Alternative Dispute

Resolution Reviewer
Midterms.
APRIL 2, 2015YOURLADYLAWYERLEAVE A COMMENT
ALTERNATIVE DISPUTE RESOLUTION
By. Atty. Gabriel Robeniol
Chapter 1: Introduction
 Historical Rule:
 Judicial and Legislative trends:
 Utilization of alternatie means and methods implemented in or

outside the court trial system

Civil Code of the Philippines:
 30 August 1950

 Contains provisions of/or on compromise arbitration.

 Encourages litigants to agree upon fair compromise and

authorize arbitration
19 June 1953
 Enactment of arbitration law

 Republic Act. 876

 
20 May 1965
 Convention on the recognition and enforcement of foreign

arbitration / arbitral awards

Philippine law has acknowledged the international arbitration as
system of setting commercial dispute.
UNCITRAL
 Model law which the Philippines committed its adherence.

Judiciary Action
 
Response of Judiciary to the Problems of Delay.
 
 Requirements of conducting pre-trial conference

 Utilization on different modes of discovery

 Proscription against forum shopping

The supreme court encourages the use of arbitration through

Philippine Mediation Commission or through Judicial Dispute
Resolution (JDR)

Legislative Action:
 Special domestic legislation passed the prescription of

arbitration, mediation and conciliation.

 G:

 Labor Code of the Philippines

 National Labor Relations Commissions

Concerning:
 Unfair Labor Practice

 Termination of Employment

 Conditions of Employment

 Damages arising from E – E

 Level Arbitration

Executive Branch Contribution:

 CIAC – Construction Industry Arbitration Commission –

Enacted during 4 Feb 1985 concerning constriction dispute

 23 August 1998 – rules of procedure governing construction

arbitration
 19 November 2005 – CIAC revised rules of procedure
governing construction arbitration
 22 March 2010 – rules on ADR for dispute between national
government agencies: amicable settlement dipute
 
THE ADR Act of 2004
 Dispute resolution law

 An act to institutionalize use of an alternative dispute resolution

system in the Philippines and to establish the office for

alternative dispute resolution and for other purpose.
 28 April 2004

 
Philippines as the Venue of ICA
 
·         RTC must refer to arbitration in proper case
·         Foreign Arbitral awards must be confirmed by RTC

·         The RTC has jurisdiction to review foreign arbitral awards

·         Grounds for judicial review different in Domestic and Foreign

arbitral awards.

·         RTC Decisions of assailed foreign arbitral awards

appealable: CA, certiorari

The Lawyer’s Role

 Contribute to the promotion of ADR

 Assist courts in encouraging the parties to avail of alternative

means of dispute resolution

 Explain the benefits of the ADR system.
Chapter 2: Fundamentals of Alternative Dispute Resolution
 
Alternative Dispute Resolution
 Expeditious and speedy manner

 Methods of resolving dispute outside the court trial system

 Includes similar process in quasi – judicial agencies

 Any process the used to resolve a dispute or controversy

 Neutral third party

State Policy in ADR

 ADR act of 2004 declared the state policy

 Promote party autonomy resolution of dispute

 Freedom of the party to choose or make their own arrangement

to resolve dispute
 Provides solutions that is less time consuming, less

confrontational procedure of goodwill and lasting friendship

 Wave of the future in international relationship

Principles of ADR
 Promotion of party autonomy and self – determination in

dispute resolution
 Recognition of ADR as an efficient tool and an alternative

procedure for the resolution of cases

 Enlisting a private sector participation

Objectives and Benefits of ADR

 Speedy and impartial justice

 Declogging of court dockets.

Features of ADR
 ADR means used to resolve a dispute or controversy

 Exceptions: intention is to cause delay or suspend the

proceeding
 ADR utilize means and methods allowed by law

 ADR is contractual in nature

 ADR avoids court trial

 ADR usually involves the participation of neutral third party
Sources of ADR
 Domestic Laws and Rules

Constitution
Civil Code
Arbitration Law
 Acts of the Executive Branch

 Decisions of the Supreme Court

 International Law : UNCITRAL

 General principle of Law and Equity

Forms of ADR
 Arbitration – arrangement of the and abiding by the judgment

or selected person in dispute; binding between the parties

 Mediation – voluntary agreement between the parties with the

help of third person to convince them to come into an

agreement; non binding between eh parties.
 Conciliation – conciliation of dispute in an unantagonistic

manner
 Neutral – lawyers are brought to present the summary of the

case
 Early – Neutral – availed of in pre – trial case

 Mini – trial – merits of the case ar argued in front of a panel

 Any combination of the foregoing

 Any other ADR forms

Classification of Forms of ADR

 As to the number of parties:

 Bi – party – one or two parties

 Multi – Party – two or more

 AS to the number of issues involve:

 Simple – one issues involve

 Complex – two or more issues

 As to the extent of conclusion

 Complete – all issues involve is resolve
 Partial – only two or three issues involve are resolved but not

all
 As to the role of evidence in the proceedings

 Evidentiary

 Non – merit based

 As to the pendency of the court case

 Case – related – when there is a case involved

 Independent

 AS to the applicable law

 Domestic – when the place of business and arbitration is in the

Philippines
 International – when the place of business involved two states

and arbitration is outside the Philippines

 Foreign – when the place of business is outside the Philippines

and the arbitration is outside the Philippines.

 As to the permanency of the ADR provider

 AD – HOC – temporary

 Institutional – permanent

Components of ADR
 Contending parties

 Dispute or controversy

 Form of ADR

 ADR provider or practitioner

Subject matter of ADR

 Adversarial dispute and controversy

 Exception:

 Civil Status of persons

 Validity of marriage and any other forms of legal separation

 Jurisdiction of courts

 Future legitime

 Criminal Liability
 In general which the law cannot be compromise
Basic Concepts of ADR
 Concluding Acts or Arguments

 Arbitral Award – final decision of arbitration on awarding issue

or controversy
 Mediated Settlement agreement – contract executed by the

parties
 Compromise or compromise agreement – avoidance of

litigation or to put an end to the one already existing

 Waiver or quitclaim – a statement renouncing any right or claim

 ADR providers or practitioners

 Preferences of ADR

Office for ADR

 ADR – agency attached to DOJ

 Executive Director appointed by the president upon

recommendation of secretary of justice

Chapter 3: Mediation under ADR Act of 2004
 
Mediation
 Voluntary process in which a mediator is selected by the

disputing parties
 Facilitates communication and negotiation

 Assist the parties in reaching voluntary agreement

Court Annexed Mediated

 Mediation conducted under the auspices of the court

Court Referred Mediation

 Ordered by the court to be conducted by the agreement of the

parties
Mediator
 Person conducting mediation

Mediation Practitioner
 Parties in mediation
Non – Party participants
 Witness, resource person, or expert

Classification of Mediation
 Non – evidentiary or non – merit based mediated

 Focuses on facilitation or communication and negotiation

between the parties in encouraging to voluntarily settle dispute

 Institutional

 Administered and conducted by or under the rules of mediation

institution
 Ad – Hoc

 Other than institutional

To be bound by the internal mediation and the administrative policies

of such institution
To have such rules govern the mediation of the dispute and for the
mediator

Place of Mediation
 Two disputing parties are free to agree the place\
 In the absence – default is convenient to and appropriate to all

the parties
Stages of Mediation
 Opening statement of mediator

 Individual narration by the parties

 Exchange by the parties

 Summary issues

 Generalization and evaluation of options

 Closure

Mediation shall be held in private

Exceptions: Parties consented that there be other persons
 
Closed and concluded
 Execution of settlement agreement

 Withdrawal of any party from mediation

 Written declaration

Advantages of Mediation
 Confidentiality in Mediation Process

 Prompt, economical amicable dispute resolution

 The decision making authority rest upon the parties

Confidential and Privileged nature of Mediation

Communication
 All information of evidence is privileged and confidential in

character
Confidential Information
 Any information relative to the subject of mediation

or arbitration
 Expressly intended not to be disclosed

Expressly Confidential
Impliedly confidential
 Creates reasonable expectations

Confidential Information Includes:

 Communication

 Oral or Written statements

 Pleadings, motions, manifestations

Legal effects of Confidential and privileged nature

 A party may refuse to disclose

 Not subject to discovery and inadmissible in adversarial

proceedings
 People cannot be compelled to disclose information

 Parties to the dispute

 Mediation

 Counsel for the parties

 Non – Party
 Secretary, stenographer, assistants
 Any persons who obtains information

