28. Transfield Philippines, Inc., vs.

Luzon Hydro Corporation, Australia and

New Zealand Banking Group Limited and Security Bank Corporation, G.R.
No. 146717, May 19, 2006

Facts:
Transfield and Luzon Hydro Corp. (LHC) entered into a turn-key contract where
Transfield were to construct a hydro-electric plants in Benguet and Ilocos. The contract
provides for a period for which the project is to be completed and also allows for the
extension of the period provided that the extension is based on justifiable grounds such
as fortuitous event. In order to guarantee performance by Transfield, two stand-by
letters of credit were required to be opened. During the construction of the plant,
Transfield requested for extension of time citing fortuitous events brought about by
typhoon Zeb, barricades and demonstration. LHC did not give due course to the
extension of the period prayed for but referred the matter to arbitration committee. In the
meanwhile, because of the delay in the construction of the plant, LHC called on the
stand-by letters of credit because of default. However, the demand was objected by
Transfield on the ground that there is still pending arbitration on their request for
extension of time. LHC invoked the ―independence principle‖. On the other hand,
Transfield claims fraud on the part of LHC on calling the stand-by letters of credit. The
trial court held for the LHC. Following the independence principle, even granting that
there is still issue to be resolved arising from the turn-key project. This issue is not
supposed to affect the obligation of the bank to pay the letter of credit in question. The
court stressed that a LC accommodation is intended to benefit not only the beneficiary
therein but the applicant thereon. Dissatisfied with the trial court’s denial of its
application for a writ of preliminary injunction, petitioner elevated the case to the Court
of Appeals via a Petition for Certiorari under Rule 65, with prayer for the issuance of a
temporary restraining order and writ of preliminary injunction. Petitioner submitted to the
appellate court that LHC’s call on the Securities was premature considering that the
issue of its default had not yet been resolved with finality by the Construction Industry
Arbitration Commission and/or the ICC. It asserted that until the fact of delay could be
established, LHC had no right to draw on the Securities for liquidated damages.

Issue:
Whether or not the drawing on the letters of credit during the pendency of the
arbitral proceeding proper.

Ruling:
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.

29. Insular Savings Bank vs. Far East Bank and Trust Company, G.R No. 141818;
June 22, 2006

Facts:
On December 11, 1991, Far East Bank and Trust Company (Respondent) filed a
complaint against Home Bankers Trust and Company (HBTC) with the Philippine
Clearing House Corporation’s (PCHC) Arbitration Committee.
Respondent sought to recover from the petitioner, the sum of P25,200,000.00
representing the total amount of the three checks drawn and debited against its clearing
account. HBTC sent these checks to respondent for clearing by operation of the PCHC
clearing system. Thereafter, respondent dishonored the checks for insufficiency of
funds and returned the checks to HBTC. However, the latter refused to accept them
since the checks were returned by respondent after the reglementary regional clearing
period.
Meanwhile, on January 17, 1992, before the termination of the arbitration proceedings,
respondent filed another complaint but this time with the Regional Trial Court (RTC) in
Makati City for Sum of Money and Damages with Preliminary Attachment.
The complaint was filed not only against HBTC but also against Robert Young, Eugene
Arriesgado and Victor Tancuan (collectively known as Defendants), who were the
president and depositors of HBTC respectively. Aware of the arbitration proceedings
between respondent and petitioner, the Regional Trial Court, in an Omnibus Order
suspended the proceedings in the case against all the defendants pending the decision
of the Arbitration Committee
On February 2, 1998, the PCHC Arbitration Committee rendered its decision in favor of
respondent. The motion for reconsideration filed by petitioner was denied by the
Arbitration Committee.
Consequently, to appeal the decision of the Arbitration Committee, petitioner filed a
petition for review in the earlier case filed by respondent in Branch 135 of the Regional
Trial Court of Makati.
In an order dated January 20, 1999, the Regional Trial Court directed both petitioner
and respondent to file their respective memoranda, after which, said petition would be
deemed submitted for resolution.
Both parties filed several pleadings. On February 8, 1999, respondent filed a Motion to
Dismiss Petition for Review for Lack of Jurisdiction, which was opposed by the
petitioner.
On November 9, 1999, the Regional Trial Court dismissed the petition for review.
The Regional Trial Court denied petitioner’s motion for reconsideration, hence, this
petition.

Issue:
Whether the Regional Trial Court erred in dismissing the Petition of Petitioner for lack of
jurisdiction on the ground that it should have been docketed as a separate case.

Ruling:
No, As provided in the PCHC Rules, the findings of facts of the decision or award
rendered by the Arbitration Committee shall be final and conclusive upon all the parties
in said arbitration dispute. Under Article 2044 of the New Civil Code, the validity of any
stipulation on the finality of the arbitrators’ award or decision is recognized. However,
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. Consequently, the decision of the Arbitration Committee is subject to judicial
review.
Furthermore, petitioner had several judicial remedies available at its disposal after the
Arbitration Committee denied its Motion for Reconsideration.
It may petition the proper Regional Trial Court to issue an order vacating the award
• Invoking the grounds provided for under Section 24 of the Arbitration Law;
• Filing a petition for review under Rule 43 of the Rules of Court with the Court of
Appeals on questions of fact, of law, or mixed questions of fact and law; and Lastly,
• Petitioner may file a petition for certiorari under Rule 65 of the Rules of Court on the
ground that the Arbitrator Committee acted without or in excess of its jurisdiction or with
grave abuse of discretion amounting to lack or excess of jurisdiction.
Since this case involves acts or omissions of a quasi-judicial agency, the petition should
be filed in and cognizable only by the Court of Appeals.
In this instance, petitioner did not avail of any of the abovementioned remedies
available to it. Instead it filed a petition for review with the Regional Trial Court where
Civil Case No. 92-145 is pending pursuant to Section 13 of the PCHC Rules to sustain
its action. Clearly, it erred in the procedure it chose for judicial review of the arbitral
award.
Jurisdiction over the subject matter is conferred by law and not by the consent or
acquiescence of any or all of the parties or by erroneous belief of the court that it exists.
In the instant case, petitioner and respondent have agreed that the PCHC Rules would
govern in case of controversy. However, since the PCHC Rules came about only as a
result of an agreement between and among member banks of PCHC and not by law, it
cannot confer jurisdiction to the Regional Trial Court. Thus, the portion of the PCHC
Rules granting jurisdiction to the Regional Trial Court to review arbitral awards, only on
questions of law, cannot be given effect.
Consequently, the proper recourse of petitioner from the denial of its motion for
reconsideration by the Arbitration Committee is to file either a motion to vacate the
arbitral award with the Regional Trial Court, a petition for review with the Court of
Appeals under Rule 43 of the
Rules of Court, or a petition for certiorari under Rule 65 of the Rules of Court.
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. It must be borne in mind that arbitration proceedings are mainly governed
by the Arbitration Law and suppletorily by the Rules of Court.

