil up to a 40-kilometer radius without written approval from the
PEA general manager, Uy cannot claim the additional cost he incurred.

Uy further claims ₱19,625,000.00 for cost of mobilization of water trucks. He asserts that
PEA completely failed to provide the generator sets necessary to undertake the watering
and/or irrigation works for the landscaping and construction activities.32

Uy, however, admitted that MDC had already installed a deep well in the project site, and EDC
used it in its landscaping and construction activities.33 Under the contract, the operational
costs of the deep well and its appurtenant accessories, including the generator sets, shall be
borne by EDC:

The CONTRACTOR shall shoulder all cost of electricity, maintenance, repairs, replacement of
parts, when needed, and all costs of operation of the deepwell/s, and its appurtenant
accessories, i.e. generator sets, etc. (which are already existing at the project site, constructed
by another Contractor) while such deepwell/s are being used by CONTRACTOR herein for its
landscaping and construction activities. These [deepwells] shall be turned over to PEA by
CONTRACTOR in good operating/usable condition as when it was first used by
CONTRACTOR.34

Thus, Uy cannot claim additional cost for providing generator sets.

Uy also attempts to justify his claim for cost of mobilization of water trucks by alleging that
the water from the deep well provided by MDC and PEA was grossly insufficient to undertake
the watering works for the project; hence, he was constrained to mobilize water trucks to save
the plants from dying.

Indisputably, Uy mobilized water trucks for the landscaping projects and, certainly, incurred
additional costs. But like his claim for additional cost of topsoil, such additional expenses
were incurred without prior written approval of PEA’s general manager. Thus, he cannot
claim payment for such cost from PEA.

As aptly said by the CIAC:

Since [Uy] had presumably intended all along to charge [PEA] for the water truck operating
costs, considering the very substantial amount of his claim, the prudence that he presumably
has, as an experienced general contractor of the highest triple A category, should have
dictated that he negotiate with the [PEA] for a change order or an extra work order before
continuing to spend the huge amounts that he claims to have spent. [Uy] did just that in
relation to his much smaller claim for the construction of the nursery shade x x x. He,
however, made no effort to negotiate with the PEA for a similar change order or extra work
order to safeguard his even bigger additional costs to operate the water trucks. No explanation
was offered for such a mystifying differential treatment. He cannot, therefore, pass on without
any contractual basis, such additional costs to the [PEA].

Neither can we hold PEA liable based on solutio indebiti, the legal maxim that no one should
enrich itself at the expense of another. As we explained in Powton Conglomerate, Inc. v.
Agcolicol,35

the principle of unjust enrichment cannot be validly invoked by the respondent who, through
his own act or omission, took the risk of being denied payment for additional costs by not
giving the petitioners prior notice of such costs and/or by not securing their written consent
thereto, as required by law and their contract.1avvphi1

Uy cannot, therefore, claim from PEA the costs of the additional hauling distance of topsoil,
and of the mobilization of water trucks.

Uy also assails the grant of attorney’s fees equivalent to 10% of the total amount due. Citing
paragraph 24.4 of the Landscaping and Construction Agreement, Uy asserts entitlement to
attorney’s fees of twenty percent (20%) of the total amount claimed. He ascribes error to the
CIAC and the CA for reducing the stipulated attorney’s fees from 20% to 10% of the total
amount due.

Paragraph 24.4 of the agreement provides:

Should the PEA be constrained to resort to judicial or quasi-judicial relief to enforce or

safeguard its rights and interests under this Agreement, the CONTRACTOR if found by the
court or [the] quasi-judicial body, as the case [may be], to have been at fault, shall be liable to
PEA for attorney’s fees in an amount equivalent to twenty percent (20%) of the total [amount]
claimed in the complaint, exclusive of [any] damages and costs of suit.36

Clearly, the cited provision cannot support Uy’s insistence. Paragraph 24.4 on stipulated
attorney’s fees is applicable only in complaints filed by PEA against the contractor. The
provision is silent on the amount of attorney’s fees that can be recovered from PEA.

Besides, even assuming that Paragraph 24.4 is applicable, the amount of attorney’s fees may
be reduced if found to be iniquitous or unconscionable. Thus:

Articles 1229 and 2227 of the Civil Code empower the courts to reduce the penalty if it is
iniquitous or unconscionable. The determination of whether the penalty is iniquitous or
unconscionable is addressed to the sound discretion of the court and depends on several
factors such as the type, extent, and purpose of the penalty, the nature of the obligation, the
mode of breach and its consequences.37
The Court finds Uy’s claim for attorney's fees equivalent to 20% of whatever amount is due
and payable to be exorbitant. The CIAC and the CA, therefore, correctly awarded 10% of the
total amount due and payable as reasonable attorney’s fees.

Finally, on the propriety of the writ of injunction.

Uy asserts that the CA acted without or in excess of jurisdiction when it enjoined the
proceedings in CIAC Case No. 03-2001, despite the fact that the said case is totally different
from the instant case.

By grave abuse of discretion is meant such capricious and whimsical exercise of judgment
equivalent to lack of jurisdiction. Mere abuse of discretion is not enough. It must be grave, as
when it is exercised arbitrarily or despotically by reason of passion or personal hostility; and
such abuse must be so patent and so gross as to amount to an evasion of a positive duty or to a
virtual refusal to perform the duty enjoined or to act at all in contemplation of law.38

The CA granted PEA’s prayer for the injunctive writ not without reason. We quote its Joint
Resolution, viz.:

[T]here is no question that Elpidio S. Uy’s amended complaint is based on the same
Landscaping and Construction Agreement, as he himself admits. The claims pertinent thereto
had already been arbitrated and passed upon in CIAC CASE NO. 02-2000 and the decision
therein was already elevated to Us for review and, in view of Our joint decision in the instant
petitions, a reconsideration thereof.1avvphi1

Based on the foregoing, We are inclined to grant the prayer of PEA to enjoin the CIAC from
further proceeding with CIAC CASE NO. 03-2001, considering that the allegations therein
constrain Us to apply the doctrine of litis pendentia, which has for its requisites: (a) identity of
parties, or at least such parties who represent the same interests in both actions; (b) identity
of rights asserted and relief prayed for, the relief being founded on the same facts; and (c) the
identity with respect to the two preceding particulars in the two (2) cases is such that any
judgment that may be rendered in the pending case, regardless of which party is successful,
would amount to res judicata in the other case. Forum shopping exists where the elements of
litis pendentia are present or where a final judgment in one case will amount to res judicata in
the other. The principle of bar by prior judgment raised by the PEA, i.e., res judicata, finds
application only upon a showing of a final judgment as one of its requisites, which is not yet
present under the present circumstances.

At this juncture, it bears stressing that the essence of forum shopping is the filing of multiple
suits involving the same parties for the same cause of action, either simultaneously or
successively, for the purpose of obtaining a favorable judgment. Accordingly, based on Our
holding that the final resolution of the instant petitions takes precedence as it is the
appropriate vehicle for litigating the issues between the parties, now that the instant petitions
before Us have come full circle with this joint resolution and, if the parties herein so choose,
may seek further relief to the High Tribunal afterwards. We cannot allow CIAC CASE NO. 03-
2001 to proceed because to do so would render inutile the proscriptions against forum
shopping which is frowned upon in Our jurisdiction. Hence, the grant of injunctive relief. This
must be done, or else a travesty of the efficient administration of justice would lamentably
result.39
Indeed, the assailed resolution shows no patent or gross error amounting to grave abuse of
discretion. Neither does it show an arbitrary or despotic exercise of power arising from
passion or hostility.

At this point, it should be stated that the Court is not convinced by Uy’s argument that the
claims under CIAC Case No. 03-2001 are different from his claims in CIAC Case No. 02-2000.
There is only one cause of action running through Uy’s litigious undertakings – his alleged
right under the Landscaping and Construction Agreement. Therefore, the landscaping
agreement is indispensable in prosecuting his claims in both CIAC Cases Nos. 02-2000 and
03-2001.

As we held in Villanueva v. Court of Appeals:40

A party, by varying the form or action or by bringing forward in a second case additional
parties or arguments, cannot escape the effects of the principle of res judicata when the facts
remain the same at least where such new parties or matter could have been impleaded or
pleaded in the prior action.

WHEREFORE, the petition is PARTIALLY GRANTED. The assailed Joint Decision and Joint
Resolution of the Court of Appeals in CA-G.R. SP Nos. 59308 and 59849 are AFFIRMED with
MODIFICATIONS. Respondent Public Estates Authority is ordered to pay Elpidio S. Uy,
doing business under the name and style Edison Development and Construction,
₱55,680,492.38 for equipment rentals on standby; ₱2,275,721.00 for the cost of idle
manpower; and ₱6,050,165.05 for the construction of the nursery shade net area; plus
interest at 6% per annum to be computed from the date of the filing of the complaint until
finality of this Decision and 12% per annum thereafter until full payment. Respondent PEA is
further ordered to pay petitioner Uy 10% of the total award as attorney’s fees.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 172525 October 20, 2010

SHINRYO (PHILIPPINES) COMPANY, INC., Petitioner,

vs.
RRN INCORPORATED,* Respondent.

DECISION

PERALTA, J.:

This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court,
praying that the Decision1 of the Court of Appeals (CA) dated February 22, 2006, affirming
the Decision of the Construction Industry Arbitration Commission (CIAC), and the CA
Resolution2 dated April 26, 2006, denying herein petitioner's motion for reconsideration, be
reversed and set aside.

The facts, as accurately narrated in the CA Decision, are as follows.

Petitioner Shinryo (Philippines) Company, Inc. (hereinafter petitioner) is a domestic

corporation organized under Philippine laws. Private respondent RRN Incorporated
(hereinafter respondent) is likewise a domestic corporation organized under Philippine laws.

Respondent filed a claim for arbitration against petitioner before CIAC for recovery of unpaid
account which consists of unpaid portions of the sub-contract, variations and unused
materials in the total sum of ₱5,275,184.17 and legal interest in the amount of ₱442,014.73.
Petitioner filed a counterclaim for overpayment in the amount of ₱2,512,997.96.

The parties admitted several facts before the CIAC. It was shown that petitioner and
respondent executed an Agreement and Conditions of Sub-contract (hereafter Agreement
signed on June 11, 1996 and June 14, 1996, respectively. Respondent signified its willingness
to accept and perform for petitioner in any of its projects, a part or the whole of the works
more particularly described in Conditions of Sub-Contract and other Sub-contract documents.

On June 11, 2002, the parties executed a "Supply of Manpower, Tools/Equipment,

Consumables for the Electrical Works-Power and Equipment Supply, Bus Duct Installation"
for the Phillip Morris Greenfield Project (hereafter Project) covered by Purchase Order Nos.
4501200300-000274 and 4501200300-000275 amounting to ₱15,724,000.00 and
₱9,276,000.00 respectively, or a total amount of ₱25,000,000.00. The parties also agreed
that respondent will perform variation orders in the Project. In connection with the Project,
petitioner supplied manpower chargeable against respondent.

Respondent was not able to finish the entire works with petitioner due to financial difficulties.
Petitioner paid respondent a total amount of ₱26,547,624.76. On June 25, 2005 [should read
2003], respondent, through its former counsel sent a letter to petitioner demanding for the
payment of its unpaid balance amounting to ₱5,275,184.17. Petitioner claimed material back
charges in the amount of ₱4,063,633.43. On September 26, 2003, respondent only
acknowledged ₱2,371,895.33 as material back charges. Thereafter, on October 16, 2003,
respondent sent another letter to petitioner for them to meet and settle their dispute.

On January 8, 2004, respondent sent another letter to petitioner regarding the cost of
equipment rental and the use of scaffolding. Thereafter, on August 12, 2004, petitioner sent a
letter to respondent denying any unpaid account and the failure in their negotiations for
amicable settlement.

On September 3, 2004, respondent, through its new counsel, advised petitioner of their
intention to submit the matter to arbitration. Thereafter, their dispute was submitted to
arbitration. During the preliminary conference, the parties agreed in their Terms of Reference
to resolve eight issues, to wit:

1. What should be the basis in evaluating the variation cost?

1.1 How much is the variation cost?

2. Is the Respondent (petitioner in the instant case) justified in charging claimant

(herein respondent) the equipment rental fee and for the use of the scaffoldings? If so,
how much should be charged to Claimant?

3. What should be the basis in evaluating the total cost of materials supplied by
Respondent to the Project which is chargeable to Claimant?

3.1 How much is the total cost of materials supply chargeable to Claimant?

4. How much is the value of the remaining works left undone by the Claimant in the
project?

5. Is the Claimant's claim for inventory of excess materials valid? If so, how much is the
value thereof?

6. Is the Respondent entitled to its claim for an overpayment in the amount of

₱2,512,997.96?

7. Is Claimant entitled to its claim for interest? If so, how much?

8. Who between the parties shall bear the cost of Arbitration?

The CIAC rendered the assailed decision after the presentation of the parties' evidence. [The
dispositive portion of said decision reads as follows:

WHEREFORE, judgment is hereby rendered in favor of the claimant and respondent is

ordered to pay claimant its unpaid account in the sum of ₱3,728,960.54 plus legal interest of
6% reckoned from June 25, 2003 up to the filing of the case on October 11, 2004 and 12% of
₱3,728,960.54 from the finality of the judgment until fully paid and arbitration cost of
₱104,333.82 representing claimant's share of the arbitration cost which respondent should
reimburse.

SO ORDERED.]

Petitioner accepts the ruling of the CIAC only in Issue No. 1 and Sub-Issue No. 1.1 and in Issue
No. 2 in so far as the amount of ₱440,000.00 awarded as back charges for the use of
scaffoldings. x x x3

On February 22, 2006, the CA promulgated the assailed Decision affirming the decision of the
CIAC. The CA upheld the CIAC ruling that petitioner failed to adduce sufficient proof that the
parties had an agreement regarding charges for respondent's use of the manlift. As to the
other charges for materials, the CA held that the evidence on record amply supports the CIAC
findings. Petitioner moved for reconsideration of said ruling, but the same was denied per
Resolution dated April 26, 2006.

Hence, this petition where it is alleged that:

I. THE HONORABLE COURT OF APPEALS COMMITTED GRAVE REVERSIBLE ERROR

WHEN IT DENIED PETITIONER'S CLAIM FOR MANLIFT EQUIPMENT RENTAL IN THE
AMOUNT OF ₱511,000.00 DESPITE EVIDENCE ON RECORD THAT RESPONDENT RRN
ACTUALLY USED AND BENEFITED FROM THE MANLIFT EQUIPMENT.

II. IN RENDERING THE QUESTIONED DECISION AND QUESTIONED RESOLUTION,

THE HONORABLE COURT OF APPEALS HAS DECIDED A QUESTION OF SUBSTANCE
NOT IN ACCORD WITH LAW AND/OR WITH THE APPLICABLE DECISIONS OF THE
HONORABLE SUPREME COURT.

III. THE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR IN

AFFIRMING THE CIAC AWARD FOR THE VALUE OF INVENTORIED MATERIALS
CONSIDERING THAT:

A. RESPONDENT RRN ADMITTED THE VALIDITY OF THE DEDUCTIONS ON

ACCOUNT OF MATERIAL SUPPLY, WHICH INCLUDED THE INVENTORIED
MATERIALS.

B. RESPONDENT RRN HAS NO BASIS TO CLAIM BECAUSE ENGR. BONIFACIO

ADMITTED THAT RESPONDENT RRN FAILED TO ESTABLISH WHETHER THE
MATERIALS CAME FROM RESPONDENT RRN OR FROM PETITIONER AND THAT
IT WAS PETITIONER THAT ACTUALLY INSTALLED THE SAID MATERIALS AS
PART OF REMAINING WORKS THAT PETITIONER TOOK OVER FROM
RESPONDENT RRN.

C. THE CLAIM FOR THE VALUE OF INVENTORIED MATERIALS IS A DOUBLE

CLAIM OR DOUBLE ENTRY BECAUSE IN THE COMPUTATION OF THE FINAL
ACCOUNT, RESPONDENT RRN WAS CREDITED THE FULL CONTRACT PRICE
AND THE COST OF VARIATIONS, WHICH INCLUDED THE INVENTORIED
MATERIALS.
IV. IN RENDERING THE QUESTIONED DECISION AND QUESTIONED RESOLUTION,
THE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR IN THAT IT
COMPLETELY DISREGARDED THE PROVISION OF THE SUBCONTRACT, WHICH
ALLOWED PAYMENT OF ACTUAL COST INCURRED BY PETITIONER IN COMPLETING
THE REMAINING WORKS THAT PRIVATE RESPONDENT ADMITTEDLY FAILED TO
COMPLETE.

V. THE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR WHEN IT

COMPLETELY DISREGARDED THE EVIDENCE ON ACTUAL COST INCURRED BY
PETITIONER IN COMPLETING THE REMAINING WORKS.

VI. THE COURT OF APPEALS COMMITTED GRAVE REVERSIBLE ERROR WHEN IT

AFFIRMED THE CIAC AWARD FOR INTERESTS AND ARBITRATION COSTS IN FAVOR
OF RESPONDENT RRN.4

The petition is bereft of merit.

Despite petitioner's attempts to make it appear that it is advancing questions of law, it is quite
clear that what petitioner seeks is for this Court to recalibrate the evidence it has presented
before the CIAC. It insists that its evidence sufficiently proves that it is entitled to payment for
respondent's use of its manlift equipment, and even absent proof of the supposed agreement
on the charges petitioner may impose on respondent for the use of said equipment,
respondent should be made to pay based on the principle of unjust enrichment. Petitioner
also questions the amounts awarded by the CIAC for inventoried materials, and costs incurred
by petitioner for completing the work left unfinished by respondent.

As reiterated by the Court in IBEX International, Inc. v. Government Service Insurance

System,5 to wit:

It is settled that findings of fact of quasi-judicial bodies, which have acquired

expertise because their jurisdiction is confined to specific matters, are generally
accorded not only respect, but also finality, especially when affirmed by the
Court of Appeals. In particular, factual findings of construction arbitrators are
final and conclusive and not reviewable by this Court on appeal.

This rule, however, admits of certain exceptions. In Uniwide Sales Realty and Resources
Corporation v. Titan-Ikeda Construction and Development Corporation, we said:

In David v. Construction Industry and Arbitration Commission, we ruled that, as exceptions,

factual findings of construction arbitrators may be reviewed by this Court when the petitioner
proves affirmatively that: (1) the award was procured by corruption, fraud or other undue
means; (2) there was evident partiality or corruption of the arbitrators or any of them; (3) the
arbitrators were guilty of misconduct in refusing to hear evidence pertinent and material to
the controversy; (4) one or more of the arbitrators were disqualified to act as such under
Section nine of Republic Act No. 876 and willfully refrained from disclosing such
disqualifications or of any other misbehavior by which the rights of any party have been
materially prejudiced; or (5) the arbitrators exceeded their powers, or so imperfectly executed
them, that a mutual, final and definite award upon the subject matter submitted to them was
not made.1avvp++i1
Other recognized exceptions are as follows: (1) when there is a very clear showing of grave
abuse of discretion resulting in lack or loss of jurisdiction as when a party was deprived of a
fair opportunity to present its position before the Arbitral Tribunal or when an award is
obtained through fraud or the corruption of arbitrators, (2) when the findings of the Court of
Appeals are contrary to those of the CIAC, and (3) when a party is deprived of administrative
due process.6

A perusal of the records would reveal that none of the aforementioned circumstances, which
would justify exemption of this case from the general rule, are present here. Such being the
case, the Court, not being a trier of facts, is not duty-bound to examine, appraise and analyze
anew the evidence presented before the arbitration body.7

Petitioner's reliance on the principle of unjust enrichment is likewise misplaced. The ruling of
the Court in University of the Philippines v. Philab Industries, Inc.8 is highly instructive, thus:

Unjust enrichment claims do not lie simply because one party benefits from the efforts or
obligations of others, but instead it must be shown that a party was unjustly enriched in the
sense that the term unjustly could mean illegally or unlawfully.

Moreover, to substantiate a claim for unjust enrichment, the claimant must unequivocally
prove that another party knowingly received something of value to which he was not entitled
and that the state of affairs are such that it would be unjust for the person to keep the benefit.
Unjust enrichment is a term used to depict result or effect of failure to make remuneration of
or for property or benefits received under circumstances that give rise to legal or equitable
obligation to account for them; to be entitled to remuneration, one must confer benefit by
mistake, fraud, coercion, or request. Unjust enrichment is not itself a theory of reconvey.
Rather, it is a prerequisite for the enforcement of the doctrine of restitution.

Article 22 of the New Civil Code reads:

Every person who, through an act of performance by another, or any other means, acquires or
comes into possession of something at the expense of the latter without just or legal ground,
shall return the same to him.

In order that accion in rem verso may prosper, the essential elements must be present: (1)
that the defendant has been enriched, (2) that the plaintiff has suffered a loss, (3) that the
enrichment of the defendant is without just or legal ground, and (4) that the plaintiff has no
other action based on contract, quasi-contract, crime or quasi-delict.

An accion in rem verso is considered merely an auxiliary action, available only when there is
no other remedy on contract, quasi-contract, crime, and quasi-delict. If there is an obtainable
action under any other institution of positive law, that action must be resorted to, and the
principle of accion in rem verso will not lie.9

As found by both the CIAC and affirmed by the CA, petitioner failed to prove that
respondent's free use of the manlift was without legal ground based on the provisions of their
contract. Thus, the third requisite, i.e., that the enrichment of respondent is without just or
legal ground, is missing. In addition, petitioner's claim is based on contract, hence, the fourth
requisite − that the plaintiff has no other action based on contract, quasi-contract, crime or
quasi-delict − is also absent. Clearly, the principle of unjust enrichment is not applicable in
this case.

The other issues raised by petitioner all boil down to whether the CIAC or the CA erred in
rejecting its claims for costs of some materials.

Again, these issues are purely factual and cannot be properly addressed in this petition for
review on certiorari. In Hanjin Heavy Industries and Construction Co., Ltd. v. Dynamic
Planners and Construction Corp.,10 it was emphasized that mathematical computations, the
propriety of arbitral awards, claims for "other costs" and "abandonment" are factual
questions. Since the discussions of the CIAC and the CA in their respective Decisions show
that its factual findings are supported by substantial evidence, there is no reason why this
Court should not accord finality to said findings. Verily, to accede to petitioner's request for a
recalibration of its evidence, which had been thoroughly studied by both the CIAC and the CA
would result in negating the objective of Executive Order No. 1008, which created an
arbitration body to ensure the prompt and efficient settlement of disputes in the construction
industry. Thus, the Court held in Uniwide Sales Realty and Resources Corporation v. Titan-
Ikeda Construction and Development Corporation,11 that:

x x x The Court will not review the factual findings of an arbitral tribunal upon the artful
allegation that such body had "misapprehended facts" and will not pass upon issues which
are, at bottom, issues of fact, no matter how cleverly disguised they might be as "legal
questions." The parties here had recourse to arbitration and chose the arbitrators themselves;
they must have had confidence in such arbitrators. The Court will not, therefore, permit the
parties to relitigate before it the issues of facts previously presented and argued before the
Arbitral Tribunal, save only where a clear showing is made that, in reaching its factual
conclusions, the Arbitral Tribunal committed an error so egregious and hurtful to one party as
to constitute a grave abuse of discretion resulting in lack or loss of jurisdiction.12

As discussed above, there is nothing in the records that point to any grave abuse of discretion
committed by the CIAC.