 Continues even the mediator fialed to act impartially

 Mediator may not be called to testify

Exceptions based on agreement, Nature of Proceedings, Crime

or Social Justice
 Contained in an agreement evidence by a record authenticated

by all parties to agreement

 Made public or required by the courts to make it public

 A threat or statement of plan to inflict bodily injury

 Communication on attempt to commit a crime

 Used to approve or disprove neglect, abandonment or

exploitation
 Used to sought or complaint against misconduct

 Non party base agreement

Exceptions based on Public Policy

 Court proceeding involving a crime or felony

 Avoid liability on contracts arising from mediation

Limited use of External Evidence

 Only such portion of the communication necessary for the

application of the exception can be admitted in evidence

Privileged Mediation
 Bound by the confidential privileged

 Exception

 Termination of mediation

 Settlement was reached

 Permitted to be disclosed

Waiver of Confidentiality
 Expressed

 Implied

The Mediator
 OADR – list and freedom to select mediators
 
Withdrawal Requirements
 The party requested

 Lacks qualifications, training and experience

 Mediator’s impartiality is in question

 Violation of ethical standards

 Safety will be jeopardized

 Unable to provide effective services

 Conflict of interest

 Other instances

Duties and Functions of Mediationr

 Prior to Mediation

 Upgrade professional competencies

 Reasonable inquiry

 During the Mediation

 Confidential

 Consent and self determination

 Promotion of respect and control of abuse and process

Mediator’s Cost and Fees

 Ad Hoc – free to make their own arrangement as to the

mediation of cost and fees

Mediated Settlement Agreement
 Compromise Agreement

 Successful Mediation

Roles of counsel in Mediation

 Collaborative

 Encourage

 Assist

 Confer

Chapter 4: Arbitration in General

 Arbitration
 Process which one or more arbitrators appointed in accordance
with the agreement of the parties
 It is the arbiter that decides the dispute and renders an arbitral

award to conclude in arbitral proceedings

Kinds of Arbitration
 Voluntary

 Reference of a dispute to an impartial body

 Members are chosen by the parties themselves

 Compulsary arbitration

 Settlement of labor dispute by the government agency which

has the authority to investigate

 Domestic

 International

 Foreign

Same concept lang naman to nung nasa chapter two na foreign

domestic at international dapat alam nyo nay un.
 Commercial Arbitration – matters arising from all relationship

of commercial in nature
 
Policy on Arbitration
 Speedy and inexpensive methods

Arbitrator
 Person appointed to render an award

 May use his own discretion in the performance of his function

Arbitration agreement
 Agreement by the parties

 In respect of legal relationship

Essential elements
 Consent of the parties freely given

 Cause of consideration

 Lawful object

Two modes in submitting dispute

 Agreement to submit in arbitration
 Submission agreement

Arbitration Agreement
 Shall be in writing and subscribed by the parties to be charged

 May be included in arbitration clause or compromise

Arbitration Clause
 Must be liberally construed consistent with the policy of

encouraging alternative dispute resolution method

Doctrine of Separability
 Arbitration agreement is independent of the main contact even

if it contained in Arbitration clause

Due process in Arbitral proceedings
 Principles of administrative due process equally apply to

arbitral proceedings
Judicial Review and Court intervention
 Proper RTC

 Review Court of Appeals Rule 43 ROC

 Certiorari proper court Rule 65 ROC

Interim Measures in Arbitration

 Allows the application of a party to a judicial authority for

interim conservatory
 Allows filing of provisional interim measures with regular

courts whenever the arbitral tribunal has no power to act

effectively
Chapter 5: International Commercial Arbitration under the
ADR Act of 2004 and its IRR 
International Commercial Arbitration
 Instances of Occurrence of International Arbitration

 Parties and Places of business is in different state

 Place of arbitration provided in the agreement where parties

have their business is outside the Philippines

 Substantial part of obligation is to be performed outside the
Philippines
 Subject matter of agreement relates to more than one parties

 Commercial Arbitration

 Commercial relationship in nature

 Contractual or not

 Foreign Arbitration

 International commercial arbitration is outside the Philippines

Coverage of IRR Provisions of ICA

 Applicable only to international commercial arbitration

 The rules of procedure for international commercial arbitration

provided for under the ADR act or its IRR may also be applied
for international commercial arbitration outside the Philippines
if they are adopted as rules of procedure by the parties in the
exercise of their privileged of party – autonomy and self –
determination
Default Rules
 provisions of the IRR

 Applicable only in the absence of or in default contained in the

ff: (1) an agreement in force between the Philippines and other

state; (2) an agreement between the parties on the applicable
rules
Rules of Interpretation
 Interpretation of the ADR act

 due regard to the policy of law favouring arbitration

 Interpretation of the model Law

 need for uniformity of its interpretation

 Interpretation of the IRR

 Same policy

 Party autonomy

 Freedom of the parties

 Reference to an agreement
 Rules applicable to claims and counter claims
Rules of Receipt of Written Communication in ICA
 The subject matter of the dispute may be located in different

stage
Rules communication is deemed received
 Delivered to the address personally or at his place of business,

habitual residence or mailing address

 If there is none, delivery by registered mail or attempt to deliver

to last know place of business

Waiver of the Rights to Object in ICA
 Arbitration is different from mediation in that the latter is not

merit or evidence based and therefore not procedurally driven

Limitations
 ADR act and its IRR is limited to the application of rules on the

waiver in the mediation proceedings to wavier of confidentiality

and privilege only
 IRR expands the application of the rules on waiver to include

non – compliance with the rules or requirements

Doctrine of Estoppel
 Objectives to non compliance with the rules or any

requirements under the arbitration agreement must be raised

without undue delay or within the time prescribed therefore,
failing which, the right to object is deemed waived
Estoppel in pais
 Happens when one, by his acts, representation, or admissions,

or by his own silicon when he ought to speak out, intentionally

or culpable negligence, induces another to believe certain facts
to exist and such belief in a manner that he will be prejudiced if
the former is permitted to deny the existence of such facts
Confidentiality in ICA
General Rule
 In the case of mediation, proceedings, records, evidence, and
arbitral awards are confidentia 
Exceptions:
 Consent of the Parties

 Limited purpose of disclosing to the court relevant documents

in cases where resort to the court is allowe 

Due Process in ICA
 IRR mandates that the parties shall be treated equally and shall

be given full opportunity

 Reasonable opportunity

Due Process
 Complied if parties are given opportunity to be heard and

present evidence
Place if ICA
 Default place – MANILA

 Place chosen by Parties

Commencement of ICA proceedings

 Date – requested by the parties

 Default date – date of request for that dispute

Language in ICA
 Parties shall determine the language

 Default – English

Applicable Law in ICA

 Governing law generally is substantive law

Substantive Law
 Law or legal system applicable to complete resolution of

dispute
 Conflicts of Law/Private International Law
 Part of municipal law or state which directs courts and

administrative agencies, when confronted with a legal problem

involving a foreign element, where they should apply a foreign
law
Appointing Authority in ICA
 He person or institution named in the arbitration agreement

 Functions
 Take necessary measurements

 Decide on the challenge

 Consider the qualifications

The default appointment of an arbitrator shall be made by the National

President of the Integrated bar of the Philippines.

Arbitrators and Arbitral Tribunal in ICA

 Default number of arbitrators is three and is due to their

appointment
Default Procedure
 3 arbiter – each party shall appoint one

 Sole arbiter – shall be appointed by the parties

 The decision of the appointing authority on this matter shall be

immediately executor and shall not be subject to a motion for

reconsideration or appeal
Factors in Appointing Arbitrators
 Qualifications

 Considerations

 Advisability of appointing an arbitrator of a nationality

Grounds for changeling an Arbitrator in ICA

 Impartiality

 Possession of the qualifications

Procedure for the challenge in ICA

 Default procedure

 Sending of written agreement 15 days after becoming aware of

the constitution of arbitral tribunal

 The parties may request the appointing authority within 30 days

to challenge tribunals
Procedure incase the Arbitrator fails to act in ICA
 Mandates terminates

 Withdraws

 Parties agrees in the termination

Jurisdiction of Arbitral Tribunal in ICA

 Jurisdiction

 The right to act whether or the power to and authority to hear

and determine cause

Jurisdiction over subject matter
 Subject matter of the controversy is conferred by law

Two Instances
 Lack of jurisdiction

 Excess of jurisdiction

Jurisdictional review of Jurisdictional Issue

 Consider challenge as preliminary question

 Defer resolution

 
Jurisdiction over the pArties
 Pre – causal agreement

Interim Measures in ICA

 Request shall be in writing transmitted by reasonable means

 Relieve may be granted to prevent irreparable loss, security,

preserve evidence, compel

 
Legal Representation in ICA
 A person may be represented by any person of his choice

Determination of Rules of Procedure

 Statement of claims

 Statement of Defence

 Default of the parties

 Amendment of claims or defences

 Hearings (1) court assistance in taking evidence (2) subpoena
(3) expert
 Conclusion / closure

Requisites for an Arbitral Award to be Final

 Rendition of the arbitral award

 Hearing on the qualification

 Expiration of the periods

Cost in ICA
 Fees on arbitral tribunal

 Travel

 Cost of expert advice

 Travel and other expenses of witness

 Cost for legal representation

 Fees and expenses of appointing authority

Correction and Interpretation of ICA award

 Quantification of the cause and the determination of the party

liable therefore or the division between the parties

 Correction of typographical and similar errors initiated by a

parties
 Interpretation of the awards

 Correction of typographical error initiated by the Arbitral

Tribunal
 Additional award

Setting Aside an ICA AWARD

 
Requirements
 Default in the arbitration agreement

 Violation of due process

 Lack or excess of jurisdiction on the part of the arbitral award

 Violation of the arbitration agreement

Venue:
 RTC
 
Requirements
 Place of arbitration

 Assessed, reviewed or enjoinment is located

 Residence ir place of business

 NCR

Time for filing the petition for Setting Aside

 3 mos

 90 days

 
Recognition and Enforcement of Foreign Arbitral Awards
 
Recognition
 Means by which a Philippine courts give legal acknowledgment

to a foreign arbitral award

Confirmation
 Judicial affirmation of a domestic arbitral award

Enforcement
 Execution and implementation

REPUBLIC ACT NO. 876

AN ACT TO AUTHORIZE THE MAKING OF ARBITRATION AND SUBMISSION AGREEMENTS,

TO PROVIDE FOR THE APPOINTMENT OF ARBITRATORS AND THE PROCEDURE FOR
ARBITRATION IN CIVIL CONTROVERSIES, AND FOR OTHER PURPOSES

Section 1. Short Title. - This Act shall be known as "The Arbitration Law."