30. Reyes vs. Balde II, G.R. No. 168384 August 18, 2006

Facts:
On October 20, 2002, respondent-spouses Cesar and Carmelita Esquig entered into a
Design-Build Construction Agreement5 with petitioner Charles Bernard H. Reyes, doing
business under the name and style of CBH Reyes Architects, for the architectural
design and construction of a 2-storey residence in Tahanan Village, Parañaque City. In
accordance with the contract, spouses Esquig paid the amount ofP1,050,000 as down
payment.6 Thereafter, construction commenced. According to petitioner, Papas
meddled with the construction works by demanding changes and additional works which
entailed additional cost. Papas also refused to pay petitioner’s progress billing and the
salary of the laborers. Petitioner thereafter prepared an accounting reportof all the
additional works and their corresponding costs, however, Papas denied all the items in
the list and refused to pay the same. Thus, on May 26, 2003, petitioner filed a complaint
for Accounting, Collection of Sum of Money, Rescission of Contract with Damages
against spouses Esquig and Rosemarie Papas with the Regional Trial Court of
Muntinlupa City which was docketed as Civil Case No. 03110.On July 15, 2003,
respondents filed a motion to dismiss Civil Case No. 03-110 on the ground that the
court has no jurisdiction over the subject matter of the case. They claimed that the
Design-Build Construction Agreement contained an arbitration clause, thus any dispute
arising therefrom should be brought before the Construction Industry Arbitration
Commission. On even date, respondents also filed a complaint before the Construction
Industry Arbitration Commission against the petitioner, docketed as Construction
Industry Arbitration Commission Case No. 13-2003. Respondents alleged that petitioner
unreasonably delayed the construction and refused to finish the project. Thus, they
prayed that petitioner be ordered to finish the project or, in the alternative, to pay the
cost to finish the same; to reimburse the overpayments made by respondents; and to
pay liquidated damages, attorney’s fees and costs of the suit.
Petitioner filed a motion to dismiss on the ground that there is an existing case filed
before Regional Trial Court, however Construction Industry Arbitration Commission
denied the prayer of petitioner. Meanwhile, on February 27, 2004, the Regional Trial
Court of Muntinlupa City, Branch 203 issued an Order8 denying the motion to dismiss
filed by respondents. The trial court held that it has jurisdiction over the complaint for
accounting, rescission of contract and damages. Court of Appeals affirmed the decision
of Construction Industry Arbitration Commission that it validly acquire jurisidiction to
hear the case.

Issue:
Whether Construction Industry Arbitration Commission has jurisdiction to hear the case

Ruling:
YES, Construction Industry Arbitration Commission has jurisdiction to hear the case
SECTION 4. Jurisdiction.
The Construction Industry Arbitration Commission shall have original and exclusive
jurisdiction over disputes arising from, or connected with, contracts entered into by
parties involved in construction in the Philippines, whether the dispute arises before or
after the completion of the contract, or after the abandonment or breach thereof. These
disputes may involve government or private contracts. For the Board to acquire
jurisdiction, the parties to a dispute must agree to submit the same to voluntary
arbitration. The jurisdiction of the Construction Industry Arbitration Commission 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. In the case of Philrock, Inc. v. Construction Industry Arbitration
Commission,13 the Court has ruled that Construction Industry Arbitration Commission
has 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. Section 1, Article III of the Construction Industry Arbitration
Commission Rules of Procedure Governing Construction Arbitration likewise provides
that recourse to the Construction Industry Arbitration Commission may be availed of
whenever a contract contains a clause for the submission of a future controversy to
arbitration
Clearly, the presence of the arbitration clause in the parties’ contract vests jurisdiction
on the Construction Industry Arbitration Commission on all controversies
arising from such contract. The arbitral clause in the agreement is a commitment by 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. Where the jurisdiction of
Construction Industry Arbitration Commission is properly invoked, the failure or refusal
of herein petitioner to arbitrate shall not affect the proceedings. Arbitration proceedings
shall continue notwithstanding the absence or lack of participation of petitioner, and the
award shall be made after receiving the evidence of the claimant.

31. Fiesta World Mall Corporation vs. Lindberg Phils Inc., G.R 152471, August 18,
2006

Facts:
Fiesta World Mall Corporation, petitioner, owns and operates Fiesta World Mall located
at Barangay Maraouy, Lipa City; while Linberg Philippines, Inc., respondent, is a
corporation that builds and operates power plants.
On January 19, 2000, respondent filed with the Regional Trial Court (RTC), Branch 267,
Pasig City, a Complaint for Sum of Money against petitioner.
The complaint alleges that on November 12, 1997, petitioner and respondent executed
a build-own-operate agreement, entitled “Contract Agreement for Power Supply
Services, 3.8 MW Base Load Power Plant” (the Contract).
Under this Contract, respondent will construct, at its own cost, and operate as owner a
power plant, and to supply petitioner power/electricity at its shopping mall in Lipa City.
Petitioner, on the other hand, will pay respondent “energy fees” to be computed in
accordance with the Seventh Schedule of the Contract.
The complaint further alleges that respondent constructed the power plant in Lipa City
at a cost of about P130,000,000.00. In November 1997, the power plant became
operational and started supplying power/electricity to petitioner’s shopping mall in Lipa
City. In December 1997, respondent started billing petitioner.
As of May 21, 1999, petitioner’s unpaid obligation amounted to P15,241,747.58,
exclusive of interest. However, petitioner questioned the said amount and refused to
pay despite respondent’s repeated demands.
In its Answer with Compulsory Counterclaim, petitioner specifically denied the
allegations in the complaint, claiming that respondent failed to fulfill its obligations under
the Contract by failing to supply all its power/fuel needs.
From November 10, 1998 until May 21, 1999, petitioner personally shouldered the cost
of fuel. Petitioner also disputed the amount of energy fees specified in the billings
made by respondent because the latter failed to monitor, measure, and record the
quantities of electricity delivered by taking photographs of the electricity meter reading
prior to the issuance of its invoices and billings, also in violation of the Contract.
Moreover, in the computation of the electrical billings, the minimum off-take of energy
(E2) was based solely on the projected consumption as computed by respondent.
However, based on petitioner’s actual experience, it could not consume the energy
pursuant to the minimum off-take even if it kept open all its lights and operated all its
machinery and equipment for twenty-four hours a day for a month. This fact was
admitted by respondent. While both parties had discussions on the questioned billings,
however, “there were no earnest efforts to resolve the differences in accordance with
the arbitration clause provided for in the Contract.”
Finally, as a special affirmative defense in its answer, petitioner alleged that
respondent’s filing of the complaint is premature and should be dismissed on the ground
of non-compliance with paragraph 7.4 of the Contract which provides:

7.4 Disputes
If FIESTA WORLD disputes the amount specified by any invoice, it shall pay the
undisputed amount on or before such date(s), and the disputed amount shall be
resolved by arbitration of three (3) persons, one (1) by mutual choice, while the other
two (2) to be each chosen by the parties themselves, within fourteen (14) days after the
due date for such invoice and all or any part of the disputed amount paid to LINBERG
shall be paid together with interest pursuant to Article XXV from the due date of the
invoice. It is agreed, however, that both parties must resolve the disputes within thirty
(30) days, otherwise any delay in payment resulting to loss to LINBERG when
converted to $US as a result of depreciation of the Pesos shall be for the account of
FIESTA WORLD. Corollarily, in case of erroneous billings, however, LINBERG shall be
liable to pay FIESTA WORLD for the cost of such deterioration, plus interest computed
pursuant to Art. XXV from the date FIESTA WORLD paid for the erroneous billing.
(Underscoring supplied)
Thereafter, petitioner filed a Motion to Set Case for Preliminary Hearing on the ground
that respondent violated the arbitration clause provided in the Contract, thereby
rendering its cause of action premature.
This was opposed by respondent, claiming that paragraph 7.4 of the Contract on
arbitration is not the provision applicable to this case; and that since the parties failed to
settle their dispute, then respondent may resort to court action pursuant to paragraph
17.2 of the same Contract which provides:

17.2 Amicable Settlement

The parties hereto agree that in the event there is any dispute or difference between
them arising out of this Agreement or in the interpretation of any of the provisions
hereto, they shall endeavor to meet together in an effort to resolve such dispute by
discussion between them but failing such resolution the Chief Executives of LINBERG
and FIESTA WORLD shall meet to resolve such dispute or difference and the joint
decision of such shall be binding upon the parties hereto, and in the event that a
settlement of any such dispute or difference is not reached, then the provisions of
Article XXI shall apply.
In its Order dated October 3, 2000, the trial court denied petitioner’s motion for lack of
merit.
Petitioner then filed a Motion for Reconsideration but it was denied in an Order dated
January 11, 2001.
Dissatisfied, petitioner elevated the matter to the Court of Appeals via a Petition for
Certiorari.
On December 12, 2001, the appellate court rendered its Decision dismissing the petition
and affirming the challenged Orders of the trial court.
Petitioner’s Motion for Reconsideration of the above Decision was likewise denied by
the appellate.
Hence, the instant Petition for Review on Certiorari.
Issue:
Whether the filing with the trial court of respondent’s complaint is premature

Ruling:

YES, the filing with the trial court of the complaint is premature.

Paragraph 7.4 of the Contract, quoted earlier, mandates that should petitioner dispute
any amount of energy fees in the invoice and billings made by respondent, the same
“shall be resolved by arbitration of three (3) persons, one (1) by mutual choice, while the
other two (2) to be each chosen by the parties themselves.” The parties, in
incorporating such agreement in their Contract, expressly intended that the said matter
in dispute must first be resolved by an arbitration panel before it reaches the court.
They made such arbitration mandatory.
It is clear from the records that petitioner disputed the amount of energy fees demanded
by respondent. However, respondent, without prior recourse to arbitration as required
in the Contract, filed directly with the trial court its complaint, thus violating the
arbitration clause in the Contract.
It bears stressing that such arbitration agreement is the law between the parties. Since
that agreement is binding between them, they are expected to abide by it in good faith.
And because it covers the dispute between them in the present case, either of them
may compel the other to arbitrate. Thus, it is well within petitioner’s right to demand
recourse to arbitration.
We cannot agree with respondent that it can directly seek judicial recourse by filing an
action against petitioner simply because both failed to settle their differences amicably.
Suffice it to state that there is nothing in the Contract providing that the parties may
dispense with the arbitration clause. Article XXI on jurisdiction cited by respondent, i.e.,
that “the parties hereto submit to the exclusive jurisdiction of the proper courts of Pasig
City” merely provides for the venue of any action arising out of or in connection with the
stipulations of the parties in the Contract.
Moreover, we note that the computation of the energy fees disputed by petitioner also
involves technical matters that are better left to an arbitration panel who has expertise in
those areas. Alternative dispute resolution methods or ADRs – like arbitration,
mediation, negotiation and conciliation – are encouraged by this Court. By enabling the
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.
32. Jorge Gonzales and Panel of Arbitrators vs. Climax Mining LTD., et al., G.R.
No. 161957, January 22, 2007

Facts:
This is a consolidation of two petitions rooted in the same disputed Addendum Contract
entered into by the parties. In G.R. No. 161957, the Court in its Decision of 28 February
2005 denied the Rule 45 petition of petitioner Jorge Gonzales (Gonzales). It held that
the DENR Panel of Arbitrators had no jurisdiction over the complaint for the annulment
of the Addendum Contract on grounds of fraud and violation of the Constitution and that
the action should have been brought before the regular courts as it involved judicial
issues. Both parties filed separate motions for reconsideration. Gonzales avers in his
Motion for Reconsideration that the Court erred in holding that the DENR Panel of
Arbitrators was bereft of jurisdiction, reiterating its argument that the case involves a
mining dispute that properly falls within the ambit of the Panels authority. Gonzales
adds that the Court failed to rule on other issues he raised relating to the sufficiency of
his complaint before the DENR Panel of Arbitrators and the timeliness of its filing.
Respondents Climax Mining Ltd., et al., (respondents) filed their Motion for Partial
Reconsideration and/or Clarification seeking reconsideration of that part of the Decision
holding that the case should not be brought for arbitration under Republic Act (R.A.) No.
876, also known as the Arbitration Law. Respondents, citing American jurisprudence
and the UNCITRAL Model Law, argue that the arbitration clause in the Addendum
Contract should be treated as an agreement independent of the other terms of the
contract, and that a claimed rescission of the main contract does not avoid the duty to
arbitrate. Respondents add that Gonzales argument relating to the alleged invalidity of
the Addendum Contract still has to be proven and adjudicated on in a proper
proceeding; that is, an action separate from the motion to compel arbitration. Pending
judgment in such separate action, the Addendum Contract remains valid and binding
and so does the arbitration clause therein. Respondents add that the holding in the
Decision that the case should not be brought under the ambit of the Arbitration Law
appears to be premised on Gonzales having impugn[ed] the existence or validity of the
addendum contract. If so, it supposedly conveys the idea that Gonzales unilateral
repudiation of the contract or mere allegation of its invalidity is all it takes to avoid
arbitration. Hence, respondents submit that the courts holding that the case should not
be brought under the ambit of the Arbitration Law be understood or clarified as
operative only where the challenge to the arbitration agreement has been sustained by
final judgment.