The awards for interests and arbitration costs are, likewise, correct as they are in keeping with
prevailing jurisprudence.13

IN VIEW OF THE FOREGOING, the Petition is DENIED. The Decision of the Court of
Appeals dated February 22, 2006 and its Resolution dated April 26, 2006 are AFFIRMED.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 169095 December 8, 2008

HEUNGHWA INDUSTRY CO., LTD., petitioner,

vs.
DJ BUILDERS CORPORATION, respondent.

DECISION

AUSTRIA-MARTINEZ, J.:

Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court,
seeking to set aside the August 20, 2004 Decision2 and August 1, 2005 Resolution3 of the
Court of Appeals (CA) in CA-G.R. SP Nos. 70001 and 71621.

The facts of the case, as aptly presented by the CA, are as follows:

Heunghwa Industry Co., Ltd. (petitioner) is a Korean corporation doing business in the
Philippines, while DJ Builders Corporation (respondent) is a corporation duly organized
under the laws of the Philippines. Petitioner was able to secure a contract with the
Department of Public Works and Highways (DPWH) to construct the Roxas-Langogan Road
in Palawan.

Petitioner entered into a subcontract agreement with respondent to do earthwork, sub base
course and box culvert of said project in the amount of Php113, 228, 918.00. The agreement
contained an arbitration clause. The agreed price was not fully paid; hence, on January 19,
2000, respondent filed before the Regional Trial Court (RTC) of Puerto Princesa, Branch 51, a
Complaint for "Breach of Contract, Collection of Sum of Money with Application for
Preliminary Injunction, Preliminary Attachment, and Prayer for Temporary Restraining
Order and Damages" docketed as Civil Case No. 3421.4

Petitioner's Amended Answer5 averred that it was not obliged to pay respondent because the
latter caused the stoppage of work. Petitioner further claimed that it failed to collect from the
DPWH due to respondent's poor equipment performance. The Amended Answer also
contained a counterclaim for Php24,293,878.60.

On September 27, 2000, parties through their respective counsels, filed a "Joint Motion to
Submit Specific Issues To The Construction Industry Arbitration Commission"6 (CIAC), to
wit:

5. Parties would submit only specific issues to the CIAC for arbitration, leaving other
claims to this Honorable Court for further hearing and adjudication. Specifically, the
issues to be submitted to the CIAC are as follows:
 a. Manpower and equipment standby time;

b. Unrecouped mobilization expenses;

c. Retention;

d. Discrepancy of billings; and

e. Price escalation for fuel and oil usage.7

On the same day, the RTC issued an Order8 granting the motion.

On October 9, 2000, petitioner, through its counsel, filed an "Urgent Manifestation" 9 praying
that additional matters be referred to CIAC for arbitration, to wit:

1. Additional mobilization costs incurred by [petitioner] for work abandoned by

[respondent];

2. Propriety of liquidated damages in favor of [petitioner] for delay incurred by

[respondent];

3. Propriety of downtime costs on a daily basis during the period of the existence of the
previous temporary restraining order against [petitioner].10

On October 24, 2000, respondent filed with CIAC a Request for Adjudication11 accompanied
by a Complaint. Petitioner, in turn filed a "Reply/ Manifestation" informing the CIAC that it
was abandoning the submission to CIAC and pursuing the case before the RTC. In
respondent's Comment on petitioner's Manifestation, it prayed for CIAC to declare petitioner
in default.

CIAC then issued an Order12 dated November 27, 2000 ordering respondent to move for the
dismissal of Civil Case No. 3421 pending before the RTC of Palawan and directing petitioner
to file anew its answer. The said Order also denied respondent's motion to declare petitioner
in default.

Respondent filed a Motion for Partial Reconsideration of the November 27, 2000 Order while
petitioner moved to suspend the proceeding before the CIAC until the RTC had dismissed
Civil Case No. 3421.

On January 8, 2000, CIAC issued an Order13 setting aside its Order of November 27, 2000 by
directing the dismissal of Civil Case No. 3421 only insofar as the five issues referred to it were
concerned. It also directed respondent to file a request for adjudication. In compliance,
respondent filed anew a "Revised Complaint"14 which increased the amount of the claim from
Php23,391,654.22 to Php65,393,773.42.

On February 22 2001, petitioner, through its new counsel, filed with the RTC a motion to
withdraw the Order dated September 27, 2000 which referred the case to the CIAC, claiming
it never authorized the referral. Respondent opposed the motion15 contending that petitioner
was already estopped from asking for the recall of the Order.
Petitioner filed in the CIAC its opposition to the second motion to declare it in default, with a
motion to dismiss informing the CIAC that it was abandoning the submission of the case to it
and asserting that the RTC had original and exclusive jurisdiction over Civil Case No. 3421,
including the five issues referred to the CIAC.

On March 5, 2001, the CIAC denied petitioner's motion to dismiss on the ground that the
November 27, 2000 Order had already been superseded by its Order of January 8, 2001. 16

On March 13, 2001, the CIAC issued an Order setting the preliminary conference on April 10,
2001.17

On March 23, 2001 petitioner filed with the CIAC a motion for reconsideration of the March
5, 2001 Order.

For clarity, the succeeding proceedings before the RTC and CIAC are presented in graph form
in chronological order.

RTC CIAC
April 5, 2001 - Petitioner filed a
Motion to Suspend proceedings
because of the Motion to Recall it
filed with the RTC.
April 6, 2001 - CIAC granted
petitioner's motion and suspended
the hearings dated April 10 and 17,
2001.
May 16, 2001 - the RTC issued a
Resolution18 granting petitioner's
Motion to Recall.19
June 1, 2001- Respondent moved
for a reconsideration of the May 16,
2001 Resolution and prayed for the
dismissal of the case without
prejudice to the filing of a complaint
with the CIAC.20
June 11, 2001- Petitioner opposed
respondent's motion for
reconsideration and also prayed for
the dismissal of the case but with
prejudice.21
July 6, 2001 - The RTC denied
respondent's motion for
reconsideration but stated that
respondent may file a formal motion
to dismiss if it so desired.22
July 16, 2001- Respondent filed with
the RTC a Motion to Dismiss23 Civil
Case No. 3421 praying for the
dismissal of the complaint without
prejudice to the filing of the proper
complaint with the CIAC.

On the same day, the RTC

granted the motion without
prejudice to petitioner's
counterclaim.24
August 1, 2001- Petitioner moved
for a reconsideration of the July 16,
2001 Order claiming it was denied
due process.25
August 7, 2001 - Respondent filed
with the CIAC a motion for the
resumption of the proceedings
claiming that the dismissal of Civil
Case No. 3421 became final on August
3, 2001.
August 15, 2001 - Petitioner filed a
counter-manifestation26 asserting
that the RTC Order dated July 16,
2001 was not yet final. Petitioner
reiterated the prayer to dismiss the
case.
August 27, 2001 - CIAC issued an
Order maintaining the suspension but
did not rule on petitioner's Motion to
Dismiss.
January 22, 2002 - CIAC issued an
Order setting the case for Preliminary
Conference on February 7, 2002.
February 1, 2002 - Petitioner filed a
Motion for Reconsideration of the
January 22, 2002 Order which also
included a prayer to resolve the
Motion for Reconsideration of the
July 16, 2001 Order.
February 5, 2002 - CIAC denied
petitioner's Motion for
Reconsideration.
February 7, 2002 - CIAC conducted a
preliminary conference.27
March 13, 2002 - the RTC
issued a Resolution28 declaring
the July 16, 2001 Order which
dismissed the case "without
force and effect" and set the
 case for hearing on May 30,
2002.
March 15, 2002 - Petitioner filed a
Manifestation before the CIAC that
the CIAC had no authority to hear the
case.
March 18, 2002 - CIAC issued an
Order setting the hearing on April 2,
2002.
March 21, 2002 - Petitioner filed a
Manifestation/Motion that the RTC
had recalled the July 16, 2001 Order
and had asserted jurisdiction over the
entire case and praying for the
dismissal of the pending case.29
March 22, 2002 - CIAC issued an
Order30denying the Motion to
Dismiss filed by petitioner and
holding that the CIAC had
jurisdiction over the case.
March 25, 2002- Respondent March 26, 2002 - CIAC ordered
moved for a reconsideration of the respondent to file a reply to
31

March 13, 2002 Order recalling the petitioner's March 21, 2002
July 16, 2001 Order which Manifestation.
petitioner opposed.
June 17, 2002 - RTC denied
respondent's Motion for
Reconsideration.

The parties, without waiting for the reply required by the CIAC,32 filed two separate petitions
for certiorari: petitioner, on April 5, 2002, docketed as CA-G.R. SP No. 70001; and
respondent, on July 5, 2002, docketed as CA-G.R. SP No. 71621 with the CA.

In CA-G.R. SP No. 70001, petitioner assailed the denial by the CIAC of its motion to dismiss
and sought to enjoin the CIAC from proceeding with the case.

In CA-G.R. SP No. 71621, respondent questioned the March 13, 2002 Order of the RTC which
reinstated Civil Case No. 3421 as well as the Order dated June 17, 2002 which denied
respondent's motion for reconsideration. Respondent also sought to restrain the RTC from
further proceeding with the civil case.

In other words, petitioner is questioning the jurisdiction of the CIAC; while respondent is
questioning the jurisdiction of the RTC over the case.

Both cases were consolidated by the CA.

The CA ruled against petitioner on procedural and substantive grounds.

On matters of procedure, the CA took note of the fact that petitioner did not file a motion for
reconsideration of the March 22, 2002 Order of the CIAC and held that it is in violation of the
well-settled rule that a motion for reconsideration should be filed to allow the respondent
tribunal to correct its error before a petition can be entertained. 33 Moreover, the CA ruled that
it is well-settled that a denial of a motion to dismiss, being an interlocutory order, is not the
proper subject for a petition for certiorari.34

Moreover, the CA ruled against petitioner's main argument that the arbitration clause found
in the subcontract agreement between the parties did not refer to CIAC as the arbitral body.
The CA held that the CIAC had jurisdiction over the controversy because the construction
agreement contained a provision to submit any dispute for arbitration, and there was a joint
motion to submit certain issues to the CIAC for arbitration.35

Anent petitioner's argument that its previous lawyer was not authorized to submit the case for
arbitration, the CA held that what is required for a dispute to fall under the jurisdiction of the
CIAC is for the parties to agree to submit to voluntary arbitration. Since the parties agreed to
submit to voluntary arbitration in the construction contract, the authorization insisted upon
by petitioner was a mere superfluity.36

The CA further cited National Irrigation Administration v. Court of Appeals37 (NIA), where
this Court ruled that active participation in the arbitration proceedings serves to estop a party
from denying that it had in fact agreed to submit the dispute for arbitration.

Lastly, the CA found no merit in petitioner's prayer to remand the case to the CIAC.

Petitioner's Motion for Reconsideration was denied by the CA. Hence, herein petition raising
the following assignment of errors:

A.

THE COURT OF APPEALS COMMITTED SERIOUS ERROR WHEN IT

RULED THAT THE PETITION SUFFERED FROM PROCEDURAL
INFIRMITIES WHEN PETITIONER HEUNGHWA, IN VIEW OF THE
QUESTIONS OF LAW INVOLVED IN THE CASE, IMMEDIATELY INVOKED
ITS AID BY WAY OF PETITION FOR CERTIORARI WITHOUT FIRST
FILING A MOTION FOR RECONSIDERATION OF THE CIAC'S ORDER
DATED 22 MARCH 2002. THE COURT OF APPEALS FURTHER ERRED IN
RULING THAT A DENIAL OF A MOTION TO DISMISS (IN REFERENCE TO
THE ORDER DATED 22 MARCH 2002), BEING AN INTERLOCUTORY
ORDER, IS NOT THE PROPER SUBJECT OF A PETITION FOR
CERTIORARI.

B.

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN

CONFIRMING THE JURISDICTION OF THE CIAC OVER THE CASE. ITS
RELIANCE ON THE NATIONAL IRRIGATION AUTHORITY VS. COURT OF
APPEALS ("NIA VS. CA") WAS MISPLACED AS THE FACTS OF THE
 INSTANT CASE ARE SERIOUSLY AND SUBSTANTIALLY DIFFERENT
FROM THOSE OF NIA VS. CA.

C.

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN

DISREGARDING PETITIONER'S REQUEST TO AT LEAST REMAND THE
CASE TO THE CIAC FOR FURTHER RECEPTION OF EVIDENCE IN THE
INTEREST OF JUSTICE AND EQUITY AS PETITIONER COULD NOT HAVE
AVAILED OF ITS OPPORTUNITY TO PRESENT ITS SIDE ON ACCOUNT OF
ITS JURISDICTIONAL OBJECTION.38

The petition is devoid of merit.

The first assignment of error raises two issues: first, whether or not the non-filing of a motion
for reconsideration was fatal to the petition for certiorari filed before the CA; and second,
whether or not a petition for certiorari is the proper remedy to assail an order denying a
motion to dismiss as in the case at bar .

As a general rule, a petition for certiorari before a higher court will not prosper unless the
inferior court has been given, through a motion for reconsideration, a chance to correct the
errors imputed to it. This rule, though, has certain exceptions: (1) when the issue raised is
purely of law, (2) when public interest is involved, or (3) in case of urgency. As a fourth
exception, it has been held that the filing of a motion for reconsideration before availment of
the remedy of certiorari is not a condition sine qua non when the questions raised are the
same as those that have already been squarely argued and exhaustively passed upon by the
lower court.39

The Court agrees with petitioner that the main issue of the petition for certiorari filed before
the CA undoubtedly involved a question of jurisdiction as to which between the RTC and the
CIAC had authority to hear the case. Whether the subject matter falls within the exclusive
jurisdiction of a quasi-judicial agency is a question of law.40Thus, given the circumstances
present in the case at bar, the non-filing of a motion for reconsideration by petitioner to the
CIAC Order should have been recognized as an exception to the rule.

Anent the second issue, petitioner argues that when its motion to dismiss was denied by the
CIAC, the latter acted without jurisdiction or with grave abuse of discretion amounting to lack
or excess of jurisdiction; thus, the same is the proper subject of a petition for certiorari.

As a general rule, an order denying a motion to dismiss cannot be the subject of a petition
for certiorari. However, this Court has provided exceptions thereto:

Under certain situations, recourse to certiorari or mandamus is considered

appropriate, i.e., (a) when the trial court issued the order without or in excess
of jurisdiction; (b) where there is patent grave abuse of discretion by the
trial court; or (c) appeal would not prove to be a speedy and adequate remedy as when
appeal would not promptly relieve a defendant from the injurious effects of the patently
mistaken order maintaining the plaintiff's baseless action and compelling the defendant
 needlessly to go through a protracted trial and clogging the court dockets by another
futile case."41 (Emphasis supplied)

The term "grave abuse of discretion" in its judicial sense connotes a capricious, despotic,
oppressive or whimsical exercise of judgment as is equivalent to lack of jurisdiction. The word
"capricious," usually used in tandem with the term "arbitrary," conveys the notion of willful
and unreasoning action.42

The question then is: "Did the denial by the CIAC of the motion to dismiss constitute a patent
grave abuse of discretion?"

Records show that the CIAC acted within its jurisdiction and it did not commit patent grave
abuse of discretion when it issued the assailed Order denying petitioner's motion to dismiss.
Thus, this Court rules in the negative.

Based on law and jurisprudence, the CIAC has jurisdiction over the present dispute.

The CIAC, in its assailed Order, correctly applied the doctrine laid down in Philrock, Inc. v.
Construction Industry Arbitration Commission43 (Philrock) where this Court held that what
vested in the CIAC original and exclusive jurisdiction over the construction dispute was the
agreement of the parties and not the Court's referral order. The CIAC aptly ruled that the
recall of the referral order by the RTC did not deprive the CIAC of the jurisdiction it had
already acquired,44 thus:

x x x The position of CIAC is anchored on Executive Order No. 1008 (1985) which
created CIAC and vested in it "original and exclusive jurisdiction" over construction
disputes in construction projects in the Philippines provided the parties agreed to
submit such disputes to arbitration. The basis of the Court referral is precisely the
agreement of the parties in court, and that, by this agreement as well as by the court
referral of the specified issues to arbitration, under Executive Order No. 1008 (1985),
the CIAC had in fact acquired original and exclusive jurisdiction over these issues. 45

In the case at bar, the RTC was indecisive of its authority and capacity to hear the case.
Respondent first sought redress from the RTC for its claim against petitioner. Thereafter,
upon motion by both counsels for petitioner and respondent, the RTC allowed the referral of
five specific issues to the CIAC. However, the RTC later recalled the case from the CIAC
because of the alleged lack of authority of the counsel for petitioner to submit the case for
arbitration. The RTC recalled the case even if it already admitted its lack of expertise to deal
with the intricacies of the construction business.46

Afterwards, the RTC issued a Resolution recommending that respondent file a motion to
dismiss without prejudice to the counterclaim of petitioner, so that it could pursue arbitration
proceedings under the CIAC.47 Respondent complied with the recommendation of the RTC
and filed a motion to dismiss which was granted by the said court.48Later, however, the RTC
again asserted jurisdiction over the dispute because it apparently made a mistake in granting
respondent's motion to dismiss without conducting any hearing on the motion.49

On the other hand, the CIAC's assertion of its jurisdiction over the dispute was consistent
from the moment the RTC allowed the referral of specific issues to it.
Executive Order 100850 grants to the CIAC original and exclusive jurisdiction over disputes
arising from, or connected with, contracts entered into by parties involved in construction in
the Philippines. In the case at the bar, it is undeniable that the controversy involves a
construction dispute as can be seen from the issues referred to the CIAC, to wit:

1. Manpower and equipment standby time;

2. Unrecouped mobilization expenses;

3. Retention;

4. Discrepancy of billings; and

5. Price escalation for fuel and oil usage.51

xxxx

The Court notes that the Subcontract Agreement52 between the parties provides an arbitration
clause, to wit:

Article 7

Arbitration

7. Any controversy or claim between the Contractor and the Subcontractor arising out
of or related to this Subcontract, or the breach thereof, shall be settled by
arbitration, which shall be conducted in the same manner and under the
same procedure as provided in the Prime Contract with Respect to claims
between the Owner and the Contractor, except that a decision by the Owner or
Consultant shall not be a condition precedent to arbitration. If the Prime Contract does
not provide for arbitration or fails to specify the manner and procedure for arbitration,
it shall be conducted in accordance with the law of the Philippines currently in effect
unless the Parties mutually agree otherwise.53 (Emphasis supplied)

However, petitioner insists that the General Conditions which form part of the Prime Contract
provide for a specific venue for arbitration, to wit:

5.19.3. Any dispute shall be settled under the Rules of Conciliation and Arbitration of
the International Chamber of Commerce by one or more arbitrators appointed under
such Rules.54

The claim of petitioner is not plausible.

In National Irrigation Administration v. Court of Appeals55 this Court recognized the new
procedure in the arbitration of disputes before the CIAC, in this wise:

It is undisputed that the contracts between HYDRO and NIA contained an arbitration
clause wherein they agreed to submit to arbitration any dispute between them that may
arise before or after the termination of the agreement. Consequently, the claim of
 HYDRO having arisen from the contract is arbitrable. NIA's reliance with the ruling on
the case of Tesco Services Incorporated v. Vera, is misplaced.

The 1988 CIAC Rules of Procedure which were applied by this Court in Tesco case had
been duly amended by CIAC Resolutions No. 2-91 and 3-93, Section 1 of Article III of
which reads as follows:

Submission to CIAC Jurisdiction - An arbitration clause in a construction

contract or a submission to arbitration of a construction dispute shall be
deemed an agreement to submit an existing or future controversy to CIAC
jurisdiction, notwithstanding the reference to a different arbitration
institution or arbitral body in such contract or submission. When a contract
contains a clause for the submission of a future controversy to arbitration, it is not
necessary for the parties to enter into a submission agreement before the claimant may
invoke the jurisdiction of CIAC.

Under the present Rules of Procedure, for a particular construction contract to fall
within the jurisdiction of CIAC, it is merely required that the parties agree to submit the
same to voluntary arbitration. Unlike in the original version of Section 1, as applied in
the Tesco case, the law as it now stands does not provide that the parties should agree
to submit disputes arising from their agreement specifically to the CIAC for the latter to
acquire jurisdiction over the same. Rather, it is plain and clear that as long as
the parties agree to submit to voluntary arbitration, regardless of what
forum they may choose, their agreement will fall within the jurisdiction of
the CIAC, such that, even if they specifically choose another forum, the
parties will not be precluded from electing to submit their dispute before
the CIAC because this right has been vested upon each party by law, i.e.,
E.O. No. 1008.56 (Emphasis and underscoring supplied)

Based on the foregoing, 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.

The first act is applicable to the case at bar. The bare fact that the parties incorporated an
arbitration clause in their contract is sufficient to vest the CIAC with jurisdiction over any
construction controversy or claim between the parties. The rule is explicit that the CIAC has
jurisdiction notwithstanding any reference made to another arbitral body.

It is well-settled that jurisdiction is conferred by law and cannot be waived by agreement or

acts of the parties. Thus, the contention of petitioner that it never authorized its lawyer to
submit the case for arbitration must likewise fail. Petitioner argues that notwithstanding the
presence of an arbitration clause, there must be a subsequent consent by the parties to submit
the case for arbitration. To stress, the CIAC was already vested with jurisdiction the moment
both parties agreed to incorporate an arbitration clause in the sub-contract agreement. Thus,
a subsequent consent by the parties would be superfluous and unnecessary.

It must be noted however that the reliance of the CIAC in it's assailed Order on Philrock57is
inaccurate. In Philrock, the Court ruled that the CIAC had jurisdiction over the case because
of the agreement of the parties to refer the case to arbitration. In the case at bar, the
agreement to refer specific issues to the CIAC is disputed by petitioner on the ground that
such agreement was entered into by its counsel who was not authorized to do so. In addition,
in Philrock, the petitioner therein had actively participated in the arbitration proceedings,
while in the case at bar there where only two instances wherein petitioner participated, to wit:
1) the referral of five specific issues to the CIAC; and 2) the subsequent manifestation that
additional matters be referred to the CIAC.

The foregoing notwithstanding, CIAC has jurisdiction over the construction dispute because
of the mere presence of the arbitration clause in the subcontract agreement.

Thus, the CIAC did not commit any patent grave abuse of discretion, nor did it act without
jurisdiction when it issued the assailed Order denying petitioner's motion to dismiss.
Accordingly, there is no compelling reason for this Court to deviate from the rule that a denial
of a motion to dismiss, absent a showing of lack of jurisdiction or grave abuse of discretion
amounting to lack of or excess jurisdiction, being an interlocutory order, is not the proper
subject of a petition for certiorari.