Section 2. Persons and matters subject to arbitration. - Two or more persons or parties may submit
to the arbitration of one or more arbitrators any controversy existing between them at the time of the
submission and which may be the subject of an action, or the parties to any contract may in such
contract agree to settle by arbitration a controversy thereafter arising between them. Such
submission or contract shall be valid, enforceable and irrevocable, save upon such grounds as exist
at law for the revocation of any contract.

Such submission or contract may include question arising out of valuations, appraisals or other
controversies which may be collateral, incidental, precedent or subsequent to any issue between the
parties.
A controversy cannot be arbitrated where one of the parties to the controversy is an infant, or a
person judicially declared to be incompetent, unless the appropriate court having jurisdiction approve
a petition for permission to submit such controversy to arbitration made by the general guardian or
guardian ad litem of the infant or of the incompetent.

But where a person capable of entering into a submission or contract has knowingly entered into the
same with a person incapable of so doing, the objection on the ground of incapacity can be taken
only in behalf of the person so incapacitated.

Section 3. Controversies or cases not subject to the provisions of this Act. - This Act shall not apply
to controversies and to cases which are subject to the jurisdiction of the Court of Industrial Relations
or which have been submitted to it as provided by Commonwealth Act Numbered One hundred and
three, as amended.

Section 4. Form of arbitration agreement. - A contract to arbitrate a controversy thereafter arising

between the parties, as well as a submission to arbitrate an existing controversy shall be in writing
and subscribed by the party sought to be charged, or by his lawful agent.

The making of a contract or submission for arbitration described in section two hereof, providing for
arbitration of any controversy, shall be deemed a consent of the parties to the jurisdiction of the
Court of First Instance of the province or city where any of the parties resides, to enforce such
contract or submission.

Section 5. Preliminary procedure. - An arbitration shall be instituted by:

(a) In the case of a contract to arbitrate future controversies by the service by either party
upon the other of a demand for arbitration in accordance with the contract. Such demand
shall be set forth the nature of the controversy, the amount involved, if any, and the relief
sought, together with a true copy of the contract providing for arbitration. The demand shall
be served upon any party either in person or by registered mail. In the event that the contract
between the parties provides for the appointment of a single arbitrator, the demand shall be
set forth a specific time within which the parties shall agree upon such arbitrator. If the
contract between the parties provides for the appointment of three arbitrators, one to be
selected by each party, the demand shall name the arbitrator appointed by the party making
the demand; and shall require that the party upon whom the demand is made shall within
fifteen days after receipt thereof advise in writing the party making such demand of the name
of the person appointed by the second party; such notice shall require that the two arbitrators
so appointed must agree upon the third arbitrator within ten days from the date of such
notice.

(b) In the event that one party defaults in answering the demand, the aggrieved party may
file with the Clerk of the Court of First Instance having jurisdiction over the parties, a copy of
the demand for arbitration under the contract to arbitrate, with a notice that the original
demand was sent by registered mail or delivered in person to the party against whom the
claim is asserted. Such demand shall set forth the nature of the controversy, the amount
involved, if any, and the relief sought, and shall be accompanied by a true copy of the
contract providing for arbitration.

(c) In the case of the submission of an existing controversy by the filing with the Clerk of the
Court of First Instance having jurisdiction, of the submission agreement, setting forth the
nature of the controversy, and the amount involved, if any. Such submission may be filed by
any party and shall be duly executed by both parties.
 (d) In the event that one party neglects, fails or refuses to arbitrate under a submission
agreement, the aggrieved party shall follow the procedure prescribed in subparagraphs (a)
and (b) of this section.

Section 6. Hearing by court. - A party aggrieved by the failure, neglect or refusal of another to
perform under an agreement in writing providing for arbitration may petition the court for an order
directing that such arbitration proceed in the manner provided for in such agreement. Five days
notice in writing of the hearing of such application shall be served either personally or by registered
mail upon the party in default. The court shall hear the parties, and upon being satisfied that the
making of the agreement or such failure to comply therewith is not in issue, shall make an order
directing the parties to proceed to arbitration in accordance with the terms of the agreement. If the
making of the agreement or default be in issue the court shall proceed to summarily hear such issue.
If the finding be that no agreement in writing providing for arbitration was made, or that there is no
default in the proceeding thereunder, the proceeding shall be dismissed. If the finding be that a
written provision for arbitration was made and there is a default in proceeding thereunder, an order
shall be made summarily directing the parties to proceed with the arbitration in accordance with the
terms thereof.

The court shall decide all motions, petitions or applications filed under the provisions of this Act,
within ten days after such motions, petitions, or applications have been heard by it.

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.

Section 8. Appointment of arbitrators. - If, in the contract for arbitration or in the submission
described in section two, provision is made for a method of naming or appointing an arbitrator or
arbitrators, such method shall be followed; but if no method be provided therein the Court of First
Instance shall designate an arbitrator or arbitrators.

The Court of First Instance shall appoint an arbitrator or arbitrators, as the case may be, in the
following instances:

(a) If the parties to the contract or submission are unable to agree upon a single arbitrator; or

(b) If an arbitrator appointed by the parties is unwilling or unable to serve, and his successor
has not been appointed in the manner in which he was appointed; or

(c) If either party to the contract fails or refuses to name his arbitrator within fifteen days after
receipt of the demand for arbitration; or

(d) If the arbitrators appointed by each party to the contract, or appointed by one party to the
contract and by the proper Court, shall fail to agree upon or to select the third arbitrator.

(e) The court shall, in its discretion appoint one or three arbitrators, according to the
importance of the controversy involved in any of the preceding cases in which the agreement
is silent as to the number of arbitrators.
 (f) Arbitrators appointed under this section shall either accept or decline their appointments
within seven days of the receipt of their appointments. In case of declination or the failure of
an arbitrator or arbitrators to duly accept their appointments the parties or the court, as the
case may be, shall proceed to appoint a substitute or substitutes for the arbitrator or
arbitrators who decline or failed to accept his or their appointments.

Section 9. Appointment of additional arbitrators. - Where a submission or contract provides that two
or more arbitrators therein designated or to be thereafter appointed by the parties, may select or
appoint a person as an additional arbitrator, the selection or appointment must be in writing. Such
additional arbitrator must sit with the original arbitrators upon the hearing.

Section 10. Qualifications of arbitrators. - Any person appointed to serve as an arbitrator must be of

legal age, in full-enjoyment of his civil rights and know how to read and write. No person appointed
to served as an arbitrator shall be related by blood or marriage within the sixth degree to either party
to the controversy. No person shall serve as an arbitrator in any proceeding if he has or has had
financial, fiduciary or other interest in the controversy or cause to be decided or in the result of the
proceeding, or has any personal bias, which might prejudice the right of any party to a fair and
impartial award.

No party shall select as an arbitrator any person to act as his champion or to advocate his cause.

If, after appointment but before or during hearing, a person appointed to serve as an arbitrator shall
discover any circumstances likely to create a presumption of bias, or which he believes might
disqualify him as an impartial arbitrator, the arbitrator shall immediately disclose such information to
the parties. Thereafter the parties may agree in writing:

(a) to waive the presumptive disqualifying circumstances; or

(b) to declare the office of such arbitrator vacant. Any such vacancy shall be filled in the
same manner as the original appointment was made.

Section 11. Challenge of arbitrators. - The arbitrators may be challenged only for the reasons
mentioned in the preceding section which may have arisen after the arbitration agreement or were
unknown at the time of arbitration.

The challenge shall be made before them.

If they do not yield to the challenge, the challenging party may renew the challenge before the Court
of First Instance of the province or city in which the challenged arbitrator, or, any of them, if there be
more than one, resides. While the challenging incident is discussed before the court, the hearing or
arbitration shall be suspended, and it shall be continued immediately after the court has delivered an
order on the challenging incident.

Section 12. Procedure by arbitrators. - Subject to the terms of the submission or contract, if any are
specified therein, are arbitrators selected as prescribed herein must, within five days after
appointment if the parties to the controversy reside within the same city or province, or within fifteen
days after appointment if the parties reside in different provinces, set a time and place for the
hearing of the matters submitted to them, and must cause notice thereof to be given to each of the
parties. The hearing can be postponed or adjourned by the arbitrators only by agreement of the
parties; otherwise, adjournment may be ordered by the arbitrators upon their own motion only at the
hearing and for good and sufficient cause. No adjournment shall extend the hearing beyond the day
fixed in the submission or contract for rendering the award, unless the time so fixed is extended by
the written agreement of the parties to the submission or contract or their attorneys, or unless the
parties have continued with the arbitration without objection to such adjournment.

The hearing may proceed in the absence of any party who, after due notice, fails to be present at
such hearing or fails to obtain an adjournment thereof. An award shall not be made solely on the
default of a party. The arbitrators shall require the other party to submit such evidence as they may
require for making an award.

No one other than a party to said arbitration, or a person in the regular employ of such party duly
authorized in writing by said party, or a practicing attorney-at-law, shall be permitted by the
arbitrators to represent before him or them any party to the arbitration. Any party desiring to be
represented by counsel shall notify the other party or parties of such intention at least five days prior
to the hearing.

The arbitrators shall arrange for the taking of a stenographic record of the testimony when such a
record is requested by one or more parties, and when payment of the cost thereof is assumed by
such party or parties.

Persons having a direct interest in the controversy which is the subject of arbitration shall have the
right to attend any hearing; but the attendance of any other person shall be at the discretion of the
arbitrators.