Issue:
Whether or not it was proper for the Regional Trial Court, in the proceeding to compel
arbitration under R.A. No. 876, to order the parties to arbitrate even though the
defendant therein has raised the twin issues of validity and nullity of the Addendum
Contract and, consequently, of the arbitration clause therein as well

Ruling:
Yes. Disputes do not go to arbitration unless and until the parties have agreed to abide
by the arbitrators’ decision. Necessarily, a contract is required for arbitration to take
place and to be binding. R.A. No. 876 recognizes the contractual nature of the
arbitration agreement.
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 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.
The separability of the arbitration clause is confirmed in Art. 16(1) of the UNCITRAL
Model Law and Art. 21(2) of the UNCITRAL Arbitration Rules.
The proceeding in a petition for arbitration under R.A. No. 876 is limited only to the
resolution of the question of whether the arbitration agreement exists. Second, the
separability of the arbitration clause from the Addendum Contract means that validity or
invalidity of the Addendum Contract will not affect the enforceability of the agreement to
arbitrate. Thus, Gonzales petition for certiorari should be dismissed.
This brings us back to G.R. No. 161957. 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 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.
33. Rosaria Lupitan Pang-et vs. Catherine Manacnes-dao-as, Heir of Leoncio
Manacnes and Florentina Manacnes, G.R. No. 167261 March 2, 2007