Anent the second assigned error, the Court notes that the reliance of the CA on NIA is
inaccurate. In NIA,58this Court observed:

Moreover, it is undeniable that NIA agreed to submit the dispute for arbitration to the
CIAC. NIA through its counsel actively participated in the arbitration proceedings by
filing an answer with counterclaim, as well as its compliance wherein it nominated
arbitrators to the proposed panel, participating in the deliberations on, and the
formulation of the Terms of Reference of the arbitration proceeding, and examining the
documents submitted by HYDRO after NIA asked for originals of the said
documents."59

In the case at bar, the only participation that can be attributed to petitioner is the joint
referral of specific issues to the CIAC and the manifestation praying that additional matters be
referred to the CIAC. Both acts, however, have been disputed by petitioner because said acts
were performed by their lawyer who was not authorized to submit the case for arbitration.
And even if these were duly authorized, this would still not change the correct finding of the
CA that the CIAC had jurisdiction over the dispute because, as has been earlier stressed, the
arbitration clause in the subcontract agreement ipso facto vested the CIAC with jurisdiction.

In passing, even the RTC in its Resolution recognized the authority of the CIAC to hear the
case, to wit:

Courts cannot and will not resolve a controversy involving a question which is within
the jurisdiction of an administrative tribunal, especially where the question demands
the exercise of sound administrative discretion requiring the special knowledge,
experience and services of the administrative tribunal to determine technical and
intricate matters of fact. And undoubtedly in this case, the CIAC it cannot be
denied, is that administrative tribunal.60(Emphasis supplied)

It puzzles this Court why petitioner would insist that the RTC should hear the case when the
CIAC has the required skill and expertise in addressing construction disputes. Records will
bear out the fact that petitioner refused to and did not participate in the CIAC proceedings. In
its defense, petitioner cited jurisprudence to the effect that active participation before a quasi-
judicial body would be tantamount to an invocation of the latter bodies' jurisdiction and a
willingness to abide by the resolution of the case.61 Pursuant to such doctrine, petitioner
argued that had it participated in the CIAC proceedings, it would have been barred from
impugning the jurisdiction of the CIAC.

Petitioner cannot presume that it would have been estopped from questioning the jurisdiction
of the CIAC had it participated in the proceedings. In fact, estoppel is a matter for the court to
consider. The doctrine of laches or of stale demands is based upon grounds of public policy
which requires, for the peace of society, the discouragement of stale claims and, unlike the
statute of limitations, is not a mere question of time but is principally a question of the
inequity or unfairness of permitting a right or claim to be enforced or asserted.62 The Court
always looks into the attendant circumstances of the case so as not to subvert public
policy.63 Given that petitioner questioned the jurisdiction of the CIAC from the beginning, it
was not remiss in enforcing its right. Hence, petitioner's claim that it would have been
estopped is premature.

The Court finds the last assigned error to be without merit.

It is well to note that in its petition for certiorari64 filed with the CA on April 9, 2002,
petitioner prayed for the issuance of a temporary restraining order and a writ of preliminary
injunction to enjoin the CIAC from hearing the case. On September 27, 2002, the CIAC
promulgated its decision awarding Php31,119,465.81 to respondent. It is unfortunate for
petitioner that the CA did not timely act on its petition. Records show that the temporary
restraining order65 was issued only on October 15, 2002 and a writ of preliminary
injunction66 was granted on December 11, 2002, long after the CIAC had concluded its
proceedings. The only effect of the writ was to enjoin temporarily the enforcement of the
award of the CIAC.

The Court notes that had the CA performed its duty promptly, then this present petition could
have been avoided as the CIAC rules allow for the reopening of hearings, to wit:

SECTION 13.14 Reopening of hearing - The hearing may be reopened by the

Arbitral Tribunal on their own motion or upon the request of any party,
upon good cause shown, at any time before the award is rendered. When
hearings are thus reopened, the effective date for the closing of the hearing shall be the
date of closing of the reopened hearing. (Emphasis supplied)

But because of the belated action of the CA, the CIAC had to proceed with the hearing
notwithstanding the non-participation of petitioner.

Under the CIAC rules, even without the participation of petitioner in the proceedings, the
CIAC was still required to proceed with the hearing of the construction dispute. Section 4.2 of
the CIAC rules provides:

SECTION 4.2 Failure or refusal to arbitrate - Where the jurisdiction of CIAC is

properly invoked by the filing of a Request for Arbitration in accordance
with these Rules, the failure despite due notice which amounts to a refusal
of the Respondent to arbitrate, shall not stay the proceedings
 notwithstanding the absence or lack of participation of the Respondent. In
such case, CIAC shall appoint the arbitrator/s in accordance with these Rules.
Arbitration proceedings shall continue, and the award shall be made after receiving the
evidence of the Claimant. (Emphasis and underscoring supplied)

This Court finds that the CIAC simply followed its rules when it proceeded with the hearing of
the dispute notwithstanding that petitioner refused to participate therein.

To reiterate, the proceedings before the CIAC were valid, for the same had been conducted
within its authority and jurisdiction and in accordance with the rules of procedure provided
by Section 4.2 of the CIAC Rules.

The ruling of the Supreme Court in Lastimoso v. Asayo67 is instructive:

xxxx

In addition, it is also understandable why respondent immediately resorted to the

remedy of certiorari instead of pursuing his motion for reconsideration of the PNP
Chief's decision as an appeal before the National Appellate Board (NAB). It was quite
easy to get confused as to which body had jurisdiction over his case. The
complaint filed against respondent could fall under both Sections 41 and 42
of Republic Act (R.A.) No. 6975 or the Department of Interior and Local
Government Act of 1990. Section 41 states that citizens' complaints should be
brought before the People's Law Enforcement Board (PLEB), while Section 42 states
that it is the PNP Chief who has authority to immediately remove or dismiss a PNP
member who is guilty of conduct unbecoming of a police officer.

It was only in Quiambao v. Court of Appeals, promulgated in 2005 or after

respondent had already filed the petition for certiorari with the trial court,
when the Court resolved the issue of which body has jurisdiction over cases
that fall under both Sections 41 and 42 of R.A. No. 6975. x x x

With the foregoing peculiar circumstances in this case, respondent should not be
deprived of the opportunity to fully ventilate his arguments against the factual findings
of the PNP Chief. x x x

xxxx

Thus, the opportunity to pursue an appeal before the NAB should be deemed available
to respondent in the higher interest of substantial justice.68 (Emphasis supplied)

In Lastimoso, this Court allowed respondent to appeal his case before the proper agency
because of the confusion as to which agency had jurisdiction over the case. In the case at bar,
law and supporting jurisprudence are clear and leave no room for interpretation that the CIAC
has jurisdiction over the present controversy.

The proceedings cannot then be voided merely because of the non-participation of petitioner.
Section 4.2 of the CIAC Rules is clear and it leaves no room for interpretation. Therefore,
petitioner's prayer that the case be remanded to CIAC in order that it may be given an
opportunity to present evidence is untenable. Petitioner had its chance and lost it, more
importantly so, by its own choice. This Court will not afford a relief that is apparently
inconsistent with the law.

WHEREFORE, the petition is denied for lack of merit. The August 20, 2004 Decision and
August 1, 2005 Resolution of the Court of Appeals in CA-G.R. SP Nos. 70001 and 71621
are AFFIRMED.

Double costs against petitioner.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 185582 February 29, 2012

TUNA PROCESSING, INC., Petitioner,

vs.
PHILIPPINE KINGFORD, INC., Respondent.

DECISION

PEREZ, J.:

Can a foreign corporation not licensed to do business in the Philippines, but which collects
royalties from entities in the Philippines, sue here to enforce a foreign arbitral award?

In this Petition for Review on Certiorari under Rule 45,1 petitioner Tuna Processing, Inc.
(TPI), a foreign corporation not licensed to do business in the Philippines, prays that the
Resolution2 dated 21 November 2008 of the Regional Trial Court (RTC) of Makati City be
declared void and the case be remanded to the RTC for further proceedings. In the assailed
Resolution, the RTC dismissed petitioner’s Petition for Confirmation, Recognition, and
Enforcement of Foreign Arbitral Award3 against respondent Philippine Kingford, Inc.
(Kingford), a corporation duly organized and existing under the laws of the Philippines, 4 on
the ground that petitioner lacked legal capacity to sue.5

The Antecedents

On 14 January 2003, Kanemitsu Yamaoka (hereinafter referred to as the "licensor"), co-

patentee of U.S. Patent No. 5,484,619, Philippine Letters Patent No. 31138, and Indonesian
Patent No. ID0003911 (collectively referred to as the "Yamaoka Patent"), 6 and five (5)
Philippine tuna processors, namely, Angel Seafood Corporation, East Asia Fish Co., Inc.,
Mommy Gina Tuna Resources, Santa Cruz Seafoods, Inc., and respondent Kingford
(collectively referred to as the "sponsors"/"licensees")7 entered into a Memorandum of
Agreement (MOA),8 pertinent provisions of which read:

1. Background and objectives. The Licensor, co-owner of U.S.Patent No. 5,484,619,

Philippine Patent No. 31138, and Indonesian Patent No. ID0003911 xxx wishes to form
an alliance with Sponsors for purposes of enforcing his three aforementioned patents,
granting licenses under those patents, and collecting royalties.

The Sponsors wish to be licensed under the aforementioned patents in order to practice
the processes claimed in those patents in the United States, the Philippines, and
Indonesia, enforce those patents and collect royalties in conjunction with Licensor.

xxx
 4. Establishment of Tuna Processors, Inc. The parties hereto agree to the
establishment of Tuna Processors, Inc. ("TPI"), a corporation established in the State of
California, in order to implement the objectives of this Agreement.

5. Bank account. TPI shall open and maintain bank accounts in the United States,
which will be used exclusively to deposit funds that it will collect and to disburse cash it
will be obligated to spend in connection with the implementation of this Agreement.

6. Ownership of TPI. TPI shall be owned by the Sponsors and Licensor. Licensor
shall be assigned one share of TPI for the purpose of being elected as member of the
board of directors. The remaining shares of TPI shall be held by the Sponsors according
to their respective equity shares. 9

xxx

The parties likewise executed a Supplemental Memorandum of Agreement10 dated 15 January

2003 and an Agreement to Amend Memorandum of Agreement11 dated 14 July 2003.

Due to a series of events not mentioned in the petition, the licensees, including respondent
Kingford, withdrew from petitioner TPI and correspondingly reneged on their
obligations.12 Petitioner submitted the dispute for arbitration before the International Centre
for Dispute Resolution in the State of California, United States and won the case against
respondent.13 Pertinent portions of the award read:

13.1 Within thirty (30) days from the date of transmittal of this Award to the Parties, pursuant
to the terms of this award, the total sum to be paid by RESPONDENT
KINGFORD to CLAIMANT TPI, is the sum of ONE MILLION SEVEN HUNDRED
FIFTY THOUSAND EIGHT HUNDRED FORTY SIX DOLLARS AND TEN CENTS
($1,750,846.10).

(A) For breach of the MOA by not paying past due assessments, RESPONDENT
KINGFORD shall pay CLAIMANT the total sum of TWO HUNDRED TWENTY
NINE THOUSAND THREE HUNDRED AND FIFTY FIVE DOLLARS AND
NINETY CENTS ($229,355.90) which is 20% of MOA assessments since
September 1, 2005[;]

(B) For breach of the MOA in failing to cooperate with CLAIMANT TPI in fulfilling
the objectives of the MOA, RESPONDENT KINGFORD shall pay CLAIMANT the
total sum of TWO HUNDRED SEVENTY ONE THOUSAND FOUR HUNDRED
NINETY DOLLARS AND TWENTY CENTS ($271,490.20)[;]14 and

(C) For violation of THE LANHAM ACT and infringement of the YAMAOKA 619
PATENT, RESPONDENT KINGFORD shall pay CLAIMANT the total sum
of ONE MILLION TWO HUNDRED FIFTY THOUSAND DOLLARS AND NO
CENTS ($1,250,000.00). xxx

xxx15
To enforce the award, petitioner TPI filed on 10 October 2007 a Petition for Confirmation,
Recognition, and Enforcement of Foreign Arbitral Award before the RTC of Makati City. The
petition was raffled to Branch 150 presided by Judge Elmo M. Alameda.

At Branch 150, respondent Kingford filed a Motion to Dismiss.16 After the court denied the
motion for lack of merit,17respondent sought for the inhibition of Judge Alameda and moved
for the reconsideration of the order denying the motion.18 Judge Alameda inhibited himself
notwithstanding "[t]he unfounded allegations and unsubstantiated assertions in the
motion."19 Judge Cedrick O. Ruiz of Branch 61, to which the case was re-raffled, in turn,
granted respondent’s Motion for Reconsideration and dismissed the petition on the ground
that the petitioner lacked legal capacity to sue in the Philippines.20

Petitioner TPI now seeks to nullify, in this instant Petition for Review on Certiorari under
Rule 45, the order of the trial court dismissing its Petition for Confirmation, Recognition, and
Enforcement of Foreign Arbitral Award.

Issue

The core issue in this case is whether or not the court a quo was correct in so dismissing the
petition on the ground of petitioner’s lack of legal capacity to sue.

Our Ruling

The petition is impressed with merit.

The Corporation Code of the Philippines expressly provides:

Sec. 133. Doing business without a license. - No foreign corporation transacting

business in the Philippines without a license, or its successors or assigns, shall be permitted to
maintain or intervene in any action, suit or proceeding in any court or administrative agency
of the Philippines; but such corporation may be sued or proceeded against before Philippine
courts or administrative tribunals on any valid cause of action recognized under Philippine
laws.

It is pursuant to the aforequoted provision that the court a quo dismissed the petition. Thus:

Herein plaintiff TPI’s "Petition, etc." acknowledges that it "is a foreign corporation established
in the State of California" and "was given the exclusive right to license or sublicense the
Yamaoka Patent" and "was assigned the exclusive right to enforce the said patent and collect
corresponding royalties" in the Philippines. TPI likewise admits that it does not have a license
to do business in the Philippines.

There is no doubt, therefore, in the mind of this Court that TPI has been doing business in the
Philippines, but sans a license to do so issued by the concerned government agency of the
Republic of the Philippines, when it collected royalties from "five (5) Philippine tuna
processors[,] namely[,] Angel Seafood Corporation, East Asia Fish Co., Inc., Mommy Gina
Tuna Resources, Santa Cruz Seafoods, Inc. and respondent Philippine Kingford, Inc." This
being the real situation, TPI cannot be permitted to maintain or intervene in any action, suit
or proceedings in any court or administrative agency of the Philippines." A priori, the
"Petition, etc." extant of the plaintiff TPI should be dismissed for it does not have the legal
personality to sue in the Philippines.21

The petitioner counters, however, that it is entitled to seek for the recognition and
enforcement of the subject foreign arbitral award in accordance with Republic Act No. 9285
(Alternative Dispute Resolution Act of 2004),22 the Convention on the Recognition and
Enforcement of Foreign Arbitral Awards drafted during the United Nations Conference on
International Commercial Arbitration in 1958 (New York Convention), and the UNCITRAL
Model Law on International Commercial Arbitration (Model Law),23 as none of these
specifically requires that the party seeking for the enforcement should have legal capacity to
sue. It anchors its argument on the following:

In the present case, enforcement has been effectively refused on a ground not found in the
[Alternative Dispute Resolution Act of 2004], New York Convention, or Model Law. It is for
this reason that TPI has brought this matter before this most Honorable Court, as it [i]s
imperative to clarify whether the Philippines’ international obligations and State policy to
strengthen arbitration as a means of dispute resolution may be defeated by misplaced
technical considerations not found in the relevant laws.24

Simply put, how do we reconcile the provisions of the Corporation Code of the Philippines on
one hand, and the Alternative Dispute Resolution Act of 2004, the New York Convention and
the Model Law on the other?

In several cases, this Court had the occasion to discuss the nature and applicability of
the Corporation Code of the Philippines, a general law, viz-a-viz other special laws. Thus,
in Koruga v. Arcenas, Jr.,25 this Court rejected the application of the Corporation Code and
applied the New Central Bank Act. It ratiocinated:

Koruga’s invocation of the provisions of the Corporation Code is misplaced. In an earlier case
with similar antecedents, we ruled that:

"The Corporation Code, however, is a general law applying to all types of corporations, while
the New Central Bank Act regulates specifically banks and other financial institutions,
including the dissolution and liquidation thereof. As between a general and special law, the
latter shall prevail – generalia specialibus non derogant." (Emphasis supplied)26

Further, in the recent case of Hacienda Luisita, Incorporated v. Presidential Agrarian

Reform Council,27 this Court held:

Without doubt, the Corporation Code is the general law providing for the formation,
organization and regulation of private corporations. On the other hand, RA 6657 is the special
law on agrarian reform. As between a general and special law, the latter shall prevail—
generalia specialibus non derogant.28

Following the same principle, the Alternative Dispute Resolution Act of 2004 shall apply in
this case as the Act, as its title - 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 - would suggest, is a law especially enacted "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."29 It specifically provides exclusive grounds
available to the party opposing an application for recognition and enforcement of the arbitral
award.30

Inasmuch as the Alternative Dispute Resolution Act of 2004, a municipal law, applies in the
instant petition, we do not see the need to discuss compliance with international obligations
under the New York Convention and the Model Law. After all, both already form part of the
law.

In particular, the Alternative Dispute Resolution Act of 2004 incorporated the New York
Convention in the Act by specifically providing:

SEC. 42. Application of the New York Convention. - The New York Convention shall govern
the recognition and enforcement of arbitral awards covered by the said Convention.

xxx

SEC. 45. Rejection of a Foreign Arbitral Award. - A party to a foreign arbitration proceeding
may oppose an application for recognition and enforcement of the arbitral award in
accordance with the procedural rules to be promulgated by the Supreme Court only on those
grounds enumerated under Article V of the New York Convention. Any other ground raised
shall be disregarded by the regional trial court.

It also expressly adopted the Model Law, to wit:

Sec. 19. Adoption of the Model Law on International Commercial Arbitration. International
commercial arbitration shall be governed by the Model Law on International Commercial
Arbitration (the "Model Law") adopted by the United Nations Commission on International
Trade Law on June 21, 1985 xxx."

Now, does a foreign corporation not licensed to do business in the Philippines have legal
capacity to sue under the provisions of the Alternative Dispute Resolution Act of 2004? We
answer in the affirmative.

Sec. 45 of the Alternative Dispute Resolution Act of 2004 provides that the opposing party in
an application for recognition and enforcement of the arbitral award may raise only those
grounds that were enumerated under Article V of the New York Convention, to wit:

Article V

1. Recognition and enforcement of the award may be refused, at the request of the party
against whom it is invoked, only if that party furnishes to the competent authority
where the recognition and enforcement is sought, proof that:

(a) The parties to the agreement referred to in article II were, under the law
applicable to them, under some incapacity, or the said agreement is not valid
under the law to which the parties have subjected it or, failing any indication
thereon, under the law of the country where the award was made; or
 (b) The party against whom the award is invoked was not given proper notice of
the appointment of the arbitrator or of the arbitration proceedings or was
otherwise unable to present his case; or

(c) The award deals with a difference not contemplated by or not falling within
the terms of the submission to arbitration, or it contains decisions on matters
beyond the scope of the submission to arbitration, provided that, if the decisions
on matters submitted to arbitration can be separated from those not so
submitted, that part of the award which contains decisions on matters submitted
to arbitration may be recognized and enforced; or

(d) The composition of the arbitral authority or the arbitral procedure was not in
accordance with the agreement of the parties, or, failing such agreement, was not
in accordance with the law of the country where the arbitration took place; or

(e) The award has not yet become binding on the parties, or has been set aside or
suspended by a competent authority of the country in which, or under the law of
which, that award was made.

2. Recognition and enforcement of an arbitral award may also be refused if the

competent authority in the country where recognition and enforcement is sought finds
that:

(a) The subject matter of the difference is not capable of settlement by arbitration
under the law of that country; or

(b) The recognition or enforcement of the award would be contrary to the public
policy of that country.

Clearly, not one of these exclusive grounds touched on the capacity to sue of the party seeking
the recognition and enforcement of the award.

Pertinent provisions of the Special Rules of Court on Alternative Dispute Resolution,31 which
was promulgated by the Supreme Court, likewise support this position.

Rule 13.1 of the Special Rules provides that "[a]ny party to a foreign arbitration may petition
the court to recognize and enforce a foreign arbitral award." The contents of such petition are
enumerated in Rule 13.5.32 Capacity to sue is not included. Oppositely, in the Rule on local
arbitral awards or arbitrations in instances where "the place of arbitration is in the
Philippines,"33 it is specifically required that a petition "to determine any question concerning
the existence, validity and enforceability of such arbitration agreement"34 available to the
parties before the commencement of arbitration and/or a petition for "judicial relief from the
ruling of the arbitral tribunal on a preliminary question upholding or declining its
jurisdiction"35 after arbitration has already commenced should state "[t]he facts showing that
the persons named as petitioner or respondent have legal capacity to sue or be sued."36

Indeed, it is in the best interest of justice that in the enforecement of a foreign arbitral award,
we deny availment by the losing party of the rule that bars foreign corporations not licensed to
do business in the Philippines from maintaining a suit in our courts. When a party enters into
a contract containing a foreign arbitration clause and, as in this case, in fact submits itself to
arbitration, it becomes bound by the contract, by the arbitration and by the result of
arbitration, conceding thereby the capacity of the other party to enter into the contract,
participate in the arbitration and cause the implementation of the result. Although not on all
fours with the instant case, also worthy to consider is the

wisdom of then Associate Justice Flerida Ruth P. Romero in her Dissenting Opinion in Asset
Privatization Trust v. Court of Appeals,37 to wit:

xxx Arbitration, as an alternative mode of settlement, is gaining adherents in legal and judicial
circles here and abroad. If its tested mechanism can simply be ignored by an aggrieved party,
one who, it must be stressed, voluntarily and actively participated in the arbitration
proceedings from the very beginning, it will destroy the very essence of mutuality inherent in
consensual contracts.38

Clearly, on the matter of capacity to sue, a foreign arbitral award should be respected not
because it is favored over domestic laws and procedures, but because Republic Act No. 9285
has certainly erased any conflict of law question.

Finally, even assuming, only for the sake of argument, that the court a quo correctly observed
that the Model Law, not the New York Convention, governs the subject arbitral
award,39 petitioner may still seek recognition and enforcement of the award in Philippine
court, since the Model Law prescribes substantially identical exclusive grounds for refusing
recognition or enforcement.40

Premises considered, petitioner TPI, although not licensed to do business in the Philippines,
may seek recognition and enforcement of the foreign arbitral award in accordance with the
provisions of the Alternative Dispute Resolution Act of 2004.

II

The remaining arguments of respondent Kingford are likewise unmeritorious.

First. There is no need to consider respondent’s contention that petitioner TPI improperly
raised a question of fact when it posited that its act of entering into a MOA should not be
considered "doing business" in the Philippines for the purpose of determining capacity to sue.
We reiterate that the foreign corporation’s capacity to sue in the Philippines is not material
insofar as the recognition and enforcement of a foreign arbitral award is concerned.