Section 13. Oath of arbitrators. - Before hearing any testimony, arbitrators must be sworn, by any
officer authorized by law to administer an oath, faithfully and fairly to hear and examine the matters
in controversy and to make a just award according to the best of their ability and understanding.
Arbitrators shall have the power to administer the oaths to all witnesses requiring them to tell the
whole truth and nothing but the truth in any testimony which they may give in any arbitration hearing.
This oath shall be required of every witness before any of his testimony is heard.

Section 14. Subpoena and subpoena duces tecum. - Arbitrators shall have the power to require any
person to attend a hearing as a witness. They shall have the power to subpoena witnesses and
documents when the relevancy of the testimony and the materiality thereof has been demonstrated
to the arbitrators. Arbitrators may also require the retirement of any witness during the testimony of
any other witness. All of the arbitrators appointed in any controversy must attend all the hearings in
that matter and hear all the allegations and proofs of the parties; but an award by the majority of
them is valid unless the concurrence of all of them is expressly required in the submission or
contract to arbitrate. The arbitrator or arbitrators shall have the power at any time, before rendering
the award, without prejudice to 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.

Section 15. Hearing by arbitrators. - Arbitrators may, at the commencement of the hearing, ask both
parties for brief statements of the issues in controversy and/or an agreed statement of facts.
Thereafter the parties may offer such evidence as they desire, and shall produce such additional
evidence as the arbitrators shall require or deem necessary to an understanding and determination
of the dispute. The arbitrators shall be the sole judge of the relevancy and materiality of the evidence
offered or produced, and shall not be bound to conform to the Rules of Court pertaining to evidence.
Arbitrators shall receive as exhibits in evidence any document which the parties may wish to submit
and the exhibits shall be properly identified at the time of submission. All exhibits shall remain in the
custody of the Clerk of Court during the course of the arbitration and shall be returned to the parties
at the time the award is made. The arbitrators may make an ocular inspection of any matter or
premises which are in dispute, but such inspection shall be made only in the presence of all parties
to the arbitration, unless any party who shall have received notice thereof fails to appear, in which
event such inspection shall be made in the absence of such party.

Section 16. Briefs. - At the close of the hearings, the arbitrators shall specifically inquire of all parties
whether they have any further proof or witnesses to present; upon the receipt of a negative reply
from all parties, the arbitrators shall declare the hearing closed unless the parties have signified an
intention to file briefs. Then the hearing shall be closed by the arbitrations after the receipt of briefs
and/or reply briefs. Definite time limit for the filing of such briefs must be fixed by the arbitrators at
the close of the hearing. Briefs may filed by the parties within fifteen days after the close of the oral
hearings; the reply briefs, if any, shall be filed within five days following such fifteen-day period.

Section 17. Reopening of hearing. - The hearing may be reopened by the arbitrators 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 hearings shall
be the date of the closing of the reopened hearing.

Section 18. Proceeding in lieu of hearing. - The parties to a submission or contract to arbitrate may,
by written agreement, submit their dispute to arbitration by other than oral hearing. The parties may
submit an agreed statement of facts. They may also submit their respective contentions to the duly
appointed arbitrators in writing; this shall include a statement of facts, together with all documentary
proof. Parties may also submit a written argument. Each party shall provide all other parties to the
dispute with a copy of all statements and documents submitted to the arbitrators. Each party shall
have an opportunity to reply in writing to any other party's statements and proofs; but if such party
fails to do so within seven days after receipt of such statements and proofs, he shall be deemed to
have waived his right to reply. Upon the delivery to the arbitrators of all statements and documents,
together with any reply statements, the arbitrators shall declare the proceedings in lieu of hearing
closed.

Section 19. Time for rendering award. - Unless the parties shall have stipulated by written
agreement the time within which the arbitrators must render their award, the written award of the
arbitrators shall be rendered within thirty days after the closing of the hearings or if the oral hearings
shall have been waived, within thirty days after the arbitrators shall have declared such proceedings
in lieu of hearing closed. This period may be extended by mutual consent of the parties. alf-itc

Section 20. Form and contents of award. - The award must be made in writing and signed and
acknowledged by a majority of the arbitrators, if more than one; and by the sole arbitrator, if there is
only one. Each party shall be furnished with a copy of the award. The arbitrators in their award may
grant any remedy or relief which they deem just and equitable and within the scope of the agreement
of the parties, which shall include, but not be limited to, the specific performance of a contract.

In the event that the parties to an arbitration have, during the course of such arbitration, settled their
dispute, they may request of the arbitrators that such settlement be embodied in an award which
shall be signed by the arbitrators. No arbitrator shall act as a mediator in any proceeding in which he
is acting as arbitrator; and all negotiations towards settlement of the dispute must take place without
the presence of the arbitrators.

The arbitrators shall have the power to decide only those matters which have been submitted to
them. The terms of the award shall be confined to such disputes.

The arbitrators shall have the power to assess in their award the expenses of any party against
another party, when such assessment shall be deemed necessary.
Section 21. Fees of arbitration. - The fees of the arbitrators shall be fifty pesos per day unless the
parties agree otherwise in writing prior to the arbitration.

Section 22. Arbitration deemed a special proceeding. - Arbitration under a contract or submission

shall be deemed a special proceeding, of which the court specified in the contract or submission, or
if none be specified, the Court of First Instance for the province or city in which one of the parties
resides or is doing business, or in which the arbitration was held, shall have jurisdiction. Any
application to the court, or a judge thereof, hereunder shall be made in manner provided for the
making and hearing of motions, except as otherwise herein expressly provided.

Section 23. Confirmation of award. - At any time within one month after the award is made, any
party to the controversy which was arbitrated may apply to the court having jurisdiction, as provided
in section twenty-eight, for an order confirming the award; and thereupon the court must grant such
order unless the award is vacated, modified or corrected, as prescribed herein. Notice of such
motion must be served upon the adverse party or his attorney as prescribed by law for the service of
such notice upon an attorney in action in the same court.

Section 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 wilfully 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.

Where an award is vacated, the court, in its discretion, may direct a new hearing either before the
same arbitrators or before a new arbitrator or arbitrators to be chosen in the manner provided in the
submission or contract for the selection of the original arbitrator or arbitrators, and any provision
limiting the time in which the arbitrators may make a decision shall be deemed applicable to the new
arbitration and to commence from the date of the court's order.

Where the court vacates an award, costs, not exceeding fifty pesos and disbursements may be
awarded to the prevailing party and the payment thereof may be enforced in like manner as the
payment of costs upon the motion in an action.

Section 25. Grounds for modifying or correcting award. - In any one of the following cases, the court
must make an order modifying or correcting the award, upon the application of any party to the
controversy which was arbitrated:

(a) Where there was an evident miscalculation of figures, or an evident mistake in the
description of any person, thing or property referred to in the award; or
 (b) Where the arbitrators have awarded upon a matter not submitted to them, not affecting
the merits of the decision upon the matter submitted; or

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

The order may modify and correct the award so as to effect the intent thereof and promote justice
between the parties.

Section 26. Motion to vacate, modify or correct award: when made. - Notice of a motion to vacate,
modify or correct the award must be served upon the adverse party or his counsel within thirty days
after award is filed or delivered, as prescribed by law for the service upon an attorney in an action.

Section 27. Judgment. - Upon the granting of an order confirming, modifying or correcting an award,
judgment may be entered in conformity therewith in the court wherein said application was filed.
Costs of the application and the proceedings subsequent thereto may be awarded by the court in its
discretion. If awarded, the amount thereof must be included in the judgment.

Section 28. Papers to accompany motion to confirm, modify, correct, or vacate award. - The party
moving for an order confirming, modifying, correcting, or vacating an award, shall at the time that
such motion is filed with the court for the entry of judgment thereon also file the following papers with
the Clerk of Court;

(a) The submission, or contract to arbitrate; the appointment of the arbitrator or arbitrators;
and each written extension of the time, if any, within which to make the award.

(b) A verified of the award.

(c) Each notice, affidavit, or other paper used upon the application to confirm, modify, correct
or vacate such award, and a copy of each of the court upon such application.

The judgment shall be docketed as if it were rendered in an action.

The judgment so entered shall have the same force and effect in all respects, as, and be subject to
all the provisions relating to, a judgment in an action; and it may be enforced as if it had been
rendered in the court in which it is entered.

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

Section 30. Death of party. - Where a party dies after making a submission or a contract to arbitrate
as prescribed in this Act, the proceedings may be begun or continued upon the application of, or
notice to, his executor or administrator, or temporary administrator of his estate. In any such case,
the court may issue an order extending the time within which notice of a motion to confirm, vacate,
modify or correct an award must be served. Upon confirming an award, where a party has died since
it was filed or delivered, the court must enter judgment in the name of the original party; and the
proceedings thereupon are the same as where a party dies after a verdict.
Section 31. Repealing clause. - The provisions of chapters one and two, Title XIV, of the Civil Code
shall remain in force. All other laws and parts of laws inconsistent with this Act are hereby repealed.
If any provision of this Act shall be held invalid the remainder that shall not be affected thereby.

Section 32. Effectivity. - This Act shall take effect six months after its approval.

Approved: June 19, 1953

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 103200 August 31, 1994

LA NAVAL DRUG CORPORATION, petitioner,

vs.
THE HONORABLE COURT OF APPEALS and WILSON C. YAO, respondents.

Jerome T. Paras for petitioner.

Quasha, Asperilla, Ancheta, Peña & Nolasco for private respondent.