Facts:
Before Us is a Petition for Review on Certiorari under Rule 45 of the Rules of Civil
Procedure, assailing the Decision of the Court of Appeals dated 9 Feb 2005, which
reversed and set aside the Judgment of the Regional Trial Court, Br 36, Bontoc,
Mountain Province, and reinstated the Resolution of the MCTC of Besao-Sagada,
Mountain Province dismissing herein petitioner’s action for Enforcement of Arbitration
Award and Damages. The instant petition draws its origin from an Action for recovery of
possession of real property situated in Sitio Abatan, Barrio Dagdag, Sagada filed by
petitioner before MCTC of Besao-Sagada, Mountain Province on 9 Nov 1994, against
the SPs Leoncio and Florentina Manacnes, the predecessors-in-interest.
On 23 Feb 1995, during the course of pre-trial, the parties, through their respective
counsels, agreed to refer the matter to Brgy Lupon of Dagdag, Sagada for arbitration in
accordance with the provisions of the Katarungang Pambarangay Law. Consequently,
the proceedings before MCTC were suspended, and the case was remanded to Lupon
for resolution. Thereafter, Lupon issued a Certification to File Action on 26 Feb 1995
due to the refusal of the Manacnes Sps to enter into an Agreement for Arbitration and
their insistence that the case should go to court. On 8 Mar 1995, the Certification, as
well as the records of the case, were forwarded to the MCTC.
An Order was issued by the MCTC on 7 Apr 1995, once more remanding the matter for
conciliation by the Lupon and ordering the Lupon to render an Arbitration Award (AA).
According to MCTC, based on the records of the case, an Agreement for Arbitration
was executed by the parties concerned; however, the Lupon failed to issue an AA as
provided under Katarungang Pambarangay Law, so that, the case must be returned to
the Lupon until an AA is rendered.
In compliance with MCTC Order, the Lupon rendered an AA on 10 May 1995 ordering
pet to retrieve the land upon payment to the Sps Manacnes of the amount of P8,000.00
for improvements on the land. Aggrieved, Leoncio’s widow, Florentina Manacnes,
repudiated the AA but her repudiation was rejected by Lupon. Thereafter, MCTC was
furnished with copies of the AA.
On 1 June 1995, petitioner filed with the Lupon a Motion for Execution of the Arbitration
Award. On the other hand, F. Manacnes filed a Motion with the MCTC for the
resumption of the proceedings in the original case for recovery of possession and
praying that the MCTC consider her repudiation of the Arbitration Award issued by the
Lupon. Subsequently, MCTC heard the Motion of F Manacnes notwithstanding the
latter’s failure to appear before the court despite notice. MCTC denied Manacnes’
Motion to repudiate the Arbitration Award elucidating since the movant failed to take any
action within the 10-day reglementary period provided for under Katarungang
Pambarangay Law, the arbitration award has become final and executory. Upon motion
of Pang-et, MCTC issued an Order remanding the records of the case to Lupon for
execution of the AA. On 31 Aug 1995, the then incumbent Punong Brgy of Dagdag
issued a Notice of Execution of the Award.
Said Notice of Execution was never implemented. Thus, on 16 Oct 2001, Pang-et filed
with MCTC an action for enforcement of Arbitration Award which was sought to be
dismissed by the heir of Manacnes Sps. The heir of Manacnes Spouses argues that the
Agreement for Arbitration and the AA are void, the Agreement for Arbitration not having
been personally signed by the Sps Manacnes, and the Arbitration Award having been
written in English – a language not understood by the parties.
In its Resolution dated 20 Aug 2002, MCTC dismissed the Petition for Enforcement of
Arbitration Award:
xxx Are defendants estopped from questioning the proceedings before the Lupon
Tagapamayapa concerned? The defendants having put in issue the validity of the
proceedings before the lupon concerned and the products thereof, they are not
estopped. It is a hornbook rule that a null and void act could always be questioned at
any time as the action or defense based upon it is imprescriptible.
The second issue: Is the agreement to Arbitrate null and void? Let us peruse the
pertinent law dealing on this matter which is Sec 413 of RA 7160 to wit: " (a) The parties
may, at any stage of the proceedings, agree in writing that they shall abide by the
arbitration award of the lupon chairman or the pangkat. x x x"
The foregoing should be taken together with Sec 415 of the same code: "Sec 415.
Appearance of parties in person. In all katarungang pambarangay proceedings, the
parties must appear in person without the assistance of counsel or representative,
except for minors and incompetents who may be assisted by their next-of-kin who are
not lawyers."
It is very clear from the foregoing that personal appearance of the parties in conciliation
proceedings before a Lupon Tagapamayapa is mandatory. Likewise, the execution of
the agreement to arbitrate must be done personally by the parties themselves so that
they themselves are mandated to sign the agreement. Unfortunately, in this case, it was
not Spouses Manacnis who signed the agreement to arbitrate as plaintiff herself
admitted but another person. Thus, it is very clear that the mandatory provisos of Sec
413 and 415 of RA 7160 are violated.
Granting arguendo that it was Catherine who signed the agreement per instruction of
her parents, will it cure the violation? The answer must still be in the negative. As
provided for by the cited in RA 7160, if ever a party is entitled to an assistance, it shall
be done only when the party concerned is a minor or incompetent. Here, there is no
showing that the Spouses. Manacnis were incompetent. Perhaps very old but not
incompetent. Likewise, what the law provides is assistance, not signing of agreements
or settlements.
Just suppose the Sps Manacnis executed a SPA in favor of their daughter Catherine to
attend the proceedings and to sign the agreement to arbitrate? The more that it is
proscribed by the Katarungang Pambarangay Law specifically Sec 415 of RA 7160
which mandates the personal appearance of the parties before the lupon and likewise
prohibits the appearance of representatives. In view of the foregoing, it could now be
safely concluded that the questioned agreement to arbitrate is inefficacious for being
violative of the mandatory provisions of RA 7160 particularly sec 413 and 415 as it was
not the Sps Manacnis who signed it.
The third issue: Is the Arbitration Award now sought to be enforced effective? Much to
be desired, the natural flow of events must follow as a consequence. Considering that
the agreement to arbitrate is inefficacious as earlier declared, it follows that the
arbitration award which emanated from it is also inefficacious. Further, the AA by itself,
granting arguendo that agreement to arbitrate is valid, will readily show that it does not
also conform with the mandate of the Katarungang Pambarangay Law particularly Sec
411: Form of Settlement – All amicable settlements shall be in writing in a language or
dialect known to the parties xxx. When the parties to the dispute do not use the same
language or dialect, the settlement shall be written in the language known to them."
Likewise, the implementing rules thereof, particularly Sec 13: Form of Settlement and
Award. – All settlements, whether by mediation, conciliation or arbitration, shall be in
writing, in a language or dialect known to the parties. x x x"
It is of no dispute that the parties concerned belong to and are natives of the scenic and
serene community of Sagada, Mt. Province who speak the Kankanaey language. Thus,
the AA should have been written in the Kankanaey language. However, as shown by
the AA, it is written in English language which the parties do not speak and therefore a
further violation of the Katarungang Pambarangay Law.
Pang-et’s MR having been denied, she filed an Appeal before Regional Trial Court
which reversed and set aside the Reso of the MCTC and remanded the case to the
MCTC for further proceedings:
As it appears on its face, the Agreement for Arbitration in point found on p 51 of the
expediente, dated Feb. 6, 1995, and attested by the Pangkat Chairman of the Office of
the Barangay Lupon of Dagdag, Sagada was signed by Sps Manacnis. The
representative of the Appellee in the instant case assails such Agreement claiming that
the signatures of her aforesaid predecessors-in-interest therein were not personally
affixed by the latter or are falsified-which in effect is an attack on the validity of the
document on the ground that the consent of the Sps Manacnis is vitiated by fraud.
Indulging the Appellee Heirs of Manacnis its contention that such indeed is the truth of
the matter, the fact still remains as borne out by the circumstances, that neither did said
original defendants nor did any of such heirs effectively repudiate the Agreement in
question in accordance with the procedure outlined by the law, within (5) days from Feb.
6, 1995, on the ground as above-stated (Secs. 413 (a), 418, RA 7160; Secs. 7, 13, KP
Law; Sec. 12, Rule IV, KP Rules). As mandated, such failure is deemed a waiver on the
part of the Sps Manacnis to challenge the Agreement for Arbitration on the ground that
their consent thereto is obtained and vitiated by fraud (Sec. 12, Par. 3, KP Rules).
Appellee Heirs being privy to the now deceased original defendants should have not
been permitted by the court a quo under the equitable principle of estoppel, to raise the
matter in issue for the first time in the present case.
The AA relative to Civil Case dated May 10, 1995, written in English, attested by the
Punong Brgy of Dagdag and found on p 4 of the record is likewise assailed by Appellee
as void on the ground that the English language is not known by the defendants Sps
Manacnis who are Igorots. Said Appellee contends that the document should have been
written in Kankana-ey, the dialect known to the party (Sec. 413 (b), RA 7160; Sec. 7,
Par. 2, KP law, Sec. 11, KP Rules). On this score, the court a quo presumptuously
concluded on the basis of the self-serving mere say-so of the representative of the
Appellee that her predecessors did not speak or understand English. As a matter of
judicial notice, American Episcopalian Missionaries had been in Sagada, Mountain
Province as early as 1902 and continuously stayed in the place by turns, co-mingling
with the indigenous people thereat, instructing and educating them, and converting most
to the Christian faith, among other things, until the former left about twenty years ago.
By constant association with the white folks, the natives too old to go to school
somehow learned the King’s English by ear and can effectively speak and communicate
in that language. Any which way, even granting arguendo that the Sps Manacnis were
the exceptions and indeed totally ignorant of English, no petition to nullify the Arbitration
award in issue on such ground as advanced was filed by the party or any of the
Appellee Heirs with the MCTC of Besao-Sagada, within ten (10) days from May 10,
1995, the date of the document. Thus, upon the expiration thereof, the AA acquired the
force and effect of a final judgment of a court (Sec. 416, RA 7160; Sec. 11, KP Law;
Sec. 13, KP Rules); conclusive upon the original defendants in Civil Case 83 (B.C. No.
07) and the Appellee Heirs herein privy to said defendants.
In the light thereof, the collateral attack of the Appellee on the Agreement for Arbitration
and Arbitration Award re Civil Case should not have in the first place been given due
course by the court a quo. In which case, it would not have in the logical flow of things
declared both documents "inefficacious"; without which pronouncements, said court
would not have dismissed the case at bar.
Aggrieved by reversal of the Regional Trial Court, respondent filed a petition before the
CA seeking to set aside judgment. On 9 Feb 2005, the CA rendered the herein assailed
Decision, to wit:
After thoroughly reviewing through the record, We find nothing that would show that Sps
Manacnes were ever amenable to any compromise with respondent Pang-et. Thus, We
are at a loss as to the basis of the AA sought to be enforced by Pang-et’s subsequent
action before MCTC.
There is no dispute that the proceeding in the case was suspended and the same
remanded to the Lupon on account of the Agreement to Arbitrate which was allegedly
not signed by the parties but agreed upon by their respective counsels during the pre-
trial conference. In the meeting before the Lupon, it would seem that the agreement to
arbitrate was not signed by the Sps Manacnes. More importantly, when the pangkat
chairman asked the Sps Manacnes to sign or affix their thumbmarks in the agreement,
they refused and insisted that the case should instead go to court. Thus, the Lupon had
no other recourse but to issue a certificate to file action. Unfortunately, the case was
again remanded to the Lupon to "render an arbitration award". This time, the Lupon
heard the voice tape of the late Baket Padonay affirming Pang-et’s right to the disputed
property. While Pang-et offered to pay P8,000.00 for the improvements made by the
Sps Manacnes, the latter refused to accept the same and insisted on their right to the
subject property. Despite this, the Lupon on May 10, 1995 issued an AA which favored
Pang-et.
From the time the case was first referred to the Lupon to the time the same was again
remanded to it, the Sps Manacnes remained firm in not entering into any compromise
with respondent Pang-et. This was made clear in both the minutes of the Arbitration
Hearing on 26 Feb 1995 and on 9 Apr 1995. With the foregoing, We find it evident that
the Sps Manacnes never intended to submit the case for arbitration. Moreover, the
award itself is riddled with flaws. First of all there is no showing the Pangkat ng
Tagapagkasundo was duly constituted in accordance with Rule V of the KP Rules. And
after constituting of the Pangkat, Rule VI, thereof the Punong Brgy and the Pangkat
must proceed to hear the case. However, according to the minutes of the hearing before
the lupon on 9 April 1995, the Pangkat Chairman and another pangkat member were
absent for the hearing.
Finally, Sec 13 of the same Rule requires that the Punong Brgy or the Pangkat
Chairman should attest that parties freely and voluntarily agreed to the settlement
arrived at. But how can this be possible when the minutes of the two hearings show that
the Sps Manacnes neither freely nor voluntarily agreed to anything.
While the LGC and the KP Rules provide for a period to repudiate the AA, the same is
neither applicable nor necessary since the Agreement to Arbitrate or the AA were never
freely nor voluntarily entered into by one of the parties to the dispute. There is no
agreement validly concluded that needs to be repudiated.
With all the foregoing, estoppel may not be applied against petitioners for an action or
defense against a null and void act does not prescribe. With this, We cannot but agree
with the MCTC that the very agreement to arbitrate is null and void. Similarly, the
arbitration award which was but the off shoot of the agreement is also void. Regional
Trial Court judgment is REVERSED and SET ASIDE, MCTC Reso DISMISSING the
Case for enforcement of Arbitration Award is REINSTATED.