Second. Respondent cannot fault petitioner for not filing a motion for reconsideration of the
assailed Resolution dated 21 November 2008 dismissing the case. We have, time and again,
ruled that the prior filing of a motion for reconsideration is not required in certiorari under
Rule 45.41

Third. While we agree that petitioner failed to observe the principle of hierarchy of courts,
which, under ordinary circumstances, warrants the outright dismissal of the case,42 we opt to
relax the rules following the pronouncement in Chua v. Ang,43 to wit:
[I]t must be remembered that [the principle of hierarchy of courts] generally applies to cases
involving conflicting factual allegations. Cases which depend on disputed facts for decision
cannot be brought immediately before us as we are not triers of facts.44 A strict application of
this rule may be excused when the reason behind the rule is not present in a case, as in the
present case, where the issues are not factual but purely legal.1âwphi1 In these types of
questions, this Court has the ultimate say so that we merely abbreviate the review process if
we, because of the unique circumstances of a case, choose to hear and decide the legal issues
outright.45

Moreover, the novelty and the paramount importance of the issue herein raised should be
seriously considered.46Surely, there is a need to take cognizance of the case not only to guide
the bench and the bar, but if only to strengthen arbitration as a means of dispute resolution,
and uphold the policy of the State embodied in the Alternative Dispute Resolution Act of
2004, to wit:

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. xxx

Fourth. As regards the issue on the validity and enforceability of the foreign arbitral award, we
leave its determination to the court a quo where its recognition and enforcement is being
sought.

Fifth. Respondent claims that petitioner failed to furnish the court of origin a copy of the
motion for time to file petition for review on certiorari before the petition was filed with this
Court.47 We, however, find petitioner’s reply in order. Thus:

26. Admittedly, reference to "Branch 67" in petitioner TPI’s "Motion for Time to File a
Petition for Review on Certiorari under Rule 45" is a typographical error. As correctly pointed
out by respondent Kingford, the order sought to be assailed originated from Regional Trial
Court, Makati City, Branch 61.

27. xxx Upon confirmation with the Regional Trial Court, Makati City, Branch 61, a copy of
petitioner TPI’s motion was received by the Metropolitan Trial Court, Makati City, Branch 67.
On 8 January 2009, the motion was forwarded to the Regional Trial Court, Makati City,
Branch 61.48

All considered, petitioner TPI, although a foreign corporation not licensed to do business in
the Philippines, is not, for that reason alone, precluded from filing the Petition for
Confirmation, Recognition, and Enforcement of Foreign Arbitral Award before a Philippine
court.

WHEREFORE, the Resolution dated 21 November 2008 of the Regional Trial Court, Branch
61, Makati City in Special Proceedings No. M-6533 is hereby REVERSED and SET ASIDE.
The case is REMANDED to Branch 61 for further proceedings.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 187521 March 14, 2012

F.F. CRUZ & CO., INC., Petitioner,

vs.
HR CONSTRUCTION CORP., Respondent.

DECISION

REYES, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by
petitioner F.F. Cruz & Co., Inc. (FFCCI) assailing the Decision1 dated February 6, 2009 and
Resolution2 dated April 13, 2009 issued by the Court of Appeals (CA) in CA-G.R. SP No.
91860.

The Antecedent Facts

Sometime in 2004, FFCCI entered into a contract with the Department of Public Works and
Highways (DPWH) for the construction of the Magsaysay Viaduct, known as the Lower
Agusan Development Project. On August 9, 2004, FFCCI, in turn, entered into a Subcontract
Agreement3 with HR Construction Corporation (HRCC) for the supply of materials, labor,
equipment, tools and supervision for the construction of a portion of the said project called
the East Bank Levee and Cut-Off Channel in accordance with the specifications of the main
contract.

The subcontract price agreed upon by the parties amounted to ₱31,293,532.72. Pursuant to
the Subcontract Agreement, HRCC would submit to FFCCI a monthly progress billing which
the latter would then pay, subject to stipulated deductions, within 30 days from receipt
thereof.

The parties agreed that the requests of HRCC for payment should include progress
accomplishment of its completed works as approved by FFCCI. Additionally, they agreed to
conduct a joint measurement of the completed works of HRCC together with the
representative of DPWH and consultants to arrive at a common quantity.

Thereafter, HRCC commenced the construction of the works pursuant to the Subcontract
Agreement.

On September 17, 2004, HRCC submitted to FFCCI its first progress billing in the amount of
₱2,029,081.59 covering the construction works it completed from August 16 to September 15,
2004.4 However, FFCCI asserted that the DPWH was then able to evaluate the completed
works of HRCC only until July 25, 2004. Thus, FFCCI only approved the gross amount of
₱423,502.88 for payment. Pursuant to the Subcontract Agreement, FFCCI deducted from the
said gross amount ₱42,350.29 for retention and ₱7,700.05 for expanded withholding tax
leaving a net payment in the amount of ₱373,452.54. This amount was paid by FFCCI to
HRCC on December 3, 2004.5

FFCCI and the DPWH then jointly evaluated the completed works of HRCC for the period of
July 26 to September 25, 2004. FFCCI claimed that the gross amount due for the completed
works during the said period was ₱2,008,837.52. From the said gross amount due, FFCCI
deducted therefrom ₱200,883.75 for retention and ₱36,524.07 for expanded withholding tax
leaving amount of ₱1,771,429.45 as the approved net payment for the said period. FFCCI paid
this amount on December 21, 2004.6

On October 29, 2004, HRCC submitted to FFCCI its second progress billing in the amount of
₱1,587,760.23 covering its completed works from September 18 to 25, 2004.7 FFCCI did not
pay the amount stated in the second progress billing, claiming that it had already paid HRCC
for the completed works for the period stated therein.

On even date, HRCC submitted its third progress billing in the amount of ₱2,569,543.57 for
its completed works from September 26 to October 25, 2004. 8 FFCCI did not immediately pay
the amount stated in the third progress billing, claiming that it still had to evaluate the works
accomplished by HRCC.

On November 25, 2004, HRCC submitted to FFCCI its fourth progress billing in the amount
of ₱1,527,112.95 for the works it had completed from October 26 to November 25, 2004.

Subsequently, FFCCI, after it had evaluated the completed works of HRCC from September 26
to November 25, 2004, approved the payment of the gross amount of ₱1,505,570.99 to HRCC.
FFCCI deducted therefrom ₱150,557.10 for retention and ₱27,374.02 for expanded
withholding tax leaving a net payment of ₱1,327,639.87, which amount was paid to HRCC on
March 11, 2005.9

Meanwhile, HRCC sent FFCCI a letter10 dated December 13, 2004 demanding the payment of
its progress billings in the total amount of ₱7,340,046.09, plus interests, within three days
from receipt thereof. Subsequently, HRCC completely halted the construction of the
subcontracted project after taking its Christmas break on December 18, 2004.

On March 7, 2005, HRCC, pursuant to the arbitration clause in the Subcontract Agreement,
filed with the Construction Industry Arbitration Commission (CIAC) a Complaint 11 against
FFCCI praying for the payment of the following: (1) overdue obligation in the reduced amount
of ₱4,096,656.53 as of December 15, 2004 plus legal interest; (2) ₱1,500,000.00 as attorney’s
fees; (3) ₱80,000.00 as acceptance fee and representation expenses; and (4) costs of
litigation.

In its Answer,12 FFCCI claimed that it no longer has any liability on the Subcontract
Agreement as the three payments it made to HRCC, which amounted to ₱3,472,521.86,
already represented the amount due to the latter in view of the works actually completed by
HRCC as shown by the survey it conducted jointly with the DPWH. FFCCI further asserted
that the delay in the payment processing was primarily attributable to HRCC inasmuch as it
presented unverified work accomplishments contrary to the stipulation in the Subcontract
Agreement regarding requests for payment.

Likewise, FFCCI maintained that HRCC failed to comply with the condition stated under the
Subcontract Agreement for the payment of the latter’s progress billings, i.e. joint
measurement of the completed works, and, hence, it was justified in not paying the amount
stated in HRCC’s progress billings.

On June 16, 2005, an Arbitral Tribunal was created composed of Engineer Ricardo B. San
Juan, Joven B. Joaquin and Attorney Alfredo F. Tadiar, with the latter being appointed as the
Chairman.

In a Preliminary Conference held on July 5, 2005, the parties defined the issues to be resolved
in the proceedings before the CIAC as follows:

1. What is the correct amount of [HRCC’s] unpaid progress billing?

2. Did [HRCC] comply with the conditions set forth in subparagraph 4.3 of the
Subcontract Agreement for the submission, evaluation/processing and release of
payment of its progress billings?

3. Did [HRCC] stop work on the project?

3.1 If so, is the work stoppage justified?

3.2 If so, what was the percentage and value of [HRCC’s] work accomplishment
at the time it stopped work on the project?

4. Who between the parties should bear the cost of arbitration or in what proportion
should it be shared by the parties?13

Likewise, during the said Preliminary Conference, HRCC further reduced the amount of
overdue obligation it claimed from FFCCI to ₱2,768,916.66. During the course of the
proceedings before the CIAC, HRCC further reduced the said amount to ₱2,635,397.77 – the
exact difference between the total amount of HRCC’s progress billings (₱6,107,919.63) and
FFCCI’s total payments in favor of the latter (₱3,472,521.86).

The CIAC Decision

On September 6, 2005, after due proceedings, the CIAC rendered a Decision 14 in favor of
HRCC, the decretal portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the Claimant HR CONSTRUCTION

CORPORATION and AWARD made on its monetary claim against Respondent F.F. CRUZ &
CO., INC., as follows:

[₱]2,239,452.63 as the balance of its unpaid billings and

101,161.57 as reimbursement of the arbitration costs.
 [₱]2,340,614.20 Total due the Claimant

Interest on the foregoing amount [₱]2,239,452.63 shall be paid at the rate of 6% per annum
from the date of this Decision. After finality of this Decision, interest at the rate of 12% per
annum shall be paid thereon until full payment of the awarded amount shall have been made
x x x.

SO ORDERED.15

The CIAC held that the payment method adopted by FFCCI is actually what is known as the
"back-to-back payment scheme" which was not agreed upon under the Subcontract
Agreement. As such, the CIAC ruled that FFCCI could not impose upon HRCC its valuation of
the works completed by the latter. The CIAC gave credence to HRCC’s valuation of its
completed works as stated in its progress billings. Thus:

During the trial, [FFCCI’s] Aganon admitted that [HRCC’s] accomplishments are included in
its own billings to the DPWH together with a substantial mark-up to cover overhead costs and
profit. He further admitted that it is only when DPWH approves its (Respondent’s) billings
covering [HRCC’s] scope of work and pays for them, that [FFCCI] will in turn pay [HRCC] for
its billings on the sub-contracted works.

On clarificatory questioning by the Tribunal, [FFCCI] admitted that there is no "back-to-back"

provision in the sub-contract as basis for this sequential payment arrangement and, therefore,
[FFCCI’s] imposition thereof by withholding payment to [HRCC] until it is first paid by the
project owner on the Main Contract, clearly violates said sub-contract. It [is] this
unauthorized implementation of a back-to-back payment scheme that is seen to be the reason
for [FFCCI’s] non-payment of the third progress billings.

It is accordingly the holding of this Arbitral Tribunal that [FFCCI] is not justified in
withholding payment of [HRCC’s] third progress billing for this scheme that [HRCC] has not
agreed to in the sub-contract agreement x x x.

xxx

The total retention money deducted by [FFCCI] from [HRCC’s] three progress billings,
amounts to [₱]395,945.14 x x x. The retention money is part of [HRCC’s] progress billings and
must, therefore, be credited to this account. The two amounts (deductions and net payments)
total [₱]3,868,467.00 x x x. This represents the total gross payments that should be credited
and deducted from the total gross billings to arrive at what has not been paid to the [HRCC].
This results in the amount of [₱]2,239,452.63 ([₱]6,107,919.63 - [₱]3,868,467.00) as the
correct balance of [HRCC’s] unpaid billings.16

Further, the CIAC ruled that FFCCI had already waived its right under the Subcontract
Agreement to require a joint measurement of HRCC’s completed works as a condition
precedent to the payment of the latter’s progress billings. Hence:
[FFCCI] admits that in all three instances where it paid [HRCC] for its progress billings, it
never required compliance with the aforequoted contractual provision of a prior joint
quantification. Such repeated omission may reasonably be construed as a waiver by [FFCCI]
of its contractual right to require compliance of said condition and it is now too late in the day
to so impose it. Article 6 of the Civil Code expressly provides that "rights may be waived
unless the waiver is contrary to law, public order, public policy, morals or good customs". The
tribunal cannot see any such violation in this case.

xxx

[FFCCI’s] omission to enforce the contractually required condition of payment, has led
[HRCC] to believe it to be true that indeed [FFCCI] has waived the condition of joint
quantification and, therefore, [FFCCI] may not be permitted to falsify such resulting
position.17

Likewise, the CIAC held that FFCCI’s non-payment of the progress billings submitted by
HRCC gave the latter the right to rescind the Subcontract Agreement and, accordingly,
HRCC’s work stoppage was justified. It further opined that, in effect, FFCCI had ratified the
right of HRCC to stop the construction works as it did not file any counterclaim against HRCC
for liquidated damages arising therefrom.

FFCCI then filed a petition for review with CA assailing the foregoing disposition by the CIAC.

The CA Decision

On February 6, 2009, the CA rendered the herein assailed Decision18 denying the petition for
review filed by FFCCI. The CA agreed with the CIAC that FFCCI had waived its right under the
Subcontract Agreement to require a joint quantification of HRCC’s completed works.

The CA further held that the amount due to HRCC as claimed by FFCCI could not be given
credence since the same was based on a survey of the completed works conducted without the
participation of HRCC. Likewise, being the main contractor, it ruled that it was the
responsibility of FFCCI to include HRCC in the joint measurement of the completed works.
Furthermore, the CA held that HRCC was justified in stopping its construction works on the
project as the failure of FFCCI to pay its progress billings gave the former the right to rescind
the Subcontract Agreement.

FFCCI sought a reconsideration19 of the said February 6, 2009 Decision but it was denied by
the CA in its Resolution20 dated April 13, 2009.

Issues

In the instant petition, FFCCI submits the following issues for this Court’s resolution:

[I.]

x x x First, [d]oes the act of [FFCCI] in conducting a verification survey of [HRCC’s] billings in
the latter’s presence amount to a waiver of the right of [FFCCI] to verify and approve said
billings? What, if any, is the legal significance of said act?
 [II.]

x x x Second, [d]oes the payment of [FFCCI] to [HRCC] based on the results of the above
mentioned verification survey result in the former being obliged to accept whatever
accomplishment was reported by the latter?

[III.]

x x x Third, [d]oes the mere comparison of the payments made by [FFCCI] with the contested
progress billings of [HRCC] amount to an adjudication of the controversy between the
parties?

[IV.]

x x x Fourth, [d]oes the failure of [FFCCI] to interpose a counterclaim against [HRCC] for
liquidated damages due to the latter’s work stoppage, amount to a ratification of such work
stoppage?

[V.]

x x x Fifth, [d]id the [CA] disregard or overlook significant and material facts which would
affect the result of the litigation?21

In sum, the crucial issues for this Court’s resolution are: first, what is the effect of FFCCI’s
non-compliance with the stipulation in the Subcontract Agreement requiring a joint
quantification of the works completed by HRCC on the payment of the progress billings
submitted by the latter; and second, whether there was a valid rescission of the Subcontract
Agreement by HRCC.

The Court’s Ruling

The petition is not meritorious.

Procedural Issue:

Finality and Conclusiveness of the CIAC’s Factual Findings

Before we delve into the substantial issues raised by FFCCI, we shall first address the
procedural issue raised by HRCC. According to HRCC, the instant petition merely assails the
factual findings of the CIAC as affirmed by the CA and, accordingly, not proper subjects of an
appeal under Rule 45 of the Rules of Court. It likewise pointed out that factual findings of the
CIAC, when affirmed by the CA, are final and conclusive upon this Court.

Generally, the arbitral award of CIAC is final and may not be appealed except on questions of
law.

Executive Order (E.O.) No. 100822 vests upon the CIAC original and exclusive jurisdiction
over disputes arising from, or connected with, contracts entered into by parties involved in
construction in the Philippines. Under Section 19 of E.O. No. 1008, the arbitral award of CIAC
"shall be final and inappealable except on questions of law which shall be appealable to the
Supreme Court."23

In Hi-Precision Steel Center, Inc. v. Lim Kim Steel Builders, Inc.,24 we explained raison d’ etre
for the rule on finality of the CIAC’s arbitral award in this wise:

Voluntary arbitration involves the reference of a dispute to an impartial body, the members of
which are chosen by the parties themselves, which parties freely consent in advance to abide
by the arbitral award issued after proceedings where both parties had the opportunity to be
heard. The basic objective is to provide a speedy and inexpensive method of settling disputes
by allowing the parties to avoid the formalities, delay, expense and aggravation which
commonly accompany ordinary litigation, especially litigation which goes through the entire
hierarchy of courts. Executive Order No. 1008 created an arbitration facility to which the
construction industry in the Philippines can have recourse. The Executive Order was enacted
to encourage the early and expeditious settlement of disputes in the construction industry, a
public policy the implementation of which is necessary and important for the realization of
national development goals.

Aware of the objective of voluntary arbitration in the labor field, in the construction industry,
and in any other area for that matter, the Court will not assist one or the other or even both
parties in any effort to subvert or defeat that objective for their private purposes. The Court
will not review the factual findings of an arbitral tribunal upon the artful allegation that such
body had "misapprehended the facts" and will not pass upon issues which are, at bottom,
issues of fact, no matter how cleverly disguised they might be as "legal questions." The parties
here had recourse to arbitration and chose the arbitrators themselves; they must have had
confidence in such arbitrators. x x x25 (Citation omitted)

Thus, in cases assailing the arbitral award rendered by the CIAC, this Court may only pass
upon questions of law. Factual findings of construction arbitrators are final and conclusive
and not reviewable by this Court on appeal. This rule, however, admits of certain exceptions.

In Spouses David v. Construction Industry and Arbitration Commission,26 we laid down the
instances when this Court may pass upon the factual findings of the CIAC, thus:

We reiterate the rule that factual findings of construction arbitrators are final and conclusive
and not reviewable by this Court on appeal, except when the petitioner proves affirmatively
that: (1) the award was procured by corruption, fraud or other undue means; (2) there was
evident partiality or corruption of the arbitrators or of any of them; (3) the arbitrators were
guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown, or in
refusing to hear evidence pertinent and material to the controversy; (4) one or more of the
arbitrators were disqualified to act as such under section nine of Republic Act No. 876 and
willfully refrained from disclosing such disqualifications or of any other misbehavior by which
the rights of any party have been materially prejudiced; or (5) the arbitrators exceeded their
powers, or so imperfectly executed them, that a mutual, final and definite award upon the
subject matter submitted to them was not made. x x x27 (Citation omitted)

Issues on the proper interpretation of the terms of the Subcontract Agreement involve
questions of law.
A question of law arises when there is doubt as to what the law is on a certain state of facts,
while there is a question of fact when the doubt arises as to the truth or falsity of the alleged
facts. For a question to be one of law, the same must not involve an examination of the
probative value of the evidence presented by the litigants or any of them. The resolution of the
issue must rest solely on what the law provides on the given set of circumstances. Once it is
clear that the issue invites a review of the evidence presented, the question posed is one of
fact.28

On the surface, the instant petition appears to merely raise factual questions as it mainly puts
in issue the appropriate amount that is due to HRCC. However, a more thorough analysis of
the issues raised by FFCCI would show that it actually asserts questions of law.

FFCCI primarily seeks from this Court a determination of whether amount claimed by HRCC
in its progress billing may be enforced against it in the absence of a joint measurement of the
former’s completed works. Otherwise stated, the main question advanced by FFCCI is this: in
the absence of the joint measurement agreed upon in the Subcontract Agreement, how will
the completed works of HRCC be verified and the amount due thereon be computed?

The determination of the foregoing question entails an interpretation of the terms of the
Subcontract Agreement vis-à-vis the respective rights of the parties herein. On this point, it
should be stressed that where an interpretation of the true agreement between the parties is
involved in an appeal, the appeal is in effect an inquiry of the law between the parties, its
interpretation necessarily involves a question of law.29

Moreover, we are not called upon to examine the probative value of the evidence presented
before the CIAC. Rather, what is actually sought from this Court is an interpretation of the
terms of the Subcontract Agreement as it relates to the dispute between the parties.

First Substantive Issue: Effect of Non-compliance with the Joint Quantification Requirement
on the Progress Billings of HRCC

Basically, the instant issue calls for a determination as to which of the parties’ respective
valuation of accomplished works should be given credence. FFCCI claims that its valuation
should be upheld since the same was the result of a measurement of the completed works
conducted by it and the DPWH. On the other hand, HRCC maintains that its valuation should
be upheld on account of FFCCI’s failure to observe the joint measurement requirement in
ascertaining the extent of its completed works.

The terms of the Subcontract Agreement should prevail.

In resolving the dispute as to the proper valuation of the works accomplished by HRCC, the
primordial consideration should be the terms of the Subcontract Agreement. It is basic that if
the 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.30

In Abad v. Goldloop Properties, Inc.,31 we stressed that:

A court’s purpose in examining a contract is to interpret the intent of the contracting parties,
as objectively manifested by them. The process of interpreting a contract requires the court to
make a preliminary inquiry as to whether the contract before it is ambiguous. A contract
provision is ambiguous if it is susceptible of two reasonable alternative interpretations. Where
the written terms of the contract are not ambiguous and can only be read one way, the court
will interpret the contract as a matter of law. If the contract is determined to be ambiguous,
then the interpretation of the contract is left to the court, to resolve the ambiguity in the light
of the intrinsic evidence.32(Emphasis supplied and citation omitted)

Article 4 of the Subcontract Agreement, in part, contained the following stipulations:

ARTICLE 4
SUBCONTRACT PRICE

4.1 The total SUBCONTRACT Price shall be THIRTY ONE MILLION

TWO HUNDRED NINETY THREE THOUSAND FIVE HUNDRED THIRTY TWO PESOS &
72/100 ONLY ([₱]31,293,532.72) inclusive of Value Added Tax x x x.

xxx

4.3 Terms of Payment

FFCCI shall pay [HRCC] within thirty (30) days upon receipt of the [HRCC’s] Monthly
Progress Billings subject to deductions due to ten percent (10%) retention, and any other
sums that may be due and recoverable by FFCCI from [HRCC] under this SUBCONTRACT. In
all cases, however, two percent (2%) expanded withholding tax on the [HRCC’s] income will
be deducted from the monthly payments.

Requests for the payment by the [HRCC] shall include progress accomplishment of completed
works (unit of work accomplished x unit cost) as approved by [FFCCI]. Cut-off date of
monthly billings shall be every 25th of the month and joint measurement shall be conducted
with the DPWH’s representative, Consultants, FFCCI and [HRCC] to arrive at a
common/agreed quantity.33 (Emphasis supplied)

Pursuant to the terms of payment agreed upon by the parties, FFCCI obliged itself to pay the
monthly progress billings of HRCC within 30 days from receipt of the same. Additionally, the
monthly progress billings of HRCC should indicate the extent of the works completed by it,
the same being essential to the valuation of the amount that FFCCI would pay to HRCC.