VITUG, J.:

In an effort to declog the courts of an increasing volume of work load and, most importantly, in order
to accord contending parties with expenditious alternatives for settling disputes, the law authorities,
indeed encourages, out of court settlements or adjudications. Compromises and arbitration are
widely known and used as such acceptable methods of resolving adversarial claims.

Arbitrations, in particular, is governed by a special law, Republic Act 876, suppletory to which are
laws and rules of general application. This case before us concerns the jurisdiction of courts, in
relation to the provisions of Section 6 of Republic Act No. 876, and, in that respect, the applicability
of the doctrine of estoppel. The law (R.A. 876), specifically Section 6 thereof, provides:

Sec. 6. Hearing by court. — A party aggrieved by the failure, neglect or refusal of

another to perform under an agreement in writing providing for arbitration may
petition the court for an order directing that such arbitration proceed in the manner
provided for in such agreement. Five days notice in writing of the hearing of such
application shall be served either personally or by registered mail upon the party in
 default. The court shall hear the parties, and upon being satisfied that the making of
the agreement or such failure to comply therewith is not in issue, shall make an order
directing the parties to proceed to arbitration in accordance with the terms of the
agreement. If the making of the agreement or default be in issue the court shall
proceed to summarily hear such issue. If the finding be that no agreement in writing
providing for arbitration was made, or that there is no default in the proceeding
thereunder, the proceeding shall be dismissed. If the finding be that a written
provision for arbitration was made and there is a default in proceeding thereunder, an
order shall be made summarily directing the parties to proceed with the arbitration in
accordance with the terms thereof.

The court shall decide all motions, petitions or application filed under the provisions
of this Act, within ten days after such motions, petitions, or applications have been
heard by it.

In chronology, the events that have led to the case at bench are detailed in the appealed decision of
respondent appellate court, which we here reproduce in toto.

Original action for Certiorari and Prohibition for Annulment of the Orders, dated April
26, 1990 and June 22, 1990, respectively, of Branch LXI, Regional Trial Court,
Angeles City, in Special Case No. 6024 for Enforcement of ARBITRATION
Agreement with Damages. Petitioner assails that portion of subject Order of April 26,
1990, stating as follows:

(1) Petitioner's claim for damages predicated on alleged tortuous acts

of respondents La Naval Drug corporation such as their alleged
interference and dilatory tactics, etc. in the implementation of the
Arbitration Agreement in the Contract of Lease, thereby compelling
among others the petitioner to go to Court for redress; and
respondent La Naval Drug Corporation's counterclaim for damages
may be entertained by this Court in a hearing — not summary — for
the purpose, under the Rules of Court.

(2) A preliminary hearing of the special and affirmative defense to

show that Petitioner has not cause of action against respondent's
claim for damages is denied; a resolution on this issue is deferred
after the trial of the case on the merits.

And challenges the Order of June 22, 1990 denying its motion for reconsideration of
the said earlier Order.

From the petition below of respondent Yao, it appears that he is the present owner of
a commercial building a portion of which is leased to petitioner under a contract of
lease executed on December 23, 1993 with the former owner thereof, La
Proveedora, Inc., which contract expired on April 30, 1989. However, petitioner
exercised its option to lease the same building for another five years. But petitioner
and respondent Yao disagreed on the rental rate, and to resolve the controversy, the
latter, thru written notices to the former, expressed his intention to submit their
disagreement to arbitration, in accordance with Republic Act 876, otherwise known
as the Arbitration Law, and paragraph 7 of their lease contract, providing that:
 7. . . . Should the parties fail to agree on the rate of rentals, the same
shall be submitted to a group of Arbitrators composed of three (3)
members, one to be appointed by LESSOR, another by LESSEE and
the third one to be agreed upon by the two arbitrators previously
chosen and the parties hereto shall submit to the decision of the
arbitrators.

Thus, on May 6, 1989, respondent Yao appointed Domingo Alamarez, Jr. as his
arbitrator, while on June 5, 1989, petitioner chose Atty. Casiano Sabile as its
arbitrator. The confirmation of the appointment of Aurelio Tupang, as third arbitrator,
was held in abeyance because petitioner instructed Atty. Sabile to defer the same
until its Board of Directors could convene and approve Tupang's appointment.
Respondent Yao theorizes that this was petitioner's design to delay the arbitration
proceedings, in violation of the Arbitration Law, and the governing stipulation of their
contract of lease.

On the basis of the aforesaid allegations, respondent Yao prayed that after summary
hearing pursuant to Section 6 of the Arbitration Law, Atty. Casiano Sabile and
Domingo Alamarez be directed to proceed with the arbitration in accordance with
Section 7 of subject Contract of Lease and the applicable provisions of the Arbitration
law, by appointing and confirming the appointment of the Third Arbitrator; and that
the Board of Three Arbitrators be ordered to immediately convene and resolve the
controversy before it, pursuant to Section 12 and the succeeding sections of the
Arbitration Law. (Annex "A," Petition.)

In its Answer with Counterclaim (Annex "C," Petition), petitioner here specifically
denied the averments of the petition below; theorizing that such petition is premature
since respondent Yao has not yet formally required arbitrators Alamarez and Sabile
to agree on the third arbitrator, within ten (10) days from notice, and that the delay in
the arbitration was due to respondent Yao's failure to perform what is incumbent
upon him, of notifying and thereafter, requiring both arbitrators to appoint the third
member of the Board of Arbitrators. According to petitioner, it actually gave
arbitrators Sabile and Alamarez a free hand in choosing the third arbitrator; and,
therefore, respondent Yao has no cause of action against it (petitioner). By way of
Counterclaim, petitioner alleged that it suffered actual damages of P100,000.00; and
incurred attorney's fees of P50,000.00, plus P500.00 for every court appearance of
its counsel.

On October 20, 1989, respondent Yao filed an amended petition for "Enforcement of
Arbitration Agreement with Damages;" praying that petitioner be ordered to pay
interest on the unpaid rents, at the prevailing rate of interest in commercial banks,
and exemplary damages of at least P250,000.00.

On October 24, 1989, despite petitioner's opposition to the motion to admit the
amended petition, the respondent court admitted the same.

On October 31, 1989, petitioner answered the amended petition; contending, among
others, that the amended petition should be dismissed on the ground of non-payment
of the requisite filing fees therefor; and it being in the nature of an ordinary civil
action, a full blown and regular trial, is necessary; so that respondent Yao's
proposition for a summary hearing of the arbitration issue and separate trial for his
claim for damages is procedurally untenable and implausible.
 Invoking Section 5, Rule 16 of the Rules of Court, petitioner presented a "Motion to
Set Case for Preliminary Hearing" of its special and affirmative defenses, which are
grounds fro a motion to dismiss.

In its Order of November 14, 1989, the respondent court announced that the two
arbitrators chose Mrs. Eloisa R. Narciso as the third arbitrator. And on November 21,
1989, it ordered the parties to submit their position papers on the issue as to whether
or not respondent Yao's claim for damages may be litigated upon in the summary
proceeding for enforcement of arbitration agreement. It likewise informed the parties
that petitioner's Motion to Set Case for Preliminary Hearing" of Special and
Affirmative Defenses would be resolved together with the question of damages.

On April 26, 1990, the aforequoted assailed Order issued. In moving for
reconsideration of the said Order, petitioner argued that in Special Case No. 6024,
the respondent court sits as a special court exercising limited jurisdiction and is not
competent to act on respondent Yao's claim for damages, which poses an issue
litigable in an ordinary civil action. But the respondent court was not persuaded by
petitioner's submission. On June 22, 1990, it denied the motion for reconsideration.
(Rollo, pp. 89-93).

While the appellate court has agreed with petitioner that, under Section 6 of Republic Act No. 876, a
court, acting within the limits of its special jurisdiction, may in this case solely determine the issue of
whether the litigants should proceed or not to arbitration, it, however, considered petitioner in
estoppel from questioning the competence of the court to additionally hear and decide in the
summary proceedings private respondent's claim for damages, it (petitioner) having itself filed
similarly its own counterclaim with the court a quo.

It is hardly disputable that when a court is called upon to exercise limited and special jurisdiction,
that court cannot stray to matters outside the area of its declared authority or beyond what has been
expressly invested by law (Elumbaring vs. Elumbaring, 12 Phil. 384, 387), particularly, such as in
this instance, where the proceedings are summary in nature.

Prefatorily, recalling the distinctions, pertinent to the case, between the court's lack of jurisdiction
over the person of the defendant, on the one hand, and its lack of jurisdiction over the subject
matter or the nature of the action, upon the other hand, should be useful.

The lack of jurisdiction over the person of the defendant may be waived either expressly or impliedly.
When a defendant voluntarily appears, he is deemed to have submitted himself to the jurisdiction of
the court. If he so wishes not to waive this defense, he must do so seasonably by motion for the
purpose of objecting to the jurisdiction of the court; otherwise, he shall be deemed to have submitted
himself to that jurisdiction. The decisions promulgated heretofore by this Court would likewise
seemingly apply estoppel to bar the defendant from pursuing that defense by alleging in his answer
any other issue for dismissing the action.

A citation of a few of our decisions might be apropos.

In Wang Laboratories, Inc., vs. Mendoza (156 SCRA 44), this Court has ruled that if the defendant,
besides setting up in a motion to dismiss his objection to the jurisdiction of the court, alleges at the
same time any other ground for dismissing the action, he is deemed to have submitted himself to the
jurisdiction of the court. In the process, it has equated the matter to a situation where, such as
in Immaculata vs. Judge Navarro, et al. (146 SCRA 5), the defendant invokes an affirmative
relief against his opponent.
In De Midgely vs. Judge Ferandos (64 SCRA 23, 31), the Court elaborated thusly:

We are of the opinion that the lower court has acquired jurisdiction over the person of
Mrs. Midgely by reason of her voluntary appearance. The reservation in her motion
to dismiss that she was making a special appearance to contest the court's
jurisdiction over her person may be disregarded.