Issues:
1. Whether or not Court of Appeals overlooked material facts that resulted in
reversible errors in the assailed Decision. According to petitioner, Court of
Appeals overlooked the fact that the original parties, as represented by their
respective counsels, mutually agreed to submit the case for arbitration by the
Lupon ng Tagapamayapa of Barangay Dagdag.
2. Whether or not the parties must be bound by the initial agreement by their
counsels during pre-trial to an amicable settlement as any representation made
by the lawyers are deemed made with the conformity of their clients. If indeed the
Sps Manacnes did not want to enter into an amicable settlement, then they
should have raised their opposition at the first instance, which was at the pre-trial
of the case when MCTC ordered that the case be remanded to the Lupon ng
Tagapamayapa for arbitration.

Ruling:
We do not agree with the petitioner.
First and foremost, in order to resolve the case before us, it is pivotal to stress that,
during the initial hearing before the Lupon ng Tagapamayapa, the Sps Manacnes
declined to sign the Agreement for Arbitration and were adamant that the proceedings
before MCTC must continue. As reflected in the Minutes of the Arbitration Hearing held
on 26 Feb 1995, the legality of the signature of Catherine Manacnes, daughter of the
Sps Manacnes, who signed the Agreement for Arbitration on behalf of her parents, was
assailed on the ground that it should be Sps Manacnes themselves who should have
signed such agreement. To resolve the issue, the Pangkat Chairman then asked Sps
Manacnes that if they wanted the arbitration proceedings to continue, they must signify
their intention in the Agreement for Arbitration form. However, as stated earlier, Sps
Manacnes did not want to sign such agreement and instead insisted that the case go to
court.
Consequently, the Lupon issued a Cert to File Action on 26 Feb 1995 due to the refusal
of Sps Manacnes. Indicated in said Certification are the following: 1) that there was
personal confrontation between the parties before the Punong Barangay but conciliation
failed and 2) that the Pangkat ng Tagapagkasundo was constituted but the personal
confrontation before the Pangkat failed likewise because respondents do not want to
submit this case for arbitration and insist that said case will go to court. Nevertheless,
upon receipt of said certification and the records of the case, MCTC ordered the case
be remanded to the Lupon ng and for the latter to render an arbitration award,
explaining that:
Going over the documents submitted to the court by the office of the Lupon, the court
observed that an "Agreement for Arbitration" was executed by the parties anent the
case. However, said Lupon did not make any arbitration award as mandated by the KP
Law but instead made a finding that the case may now be brought to the court. This is
violative of the KP Law, which cannot be sanctioned by the court.
At this juncture, it must be stressed the object of the KP Law is the amicable settlement
of disputes through conciliation proceedings voluntarily and freely entered into by the
parties. Through this mechanism, the parties are encouraged to settle their disputes
without enduring the rigors of court litigation. Nonetheless, the disputing parties are not
compelled to settle their controversy during the brgy proceedings before the Lupon or
the Pangkat, as they are free to instead find recourse in the courts in the event that no
true compromise is reached.
The key in achieving the objectives of an effective amicable settlement under the KP
Law is the free and voluntary agreement of the parties to submit the dispute for
adjudication either by the Lupon or the Pangkat, whose award or decision shall be
binding upon them with the force and effect of a final judgment of a court. Absent this
voluntary submission by the parties to submit their dispute to arbitration under the KP
Law, there cannot be a binding settlement arrived at effectively resolving the case.
Hence, we fail to see why MCTC further remanded the case to the Lupon and insisted
that the arbitration proceedings continue, despite the clear showing that Sps Manacnes
refused to submit the controversy for arbitration.
It would seem from the Order of MCTC, which again remanded the case for arbitration
to the Lupon ng Tagapamayapa, that it is compulsory on the part of the parties to
submit the case for arbitration until an arbitration award is rendered by the Lupon. This,
to our minds, is contrary to the very nature of the proceedings under the KP Law which
espouses the principle of voluntary acquiescence of the disputing parties to amicable
settlement.
What is compulsory under the KP Law is that there be a confrontation between the
parties before the Lupon Chairman or the Pangkat and that a certification be issued that
no conciliation or settlement has been reached, as attested to by the Lupon or Pangkat
Chairman, before a case falling within the authority of the Lupon may be instituted in
court or any other government office for adjudication. 18 In other words, the only
necessary pre-condition before any case falling within the authority of the Lupon or the
Pangkat may be filed before a court is that there has been personal confrontation
between the parties but despite earnest efforts to conciliate, there was a failure to
amicably settle the dispute. It should be emphasized that while the spouses Manacnes
appeared before the Lupon during the initial hearing for the conciliation proceedings,
they refused to sign the Agreement for Arbitration form, which would have signified their
consent to submit the case for arbitration. Therefore, upon certification by the Lupon ng
Tagapamayapa that the confrontation before the Pangkat failed because the spouses
Manacnes refused to submit the case for arbitration and insisted that the case should
go to court, the MCTC should have continued with the proceedings in the case for
recovery of possession which it suspended in order to give way for the possible
amicable resolution of the case through arbitration before the Lupon ng Tagapamayapa.
Petitioner’s assertion that the parties must be bound by their respective counsels’
agreement to submit the case for arbitration and thereafter enter into an amicable
settlement is imprecise. What was agreed to by the parties’ respective counsels was the
remand of the case to the Lupon ng Tagapamayapa for conciliation proceedings and
not the actual amicable settlement of the case. As stated earlier, the parties may only
be compelled to appear before the Lupon ng Tagapamayapa for the necessary
confrontation, but not to enter into any amicable settlement, or in the case at bar, to sign
the Agreement for Arbitration. Thus, when the Manacnes spouses personally appeared
during the initial hearing before the Lupon ng Tagapamayapa, they had already
complied with the agreement during the pre-trial to submit the case for conciliation
proceedings. Their presence during said hearing is already their acquiescence to the
order of the MCTC remanding the case to the Lupon for conciliation proceedings, as
there has been an actual confrontation between the parties despite the fact that no
amicable settlement was reached due to the spouses Manacnes’ refusal to sign the
Agreement for Arbitration.
Furthermore, MCTC should not have persisted in ordering the Lupon ng Tagapamayapa
to render an arbitration award upon the refusal of the spouses Manacnes to submit the
case for arbitration since such arbitration award will not bind the spouses. As reflected
in Section 413 of the Revised Katarungang Pambarangay Law, in order that a party
may be bound by an arbitration award, said party must have agreed in writing that they
shall abide by the arbitration award of the Lupon or the Pangkat. Like in any other
contract, parties who have not signed an agreement to arbitrate will not be bound by
said agreement since it is axiomatic that a contract cannot be binding upon and cannot
be enforced against one who is not a party to it. In view of the fact that upon verification
by the Pangkat Chairman, in order to settle the issue of whether or not they intend to
submit the matter for arbitration, the spouses Manacnes refused to affix their signature
or thumb mark on the Agreement for Arbitration Form, the Manacnes spouses cannot
be bound by the Agreement for Arbitration and the ensuing arbitration award since they
never became privy to any agreement submitting the case for arbitration by the
Pangkat.
WHEREFORE, premises considered, the instant petition is hereby DENIED. The
Decision of the CA in CA-G.R. SP No. 78019 is hereby AFFIRMED. The MCTC of
Besao-Sagada, Mountain Province, is hereby ORDERED to proceed with the trial of
Civil Case for Recovery of Possession of Real Property, and the immediate resolution of
the same with deliberate dispatch.
34. Frabelle Fishing Corporation vs. The Philippine American Life Insurance
Company, PHILAM Properties Corporation and Perf Realty Corporaation, G.R. NO.
158560, August 17, 2007