The parties further agreed that the extent of HRCC’s completed works that would be indicated
in the monthly progress billings should be determined through a joint measurement
conducted by FFCCI and HRCC together with the representative of DPWH and the
consultants.

It is the responsibility of FFCCI to call for the joint measurement of HRCC’s completed works.

It bears stressing that the joint measurement contemplated under the Subcontract Agreement
should be conducted by the parties herein together with the representative of the DPWH and
the consultants. Indubitably, FFCCI, being the main contractor of DPWH, has the
responsibility to request the representative of DPWH to conduct the said joint measurement.
On this score, the testimony of Engineer Antonio M. Aganon, Jr., project manager of FFCCI,
during the reception of evidence before the CIAC is telling, thus:

MR. J. B. JOAQUIN:

Engr. Aganon, earlier there was a stipulation that in all the four billings, there never was a
joint quantification.

PROF. A. F. TADIAR:

He admitted that earlier. Pinabasa ko sa kanya.

ENGR. R. B. SAN JUAN:

The joint quantification was done only between them and DPWH.

xxxx

ENGR. AGANON:

Puwede ko po bang i-explain sandali lang po regarding lang po doon sa quantification na

iyon? Basically po as main contractor of DPWH, we are the ones who [are] requesting for joint
survey quantification with the owner, DPWH. Ngayon po, although wala sa papel na nag-
witness and [HRCC] still the same po, nandoon din po sila during that time, kaya lang ho . . .

MR. J. B. JOAQUIN:

Hindi pumirma?

ENGR. AGANON:

Hindi sila puwede pumirma kasi ho kami po ang contractor ng DPWH hindi sila.34 (Emphasis
supplied)

FFCCI had waived its right to demand for a joint measurement of HRCC’s completed works
under the Subcontract Agreement.

The CIAC held that FFCCI, on account of its failure to demand the joint measurement of
HRCC’s completed works, had effectively waived its right to ask for the conduct of the same as
a condition sine qua non to HRCC’s submission of its monthly progress billings.

We agree.

In People of the Philippines v. Donato,35 this Court explained the doctrine of waiver in this
wise:

Waiver is defined as "a voluntary and intentional relinquishment or abandonment of a known

existing legal right, advantage, benefit, claim or privilege, which except for such waiver the
party would have enjoyed; the voluntary abandonment or surrender, by a capable person, of a
right known by him to exist, with the intent that such right shall be surrendered and such
person forever deprived of its benefit; or such conduct as warrants an inference of the
relinquishment of such right; or the intentional doing of an act inconsistent with claiming it."

As to what rights and privileges may be waived, the authority is settled:

x x x the doctrine of waiver extends to rights and privileges of any character, and, since the
word ‘waiver’ covers every conceivable right, it is the general rule that a person may waive any
matter which affects his property, and any alienable right or privilege of which he is the owner
or which belongs to him or to which he is legally entitled, whether secured by contract,
conferred with statute, or guaranteed by constitution, provided such rights and privileges rest
in the individual, are intended for his sole benefit, do not infringe on the rights of others, and
further provided the waiver of the right or privilege is not forbidden by law, and does not
contravene public policy; and the principle is recognized that everyone has a right to waive,
and agree to waive, the advantage of a law or rule made solely for the benefit and protection of
the individual in his private capacity, if it can be dispensed with and relinquished without
infringing on any public right, and without detriment to the community at large. x x
x36 (Emphasis supplied and citations omitted)

Here, it is undisputed that the joint measurement of HRCC’s completed works contemplated
by the parties in the Subcontract Agreement never materialized. Indeed, HRCC, on separate
occasions, submitted its monthly progress billings indicating the extent of the works it had
completed sans prior joint measurement. Thus:

Progress Billing Period Covered Amount

1st Progress Billing dated September August 16 to September 15, ₱2,029,081.59
17, 200437 2004
2nd Progress Billing dated October September 18 to 25, 2004 ₱1,587,760.23
29, 200438
3rd Progress Billing dated October September 26 to October ₱2,569,543.57
29, 200439 25, 2004
4th Progress Billing dated November October 26 to November ₱1,527,112.95
25, 2004 25, 2004

FFCCI did not contest the said progress billings submitted by HRCC despite the lack of a joint
measurement of the latter’s completed works as required under the Subcontract Agreement.
Instead, FFCCI proceeded to conduct its own verification of the works actually completed by
HRCC and, on separate dates, made the following payments to HRCC:

Date of Payment Period Covered Amount

December 3, April 2 to July 25, 2004 ₱373,452.24
200440
December 21, July 26 to September 25, ₱1,771,429.45
200441 2004
 March 11, 200542 September 26 to November ₱1,327,639.87
25, 2004

FFCCI’s voluntary payment in favor of HRCC, albeit in amounts substantially different from
those claimed by the latter, is a glaring indication that it had effectively waived its right to
demand for the joint measurement of the completed works. FFCCI’s failure to demand a joint
measurement of HRCC’s completed works reasonably justified the inference that it had
already relinquished its right to do so. Indeed, not once did FFCCI insist on the conduct of a
joint measurement to verify the extent of HRCC’s completed works despite its receipt of the
four monthly progress billings submitted by the latter.

FFCCI is already barred from contesting HRCC’s valuation of the completed works having
waived its right to demand the joint measurement requirement.

In view of FFCCI’s waiver of the joint measurement requirement, the CA, essentially echoing
the CIAC’s disposition, found that FFCCI is obliged to pay the amount claimed by HRCC in its
monthly progress billings. The CA reasoned thus:

Verily, the joint measurement that [FFCCI] claims it conducted without the participation of
[HRCC], to which [FFCCI] anchors its claim of full payment of its obligations to [HRCC],
cannot be applied, nor imposed, on [HRCC]. In other words, [HRCC] cannot be made to
accept a quantification of its works when the said quantification was made without its
participation. As a consequence, [FFCCI’s] claim of full payment cannot be upheld as this is a
result of a quantification that was made contrary to the express provisions of the Subcontract
Agreement.

The Court is aware that by ruling so, [FFCCI] would seem to be placed at a disadvantage
because it would result in [FFCCI] having to pay exactly what [HRCC] was billing the former.
If, on the other hand, the Court were to rule otherwise[,] then [HRCC] would be the one at a
disadvantage because it would be made to accept payment that is less than what it was billing.

Circumstances considered, however, the Court deems it proper to rule in favor of [HRCC]
because of the explicit provision of the Subcontract Agreement that requires the participation
of the latter in the joint measurement. If the Court were to rule otherwise, then the Court
would, in effect, be disregarding the explicit agreement of the parties in their contract. 43

Essentially, the question that should be resolved is this: In view of FFCCI’s waiver of its right
to demand a joint measurement of HRCC’s completed works, is FFCCI now barred from
disputing the claim of HRCC in its monthly progress billings?

We rule in the affirmative.

As intimated earlier, the joint measurement requirement is a mechanism essentially granting

FFCCI the opportunity to verify and, if necessary, contest HRCC’s valuation of its completed
works prior to the submission of the latter’s monthly progress billings.

In the final analysis, the joint measurement requirement seeks to limit the dispute between
the parties with regard to the valuation of HRCC’s completed works. Accordingly, any issue
which FFCCI may have with regard to HRCC’s valuation of the works it had completed should
be raised and resolved during the said joint measurement instead of raising the same after
HRCC had submitted its monthly progress billings. Thus, having relinquished its right to ask
for a joint measurement of HRCC’s completed works, FFCCI had necessarily waived its right
to dispute HRCC’s valuation of the works it had accomplished.

Second Substantive Issue:

Validity of HRCC’s Rescission of the Subcontract Agreement

Both the CA and the CIAC held that the work stoppage of HRCC was justified as the same is
but an exercise of its right to rescind the Subcontract Agreement in view of FFCCI’s failure to
pay the former’s monthly progress billings. Further, the CIAC stated that FFCCI could no
longer assail the work stoppage of HRCC as it failed to file any counterclaim against HRCC
pursuant to the terms of the Subcontract Agreement.

For its part, FFCCI asserted that the work stoppage of HRCC was not justified and, in any
case, its failure to raise a counterclaim against HRCC for liquidated damages before the CIAC
does not amount to a ratification of the latter’s work stoppage.

The determination of the validity of HRCC’s work stoppage depends on a determination of the
following: first, whether HRCC has the right to extrajudicially rescind the Subcontract
Agreement; and second, whether FFCCI is already barred from disputing the work stoppage of
HRCC.

HRCC had waived its right to rescind the Subcontract Agreement.

The right of rescission is statutorily recognized in reciprocal obligations. Article 1191 of the
Civil Code pertinently reads:

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation,
with the payment of damages in either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing
of a period.

This is understood to be without prejudice to the rights of third persons who have acquired
the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.

The rescission referred to in this article, more appropriately referred to as resolution is on the
breach of faith by the defendant which is violative of the reciprocity between the parties. 44 The
right to rescind, however, may be waived, expressly or impliedly.45

While the right to rescind reciprocal obligations is implied, that is, that such right need not be
expressly provided in the contract, nevertheless the contracting parties may waive the same. 46
Contrary to the respective dispositions of the CIAC and the CA, we find that HRCC had no
right to rescind the Subcontract Agreement in the guise of a work stoppage, the latter having
waived such right. Apropos is Article 11.2 of the Subcontract Agreement, which reads:

11.2 Effects of Disputes and Continuing Obligations

Notwithstanding any dispute, controversy, differences or arbitration proceedings relating

directly or indirectly to this SUBCONTRACT Agreement and without prejudice to the eventual
outcome thereof, [HRCC] shall at all times proceed with the prompt performance of the
Works in accordance with the directives of FFCCI and this SUBCONTRACT
Agreement.47 (Emphasis supplied)

Hence, in spite of the existence of dispute or controversy between the parties during the
course of the Subcontract Agreement, HRCC had agreed to continue the performance of its
obligations pursuant to the Subcontract Agreement. In view of the provision of the
Subcontract Agreement quoted above, HRCC is deemed to have effectively waived its right to
effect extrajudicial rescission of its contract with FFCCI.1âwphi1 Accordingly, HRCC, in the
guise of rescinding the Subcontract Agreement, was not justified in implementing a work
stoppage.

The costs of arbitration should be shared by the parties equally.

Section 1, Rule 142 of the Rules of Court provides:

Section 1. Costs ordinarily follow results of suit. – Unless otherwise provided in these rules,
costs shall be allowed to the prevailing party as a matter of course, but the court shall have
power, for special reasons, to adjudge that either party shall pay the costs of an action, or that
the same be divided, as may be equitable. No costs shall be allowed against the Republic of the
Philippines unless otherwise provided by law. (Emphasis supplied)

Although, generally, costs are adjudged against the losing party, courts nevertheless have
discretion, for special reasons, to decree otherwise.

Here, considering that the work stoppage of HRCC is not justified, it is only fitting that both
parties should share in the burden of the cost of arbitration equally. HRCC had a valid reason
to institute the complaint against FFCCI in view of the latter’s failure to pay the full amount of
its monthly progress billings. However, we disagree with the CIAC and the CA that only FFCCI
should shoulder the arbitration costs. The arbitration costs should be shared equally by FFCCI
and HRCC in view of the latter’s unjustified work stoppage.

WHEREFORE, in consideration of the foregoing disquisitions, the Decision dated February

6, 2009 and Resolution dated April 13, 2009 of the Court of Appeals in CA-G.R. SP No. 91860
are hereby AFFIRMED with MODIFICATION that the arbitration costs shall be shared
equally by the parties herein.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 172642 June 13, 2012

ESTATE OF NELSON R. DULAY, represented by his wife MERRIDY JANE P.

DULAY, Petitioner,
vs.
ABOITIZ JEBSEN MARITIME, INC. and GENERAL CHARTERERS,
INC., Respondents.

DECISION

PERALTA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court
seeking to reverse and set aside the Decision1 and Resolution2 dated July 11, 2005 and April
18, 2006 of the Court of Appeals (CA) in CA-G.R. SP No. 76489.

The factual and procedural antecedents of the case, as summarized by the CA, are as follows:

Nelson R. Dulay (Nelson, for brevity) was employed by [herein respondent] General
Charterers Inc. (GCI), a subsidiary of co-petitioner [herein co-respondent] Aboitiz Jebsen
Maritime Inc. since 1986. He initially worked as an ordinary seaman and later as bosun on a
contractual basis. From September 3, 1999 up to July 19, 2000, Nelson was detailed in
petitioners’ vessel, the MV Kickapoo Belle.

On August 13, 2000, or 25 days after the completion of his employment contract, Nelson died
due to acute renal failure secondary to septicemia. At the time of his death, Nelson was a bona
fide member of the Associated Marine Officers and Seaman’s Union of the Philippines
(AMOSUP), GCI’s collective bargaining agent. Nelson’s widow, Merridy Jane, thereafter
claimed for death benefits through the grievance procedure of the Collective Bargaining
Agreement (CBA) between AMOSUP and GCI. However, on January 29, 2001, the grievance
procedure was "declared deadlocked" as petitioners refused to grant the benefits sought by the
widow.

On March 5, 2001, Merridy Jane filed a complaint with the NLRC Sub-Regional Arbitration
Board in General Santos City against GCI for death and medical benefits and damages.

On March 8, 2001, Joven Mar, Nelson’s brother, received ₱20,000.00 from [respondents]
pursuant to article 20(A)2 of the CBA and signed a "Certification" acknowledging receipt of
the amount and releasing AMOSUP from further liability. Merridy Jane contended that she is
entitled to the aggregate sum of Ninety Thousand Dollars ($90,000.00) pursuant to [A]rticle
20 (A)1 of the CBA x x x

xxxx
Merridy Jane averred that the P20,000.00 already received by Joven Mar should be
considered advance payment of the total claim of US$90,000.[00].

[Herein respondents], on the other hand, asserted that the NLRC had no jurisdiction over the
action on account of the absence of employer-employee relationship between GCI and Nelson
at the time of the latter’s death. Nelson also had no claims against petitioners for sick leave
allowance/medical benefit by reason of the completion of his contract with GCI. They further
alleged that private respondent is not entitled to death benefits because petitioners are only
liable for such "in case of death of the seafarer during the term of his contract pursuant to the
POEA contract" and the cause of his death is not work-related. Petitioners admitted liability
only with respect to article 20(A)2 [of the CBA]. x x x

xxxx

However, as petitioners stressed, the same was already discharged.

The Labor Arbiter ruled in favor of private respondent. It took cognizance of the case by virtue
of Article 217 (a), paragraph 6 of the Labor Code and the existence of a reasonable causal
connection between the employer-employee relationship and the claim asserted. It ordered
the petitioner to pay ₱4,621,300.00, the equivalent of US$90,000.00 less ₱20,000.00, at the
time of judgment x x x

xxxx

The Labor Arbiter also ruled that the proximate cause of Nelson’s death was not work-related.

On appeal, [the NLRC] affirmed the Labor Arbiter’s decision as to the grant of death benefits
under the CBA but reversed the latter’s ruling as to the proximate cause of Nelson’s death. 3

Herein respondents then filed a special civil action for certiorari with the CA contending that
the NLRC committed grave abuse of discretion in affirming the jurisdiction of the NLRC over
the case; in ruling that a different provision of the CBA covers the death claim; in reversing
the findings of the Labor Arbiter that the cause of death is not work-related; and, in setting
aside the release and quitclaim executed by the attorney-in-fact and not considering the
P20,000.00 already received by Merridy Jane through her attorney-in-fact.

On July 11, 2005, the CA promulgated its assailed Decision, the dispositive portion of which
reads as follows:

WHEREFORE, in view of the foregoing, the petition is hereby GRANTED and the case is
REFERRED to the National Conciliation and Mediation Board for the designation of the
Voluntary Arbitrator or the constitution of a panel of Voluntary Arbitrators for the
appropriate resolution of the issue on the matter of the applicable CBA provision.

SO ORDERED.4

The CA ruled that while the suit filed by Merridy Jane is a money claim, the same basically
involves the interpretation and application of the provisions in the subject CBA. As such,
jurisdiction belongs to the voluntary arbitrator and not the labor arbiter.
Petitioner filed a Motion for Reconsideration but the CA denied it in its Resolution of April 18,
2006.

Hence, the instant petition raising the sole issue of whether or not the CA committed error in
ruling that the Labor Arbiter has no jurisdiction over the case.

Petitioner contends that Section 10 of Republic Act (R.A.) 8042, otherwise known as the
Migrant Workers and Overseas Filipinos Act of 1995, vests jurisdiction on the appropriate
branches of the NLRC to entertain disputes regarding the interpretation of a collective
bargaining agreement involving migrant or overseas Filipino workers. Petitioner argues that
the abovementioned Section amended Article 217 (c) of the Labor Code which, in turn, confers
jurisdiction upon voluntary arbitrators over interpretation or implementation of collective
bargaining agreements and interpretation or enforcement of company personnel policies.

The pertinent provisions of Section 10 of R.A. 8042 provide as follows:

SEC. 10. Money Claims. - Notwithstanding any provision of law to the contrary, the Labor
Arbiters of the National Labor Relations Commission (NLRC) shall have the original and
exclusive jurisdiction to hear and decide, within ninety (90) calendar days after filing of the
complaint, the claims arising out of an employer-employee relationship or by virtue of any law
or contract involving Filipino workers for overseas deployment including claims for actual,
moral, exemplary and other forms of damages.

Article 217(c) of the Labor Code, on the other hand, states that:

xxxx

(c) Cases arising from the interpretation or implementation of collective bargaining

agreements and those arising from the interpretation or enforcement of company
personnel policies shall be disposed by the Labor Arbiter by referring the same to the
grievance machinery and voluntary arbitration as may be provided in said agreements.

On their part, respondents insist that in the present case, Article 217, paragraph (c) as well as
Article 261 of the Labor Code remain to be the governing provisions of law with respect to
unresolved grievances arising from the interpretation and implementation of collective
bargaining agreements. Under these provisions of law, jurisdiction remains with voluntary
arbitrators.

Article 261 of the Labor Code reads, thus:

ARTICLE 261. Jurisdiction of Voluntary Arbitrators or panel of Voluntary Arbitrators. –

The Voluntary Arbitrator or panel of Voluntary Arbitrators shall have original and exclusive
jurisdiction to hear and decide all unresolved grievances arising from the interpretation or
implementation of the Collective Bargaining Agreement and those arising from the
interpretation or enforcement of company personnel policies referred to in the immediately
preceding article. Accordingly, violations of a Collective Bargaining Agreement, except those
which are gross in character, shall no longer be treated as unfair labor practice and shall be
resolved as grievances under the Collective Bargaining Agreement. For purposes of this
article, gross violations of Collective Bargaining Agreement shall mean flagrant and/or
malicious refusal to comply with the economic provisions of such agreement.

The Commission, its Regional Offices and the Regional Directors of the Department of Labor
and Employment shall not entertain disputes, grievances or matters under the exclusive and
original jurisdiction of the Voluntary Arbitrator or panel of Voluntary Arbitrators and shall
immediately dispose and refer the same to the Grievance Machinery or Voluntary Arbitration
provided in the Collective Bargaining Agreement.

The petition is without merit.

It is true that R.A. 8042 is a special law governing overseas Filipino workers. However, a
careful reading of this special law would readily show that there is no specific provision
thereunder which provides for jurisdiction over disputes or unresolved grievances regarding
the interpretation or implementation of a CBA. Section 10 of R.A. 8042, which is cited by
petitioner, simply speaks, in general, of "claims arising out of an employer-employee
relationship or by virtue of any law or contract involving Filipino workers for overseas
deployment including claims for actual, moral, exemplary and other forms of damages." On
the other hand, Articles 217(c) and 261 of the Labor Code are very specific in stating that
voluntary arbitrators have jurisdiction over cases arising from the interpretation or
implementation of collective bargaining agreements. Stated differently, the instant case
involves a situation where the special statute (R.A. 8042) refers to a subject in general, which
the general statute (Labor Code) treats in particular.5 In the present case, the basic issue
raised by Merridy Jane in her complaint filed with the NLRC is: which provision of the subject
CBA applies insofar as death benefits due to the heirs of Nelson are concerned. The Court
agrees with the CA in holding that this issue clearly involves the interpretation or
implementation of the said CBA. Thus, the specific or special provisions of the Labor Code
govern.

In any case, the Court agrees with petitioner's contention that the CBA is the law or contract
between the parties. Article 13.1 of the CBA entered into by and between respondent GCI and
AMOSUP, the union to which petitioner belongs, provides as follows:

The Company and the Union agree that in case of dispute or conflict in the
interpretation or application of any of the provisions of this Agreement, or
enforcement of Company policies, the same shall be settled through negotiation,
conciliation or voluntary arbitration. The Company and the Union further agree that
they will use their best endeavor to ensure that any dispute will be discussed, resolved and
settled amicably by the parties hereof within ninety (90) days from the date of filing of the
dispute or conflict and in case of failure to settle thereof any of the parties retain their
freedom to take appropriate action.6 (Emphasis supplied)

From the foregoing, it is clear that the parties, in the first place, really intended to bring to
conciliation or voluntary arbitration any dispute or conflict in the interpretation or
application of the provisions of their CBA. It is settled that when the parties have validly
agreed on a procedure for resolving grievances and to submit a dispute to voluntary
arbitration then that procedure should be strictly observed.7
It may not be amiss to point out that the abovequoted provisions of the CBA are in
consonance with Rule VII, Section 7 of the present Omnibus Rules and Regulations
Implementing the Migrant Workers and Overseas Filipinos Act of 1995, as amended by
Republic Act No. 10022, which states that "[f]or OFWs with collective bargaining agreements,
the case shall be submitted for voluntary arbitration in accordance with Articles 261 and 262
of the Labor Code." The Court notes that the said Omnibus Rules and Regulations were
promulgated by the Department of Labor and Employment (DOLE) and the Department of
Foreign Affairs (DFA) and that these departments were mandated to consult with the Senate
Committee on Labor and Employment and the House of Representatives Committee on
Overseas Workers Affairs.

In the same manner, Section 29 of the prevailing Standard Terms and Conditions Governing
the Employment of Filipino Seafarers on Board Ocean Going Vessels, promulgated by the
Philippine Overseas Employment Administration (POEA), provides as follows:

Section 29. Dispute Settlement Procedures. − In cases of claims and disputes arising
from this employment, the parties covered by a collective bargaining agreement
shall submit the claim or dispute to the original and exclusive jurisdiction of the
voluntary arbitrator or panel of arbitrators. If the parties are not covered by a
collective bargaining agreement, the parties may at their option submit the claim or dispute to
either the original and exclusive jurisdiction of the National Labor Relations Commission
(NLRC), pursuant to Republic Act (RA) 8042, otherwise known as the Migrant Workers and
Overseas Filipinos Act of 1995 or to the original and exclusive jurisdiction of the voluntary
arbitrator or panel of arbitrators. If there is no provision as to the voluntary arbitrators to be
appointed by the parties, the same shall be appointed from the accredited voluntary
arbitrators of the National Conciliation and Mediation Board of the Department of Labor and
Employment.