It may be disregarded because it was nullified by the fact that in her motion to
dismiss she relied not only on the ground of lack of jurisdiction over her person but
also on the ground that there was no showing that earnest efforts were exerted to
compromise the case and because she prayed "for such other relief as" may be
deemed "appropriate and proper."

xxx xxx xxx

When the appearance is by motion for the purpose of objecting to the jurisdiction of
the court over the person, it must be for the sole and separate purpose of objecting
to the jurisdiction of the court. If his motion is for any other purpose than to object to
the jurisdiction of the court over his person, he thereby submits himself to the
jurisdiction of the court. A special appearance by motion made for the purpose of
objecting to the jurisdiction of the court over the person will be held to be a general
appearance, if the party in said motion should, for example, ask for a dismissal of the
action upon the further ground that the court had no jurisdiction over the subject
matter. (Syllabus, Flores vs. Zurbito, supra, at page 751. That rule was followed in
Ocampo vs. Mina and Arejola, 41 Phil. 308).

The justification for the rule was expressed in Republic vs. Ker and Companry, Ltd. (18 SCRA 207,
213-214), in this wise:

We observed that the motion to dismiss filed on April 14, 1962, aside from disputing
the lower court's jurisdiction over defendant's person, prayed for dismissal of the
complaint on the ground that plaintiff's cause of action had prescribed. By interposing
such second ground in its motion to dismiss, Ker & Co., Ltd. availed of an affirmative
defense on the basis of which it prayed the court to resolve controversy in its favor.
For the court to validly decide the said plea of defendant Ker & Co., Ltd., it
necessarily had to acquire jurisdiction upon the latter's person, who, being the
proponent of the affirmative defense, should be deemed to have abandoned its
special appearance and voluntarily submitted itself to the jurisdiction of the court.

Voluntary appearance cures defects of summons, if any, Such defect, if any, was
further cured when defendant filed its answer to the complaint. A defendant can not
be permitted to speculate upon the judgment of the court by objecting to the court's
jurisdiction over its person if the judgment is adverse to it, and acceding to
jurisdiction over its person if and when the judgment sustains its defenses.

The doctrine of estoppel is predicated on, and has its origin in, equity which, broadly defined, is
justice according to natural law and right. It is a principle intended to avoid a clear case of injustice.
The term is hardly distinguishable from a waiver of right. Estoppel, like its said counterpart, must be
unequivocal and intentional for, when misapplied, it can easily become a most convenient and
effective means of injustice. Estoppel is not understood to be a principle that, as a rule, should
prevalently apply but, such as it concededly is, as a mere exception from the standard legal norms of
general application that can be invoked only in highly exceptional and justifiable cases.
Tested by the above criteria, the Court sees it propitious to re-examine specifically the question of
whether or not the submission of other issues in a motion to dismiss, or of an affirmative defense (as
distinguished from an affirmative relief) in an answer, would necessarily foreclose, and have the
effect of a waiver of, the right of a defendant to set up the court's lack of jurisdiction over the person
of the defendant.

Not inevitably.

Section 1, Rule 16, of the Rules of Court, provides that a motion to dismiss may be made on the
following grounds:

(a) That the court has no jurisdiction over the person of the defendant or over the
subject of the action or suit;

(b) That the court has no jurisdiction over the nature of the action or suit;

(c) The venue is improperly laid;

(d) That the plaintiff has no legal capacity to sue;

(e) That there is another action pending between the same parties for the same
cause;

(f) That the cause of action is barred by a prior judgment or by statute of limitations;

(g) That the complaint states no cause of action;

(h) That the claim or demand set forth in the plaintiff's pleading has been paid,
waived, abandoned, or otherwise extinguished;

( i ) That the claim on which the action or suit is founded is unenforceable under the
provisions of the statute of frauds;

( j ) That the suit is between members of the same family and no earnest efforts
towards a compromise have been made.

Any ground for dismissal in a motion to dismiss, except improper venue, may, as further set forth in
Section 5 of the same rule, be pleaded as an affirmative defense and a preliminary hearing may be
had thereon as if a motion to dismiss had been filed. An answer itself contains the negative, as well
as affirmative, defenses upon which the defendant may rely (Section 4, Rule 6, Rules of Court). A
negative defense denies the material facts averred in the complaint essential to establish the
plaintiff's cause of action, while an affirmative defense in an allegation of a new matter which, while
admitting the material allegations of the complaint, would, nevertheless, prevent or bar recovery by
the plaintiff. Inclusive of these defenses are those mentioned in Rule 16 of the Rules of Court which
would permit the filing of a motion to dismiss.

In the same manner that the plaintiff may assert two or more causes of action in a court suit, a
defendant is likewise expressly allowed, under Section 2, Rule 8, of the Rules of Court, to put up his
own defenses alternatively or even hypothetically. Indeed, under Section 2, Rule 9, of the Rules of
Court, defenses and objections not pleaded either in a motion to dismiss or in an answer, except for
the failure to state a cause of action, are deemed waived. We take this to mean that a defendant
may, in fact, feel enjoined to set up, along with his objection to the court's jurisdiction over his
person, all other possible defenses. It thus appears that it is not the invocation of any of such
defenses, but the failure to so raise them, that can result in waiver or estoppel. By defenses, of
course, we refer to the grounds provided for in Rule 16 of the Rules of Court that must be asserted
in a motion to dismiss or by way of affirmative defenses in an answer.

Mindful of the foregoing, in Signetics Corporation vs. Court of Appeals and Freuhauf Electronics
Phils., Inc. (225 SCRA 737, 738), we lately ruled:

This is not to say, however, that the petitioner's right to question the jurisdiction of the
court over its person is now to be deemed a foreclosed matter. If it is true, as
Signetics claims, that its only involvement in the Philippines was through a passive
investment in Sigfil, which it even later disposed of, and that TEAM Pacific is not its
agent, then it cannot really be said to be doing business in the Philippines. It is a
defense, however, that requires the contravention of the allegations of the complaint,
as well as full ventilation, in effect, of the main merits of the case, which should not
thus be within the province of a mere motion to dismiss. So, also, the issue posed by
the petitioner as to whether a foreign corporation which has done business in the
country, but which has ceased to do business at the time of the filing of a complaint,
can still be made to answer for a cause of action which accrued while it was doing
business, is another matter that would yet have to await the reception and admission
of evidence. Since these points have seasonably been raised by the petitioner, there
should be no real cause for what may understandably be its apprehension, i.e., that
by its participation during the trial on the merits, it may, absent an invocation of
separate or independent reliefs of its own, be considered to have voluntarily
submitted itself to the court's jurisdiction.

Lack of jurisdiction over the subject matter of the suit is yet another matter. Whenever it appears that
the court has no jurisdiction over the subject matter, the action shall be dismissed (Section 2, Rule 9,
Rules of Court). This defense may be interposed at any time, during appeal (Roxas vs. Rafferty, 37
Phil. 957) or even after final judgment (Cruzcosa vs. Judge Concepcion, et al., 101 Phil. 146). Such
is understandable, as this kind of jurisdiction is conferred by law and not within the courts, let alone
the parties, to themselves determine or conveniently set aside. In People vs. Casiano (111 Phil. 73
93-94), this Court, on the issue of estoppel, held:

The operation of the principle of estoppel on the question of jurisdiction seemingly

depends upon whether the lower court actually had jurisdiction or not. If it had no
jurisdiction, but the case was tried and decided upon the theory that it had
jurisdiction, the parties are not barred, on appeal, from assailing such jurisdiction, for
the same "must exist as a matter of law, and may not be conferred by consent of the
parties or by estoppel" (5 C.J.S., 861-863). However, if the lower court had
jurisdiction, and the case was heard and decided upon a given theory, such, for
instance, as that the court had no jurisdiction, the party who induced it to adopt such
theory will not be permitted, on appeal, to assume an inconsistent position — that the
lower court had jurisdiction. Here, the principle of estoppel applies. The rule that
jurisdiction is conferred by law, and does not depend upon the will of the parties, has
not bearing thereon.

The rule was reiterated in Calimlim vs. Ramirez (118 SCRA 399, 406), and quite recently,
in Southeast Asian Fisheries Development Center-Aquaculture Department vs. National Labor
Relations Commission (206 SCRA 283).
Jurisdiction over the nature of the action, in concept, differs from jurisdiction over the subject matter.
Illustrated, lack of jurisdiction over the nature of the action is the situation that arises when a court,
which ordinarily would have the authority and competence to take a case, is rendered without it
either because a special law has limited the exercise of its normal jurisdiction on a particular matter
or because the type of action has been reposed by law in certain other courts or quasi-judicial
agencies for determination. Nevertheless, it can hardly be questioned that the rules relating to the
effects of want of jurisdiction over the subject matter should apply with equal vigor to cases where
the court is similarly bereft of jurisdiction over the nature of the action.

In summary, it is our considered view, as we now so hereby express,

that —

(1) Jurisdiction over the person must be seasonably raised, i.e., that it is pleaded in a motion to
dismiss or by way of an affirmative defense in an answer. Voluntary appearance shall be deemed a
waiver of this defense. The assertion, however, of affirmative defenses shall not be constructed as
an estoppel or as a waiver of such defense.