Facts:
On 8 May 1996, respondents entered into a MOA [1996 MOA] agreeing to contribute
cash, property, and services to construct and develop Philamlife Tower, a 45-storey
office condominium. On 6 December 1996, respondents assigned [1996 DOA] to
Frabelle Properties Corporation their rights and obligations under the 1996 MOA with
respect to the construction, development, and ownership of Unit No. 38-B at the 38th
floor. They stipulated that the assignee shall be deemed a co-developer of the
construction of Unit No. 38-B.
Frabelle, in turn, assigned to petitioner [Frabelle Fishing] its rights, obligations and
interests over Unit No. 38-B. On 9 March 1998, petitioner and respondents executed a
MOA [1998 MOA] to fund the construction of designated office floors in Philamlife
Tower. However, petitioner discovered respondent’s material concealment of certain
details in the 1996 DOA and 1998 MOA, and their gross violation of their contractual
obligations as developers, to wit: (a) the non-construction of a partition wall between
Unit No. 38-B and the rest of the floor area; and (b) the reduction of the net usable floor
area from 468 sq.mt. to only 315 sq.mt.
On 11 February 2002, petitioner filed with HLURB a complaint for reformation of
instrument and specific performance against respondents claiming that the contracts do
not reflect the true intention of the parties, and that it is a mere buyer and not co-
developer or co-owner of the condominium unit.
On 14 May 2002, HLURB denied respondents’ plea for the case’ outright dismissal.
Respondents then went to Court of Appeals via petition for prohibition with prayer for
TRO claiming that HLURB has no jurisdiction over the controversy and that the
contracts between the parties provide for compulsory arbitration.
On 2 December 2002, the Court of Appeals granted respondent’s petition by dismissing
the complaint. It held that HLURB has no jurisdiction over an action for reformation of
contracts, and that jurisdiction lies with the Regional Trial Court. Petitioner moved to
reconsider but was denied on 30 May 2003. Hence, the instant petition for review on
certiorari.

Issues:
1. Whether or not HLURB has jurisdiction over complaint for reformation of instruments,
specific performance and damages.
2. Whether or not the parties should initially resort to arbitration.

Ruling:
Petition is Denied.
I.As the records show, the complaint filed by petitioner with the HLURB is one for
reformation of instruments. Petitioner claimed that the terms of the contract are not clear
and prayed that they should be reformed to reflect the true stipulations of the parties.
Petitioner prayed:
WHEREFORE, in view of all the foregoing, it is respectfully prayed of this Honorable
Office that after due notice and hearing, a judgment be please rendered:
1.Declaring that the instruments executed by the complainant FRABELLE and
respondent PHILAM to have been in fact a Contract to Sell. The parties are thereby
governed by the provisions of P.D. 957 entitled, "Regulating the Sale of Subdivision
Lots and Condominiums, Providing Penalties for Violations Thereof" as buyer and
developer, respectively, of a condominium unit and not as co-developer and/or co-
owner of the same; x x x
We hold that being an action for reformation of instruments, petitioner's complaint
necessarily falls under the jurisdiction of the Regional Trial Court pursuant to Section 1,
Rule 63 of the 1997 Rules of Civil Procedure, as amended, which provides:
SECTION 1. Who may file petition: Any person interested under a deed, will, contract or
other written instrument, whose rights are affected by a statute, executive order or
regulation, ordinance, or any other governmental regulation may, before breach or
violation thereof, bring an action in the appropriate Regional Trial Court to determine
any question of construction or validity arising, and for a declaration of his rights or
duties thereunder.
An action for the reformation of an instrument, to quiet title to real property or remove
clouds therefrom, or to consolidate ownership under Article 1607 of the Civil Code, may
be brought under this Rule.
As correctly held by the Court of Appeals, any disagreement as to the nature of the
parties’ relationship which would require first an amendment or reformation of their
contract is an issue which the courts may and can resolve without the need of the
expertise and specialized knowledge of the HLURB.
II. With regard to the second and last issue, paragraph 4.2 of the 1998 MOA mandates
that any dispute between or among the parties "shall finally be settled by arbitration
conducted in accordance with the Rules of Conciliation and Arbitration of the
International Chamber of Commerce." Petitioner referred the dispute to the PDRCI but
respondents refused to submit to its jurisdiction.
It bears stressing that such arbitration agreement is the law between the parties. They
are, therefore, expected to abide by it in good faith.
This Court has previously held that arbitration is one of the alternative methods of
dispute resolution that is now rightfully vaunted as "the wave of the future" in
international relations, and 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.