The Philippine Overseas Employment Administration (POEA) shall exercise original and
exclusive jurisdiction to hear and decide disciplinary action on cases, which are administrative
in character, involving or arising out of violations of recruitment laws, rules and regulations
involving employers, principals, contracting partners and Filipino seafarers. (Emphasis
supplied)

It is clear from the above that the interpretation of the DOLE, in consultation with their
counterparts in the respective committees of the Senate and the House of Representatives, as
well as the DFA and the POEA is that with respect to disputes involving claims of Filipino
seafarers wherein the parties are covered by a collective bargaining agreement, the dispute or
claim should be submitted to the jurisdiction of a voluntary arbitrator or panel of arbitrators.
It is only in the absence of a collective bargaining agreement that parties may opt to submit
the dispute to either the NLRC or to voluntary arbitration. It is elementary that rules and
regulations issued by administrative bodies to interpret the law which they are entrusted to
enforce, have the force of law, and are entitled to great respect.8 Such rules and regulations
partake of the nature of a statute and are just as binding as if they have been written in the
statute itself.9 In the instant case, the Court finds no cogent reason to depart from this
rule.1âwphi1

The above interpretation of the DOLE, DFA and POEA is also in consonance with the policy of
the state to promote voluntary arbitration as a mode of settling labor disputes. 10
No less than the Philippine Constitution provides, under the third paragraph, Section 3,
Article XIII, thereof that "[t]he State shall promote the principle of shared responsibility
between workers and employers and the preferential use of voluntary modes in settling
disputes, including conciliation, and shall enforce their mutual compliance therewith to foster
industrial peace."

Consistent with this constitutional provision, Article 211 of the Labor Code provides the
declared policy of the State "[t]o promote and emphasize the primacy of free collective
bargaining and negotiations, including voluntary arbitration, mediation and conciliation, as
modes of settling labor or industrial disputes."

On the basis of the foregoing, the Court finds no error in the ruling of the CA that the
voluntary arbitrator has jurisdiction over the instant case.

WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of
Appeals in CA-G.R. SP No. 76489 dated July 11, 2005 and April 18, 2006, respectively,
are AFFIRMED.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 183623 June 25, 2012

LETICIA B. AGBAYANI, Petitioner,

vs.
COURT OF APPEALS, DEPARTMENT OF JUSTICE and LOIDA MARCELINA J.
GENABE, Respondents.

DECISION

REYES, J.:

On petition for review under Rule 45 of the 1997 Rules of Court is the Decision1 dated March
27, 2008 of the Court of Appeals (CA) dismissing the petition for certiorari and the
Resolution2 dated July 3, 2008 denying the motion for reconsideration thereof in CA-G.R. SP
No. 99626. Petitioner Leticia B. Agbayani (Agbayani) assails the resolution of the Department
of Justice (DOJ) which directed the withdrawal of her complaint for grave oral defamation
filed against respondent Loida Marcelina J. Genabe (Genabe).

Antecedent Facts

Agbayani and Genabe were both employees of the Regional Trial Court (RTC), Branch 275 of
Las Piñas City, working as Court Stenographer and Legal Researcher II, respectively. On
December 29, 2006, Agbayani filed a criminal complaint for grave oral defamation against
Genabe before the Office of the City Prosecutor of Las Piñas City, docketed as I.S. No. 07-
0013, for allegedly uttering against her, in the presence of their fellow court employees and
while she was going about her usual duties at work, the following statements, to wit:

"ANG GALING MO LETY, SINABI MO NA TINAPOS MO YUNG MARVILLA CASE, ANG

GALING MO. FEELING LAWYER KA KASI, BAKIT DI KA MAGDUTY NA LANG,
STENOGRAPHER KA MAGSTENO KA NA LANG, ANG GALING MO, FEELING LAWYER
KA TALAGA. NAGBEBENTA KA NG KASO, TIRADOR KA NG JUDGE. SIGE HIGH BLOOD
DIN KA, MAMATAY KA SANA SA HIGH BLOOD MO."3

In a Resolution4 rendered on February 12, 2007, the Office of the City Prosecutor of Las Piñas
City5 found probable cause for the filing of the Information for grave oral defamation against
Genabe.

However, upon a petition for review filed by Genabe, the DOJ Undersecretary Ernesto L.
Pineda (Pineda) found that:

After careful evaluation and consideration of the evidence on record, we find merit in the
instant petition.
Contrary to the findings in the assailed resolution, we find that the subject utterances of
respondent constitute only slight oral defamation.

As alleged by the [petitioner] in paragraphs 2, 3 and 4 of her complaint-affidavit, respondent

uttered the remarks subject matter of the instant case in the heat of anger. This was also the
tenor of the sworn statements of the witnesses for complainant. The Supreme Court, in the
case of Cruz vs. Court of Appeals, G.R. Nos. L-56224-26, November 25, 1982, x x x held that
although abusive remarks may ordinarily be considered as serious defamation, under the
environmental circumstances of the case, there having been provocation on complainant’s
part, and the utterances complained of having been made in the heat of unrestrained anger
and obfuscation, such utterances constitute only the crime of slight oral defamation.

Notwithstanding the foregoing, we believe that the instant case should nonetheless be
dismissed for non-compliance with the provisions of Book III, Title I, Chapter 7 (Katarungang
Pambarangay), of Republic Act No. 7160 (The Local Government Code of 1991). As shown by
the records, the parties herein are residents of Las Piñas City. x x x

The complaint-affidavit, however, failed to show that the instant case was previously referred
to the barangay for conciliation in compliance with Sections 408 and 409, paragraph (d), of
the Local Government Code, which provides:

Section 408. Subject Matter for Amicable Settlement; Exception Thereto. – The lupon of each
barangay shall have authority to bring together the parties actually residing in the same city or
municipality for amicable settlement of all disputes except: xxx

Section 409. Venue. x x x (d) Those arising at the workplace where the contending parties are
employed or xxx shall be brought in the barangay where such workplace or institution is
located.

The records of the case likewise show that the instant case is not one of the exceptions
enumerated under Section 408 of the Local Government Code. Hence, the dismissal of the
instant petition is proper.

It is well-noted that the Supreme Court held that where the case is covered by P.D. 1508
(Katarungang Pambarangay Law), the compulsory process of arbitration required therein is a
pre-condition for filing a complaint in court. Where the complaint (a) did not state that it is
one of the excepted cases, or (b) it did not allege prior availment of said conciliation process,
or (c) did not have a certification that no conciliation or settlement had been reached by the
parties, the case should be dismissed x x x. While the foregoing doctrine is handed down in
civil cases, it is submitted that the same should apply to criminal cases covered by, but filed
without complying with, the provisions of P.D. 1508 x x x.6

Thus, in a Resolution7 dated May 17, 2007, the DOJ disposed, to wit:

WHEREFORE, premises considered, the assailed resolution is

hereby REVERSED and SET ASIDE. Accordingly, the City Prosecutor of Las Piñas City is
directed to move for the withdrawal of the information for grave oral defamation filed against
respondent Loida Marcelina J. Genabe, and report the action taken thereon within ten (10)
days from receipt hereof.
SO ORDERED.8

The petitioner filed a motion for reconsideration, which was denied in a Resolution 9 dated
June 25, 2007.

Consequently, Agbayani filed a petition for certiorari with the CA alleging that the DOJ
committed grave abuse of discretion in setting aside the Resolution dated February 12, 2007
of the City Prosecutor of Las Piñas City in I.S. Case No. 07-0013. She averred that the
respondent’s petition for review filed with the DOJ did not comply with Sections 5 and 6 of
DOJ Circular No. 70, or the "2000 National Prosecution Service (NPS) Rules on Appeal," and
maintained that her evidence supported a finding of probable cause for grave oral defamation
against respondent Genabe.

On March 27, 2008, the CA dismissed the petition after finding no grave abuse of discretion
on the part of the DOJ. Citing Punzalan v. Dela Peña,10 the CA stated that for grave abuse of
discretion to exist, the complained act must constitute a capricious and whimsical exercise of
judgment as it is equivalent to lack of jurisdiction, or when the power is exercised in an
arbitrary or despotic manner by reason of passion or personal hostility, and it must be so
patent and gross as to amount to an evasion of positive duty enjoined or to act at all in
contemplation of law. It is not sufficient that a tribunal, in the exercise of its power, abused its
discretion; such abuse must be grave.

On motion for reconsideration by the petitioner, the CA denied the same in its
Resolution11 dated July 3, 2008. Hence, the instant petition.

Assignment of Errors

Maintaining her stance, Agbayani raised the following, to wit:

I. RESPONDENT COURT GRAVELY ERRED IN HOLDING THAT THE

RESPONDENT DOJ DID NOT ABUSE ITS DISCRETION WHEN THE LATTER
REVERSED AND SET ASIDE THE RESOLUTION OF THE CITY PROSECUTOR OF
LAS PIÑAS CITY.

II. RESPONDENT COURT GRAVELY ERRED IN AFFIRMING RESPONDENT DOJ'S

FINDING THAT WHAT PRIVATE RESPONDENT COMMITTED WAS ONLY SLIGHT
ORAL DEFAMATION.

III. RESPONDENT COURT GRAVELY ERRED IN AFFIRMING RESPONDENT DOJ'S

DISMISSAL OF THE COMPLAINT DUE TO NON-COMPLIANCE WITH THE
PROVISIONS OF THE LOCAL GOVERNMENT CODE OF 1991.

IV. RESPONDENT COURT GRAVELY ERRED WHEN IT HELD THAT THE

REQUIREMENTS UNDER DOJ CIRCULAR NO. 70 (2000 NPS Rule on Appeal) ARE
NOT MANDATORY.12

Ruling and Discussions

The petition is bereft of merit.

We shall first tackle Agbayani's arguments on the first two issues raised in the instant petition.

1. Petitioner Agbayani alleged that Undersecretary Pineda unfairly heeded only to the
arguments interposed by respondent Genabe in her comment; and the CA, in turn, took
his findings and reasoning as gospel truth. Agbayani’s comment was completely
disregarded and suppressed in the records of the DOJ. Agbayani discovered this when
she went to the DOJ to examine the records, as soon as she received a copy of the DOJ
Resolution of her motion for reconsideration.

2. Further, petitioner Agbayani maintained that respondent Genabe’s Petition for

Review13 should have been dismissed outright, since it failed to state the name and
address of the petitioner, nor did it show proof of service to her, pursuant to Sections 5
and 6 of DOJ Circular No. 70. Also, the petition was not accompanied with the required
attachments, i.e. certified copies of the complaint, affidavits of witnesses, petitioner's
reply to respondent's counter-affidavit, and documentary evidences of petitioner. Thus,
a grave irregularity was committed by the DOJ in allowing the surreptitious insertion of
these and many other documents in the records of the case, after the petition had been
filed.

In particular, petitioner Agbayani alleged that when the petition was filed on March 22, 2007,
only five (5) documents were attached thereto, namely: (a) the Resolution of the City
Prosecutor; (b) the respondent's Counter-affidavit; (c) Letter of the staff dated January 2,
2005; (d) her Answer; and (e) the Information filed against respondent Genabe with the
Office of the City Prosecutor of Las Piñas City. However, at the time the Resolution of the DOJ
was issued, a total of forty-one (41) documents14 formed part of the records of the petition.
Besides, respondent Genabe's Motion to Defer Arraignment (Document No. 40) and the court
order relative to the granting of the same (Document No. 41) were both dated March 23,
2007, or a day after the petition was filed. Agbayani asserted that these thirty-six (36)
documents were surreptitiously and illegally attached to the records of the case, an act
constituting extrinsic fraud and grave misconduct.15 At the very least, the DOJ should have
required respondent Genabe to formalize the "insertion" of the said documents.

Petitioner Agbayani reiterated that her version of the incident was corroborated by several
witnesses (officemates of Agbayani and Genabe), while that of Genabe was not. And since the
crime committed by respondent Genabe consisted of her exact utterances, the DOJ erred in
downgrading the same to slight oral defamation, completely disregarding the finding by the
Investigating Prosecutor of probable cause for the greater offense of grave oral defamation.
She denied that she gave provocation to respondent Genabe, insisting that the latter
committed the offense with malice aforethought and not in the heat of anger.

We find no merit in the above arguments.

It is well to be reminded, first of all, that the rules of procedure should be viewed as mere
instruments designed to facilitate the attainment of justice. They are not to be applied with
severity and rigidity when such application would clearly defeat the very rationale for their
conception and existence. Even the Rules of Court reflects this principle.16

Anent the charge of non-compliance with the rules on appeal, Sections 5 and 6 of the
aforesaid DOJ Circular provide:
SECTION 5. Contents of petition. - The petition shall contain or state: (a) the names and
addresses of the parties; (b) the Investigation Slip number (I.S. No.) and criminal case
number, if any, and title of the case, including the offense charged in the complaint; (c) the
venue of the preliminary investigation; (d) the specific material dates showing that it was filed
on time; (e) a clear and concise statement of the facts, the assignment of errors, and the
reasons or arguments relied upon for the allowance of the appeal; and (f) proof of service of a
copy of the petition to the adverse party and the Prosecution Office concerned.

The petition shall be accompanied by legible duplicate original or certified true copy of the
resolution appealed from together with legible true copies of the complaint, affidavits/sworn
statements and other evidence submitted by the parties during the preliminary investigation/
reinvestigation.

If an information has been filed in court pursuant to the appealed resolution, a copy of the
motion to defer proceedings filed in court must also accompany the petition.

The investigating/reviewing/approving prosecutor shall not be impleaded as party

respondent in the petition.1âwphi1 The party taking the appeal shall be referred to in the
petition as either "Complainant-Appellant" or "Respondent-Appellant."

SECTION 6. Effect of failure to comply with the requirements. – The failure of petitioner to
comply WITH ANY of the foregoing requirements shall constitute sufficient ground for the
dismissal of the petition.

Contrary to petitioner Agbayani's claim, there was substantial compliance with the rules.
Respondent Genabe actually mentioned on page 2 of her petition for review to the DOJ the
name of the petitioner as the private complainant, as well as indicated the latter’s address on
the last page thereof as "RTC Branch 275, Las Piñas City." The CA also noted that there was
proper service of the petition as required by the rules since the petitioner was able to file her
comment thereon. A copy thereof, attached as Annex "L" in the instant petition, bears a mark
that the comment was duly received by the Prosecution Staff, Docket Section of the DOJ.
Moreover, a computer verification requested by the petitioner showed that the prosecutor
assigned to the case had received a copy of the petitioner’s comment.17

As to the charge of extrinsic fraud, which consists of the alleged suppression of Agbayani's
Comment and the unauthorized insertion of documents in the records of the case with the
DOJ, we agree with the CA that this is a serious charge, especially if made against the
Undersecretary of Justice; and in order for it to prosper, it must be supported by clear and
convincing evidence. However, petitioner Agbayani's only proof is her bare claim that she
personally checked the records and found that her Comment was missing and 36 new
documents had been inserted. This matter was readily brought to the attention of
Undersecretary Pineda by petitioner Agbayani in her motion for reconsideration, who
however must surely have found such contention without merit, and thus denied the motion.18

Section 5 of the 2000 NPS Rules on Appeal also provides that the petition for review must be
accompanied by a legible duplicate original or certified true copy of the resolution appealed
from, together with legible true copies of the complaint, affidavits or sworn statements and
other evidence submitted by the parties during the preliminary investigation or
reinvestigation. Petitioner Agbayani does not claim that she was never furnished, during the
preliminary investigation, with copies of the alleged inserted documents, or that any of these
documents were fabricated. In fact, at least seven (7) of these documents were copies of her
own submissions to the investigating prosecutor.19 Presumably, the DOJ required respondent
Genabe to submit additional documents produced at the preliminary investigation, along with
Document Nos. 40 and 41, for a fuller consideration of her petition for review.

As for Document Nos. 40 and 41, which were dated a day after the filing of the petition,
Section 5 of the 2000 NPS Rules on Appeal provides that if an Information has been filed in
court pursuant to the appealed resolution, a copy of the Motion to Defer Proceedings must
also accompany the petition. Section 3 of the above Rules states that an appeal to the DOJ
must be taken within fifteen (15) days from receipt of the resolution or of the denial of the
motion for reconsideration. While it may be presumed that the motion to defer arraignment
accompanying the petition should also be filed within the appeal period, respondent Genabe
can not actually be faulted if the resolution thereof was made after the lapse of the period to
appeal.

In Guy vs. Asia United Bank,20 a motion for reconsideration from the resolution of the
Secretary of Justice, which was filed four (4) days beyond the "non-extendible period of ten
(10) days", was allowed under Section 13 of the 2000 NPS Rules on Appeal. The Supreme
Court held that the authority of the Secretary of Justice to review and order the withdrawal of
an Information in instances where he finds the absence of a prima facie case is not time-
barred, albeit subject to the approval of the court, if its jurisdiction over the accused has
meanwhile attached.21 We further explained:

[I]t is not prudent or even permissible for a court to compel the Secretary of Justice or the
fiscal, as the case may be, to prosecute a proceeding originally initiated by him on an
information, if he finds that the evidence relied upon by him is insufficient for conviction.
Now, then, if the Secretary of Justice possesses sufficient latitude of discretion in his
determination of what constitutes probable cause and can legally order a reinvestigation even
in those extreme instances where an information has already been filed in court, is it not just
logical and valid to assume that he can take cognizance of and competently act on a motion for
reconsideration, belatedly filed it might have been, dealing with probable cause? And is it not
a grievous error on the part of the CA if it virtually orders the filing of an information, as here,
despite a categorical statement from the Secretary of Justice about the lack of evidence to
proceed with the prosecution of the petitioner? The answer to both posers should be in the
affirmative. As we said in Santos v. Go:

"[C]ourts cannot interfere with the discretion of the public prosecutor in evaluating the
offense charged. He may dismiss the complaint forthwith, if he finds the charge insufficient in
form or substance, or without any ground. Or, he may proceed with the investigation if the
complaint in his view is sufficient and in proper form. The decision whether to dismiss a
complaint or not, is dependent upon the sound discretion of the prosecuting fiscal and,
ultimately, that of the Secretary of Justice. Findings of the Secretary of Justice are not subject
to review unless made with grave abuse of discretion.

xxx

[T]o strike down the April 20, 2006 DOJ Secretary's Resolution as absolutely void and
without effect whatsoever, as the assailed CA decision did, for having been issued after the
Secretary had supposedly lost jurisdiction over the motion for reconsideration subject of the
resolution may be reading into the aforequoted provision a sense not intended. For, the
irresistible thrust of the assailed CA decision is that the DOJ Secretary is peremptorily barred
from taking a second hard look at his decision and, in appropriate cases, reverse or modify the
same unless and until a motion for reconsideration is timely interposed and pursued. The
Court cannot accord cogency to the posture assumed by the CA under the premises which,
needless to stress, would deny the DOJ the authority to motu proprio undertake a review of
his own decision with the end in view of protecting, in line with his oath of office, innocent
persons from groundless, false or malicious prosecution. As the Court pointed out in Torres,
Jr. v. Aguinaldo, the Secretary of Justice would be committing a serious dereliction of duty if
he orders or sanctions the filing of an information based upon a complaint where he is not
convinced that the evidence warrants the filing of the action in court.22 (Citations omitted and
underscoring supplied)

The Court further stated in Guy that when the DOJ Secretary took cognizance of the
petitioner's motion for reconsideration, he "effectively excepted such motion from the
operation of the aforequoted Section 13 of DOJ Circular No. 70, s. 2000. This show of
liberality is, to us, within the competence of the DOJ Secretary to make. The Court is not
inclined to disturb the same absent compelling proof, that he acted out of whim and that
petitioner was out to delay the proceedings to the prejudice of respondent in filing the motion
for reconsideration."23

The case of First Women's Credit Corporation v. Perez,24 succinctly summarizes the general
rules relative to criminal prosecution: that criminal prosecution may not be restrained or
stayed by injunction, preliminary or final, albeit in extreme cases, exceptional circumstances
have been recognized; that courts follow the policy of non-interference in the conduct of
preliminary investigations by the DOJ, and of leaving to the investigating prosecutor
sufficient latitude of discretion in the determination of what constitutes sufficient evidence as
will establish probable cause for the filing of an information against a supposed offender; and,
that the court's duty in an appropriate case is confined to a determination of whether the
assailed executive or judicial determination of probable cause was done without or in excess
of jurisdiction or with grave abuse of discretion amounting to want of jurisdiction.

But while prosecutors are given sufficient latitude of discretion in the determination of
probable cause, their findings are still subject to review by the Secretary of Justice. Surely, this
power of the Secretary of Justice to review includes the discretion to accept additional
evidence from the investigating prosecutor or from herein respondent Genabe, evidence
which nonetheless appears to have already been submitted to the investigating prosecutor but
inadvertently omitted by her when she filed her petition.

3. Coming now to the DOJ's finding that the complaint fails to state a cause of action, the CA
held that the DOJ committed no grave abuse of discretion in causing the dismissal thereof on
the ground of non-compliance with the provisions of the Local Government Code of 1991, on
the Katarungang Pambarangay conciliation procedure.

Undeniably, both petitioner Agbayani and respondent Genabe are residents of Las Piñas City
and both work at the RTC, and the incident which is the subject matter of the case happened
in their workplace.25 Agbayani’s complaint should have undergone the mandatory barangay
conciliation for possible amicable settlement with respondent Genabe, pursuant to Sections
408 and 409 of Republic Act No. 7160 or the Local Government Code of 1991 which provide:

Sec. 408. Subject Matter for Amicable Settlement; Exception thereto. – The lupon of each
barangay shall have authority to bring together the parties actually residing in the same city or
municipality for amicable settlement of all disputes, except: x x x

Sec. 409. Venue. x x x (d) Those arising at the workplace where the contending parties are
employed or x x x shall be brought in the barangay where such workplace or institution is
located.

Administrative Circular No. 14-93,26 issued by the Supreme Court on July 15, 1993 states that:

xxx

I. All disputes are subject to Barangay conciliation pursuant to the Revised Katarungang
Pambarangay Law [formerly P.D. 1508, repealed and now replaced by Secs. 399-422, Chapter
VII, Title I, Book III, and Sec. 515, Title I, Book IV, R.A. 7160, otherwise known as the Local
Government Code of 1991], and prior recourse thereto is a pre-condition before filing a
complaint in court or any government offices, except in the following disputes:

[1] Where one party is the government, or any subdivision or instrumentality thereof;

[2] Where one party is a public officer or employee and the dispute relates to the
performance of his official functions;

[3] Where the dispute involves real properties located in different cities and
municipalities, unless the parties thereto agree to submit their difference to amicable
settlement by an appropriate Lupon;

[4] Any complaint by or against corporations, partnerships or juridical entities, since

only individuals shall be parties to Barangay conciliation proceedings either as
complainants or respondents [Sec. 1, Rule VI, Katarungang Pambarangay Rules];

[5] Disputes involving parties who actually reside in barangays of different cities or
municipalities, except where such barangay units adjoin each other and the parties
thereto agree to submit their differences to amicable settlement by an appropriate
Lupon;

[6] Offenses for which the law prescribes a maximum penalty of imprisonment
exceeding one [1] year or a fine of over five thousand pesos ([₱]5,000.00);

[7] Offenses where there is no private offended party;

[8] Disputes where urgent legal action is necessary to prevent injustice from being
committed or further continued, specifically the following:

[a] Criminal cases where accused is under police custody or detention [See Sec.
412(b)(1), Revised Katarungang Pambarangay Law];
 [b] Petitions for habeas corpus by a person illegally deprived of his rightful
custody over another or a person illegally deprived of or on acting in his behalf;

[c] Actions coupled with provisional remedies such as preliminary injunction,

attachment, delivery of personal property and support during the pendency of the
action; and

[d] Actions which may be barred by the Statute of Limitations.