(2) Where the court itself clearly has no jurisdiction over the subject matter or the nature of the
action, the invocation of this defense may be done at any time. It is neither for the courts nor the
parties to violate or disregard that rule, let alone to confer that jurisdiction, this matter being
legislative in character. Barring highly meritorious and exceptional circumstances, such as
hereinbefore exemplified, neither estoppel nor waiver shall apply.

In the case at bench, the want of jurisdiction by the court is indisputable, given the nature of the
controversy. The arbitration law explicitly confines the court's authority only to pass upon the issue of
whether there is or there is no 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 proceeding shall be dismissed." The proceedings are summary in nature.

All considered, the court a quo must then refrain from taking up the claims of the contending parties
for damages, which, upon the other hand, may be ventilated in separate regular proceedings at an
opportune time and venue. The circumstances obtaining in this case are far, we hold, from justifying
the application of estoppel against either party.

WHEREFORE, the decision of the Court of Appeals and the orders of the trial court in question are
SET ASIDE. The court a quo, in the instant proceedings, is ordered to DESIST from further hearing
private respondent's claim, as well as petitioner's counterclaim, for damages. No costs.

SO ORDERED.

Narvasa, C.J., Cruz, Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo,
Quiason, Puno, Kapunan and Mendoza, JJ., concur.

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 Donation8 evidencing their consensus.

The Lease and the Amended Deed of Donation

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

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

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

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

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

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

In October 1976, FKI and the respondent executed an Amended Deed of Donation14 that reiterated
the provisions of the Deed of Donation , including those relating to the lease of the subject land.

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

2000 Lease Contract

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

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

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

2005 Lease Contract

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

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

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

The Assignment and Petitioner’s Refusal to Pay

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

The following year, petitioner discontinued the payment of the rent and " donation " under the 2005
Lease Contract.

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

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

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

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

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

The Demand Letters

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

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

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

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

The Ejectment Suit

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

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

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

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

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

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

Rulings of the MeTC, RTC and Court of Appeals

On 27 April 2010, the MeTC rendered judgment53 in favor of the petitioner. While the MeTC refused
to dismiss the action on the ground that the dispute is subject to arbitration, it nonetheless sided with
the petitioner with respect to the issues regarding the insufficiency of the respondent’s demand and
the nullity of the 2005 Lease Contract.54 The MeTC thus disposed:
WHEREFORE, judgment is hereby rendered dismissing the case x x x, without pronouncement as to
costs.

SO ORDERED.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 Order68 staying the immediate implementation of the decisions adverse to it.

OUR RULING

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

For this reason, We grant the petition.

Present Dispute is Arbitrable Under the

Arbitration Clause of the 2005 Lease
Agreement Contract

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

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

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

Any disagreement as to the interpretation, application or execution of this 2005 Lease Contract shall
be submitted to a board of three (3) arbitrators constituted in accordance with the arbitration law of
the Philippines. The decision of the majority of the arbitrators shall be binding upon FKI and
respondent.69 (Emphasis supplied)
The arbitration clause of the 2005 Lease Contract stipulates that "any disagreement" as to the "
interpretation, application or execution " of the 2005 Lease Contract ought to be submitted to
arbitration.70 To the mind of this Court, such stipulation is clear and is comprehensive enough so as
to include virtually any kind of conflict or dispute that may arise from the 2005 Lease Contract
including the one that presently besets petitioner and respondent.

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

Challenges Against the Application of the

Arbitration Clause of the 2005 Lease
Contract

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

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

1. The disagreement between the petitioner and respondent is non-arbitrable as it will

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

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

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

4. Petitioner and respondent already underwent Judicial Dispute Resolution (JDR)

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

None of the arguments have any merit.

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

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

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

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

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

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

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

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

Such argument is misplaced and respondent cannot rely on the Gonzales case to support its
argument.90 (Emphasis ours)

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

Under the doctrine of separability, an arbitration agreement is considered as independent of the

main contract.92 Being a separate contract in itself, the arbitration agreement may thus be invoked
regardless of the possible nullity or invalidity of the main contract.93

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

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

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

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

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

RULE 4: REFERRAL TO ADR

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

Rule 4.2. When to make request. - (A) Where the arbitration agreement exists before the action is
filed . - The request for referral shall be made not later than the pre-trial conference. After the pre-
trial conference, the court will only act upon the request for referral if it is made with the agreement
of all parties to the case.
(B) Submission agreement . - If there is no existing arbitration agreement at the time the case is filed
but the parties subsequently enter into an arbitration agreement, they may request the court to refer
their dispute to arbitration at any time during the proceedings.

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

A part from other submissions, the movant shall attach to his motion an authentic copy of the
arbitration agreement.

The request shall contain a notice of hearing addressed to all parties specifying the date and time
when it would be heard. The party making the request shall serve it upon the respondent to give him
the opportunity to file a comment or opposition as provided in the immediately succeeding Rule
before the hearing. [Emphasis ours; italics original]

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

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

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

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

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

Neither would the summary nature of ejectment cases be a valid reason to disregard the
enforcement of the arbitration clause of the 2005 Lease Contract . Notwithstanding the summary
nature of ejectment cases, arbitration still remains relevant as it aims not only to afford the parties an
expeditious method of resolving their dispute.
A pivotal feature of arbitration as an alternative mode of dispute resolution is that it is, first and
foremost, a product of party autonomy or the freedom of the parties to " make their own
arrangements to resolve their own disputes."100 Arbitration agreements manifest not only the desire
of the parties in conflict for an expeditious resolution of their dispute. They also represent, if not more
so, the parties’ mutual aspiration to achieve such resolution outside of judicial auspices, in a more
informal and less antagonistic environment under the terms of their choosing. Needless to state, this
critical feature can never be satisfied in an ejectment case no matter how summary it may be.

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

Legal Effect of the Application of the

Arbitration Clause

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

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

R.A. No. 9285

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

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

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

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

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

Civil Case No. CV 09-0346

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

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

WHEREFORE, premises considered, the petition is hereby GRANTED . Accordingly, We hereby

render a Decision:

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

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

3. SETTING ASIDE the following:

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

116865,

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

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

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

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

No costs.
SO ORDERED.

JOSE PORTUGAL PEREZ

Associate Justice

WE CONCUR

SECOND DIVISION

November 23, 2016

G.R. No. 204197

FRUEHAUF ELECTRONICS PHILIPPINES CORPORATION, Petitioner,

vs.
TECHNOLOGY ELECTRONICS ASSEMBLY AND MANAGEMENT PACIFIC CORPORATION,
Respondent.

DECISION

BRION, J.:

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

This is a petition for review on certiorari of the Court of Appeals' (CA) decision in CA-G.R. SP. No.
112384 that reversed an arbitral award and dismissed the arbitral complaint for: lack of merit.  The
1

CA breached the bounds of its jurisdiction when it reviewed the substance of the arbitral award
outside of the permitted grounds under the Arbitration Law. 2

Brief Factual Antecedents

In 1978, Fruehauf Electronics Philippines Corp. (Fruehauf) leased several parcels of land in Pasig

City to Signetics Filipinas Corporation (Signetics) for a period of 25 years (until May 28, 2003).
Signetics constructed a semiconductor assembly factory on the land on its own account.

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

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

In March 1987, Fruehauf filed an unlawful detainer case against TEAM. In an effort to amicably
settle the dispute, both parties executed a Memorandum of Agreement (MOA) on June 9,
1988.  Under the MOA, TEAM undertook to pay Fruehauf 14.7 million pesos as unpaid rent (for the
3

period of December 1986 to June 1988).

They also entered a 15-year lease contract  (expiring on June 9, 2003) that was renewable for
4

another 25 years upon mutual agreement. The contract included an arbitration agreement: 5

17. ARBITRATION

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

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

On May 2003, TEAM informed Fruehauf that it would not be renewing the lease.  6

On May 31, 2003, the sublease between TEAM and Capitol expired. However, Capitol only vacated
the premises on March 5, 2005. In the meantime, the master lease between TEAM and Fruehauf
expired on June 9, 2003.

On March 9, 2004, Fruehauf instituted SPProc. No.11449 before the Regional Trial

Court (RTC) for "Submission of an Existing Controversy for Arbitration."   It alleged: (1) that when the
7

lease expired, the property suffered from damage that required extensive renovation; (2) that when
the lease expired, TEAM failed to turn over the premises and pay rent; and (3) that TEAM did not
restore the property to its original condition as required in the contract. Accordingly, the parties are
obliged to submit the dispute to arbitration pursuant to the stipulation in the lease contract.

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

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

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

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

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

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

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

3. Is TEAM liable for payment of real estate taxes, insurance, and other expenses on the leased
premises after June 9, 2003?
4. Who is liable for payment of damages and how much?