35. MCC Industrial Sales Corporation, vs. Ssangyong Corporation, G.R. No.
170633, October 17, 2007

Facts:
Petitioner MCC Industrial Sales (MCC), a domestic corporation engaged in the business
of importing and wholesaling stainless steel products. One of its suppliers is the
Ssangyong Corporation (Ssangyong), an international trading company with head office
in Seoul, South Korea and regional headquarters in Makati City, Philippines. The two
corporations conducted business through telephone calls and facsimile or telecopy
transmissions. Ssangyong would send the pro forma invoices containing the details of
the steel product order to MCC; if the latter conforms thereto.
On November 16, 2001, Ssangyong then filed, a civil action for damages due to breach
of contract against defendants MCC, Sanyo Seiki and Gregory Chan before the
Regional Trial Court of Makati City. In its complaint, Ssangyong alleged that defendants
breached their contract when they refused to open the L/C in the amount of
US$170,000.00 for the remaining 100MT of steel under Pro Forma Invoice Nos. ST2-
POSTS0401-1 and ST2-POSTS0401-2.
After Ssangyong rested its case, defendants filed a Demurrer to Evidence40 alleging
that Ssangyong failed to present the original copies of the pro forma invoices on which
the civil action was based. In an Order dated April 24, 2003, the court denied the
demurrer, ruling that the documentary evidence presented had already been admitted in
the December 16, 2002 Order41 and their admissibility finds support in Republic Act
(R.A.) No. 8792, otherwise known as the Electronic Commerce Act of 2000.
Considering that both testimonial and documentary evidence tended to substantiate the
material allegations in the complaint, Ssangyong’s evidence sufficed for purposes of a
prima facie case.
The parties did not raise the question whether the original facsimile transmissions are
“electronic data messages” or “electronic documents” within the context of the
Electronic Commerce Act (the petitioner merely assails as inadmissible evidence the
photocopies of the said facsimile transmissions).

Issue:
1. Whether or not MCC is liable for breach of contract when they refused to open
the L/C in the amount of US$170,000.00 for the remaining 100MT of steel?
2. Whether the print-out and/or photocopies of facsimile transmissions are
electronic evidence and admissible as such?

Ruling:
Answer to the first Issue: Yes.
The Supreme Court, finds that the award of actual damages is not in accord with the
evidence on record. It is axiomatic that actual or compensatory damages cannot be
presumed, but must be proven with a reasonable degree of certainty.
Pro Forma Invoice No. ST2-POSTS080-1 (Exhibit “X”), however, is a mere photocopy of
its original. But then again, petitioner MCC does not assail the admissibility of this
document in the instant petition. Verily, evidence not objected to is deemed admitted
and may be validly considered by the court in arriving at its judgment. Issues not raised
on appeal are deemed abandoned.
Because these documents are mere photocopies, they are simply secondary evidence,
admissible only upon compliance with Rule 130, Section 5, which states, “[w]hen the
original document has been lost or destroyed, or cannot be produced in court, the
offeror, upon proof of its execution or existence and the cause of its unavailability
without bad faith on his part, may prove its contents by a copy, or by a recital of its
contents in some authentic document, or by the testimony of witnesses in the order
stated.” Furthermore, the offeror of secondary evidence must prove the predicates
thereof, namely: (a) the loss or destruction of the original without bad faith on the part of
the proponent/offeror which can be shown by circumstantial evidence of routine
practices of destruction of documents; (b) the proponent must prove by a fair
preponderance of evidence as to raise a reasonable inference of the loss or destruction
of the original copy; and (c) it must be shown that a diligent and bona fide but
unsuccessful search has been made for the document in the proper place or places. It
has been held that where the missing document is the foundation of the action, more
strictness in proof is required than where the document is only collaterally involved.103
Given these norms, we find that respondent failed to prove the existence of the original
fax transmissions of Exhibits E and F, and likewise did not sufficiently prove the loss or
destruction of the originals. Thus, Exhibits E and F cannot be admitted in evidence and
accorded probative weight.
These invoices (ST2-POSTS0401, ST2-POSTS080-1 and ST2-POSTS080-2), along
with the other unchallenged documentary evidence of respondent Ssangyong,
preponderate in favor of the claim that a contract of sale was perfected by the parties.
With our finding that there is a valid contract, it is crystal-clear that when petitioner did
not open the L/C for the first half of the transaction (100MT), despite numerous
demands from respondent Ssangyong, petitioner breached its contractual obligation. It
is a well-entrenched rule that the failure of a buyer to furnish an agreed letter of credit is
a breach of the contract between buyer and seller. Indeed, where the buyer fails to open
a letter of credit as stipulated, the seller or exporter is entitled to claim damages for such
breach. Damages for failure to open a commercial credit may, in appropriate cases,
include the loss of profit which the seller would reasonably have made had the
transaction been carried out.
Answer to the second Issue: NO.
R.A. No. 8792, otherwise known as the Electronic Commerce Act of 2000, considers an
electronic data message or an electronic document as the functional equivalent of a
written document for evidentiary purposes. The Rules on Electronic Evidence regards
an electronic document as admissible in evidence if it complies with the rules on
admissibility prescribed by the Rules of Court and related laws, and is authenticated in
the manner prescribed by the said Rules. An electronic document is also the equivalent
of an original document under the Best Evidence Rule, if it is a printout or output
readable by sight or other means, shown to reflect the data accurately.
Thus, to be admissible in evidence as an electronic data message or to be considered
as the functional equivalent of an original document under the Best Evidence Rule, the
writing must foremost be an “electronic data message” or an “electronic document.”
We, therefore, conclude that the terms “electronic data message” and “electronic
document,” as defined under the Electronic Commerce Act of 2000, do not include a
facsimile transmission. Accordingly, a facsimile transmission cannot be considered as
electronic evidence. It is not the functional equivalent of an original under the Best
Evidence Rule and is not admissible as electronic evidence.
Since a facsimile transmission is not an “electronic data message” or an “electronic
document,” and cannot be considered as electronic evidence by the Court, with greater
reason is a photocopy of such a fax transmission not electronic evidence. In the present
case, therefore, Pro Forma Invoice Nos. ST2-POSTS0401-1 and ST2-POSTS0401-2
which are mere photocopies of the original fax transmittals, are not electronic evidence,
contrary to the position of both the trial and the appellate courts.
36. Korea Technologies Co., Ltd. Vs. Hon. Albert A. Lerma, et al. , G.R. No. 143581
January7, 2008

Facts:
Petitioner KOGIES and respondent PGSMC executed a Contract whereby KOGIES
would setup an LPG Cylinder Manufacturing Plant for respondent. Respondent
unilaterally cancelled the contract on the ground that petitioner had altered the quantity
and lowered the quality of the machineries and equipment it delivered. Petitioner
opposed informing the latter that PGSMC could not unilaterally rescind their contract nor
dismantle and transfer the machineries and equipment on mere imagined violations by
petitioner. Petitioner then filed a Complaint for Specific Performance against respondent
before the Regional Trial Court. Respondent filed its Answer with Compulsory
Counterclaim 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. KOGIES
filed a motion to dismiss respondent’s counterclaims arguing 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. The Regional Trial Court
dismissed the petitioner’s motion to dismiss respondent’s counterclaims as these
counterclaims fell within the requisites of compulsory counterclaims.

Issue:
WON payment of docket fees and certificate of non-forum shopping were required in the
respondent’s Answer with counterclaim?

Ruling:
NO. The counterclaims of PGSMC were incorporated in its Answer with Compulsory
Counterclaim 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.” 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. 524of 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. 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.