[9] Any class of disputes which the President may determine in the interest of justice or
upon the recommendation of the Secretary of Justice;

[10] Where the dispute arises from the Comprehensive Agrarian Reform Law (CARL)
[Secs. 46 & 47, R. A. 6657];

[11] Labor disputes or controversies arising from employer-employee relations

[Montoya vs. Escayo, 171 SCRA 442; Art. 226, Labor Code, as amended, which grants
original and exclusive jurisdiction over conciliation and mediation of disputes,
grievances or problems to certain offices of the Department of Labor and Employment];

[12] Actions to annul judgment upon a compromise which may be filed directly in court
[See Sanchez vs. [Judge] Tupaz, 158 SCRA 459]."

xxx

The compulsory process of arbitration is a pre-condition for the filing of the complaint in
court. Where the complaint (a) did not state that it is one of excepted cases, or (b) it did not
allege prior availment of said conciliation process, or (c) did not have a certification that no
conciliation had been reached by the parties, the case should be dismissed.27

Here, petitioner Agbayani failed to show that the instant case is not one of the exceptions
enumerated above. Neither has she shown that the oral defamation caused on her was so
grave as to merit a penalty of more than one year. Oral defamation under Article 358 of the
Revised Penal Code, as amended, is penalized as follows:

"Article 358. Slander. – Oral defamation shall be punished by arresto mayor in its maximum
period to prision correccional in its minimum period if it is of a serious and insulting nature;
otherwise, the penalty shall be arresto menor or a fine not exceeding 200 pesos."

Apparently, the DOJ found probable cause only for slight oral defamation. As defined
in Villanueva v. People,28 oral defamation or slander is the speaking of base and defamatory
words which tend to prejudice another in his reputation, office, trade, business or means of
livelihood. It is grave slander when it is of a serious and insulting nature. The gravity depends
upon: (1) the expressions used; (2) the personal relations of the accused and the offended
party; and (3) the special circumstances of the case, the antecedents or relationship between
the offended party and the offender, which may tend to prove the intention of the offender at
the time. In particular, it is a rule that uttering defamatory words in the heat of anger, with
some provocation on the part of the offended party constitutes only a light felony.29
We recall that in the morning of December 27, 2006 when the alleged utterances were made,
Genabe was about to punch in her time in her card when she was informed that she had been
suspended for failing to meet her deadline in a case, and that it was Agbayani who informed
the presiding judge that she had missed her deadline when she left to attend a convention in
Baguio City, leaving Agbayani to finish the task herself. According to Undersecretary Pineda,
the confluence of these circumstances was the immediate cause of respondent Genabe's
emotional and psychological distress. We rule that his determination that the defamation was
uttered while the respondent was in extreme excitement or in a state of passion and
obfuscation, rendering her offense of lesser gravity than if it had been made with cold and
calculating deliberation, is beyond the ambit of our review.30 The CA concurred that the
complained utterances constituted only slight oral defamation, having been said in the heat of
anger and with perceived provocation from Agbayani. Respondent Genabe was of a highly
volatile personality prone to throw fits (sumpongs), who thus shared a hostile working
environment with her co-employees, particularly with her superiors, Agbayani and Hon.
Bonifacio Sanz Maceda, the Presiding Judge of Branch 275, whom she claimed had committed
against her "grievous acts that outrage moral and social conduct." That there had been a long-
standing animosity between Agbayani and Genabe is not denied.

4. Lastly, petitioner Agbayani insists that the DOJ should have dismissed respondent
Genabe's petition for review outright pursuant to Sections 5 and 6 of DOJ Circular No. 70. It
is true that the general rule in statutory construction is that the words "shall," "must,"
"ought," or "should" are words of mandatory character in common parlance and in their in
ordinary signification,31 yet, it is also well-recognized in law and equity as a not absolute and
inflexible criterion.32 Moreover, it is well to be reminded that DOJ Circular No. 70 is a mere
tool designed to facilitate, not obstruct, the attainment of justice through appeals taken with
the National Prosecution Service. Thus, technical rules of procedure like those under Sections
5 and 6 thereof should be interpreted in such a way to promote, not frustrate, justice.

Besides, Sections 7 and 10 of DOJ Circular No. 70 clearly give the Secretary of Justice, or the
Undersecretary in his place, wide latitude of discretion whether or not to dismiss a petition.
Section 6 of DOJ Circular No. 70, invoked by petitioner Agbayani, is clearly encompassed
within this authority, as shown by a cursory reading of Sections 7 and 10, to wit:

SECTION 7. Action on the petition. The Secretary of Justice may dismiss the petition outright
if he finds the same to be patently without merit or manifestly intended for delay, or when the
issues raised therein are too unsubstantial to require consideration.

SECTION 12. Disposition of the appeal. The Secretary may reverse, affirm or modify the
appealed resolution. He may, motu proprio or upon motion, dismiss the petition for review on
any of the following grounds:

– That the petition was filed beyond the period prescribed in Section 3 hereof;

– That the procedure or any of the requirements herein provided has not been complied
with;

– That there is no showing of any reversible error;

 – That the appealed resolution is interlocutory in nature, except when it suspends the
proceedings based on the alleged existence of a prejudicial question;

– That the accused had already been arraigned when the appeal was taken;

– That the offense has already prescribed; and

– That other legal or factual grounds exist to warrant a dismissal.

We reiterate what we have stated in Yao v. Court of Appeals33 that:

In the interest of substantial justice, procedural rules of the most mandatory character in
terms of compliance, may be relaxed.1âwphi1 In other words, if strict adherence to the letter
of the law would result in absurdity and manifest injustice, or where the merit of a party's
cause is apparent and outweighs consideration of non-compliance with certain formal
requirements, procedural rules should definitely be liberally construed. A party-litigant is to
be given the fullest opportunity to establish the merits of his complaint or defense rather than
for him to lose life, liberty, honor or property on mere technicalities.34 (Citations omitted)

All told, we find that the CA did not commit reversible error in upholding the Resolution
dated May 17, 2007 of the DOJ as we, likewise, find the same to be in accordance with law and
jurisprudence.

WHEREFORE, premises considered, the petition for review is hereby DENIED. Accordingly,
the Decision dated March 27, 2008 and the Resolution dated July 3, 2008 of the Court of
Appeals in CA-G.R. SP No. 99626 are AFFIRMED in toto.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 172438 July 4, 2012

METROPOLITAN CEBU WATER DISTRICT, Petitioner,

vs.
MACTAN ROCK INDUSTRIES, INC., Respondent.

DECISION

MENDOZA, J.:

This is a petition for review on certiorari under Rule 45 assailing the February 20, 2006
Decision1 and the March 30, 2006 Resolution2 of the Court of Appeals (CA) in CA–G.R. CEB
SP. No. 00623.

THE FACTS

Petitioner Metropolitan Cebu Water District (MCWD) is a government-owned and controlled

corporation (GOCC)created pursuant to Presidential Decree (PD) No. 198,3 as amended, with
its principal office address at the MCWD Building, Magallanes corner Lapu-Lapu Streets,
Cebu City.4 It is mandated to supply water within its service area in the cities of Cebu, Talisay,
Mandaue, and Lapu-Lapu and the municipalities of Compostela, Liloan, Consolacion, and
Cordova in the Province of Cebu.5

Respondent Metro Rock Industries, Inc. (MRII) is a domestic corporation with principal
office address at the 2nd Level of the Waterfront Cebu Hotel and Casino, Lahug, Cebu City. 6

On May 19, 1997, MCWD entered into a Water Supply Contract7 (the Contract) with MRII
wherein it was agreed that the latter would supply MCWD with potable water, in accordance
with the World Health Organization (WHO)standard or the Philippine national standard,
with a minimum guaranteed annual volume.8

On March 15, 2004, MRII filed a Complaint9 against MCWD with the Construction Industry
Arbitration Commission (CIAC), citing the arbitration clause (Clause 18)10 of the Contract. The
case was docketed as CIAC Case No. 12-2004. In the said complaint, MRII sought the
reformation of Clause 17 of the Contract, or the Price Escalation/De-Escalation Clause, in
order to include Capital Cost Recovery in the price escalation formula, and to have such
revised formula applied from 1996 when the bidding was conducted, instead of from the first
day when MRII started selling water to MCWD. It also sought the payment of the unpaid price
escalation/adjustment, and the payment of unpaid variation/extra work order and
interest/cost of money up to December 31, 2003.11
On May 7, 2002, MCWD filed its Answer12 dated April 27, 2004, which included a motion to
dismiss the complaint on the ground that the CIAC had no jurisdiction over the case, as the
Contract was not one for construction or infrastructure.

The CIAC thereafter issued an order13 denying MCWD’s motion to dismiss, and calling the
parties to a preliminary conference for the review and signing of the Terms of Reference. 14

MCWD, thus, filed a petition for certiorari15 under Rule 65 with the CA, questioning the
jurisdiction of the CIAC. The petition was docketed as CA-G.R. SP. No. 85579 (First Petition).

Meanwhile, the CIAC proceeded with the preliminary conference scheduled on June 10 and
July 22, 2004 which MWCD opted not to attend. MRII and the CIAC both signed the Terms of
Reference. Pursuant to the Terms of Reference and the CIAC Order dated July 22, 2004,
MRII submitted its documentary evidence and affidavits of its witnesses.16

On August 27, 2004, MRII submitted its Formal Offer of Evidence and its memorandum of
arguments in the form of a proposed/draft decision. MCWD did not attend the hearings. It
did not submit evidence other than those annexed to its Answer. Neither did it file a formal
offer of evidence, or a memorandum of legal arguments.17

Decision of the CIAC

The CIAC promulgated its Decision18 on April 14, 2005, the dispositive portion of which reads:

WHEREFORE[,] premises considered, judgment is hereby rendered as follows:

1. Ordering the reformation of Clause 17 of the Water Supply Contract to read:

17[.] Price Escalation and/or De-Escalation shall be based on the parametric

formula:

17.1 Power Rate Price Adjustment/Power Cost Adjustment

Current Power Rate - Base Power Rate

x 30% of base selling price of water
Base Power Rate

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

Current CPI – Base CPI

x 40% of base selling price of water
Base CPI

17.3 Capital Cost Recovery Adjustment:

Current Peso to Base Peso to US$

US$ Exchange Rate – Exchange Rate x 30% of base selling price of water
 Base Peso to US $ Exchange Rate

Price escalation shall be reckoned from January 1999 when the water was first delivered
by Mactan Rock Industries, Inc. to the MCWD facilities in Mactan. The base CPI, base
US$ Exchange Rate and the Base Power Rate shall be the prevailing rate in January
1999, while the Base Selling Price of water shall mean the 1996 rate per cubic meter of
water as provided for in the Water Supply Contract.

2. Ordering Respondent Metropolitan Cebu Water District to pay Claimant, Mactan

Rock Industries, Inc[.] under the reformed Clause 17 of the Water Supply Contract, the
net amount of Php12,126,296.70 plus legal interest of six percent (6%) per annum
from the (sic) March 15, 2004, the date of filling (sic) of the case with the Construction
Industry Arbitration Commission, the rate increased to twelve percent (12%) per
annum from the date the herein Decision have (sic) become final and executory until
the foregoing amounts shall have been fully paid[.]

3. Claimant Mactan Rock Industries, Inc. and Metropolitan Cebu Water District shall
share equally the cost of arbitration.

SO ORDERED.19

Decision of the CA in CA-G.R. SP No. 85579 - Petition for certiorari under Rule 65 with
the Court of Appeals questioning the jurisdiction of the CIAC

Meanwhile, on October 28, 2005, the CA in its decision20 in the First Petition upheld the
jurisdiction of the CIAC over the case. The CA held that when parties agree to settle their
disputes arising from or connected with construction contracts, the CIAC acquires primary
jurisdiction.21 Citing Philrock Inc. v. Construction Industry Arbitration Commission,22 the CA
stated that the CIAC may resolve not only the merits of such controversies, but may also
award damages, interest, attorney’s fees, and expenses of litigation, when appropriate.23

Second, the CA held that the claims in question fall under the jurisdiction of the CIAC. Thus:

Xxx Section 4 of Executive Order No. 1008, otherwise known as the Construction Industry
Arbitration Law delineates CIAC’s jurisdiction as "original and exclusive jurisdiction over
disputes arising from, or connected with, contracts entered into by parties involved in
construction in the Philippines, whether the disputes arise before or after the completion of
the contract, or after abandonment thereof." Moreover, Section 5 (k) of Republic Act No. 9184
otherwise known as [the] Government Procurement Reform Act expressly defines
"infrastructure project" as including "water supply[,]" construction, rehabilitation[,]
demolition, repair, restoration and maintenance.

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. It is to be highlighted that
the dispute in the case at bar arose from the parties’ incongruent positions with regard to
clause 17 of the Water Supply Contract[,] specifically the price escalation/adjustment. The
instant case involves technical discrepancies that are better left to an arbitral body that has
expertise in those areas. Nevertheless, in any event, the inclusion of an arbitration clause in a
contract does not ipso facto divest the courts of jurisdiction to pass upon the findings of
arbitral bodies, because the awards are still judicially reviewable under certain
conditions.24 (Citations omitted.)

MCWD’s motion for reconsideration of the decision in the First Petition was still pending
when it filed the petition for review25 under Rule 43 (Second Petition) appealing the decision
of the CIAC. The motion for reconsideration was eventually denied in a
Resolution26 dated May 3, 2006. MCWD did not appeal from the denial of the motion. It, thus,
became final and executory.27

Decision of the CA in CA-G.R. CEB SP. No. 00623 – Petition for review under Rule 43
appealing the decision of the CIAC

Aggrieved by the CIAC Decision, MCWD filed a petition for review under Rule 43 with the CA
which was docketed as CA-G.R. CEB SP. No. 00623.

The CA, however, dismissed the petition in its Decision dated February 20, 2006. The Court
therein stated that the issue of jurisdiction had already been resolved by the 18th Division in
the First Petition, where the CA upheld the jurisdiction of the CIAC over Arbitration Case No.
12-2004.

Citing jurisprudence, the CA also ruled that there being an arbitration clause in the Contract,
the action for reformation of contract instituted by MRII in this case fell squarely within the
jurisdiction of the CIAC, not the courts. In relation to this, the CA noted that the present rule
is that courts will look with favor upon amicable agreements to settle disputes through
arbitration, and will only interfere with great reluctance to anticipate or nullify the action of
the arbitrator. MCWD being a signatory and a party to the Water Supply Contract, it cannot
escape its obligation under the arbitration clause. 28

The CA also held that the CIAC did not err in finding that the Water Supply Contract is clear
on the matter of the reckoning period for the computation of the escalation cost from January
9, 1999, or the first day of delivery of water. Moreover, the CA found that the CIAC did not err
in ruling that the contract be reformed to include Capital Cost Recovery in the parametric
formula for price escalation. Neither did it err in holding that the Capital Cost Recovery shall
be 30% of the Base Selling Price of water as a consequence of the reformation of Clause 17.

Finally, the CA stressed that "factual findings of administrative agencies which are deemed to
have acquired expertise in matters within their respective jurisdictions are generally accorded
not only respect but even finality when supported by substantial evidence."29

MCWD filed a motion for reconsideration but it was denied in the CA Resolution dated March
30, 2006.

Thus, this petition.

ISSUES
MCWD raises the following issues in its petition for review:

MAY THE CONSTRUCTION INDUSTRY [ARBITRATION] COMMISSION

EXERCISE JURISDICTION OVER DISPUTES ARISING FROM A WATER SUPPLY
CONTRACT?

MAY A PARTY, WHO IS A SIGNATORY TO THE WATER SUPPLY CONTRACT[,]

IN EFFECT SUBMITTING ITSELF TO THE JURISDICTION OF THE
CONSTRUCTION INDUSTRY ARBITRATION COMMISSION, QUESTION THE
JURISDICTION OF [THE] CIAC?

DOES THE CONSTRUCTION INDUSTRY ARBITRATION COMMISSION HAVE

THE (SIC) JURISDICTION OVER A COMPLAINT PRAYING FOR A
REFORMATION OF A WATER SUPPLY CONTRACT?

MAY THE COURT OF APPEALS REFUSE TO RENDER A [SIC] JUDGMENT ON

AN ISSUE BECAUSE THIS HAS BEEN ALREADY SETTLED IN A DECISION
RENDERED BY ANOTHER DIVISION OF THE COURT OF APPEALS IN A
PETITION FOR CERTIORARI, EVEN IF THE SAID DECISION HAS NOT YET
BEEN (SIC) FINAL DUE TO A TIMELY FILING OF A MOTION FOR
RECONSIDERATION?30

RULING OF THE COURT

Creation of the CIAC

The Construction Industry Arbitration Commission (CIAC) was created in 1985 under
Executive Order (E.O.) No. 1008 (Creating an Arbitration Machinery for the Philippine
Construction Industry), in recognition of the need to establish an arbitral machinery that
would expeditiously settle construction industry disputes. The prompt resolution of problems
arising from, or connected to, the construction industry was considered necessary and vital
for the fulfillment of national development goals, as the construction industry provided
employment to a large segment of the national labor force, and was a leading contributor to
the gross national product. 31

Under Section 4 of E.O. No. 1008, the CIAC’s jurisdiction was specifically delineated as
follows:

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 disputes arise 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 provisions; amount of damages and penalties; commencement 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.
(Underscoring supplied)

The jurisdiction of the CIAC as a quasi-judicial body is confined to construction

disputes,32 that is, those arising from, or connected to, contracts involving "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."33 The
CIAC has jurisdiction over all such disputes whether the dispute arises before or after the
completion of the contract.34

Whether the CIAC has jurisdiction over the dispute

As earlier stated, following the denial of its motion to dismiss by CIAC, MCWD filed the First
Petition with the CA, which decided in favor of MRII and upheld the jurisdiction of the CIAC.

Not being in conformity, MCWD filed a motion for reconsideration.

While the said motion was pending with the CA, MCWD filed the Second Petition with the
same court. Eventually, the motion was denied, and MCWD never appealed the case. Thus,
the decision of the CA in the First Petition became final and executory.

The question now is whether such final and executory decision is binding such that courts are
generally precluded from passing judgment on the issue of jurisdiction in the present petition.

The Court finds in the affirmative.

This Court has held time and again that a final and executory judgment, no matter how
erroneous, cannot be changed, even by this Court. Nothing is more settled in law than that
once a judgment attains finality, it thereby becomes immutable and unalterable. It may no
longer be modified in any respect, even if such modification is meant to correct what is
perceived to be an erroneous conclusion of fact or law, and regardless of whether the
modification is attempted to be made by the court rendering it or by the highest court of the
land.35

In its Decision in the First Petition, the CA affirmed the arbitral body’s finding in CIAC Case
No. 12-2004 that the case was within its jurisdiction. Such decision having become final, it is
beyond the jurisdiction of this Court, or any court or body, for that matter, to review or
modify, even supposing for the sake of argument, that it is indeed erroneous.

Also, the parties apparently characterized the Contract as one involving construction, as its
arbitration clause specifically refers disputes, controversies or claims arising out of or relating
to the Contract or the breach, termination or validity thereof, if the same cannot be settled
amicably, to an arbitration tribunal, in accordance with E.O. No. 1008, or the Construction
Industry Arbitration Law:
V. DISPUTES AND JURISDICTION:

18. Any dispute, controversy or claim arising out of or relating to this contract or the breach,
termination or invalidity thereof, if the same cannot be settled amicably, may be submitted for
arbitration to an Arbitration Tribunal in accordance with Executive Order No. 1008 dated 4
February 1985, otherwise known as the Construction Industry Arbitration Law and the place
of arbitration shall be the City of Cebu, Philippines, otherwise said dispute or controversy
arising out of the contract or breach thereof shall be submitted to the court of law having
jurisdiction thereof in the city where MCWD is located.36

Had the parties been of the mutual understanding that the Contract was not of construction,
they could have instead referred the matter to arbitration citing Republic Act (R.A.) No. 876,
or The Arbitration Law. Having been passed into law in 1953, the said statute was already in
existence at the time the contract was entered into, and could have been applied to arbitration
proceedings other than those specifically within the arbitral jurisdiction of the CIAC.

Whether the CA erred in refusing to render judgment on the issue

of jurisdiction ___________

On a related matter, MWCD also raises the issue of whether the 19th Division of the CA, Cebu
City, erred in refusing to render judgment on the issue of jurisdiction raised in the Second
Petition on the ground that it had already been settled by the 18th Division in its decision in
the First Petition, even if the 18th Division decision had not yet become final due to a timely
filing of a motion for reconsideration.

The Court rules in the negative.

The 19th Division was correct in refusing to render judgment on the issue of jurisdiction as, at
that time, the issue was still pending before another division of the CA.

Litis pendentia is predicated on the principle that a party should not be allowed to vex
another more than once regarding the same subject matter and for the same cause of action. It
is founded on the public policy that the same subject matter should not be the subject of
controversy in courts more than once, in order that possible conflicting judgments may be
avoided for the sake of the stability of the rights and status of persons, and also to avoid the
costs and expenses incident to numerous suits. 37

With the two petitions then pending before the CA, all the elements of litis pendentia were
present, that is, identity of the parties in the two actions, substantial identity in the causes of
action and in the reliefs sought by the parties, and identity between the two actions such that
any judgment that may be rendered in one case, regardless of which party is successful, would
amount to res judicata in the other.38

In both cases, MCWD was the petitioner and MRII, the respondent. Although they differ in
form, in essence, the two cases involved a common issue, that is, MCWD’s challenge to the
jurisdiction of the CIAC over the arbitration proceedings arising from the Water Supply
Contract between the petitioner and respondent.
To determine whether there is identity of the rights asserted and reliefs prayed for, grounded
on the same facts and bases, the following tests may be utilized: (1) whether the same
evidence would support and sustain both the first and the second causes of action, also known
as the "same evidence" test; or (2) whether the defenses in one case may be used to
substantiate the complaint in the other.39 Also fundamental is the test of determining whether
the cause of action in the second case existed at the time of the filing of the first case. 40

In the First Petition, MCWD argued that the CIAC’s issuance of its Order41 dated May 28,
2004 was tainted with grave abuse of discretion amounting to excess or lack of jurisdiction.
Thus, MCWD stated in its prayer:

WHEREFORE, in light of the premises laid down, petitioner most respectfully prays:

1. Upon the filing of this Petition, a Writ of Preliminary Injunction or restraining order
be issued forthwith, enjoining the respondent from proceeding with the hearing of the
case until further orders from the Honorable Court of Appeals;

2. After consideration, petitioner also prays that the Order dated May 28, 2004,
denying petitioner’s motion to dismiss be declared without force and effect;

3. Petitioner also prays that the Construction Industry Arbitration Commission be

barred from hearing the case filed by Mactan Rock Industries, Inc., private respondent
herein.

Other measures of relief, which are just and equitable under the foregoing premise are also
prayed for.42

The Second Petition, on the other hand, raised the following issues:

a. Whether or not the Arbitral Tribunal of CIAC gravely erred in taking and exercising
jurisdiction over the complaint filed by the respondent;

b. Whether or not the Arbitral Tribunal of CIAC gravely erred in reforming Clause 17 of
the Contract;

c. Whether or not the same tribunal gravely committed an error in considering Capital
Cost Recovery Adjustment in awarding in favor of the complainant, when the same is
extraneous to the provisions of the contract;43

Thus, it prayed:

WHEREFORE, PREMISES CONSIDERED, it is most respectfully prayed of the Honorable

Court that a Judgment be issued reversing the findings of the Arbitral Tribunal of the
Construction Industry Arbitration Commission in its Decision dated April 14, 2005, as far as
the order of reformation of the water supply contract and in granting the monetary award.

It is further prayed that the decision rendered by the Arbitral Tribunal be declared invalid for
want of jurisdiction to arbitrate and to order the reformation of the water supply contract;
It is also prayed that the decision awarding money to the respondent be strike (sic) down as
erroneous and without legal basis for lack of jurisdiction by the Arbitral Tribunal, which
rendered the Decision.

It is also prayed that a Temporary Restraining Order and a Writ of Preliminary Injunction be
issued at the outset, ordering the stay of execution pending the resolution of the issues raised
in the Petition.

Other measures of relief, which are just and equitable, are also prayed for.44

In both cases, the parties also necessarily relied on the same laws and arguments in support of
their respective positions on the matter of jurisdiction.

In the First Petition, in support of its argument, that the CIAC had no jurisdiction to arbitrate
the causes of action raised by MRII, MCWD cited the portions of the Contract on the
obligations of the water supplier, E.O. No. 1008 (specifically Section 4 on jurisdiction), the
Rules of Procedure Governing Construction Arbitration (Section 1, Article III). It also alleged
that in issuing the order denying its motion to dismiss, the CIAC misread the provisions of
LOI No. 1186 and R.A. No. 9184 on the definition of an infrastructure project.45

MRII, however, opined that the CIAC had jurisdiction over the complaint and, therefore,
correctly denied petitioner’s motion to dismiss. MRII argued that certiorari was not a proper
remedy in case of denial of a motion to dismiss and that the claims fell squarely under CIAC’s
original and exclusive jurisdiction. MRII, in support of its position, cited Section 1 of LOI No.
1186 and Section 5(k) of R.A. No. 9184. MRII further proposed that, as shown by MCWD’s
pro-forma Water Supply Contract, Specifications, Invitation to Submit Proposal, Pre-Bid
Conference minutes, Addendum No. 1, and MRII’s Technical and Financial Proposals, the
undertaking contemplated by the parties is one of infrastructure and of works, rather than one
of supply or mere services.46

In the Second Petition, in support of the issue of jurisdiction, MCWD again relied on Section 4
of E.O. No. 1008 and Section 1, Article III of the Rules of Procedure Governing Construction
Arbitration. It also brought to fore the alleged faulty conclusion of MRII that a water supply
contract is subsumed under the definition of an infrastructure project under LOI 1186.47

In its Comment, MRII reiterated and adopted its arguments before the CIAC, and insisted
that the undertaking contemplated by the parties was one of infrastructure and of works, as
distinguished from "mere supply from off-the-shelf or from mere services."48 Section 1 of LOI
No. 1186, to define "infrastructure" and Section 5(k) of R.A. No. 9184 to include "water
supply," were again cited. In support of its arguments, MRII cited anew MCWD’s pro-forma
Water Supply Contract, Specifications (in its Invitation to Submit Proposal), pronouncements
at the Pre-Bid Conference, Addendum No. 1, and MRII’s Technical and Financial Proposals.
MRII further extensively reproduced the content of the joint affidavit of Messrs. Antonio P.
Tompar and Lito R. Maderazo, MRII’s President/CEO and Financial Manager, respectively.49

Given that the same arguments were raised on the matter of CIAC jurisdiction, the parties
thus relied on substantially the same evidence in both petitions. MCWD annexed to both
petitions copies of the Water Supply Contract, the complaint filed by MRII with the CIAC, and
its Answer to the said complaint. On the other hand, MRII presented Addendum No. 1 to the
Water Supply Contract and its Technical and Financial Proposals.

Moreover, the first cause of action in the Second Petition, that is, the CIAC’s having assumed
jurisdiction, allegedly unlawfully, over the dispute arising from the Water Supply Contract,
obviously existed at the time the First Petition was filed, as the latter case dealt with the
jurisdiction of the CIAC over the complaint filed.

Finally, any judgment that may be rendered in the First Petition on the matter of whether the
CIAC has jurisdiction over the arbitration proceedings, regardless of which party was
successful, would amount to res judicata in the Second Petition, insofar as the issue of
jurisdiction is concerned. In fact, what MCWD should have done was to appeal to the Court
after the denial of its motion for reconsideration in the First Petition. For not having done so,
the decision therein became final and, therefore, immutable.

Thus, following the above discussion, the 19th Division was correct in refusing to render
judgment on the issue of jurisdiction in the Second Petition.

Whether the CIAC had jurisdiction to order the reformation of the

Water Supply Contract

The jurisdiction of courts and quasi-judicial bodies is determined by the Constitution and the
law.50 It cannot be fixed by the will of the parties to the dispute, nor can it be expanded or
diminished by stipulation or agreement. 51 The text of Section 4 of E.O. No. 1008 is broad
enough to cover any dispute arising from, or connected with, construction contracts, whether
these involve mere contractual money claims or execution of the works. This jurisdiction
cannot be altered by stipulations restricting the nature of construction disputes, appointing
another arbitral body, or making that body’s decision final and binding.52

Thus, unless specifically excluded, all incidents and matters relating to construction contracts
are deemed to be within the jurisdiction of the CIAC. Based on the previously cited provision
outlining the CIAC’s jurisdiction, it is clear that with regard to contracts over which it has
jurisdiction, the only matters that have been excluded by law are disputes arising from
employer-employee relationships, which continue to be governed by the Labor Code of the
Philippines. Moreover, this is consistent with the policy against split jurisdiction.

In fact, in National Irrigation Administration v. Court of Appeals,53 it was held that the CIAC
had jurisdiction over the dispute, and not the contract. Therefore, even if the contract
preceded the existence of the CIAC, since the dispute arose when the CIAC had already been
constituted, the arbitral board was exercising current, and not retroactive, jurisdiction. In the
same case, it was held that as long as the parties agree to submit to voluntary arbitration,
regardless of what forum they may choose, their agreement will fall within the jurisdiction of
the CIAC, such that, even if they specifically choose another forum, the parties will not be
precluded from electing to submit their dispute to the CIAC because this right has been vested
upon each party by law.

This is consistent with the principle that when an administrative agency or body is conferred
quasi-judicial functions, all controversies relating to the subject matter pertaining to its
specialization are deemed to be included within its jurisdiction since the law does not sanction
a split of jurisdiction, as stated in Peña v. Government Service Insurance System.54

In Peña, the Court held that although the complaint for specific performance, annulment of
mortgage, and damages filed by the petitioner against the respondent included title to,
possession of, or interest in, real estate, it was well within the jurisdiction of the Housing and
Land Use Regulatory Board (HLURB), a quasi-judicial body, as it involved a claim against the
subdivision developer, Queen’s Row Subdivision, Inc., as well as the Government Service
Insurance System (GSIS).

This case was later cited in Badillo v. Court of Appeals,55 where the Court concluded that the
HLURB had jurisdiction over complaints for annulment of title. The Court also held that
courts will not determine a controversy where the issues for resolution demand the exercise of
sound administrative discretion, such as that of the HLURB, the sole regulatory body for
housing and land development. It was further pointed out that the extent to which an
administrative agency may exercise its powers depends on the provisions of the statute
creating such agency.

The ponencia further quoted from C.T. Torres Enterprises, Inc. v. Hibionada:56

The argument that only courts of justice can adjudicate claims resoluble under the provisions
of the Civil Code is out of step with the fast-changing times. There are hundreds of
administrative bodies now performing this function by virtue of a valid authorization from the
legislature. This quasi-judicial function, as it is called, is exercised by them as an incident of
the principal power entrusted to them of regulating certain activities falling under their
particular expertise.

In the Solid Homes case for example the Court affirmed the competence of the Housing and
Land Use Regulatory Board to award damages although this is an essentially judicial power
exercisable ordinarily only by the courts of justice. This departure from the traditional
allocation of governmental powers is justified by expediency, or the need of the government to
respond swiftly and competently to the pressing problems of the modern world.

In Bagunu v. Spouses Aggabao,57 the Court ruled that the RTC must defer the exercise of its
jurisdiction on related issues involving the same subject matter properly within its
jurisdiction, such as the distinct cause of action for reformation of contracts involving the
same property, since the DENR assumed jurisdiction over the lot in question, pursuant to its
mandate.

In National Housing Authority v. First United Constructors Corporation,58 the Court held
that there was no basis for the exclusion of claims for business losses from the jurisdiction of
the CIAC because E.O. No. 1008 "excludes from the coverage of the law only those disputes
arising from employer-employee relationships which are covered by the Labor Code,
conveying an intention to encompass a broad range of arbitrable issues within the jurisdiction
of CIAC."59 Section 4 provides that "(t)he jurisdiction of the CIAC may include but is not
limited to x x x," underscoring the expansive character of the CIAC’s jurisdiction. Very clearly,
the CIAC has jurisdiction over a broad range of issues and claims arising from construction
disputes, including but not limited to claims for unrealized profits and opportunity or
business losses. What E.O. No. 1008 emphatically excludes is only disputes arising from
employer-employee relationships.60

Where the law does not delineate, neither should we. Neither the provisions of the Civil Code
on reformation of contracts nor the law creating the CIAC exclude the reformation of
contracts from its jurisdiction. Jurisprudence further dictates that the grant of jurisdiction
over related and incidental matters is implied by law. Therefore, because the CIAC has been
held to have jurisdiction over the Contract, it follows that it has jurisdiction to order the
reformation of the Contract as well.

Whether MCWD can validly refuse to participate in the arbitration proceedings

In light of the finality of the CA decision on the matter of jurisdiction, the only remaining
issue to be disposed of is whether the CIAC could proceed with the case even if the MCWD
refused to participate in the arbitration proceedings.

The Court rules in the affirmative. Though one party can refuse to participate in the
arbitration proceedings, this cannot prevent the CIAC from proceeding with the case and
issuing an award in favor of one of the parties.

Section 4.2 of the Revised Rules of Procedure Governing Construction Arbitration (CIAC
Rules) specifically provides that where the jurisdiction of the CIAC is properly invoked by the
filing of a Request for Arbitration in accordance with CIAC Rules, the failure of a respondent
to appear, which amounts to refusal to arbitrate, will not stay the proceedings,
notwithstanding the absence of the respondent or the lack of participation of such party. In
such cases, the CIAC is mandated to appoint the arbitrator/s in accordance with the Rules,
and the arbitration proceedings shall continue. The award shall then be made after receiving
the evidence of the claimant.

In such a case, all is not lost for the party who did not participate. Even after failing to appear,
a respondent is still given the opportunity, under the CIAC Rules, to have the proceedings
reopened and be allowed to present evidence, although with the qualification that this is done
before an award is issued:

4.2.1 In the event that, before award, the Respondent who had not earlier questioned the
jurisdiction of the Tribunal, appears and offers to present his evidence, the Arbitral Tribunal
may, for reasons that justifies (sic) the failure to appear, reopen the proceedings, require him
to file his answer with or without counterclaims, pay the fees, where required under these
Rules, and allow him to present his evidence, with limited right to cross examine witnesses
already in the discretion of the Tribunal. Evidence already admitted shall remain. The
Tribunal shall decide the effect of such controverting evidence presented by the Respondent
on evidence already admitted prior to such belated appearance.

Thus, under the CIAC Rules, even without the participation of one of the parties in the
proceedings, the CIAC is still required to proceed with the hearing of the construction
dispute.61

This Court has held that the CIAC has jurisdiction over a dispute arising from a construction
contract even though only one of the parties requested for arbitration.62 In fact, in Philrock,
Inc. v. Construction Industry Arbitration Commission,63 the Court held that the CIAC
retained jurisdiction even if both parties had withdrawn their consent to arbitrate.

In this case, there being a valid arbitration clause mutually stipulated by the parties, they are
both contractually bound to settle their dispute

through arbitration before the CIAC. MCWD refused to participate, but this should not affect
the authority of the CIAC to conduct the proceedings, and, thereafter, issue an arbitral award.

Now, with the CIAC decision being questioned by MCWD, the Court takes a cursory reading of
the said decision. It reveals that the conclusions arrived at by CIAC are supported by facts and
the law. Article 1359 of the Civil Code states that when there has been a meeting of the minds
of the parties to a contract, but their true intention is not expressed in the instrument
purporting to embody the agreement by reason of mistake, fraud, inequitable conduct or
accident, one of the parties may ask for the reformation of the instrument to the end that such
true intention may be expressed. The CIAC, in this case, found that the parametric formula for
price escalation reflected in the Water Supply Contract involved two items: Power Rate Price
Adjustment (30% of the base selling price of water) and Consumer Price Index Adjustment
(40% of the base selling price of water). The remaining 30% of the selling price of water,
which should have been for Capital Cost Recovery, was inadvertently left out in this
parametric formula. Thus, the Contract should be reformed accordingly to reflect the
intention of the parties to include in the price escalation formula the Capital Cost Recovery
Adjustment. These conclusions were affirmed by the CA in the assailed decision of February
20, 2006.

As noted by MCWD in its reply, however, the dispositive portion of the CIAC decision
reforming the price escalation formula is inconsistent with what was stated in the body of the
decision. The formula contained in the body of the decision is as follows:

PRICE ADJUSTMENT COMPUTATION

Based on Reformed Clause 17 of the Water Supply Contract

1. Power Cost Adjustment:

xxx

Current Power Rate – Base Power Rate

x 30% of Base Selling Price of water
Base Power Rate

xxx

2. Operating Cost Adjustment - Local

xxx

Current CPI – Base CPI x 30% of 40% of Base Selling Price of Water
 Base CPI

xxx

3. Operating Cost Adjustment – Foreign

xxx

Current Forex – Base Forex

x 70% of 40% of Base Selling Price of Water
Base Forex

xxx

4. Capital Cost Adjustment – Local

xxx

Current CPI – Base CPI

x 30% of 30% of Base Selling Price of Water
Base CPI

xxx

5. Capital Cost Adjustment – Foreign

xxx

Current Forex – Base Forex

x 70% of 30% of Base Selling Price of Water
Base Forex

xxx64

The dispositive portion of the decision, however, reads:

WHEREFORE[,] premises considered, judgment is hereby rendered as follows:

1. Ordering the reformation of Clause 17 of the Water Supply Contract to read:

17[.] Price Escalation and/or De-Escalation shall be based on the parametric

formula:

17.1 Power Rate Price Adjustment/Power Cost Adjustment

Current Power Rate – Base Power Rate

x 30% of Base Selling Price of water
 Base Power Rate

17.2 Consumer Price Index (CPI) Adjustment/Operatiing (sic) Cost Adjustment:

Current CPI – Base CPI

x 40% of Base Selling Price of Water
Base CPI

17.3 Capital Cost Recovery Adjustment:

Current Peso to Base Peso to US$

US$ Exchange Rate – Exchange Rate

x 30% of base selling price of water
Base Peso to US $ Exchange Rate

The general rule is that where there is a conflict between the fallo, or the dispositive part, and
the body of the decision or order, the fallo prevails on the theory that the fallo is the final
order and becomes the subject of execution, while the body of the decision merely contains
the reasons or conclusions of the court ordering nothing. However, where one can clearly and
unquestionably conclude from the body of the decision that there was a mistake in the
dispositive portion, the body of the decision will prevail.65

Following the reasoning of the CIAC in this case, there are three components to price
adjustment: (1) Power Cost Adjustment (30% of the base selling price of water); (2) Operating
Cost Adjustment (40% of the base selling price of water); and (3) Capital Cost Adjustment
(30% of the base selling price of water).

In turn, the second component—Operating Cost Adjustment—is computed based on Local

Operating Cost Adjustment (30%), and Foreign Operating Cost Adjustment (70%).

Capital Cost Adjustment, on the other hand, is composed of Local Capital Cost Adjustment
(30%), and Foreign Capital Cost Adjustment (70%).

This is consistent with the formula set forth in the body of the CIAC decision. If the formula in
the dispositive portion were to be followed, Operating Cost Adjustment would be computed
with the Local Operating Cost Adjustment representing the entire 40% of the base selling
price of water instead of just 30% of the Operating Cost Adjustment. Moreover, if the Capital
Cost Recovery Adjustment were to be computed based solely on Foreign Capital Cost
Recovery Adjustment, it would represent the entire 30% of the base selling price of water, and
not just 70% of the Capital Cost Recovery Adjustment. The omission of the marked portions of
the formula as stated in the body of the CIAC decision represents substantial changes to the
formula for price escalation. It is thus clear that the formula as stated in the body of the
decision should govern.

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

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Ordering the reformation of Clause 17 of the Water Supply Contract to read:

17. Price Escalation and/or De-Escalation shall be based on the parametric

formula:

17.1. Power Rate Price Adjustment/Power Cost Adjustment

Current Power Rate - Base Power Rate

Base Power Rate x 30% of base selling price of water

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

Current CPI – Base CPI

x 30% of 40% of base selling price of water
Base CPI

17.3 Capital Cost Recovery Adjustment:

Current Peso to Base Peso to US$

US$ Exchange Rate – Exchange Rate

x 70% of 30% of base selling price of water
Base Peso to US $ Exchange Rate

Price escalation shall be reckoned from January 1999 when the water was first delivered
by Mactan Rock Industries, Inc.1awp++i1 to the MCWD facilities in Mactan. The base
CPI, base US$ Exchange Rate and the Base Power Rate shall be the prevailing rate in
January 1999, while the Base Selling Price of water shall mean the 1996 rate per cubic
meter of water as provided for in the Water Supply Contract.

2. Ordering Respondent Metropolitan Cebu Water District to pay Claimant, Mactan

Rock Industries, Inc. under the reformed Clause 17 of the Water Supply Contract, the
net amount of Php12,126,296.70 plus legal interest of six percent (6%) per annum
from March 15, 2004, the date of filing of the case with the Construction Industry
Arbitration Commission, and twelve percent (12%) per annum from the date this
Decision becomes final and executory, until the foregoing amounts shall have been fully
paid.

3. Claimant Mactan Rock Industries, Inc. and Metropolitan Cebu Water District shall
share the cost of arbitration equally.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 196171 December 10, 2012

RCBC CAPITAL CORPORATION, Petitioners,

vs.
BANCO DE ORO UNIBANK, INC., Respondent.

X- - - - - - - - - - - - - - - - - - - - - - - - - -X

G.R. No. 199238

BANCO DE ORO UNIBANK, INC., Petitioner,

vs.
COURT OF APPEALS and RCBC CAPITAL CORPORATION, Respondents.

DECISION

VILLARAMA, JR., J.:

Before the Court are two consolidated petitions separately filed by the parties in an arbitration
case administered by the International Chamber of Commerce-International Court of
Arbitration (ICC-ICA) pursuant to the arbitration clause in their contract.

The Case

In G.R. No. 196171, a petition for review under Rule 45 of the 1997 Rules of Civil Procedure,
as amended, RCBC Capital Corporation (RCBC) seeks to reverse the Court of Appeals (CA)
Decision1 dated December 23, 2010 in CA-G.R. SP No. 113525 which reversed and set aside
the June 24, 2009 Order2 of the Regional Trial Court (RTC) of Makati City, Branch 148 in SP
Proc. Case No. M-6046.

In G.R. No. 199238,a petition for certiorari under Rule 65, Banco De Oro Unibank, Inc.
(BDO)assails the Resolution3dated September 13, 2011 in CA-G.R. SP No. 120888 which
denied BDO’s application for the issuance of a stay order and/or temporary restraining order
(TRO)/preliminary injunction against the implementation of the Writ of Execution 4 dated
August 22, 2011 issued by the Makati City RTC, Branch 148 in SP Proc. Case No. M-6046.

Factual Antecedents

On May 24, 2000, RCBC entered into a Share Purchase Agreement5 (SPA) with Equitable-PCI
Bank, Inc. (EPCIB), George L. Go and the individual shareholders6 of Bankard, Inc. (Bankard)
for the sale to RCBC of 226,460,000 shares (Subject Shares) of Bankard, constituting 67% of
the latter’s capital stock. After completing payment of the contract price (₱1,786,769,400), the
corresponding deeds of sale over the subject shares were executed in January 2001.
The dispute between the parties arose sometime in May 2003 when RCBC informed EPCIB
and the other selling shareholdersof an overpayment of the subject shares, claiming there was
an overstatement of valuation of accounts amounting to ₱478 million and that the sellers
violated their warrantyunder Section 5(g)of the SPA.7

As no settlement was reached, RCBC commenced arbitration proceedings with the ICC-ICA in
accordance with Section 10 of the SPA which states:

Section 10.Arbitration

Should there be any dispute arising between the parties relating to this Agreement including
the interpretation or performance hereof which 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 settled by arbitration under the Rules of Conciliation and Arbitration of the
International Chamber of Commerce in force as of the time of arbitration, by three arbitrators
appointed in accordance with such rules. The venue of arbitration shall be in Makati City,
Philippines and the arbitration proceedings shall be conducted in the English language.
Substantive aspects of the dispute shall be settled by applying the laws of the Philippines. The
decision of the arbitrators shall be final and binding upon the parties hereto and the expenses
of arbitration (including without limitation the award of attorney’s fees to the prevailing
party) shall be paid as the arbitrators shall determine.8

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 Award 41 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 Resolution 48 (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 Resolution 58 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 Resolution 60 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."92When 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.1âwphi1 Such applications are the subject of this 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.102Institutionalization 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 process.104 For this reason, the law authorizes vacating an arbitral award when
there is evident partiality in the arbitrators.

Injunction Against Execution Of Arbitral Award

Before an injunctive writ can be issued, it is essential that the following requisites are present:
(1) there must be a right inesse or the existence of a right to be protected; and (2) the act
against which injunction to be 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 by the act
sought to be enjoined. Further, there must be a showing that the invasion of the right is
material and substantial and that there is an urgent and paramount necessity for the writ to
prevent a serious damage.105

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 law that an injunction will not issue to restrain
the performance of an act already done. This is so for the simple reason that nothing more can
be done in reference thereto. A writ of injunction becomes moot and academic after the act
sought to be enjoined has already been consummated.

WHEREFORE, premises considered, the petition m G.R. No. 199238 is DENIED. The
Resolution dated September 13,2011 ofthe Court of Appeals in CA-G.R. SP No. 120888
is AFFIRMED.

The petition in G.R. No. 196171 is DENIED. The Decision dated December 23, 2010 of the
Court of Appeals in CA-G.R. SP No. 113525 is hereby AFFIRMED.

SO ORDERED.