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

Subsequently, the following issues were also submitted for resolution after TEAM proposed   their
11

inclusion:

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

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

The Arbitral Award 12

On December 3, 2008, the arbitral tribunal awarded Fruehauf: (1) 8.2 million pesos as (the balance
of) unpaid rent from June 9, 2003 until March 5, 2005; and (2) 46.8 million pesos as damages.  13

The tribunal found that Fruehauf made several demands for the return of the leased premises before
and after: the expiration of the lease  and that there was no express or implied renewal of the lease
14

after June 9, 2003. It recognized that the sub-lessor, Capitol, remained in possession of the lease.
However, relying on the commentaries of Arturo Tolentino on the subject, the tribunal held that it was
not enough for lessor to simply vacate the leased property; it is necessary that he place the thing at
the disposal of the lessor, so that the latter can receive it without any obstacle. 
15

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

seek redress from its sub-lessee, Capitol. 17

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

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

The other view, is that the MOA and the Contract recognized that TEAM owned the existing
improvements on the property and considered them as separate from the land for the initial 15-year
term of the lease.   However, Fruehauf had a vested right to become the owner of these
19

improvements at the end of the 15-year term. Consequently, the contract specifically obligated
TEAM not to remove, transfer, destroy, or in any way alienate or encumber these improvements
without prior written consent from Fruehauf.  20

Either way, TEAM had the obligation to deliver the existing improvements on the land upon the
expiration of the lease. However, there was no obligation under the lease to return the premises as
a "complete, rentable, and fully facilitized electronics plant." Thus, TEAM's obligation was to vacate
21

the leased property and deliver to Fruehauf the buildings, improvements, and installations (including
the machineries and equipment existing thereon) in the same condition as when the lease
commenced, save for what had been lost or impaired by 1the lapse of time, ordinary wear and tear,
or any other inevitable cause. 
22
The tribunal found TEAM negligent in the maintenance of the premises, machineries, and equipment
it was obliged to deliver to Fruehauf.   For this failure to conduct the necessary repairs or to notify
23

Fruehauf of their necessity, the tribunal held TEAM accountable for damages representing the value
of the repairs necessary to restore the premises to a condition "suitable for the use to which it has
been devoted' less their depreciation expense. 24

On the other issues, the tribunal held that TEAM had no obligation to pay real estate taxes,
insurance, and other expenses on the leased premises considering these obligations can only arise
from a renewal of the contract.  Further, the tribunal refused: to award attorney's fees, finding no
25

evidence that either party acted in bad faith.   For the same reason, it held both parties equally liable
26

for the expenses of litigation, including the arbitrators' fees.  27

TEAM moved for reconsideration  which the tribunal denied.   Thus, TEAM petitioned the RTC to
28 29

partially vacate or modify the arbitral award.  It argued that the tribunal failed to properly appreciate
30

the facts and the terms of the lease contract.

The RTC Ruling

On April 29, 2009, the RTC  found insufficient legal grounds under Sections 24 and 25 of the
31

Arbitration Law to modify or vacate the award.  It denied the petition and CONFIRMED, the arbitral
32

award.   TEAM filed a Notice of Appeal.

33

On July 3, 2009,  the RTC refused to give due course to the Notice of Appeal because according to
34

Section 29 35 of the Arbitration Law, an ordinary appeal under Rule 41 is not the proper mode of
appeal against an order confirming an arbitral award.  36

TEAM moved for reconsideration but the R TC denied the motion on November 15, 2009.  Thus, 37

TEAM filed a petition for certiorari before the CA arguing that the RTC gravely abused its discretion
38

in: (1) denying due course to its notice of appeal; and (2) denying the motion to partially vacate
and/or modify the arbitral award. 39

TEAM argued that an ordinary appeal under Rule 41 was the proper remedy against the RTC's order
confirming, modifying, correcting, or vacating an arbitral award.   It argued that Rule 42 was not
40

available because the order denying its motion to vacate was not rendered in the exercise of the
RTC's appellate jurisdiction. Further, Rule 43 only applies to decisions of quasi-judicial bodies.
Finally, an appeal under Rule 45 to the Supreme Court would preclude it from raising questions of
fact or mixed questions of fact and law. 41

TEAM maintained that it was appealing the RTC's order denying its petition to partially vacate/modify
the award, not the arbitral award itself.   Citing Rule 41, Section 13 of the Rules of Court, the
42

RTC's authority to dismiss the appeal is limited to instances when it was filed out of time or when the
appellant fails to pay the docket fees within the reglementary period. 43

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

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

The CA decision  45

The CA initially dismissed the petition.   As the RTC did, it cited Section 29 of the Arbitration Law:
46
Section 29. Appeals. - An appeal may be taken from an order made in a proceeding under this
Act, or from a judgment entered upon an award through certiorari proceedings, but such appeals
shall be limited to questions of law. The proceedings upon such appeal, including the judgment
thereon shall be governed by the Rules of Court in so far as they are applicable.

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

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

However, the CA amended its decision on October 25, 2012 upon a motion for reconsideration. 49

The CA held that Section 29 of the Arbitration Law does not preclude the aggrieved party from
resorting to other judicial remedies.  Citing Asset Privatization Trust v. Court of Appeals, the CA
50 51

held that the aggrieved party may resort to a petition for certiorari when the R TC to which the award
was submitted for confirmation Has acted without jurisdiction, or with grave abuse of discretion and
there is no appeal, nor any plain, speedy remedy in the course of law. 52

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

Resolution

(ADR) Law: 54

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

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

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

The CA further revisited the merits of the arbitral award and found several errors in law and in fact. It
held: (1) that TEAM was not obliged to pay rent because it was Capitol, not TEAM, that remained in
possession of the property upon the expiration of the lease;  and (2) that Fruehauf was not entitled
56

to compensation for the repair$ on the buildings because it did not become the owner of the building
until after the expiration of the lease.  57

Also citing Tolentino, the CA opined: (1) that a statement by the lessee that he has abandoned the
premises should, as a general rule, constitute sufficient compliance with his duty to return the leased
premises; and (2) that any new arrangement made by the lessor with another person, such as the
sub-lessor, operates as a resumption of his possession. 58
On the issue of damages, the CA held that TEAM can never be liable for the damages for the repairs
of the improvements on the premises because they were owned by TEAM itself (through its
predecessor, Signetics) when the lease commenced.  59

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

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

The Arguments

Fruehauf argues that courts do riot have the power to substitute their judgment for that of the
arbitrators.61 It also insists that an ordinary appeal is not the proper remedy against an RTC's order
confirming, vacating, correcting or modifying an arbitral &ward but a petition for review
on certiorari under Rule 45.  62

Furthermore, TEAM's petition before the CA went beyond the permissible scope of certiorari - the
existence of grave abuse of discretion or errors jurisdiction - by including questions of fact and law
that challenged the merits of the arbitral award.63

However, Fruehauf inconsistently argues that the remedies against an arbitral award are (1) a
petition to vacate the award, (2) a petition for review under Rule 43 raising questions of fact, of law,
or mixed questions of fact and law, or (3) a petition for certiorari under Rule 65.  Fruehauf cites an
64

article from the Philippine Dispute Resolution Center  and Insular Savings Bank v. Far East Bank
65

and Trust, Co. 66

TEAM counters that the CA correctly resolved the substantive issues of the case and that the arbitral
tribunal's errors were sufficient grounds to vacate or modify the award.  It insists that the RTC's
67

misappreciation of the facts from a patently erroneous award warranted an appeal under Rule 41. 68

TEAM reiterates that it "disagreed with the arbitral award mainly on questions of fact and not
only on questions of law," specifically, "on factual matters relating to specificprovisions in the
contract on ownership of structures and improvements thereon, and the improper award of
rentals and penalties." Even assuming that it availed of the wrong mode of appeal, TEAM posits
69

that its appeal should still have been given due course in the interest of substantial justice. 
70

TEAM assails the inconsistencies of Fruehauf’s position as to the available legal remedies against
an arbitral award.  However, it maintains that Section 29 of the Arbitration Law does not foreclose
71

other legal remedies (aside from an appeal by certiorari) against the RTC's order confirming or
vacating an arbitral award pursuant to Insular Savings Bank WINS) Japan Co., Ltd.  72

The Issues

This case raises the following questions:

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

2. What are the available remedies from an RTC decision confirming, vacating, modifying, or
correcting an arbitral award?
 3. Did the arbitral tribunal err in awarding Fruehauf damages for the repairs of the building
and rental fees from the expiration of the lease?

Our Ruling

The petition is meritorious.

Arbitration is an alternative mode of dispute resolution outside of the regular court

system. Although adversarial in character, arbitration is technically not litigation. It is a voluntary
process in which one or more arbitrators - appointed according to the parties' agreement or
according to the applicable rules of the Alternative Dispute Resolution (ADR) Law - resolve a dispute
by rendering an award.   While arbitration carries many advantages over court litigation, in :many
73

ways these advantages also translate into its disadvantages.

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

However, this contractual and consensual character means that the parties cannot implead a third-
party in the proceedings even if the latter's participation is necessary for a complete settlement of the
dispute. The

tribunal does not have the power to compel a person to participate in the arbitration proceedings
without that person's consent. It also has no authority to decide on issues that the parties did not
submit (or agree to submit) for its resolution.

As a purely private mode of dispute resolution, arbitration proceedings, including the records, the
evidence, and the arbitral award, are confidential   unlike court proceedings which are generally
74

public. This allows the parties to avoid negative publicity and protect their privacy. Our law highly
regards the confidentiality of arbitration proceedings that it devised a judicial remedy to prevent or
prohibit the unauthorized disclosure of confidential information obtained therefrom.  75

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

litigation governed by the Rules of Court.

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

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

I
This risk of error is compounded by the absence of an effective appeal mechanism. The errors of
an; arbitral tribunal are not subject to correction by the judiciary. As a private alternative to court
proceedings, arbitration is meant to be an end, not the beginning, of litigation.  Thus, the
78

arbitral award is final and binding on the parties by reason of their contract - the arbitration
agreement.  79

An Arbitral Tribunal does not exercise

quasi-judicial powers

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

exercised by administrative agencies - legal organs of the government.

Quasi-judicial bodies can only exercise such powers and jurisdiction as are expressly or by
necessary implication conferred upon them by their enabling statutes.  Like courts, a quasi-judicial
81

body's jurisdiction over a subject matter is conferred by law and exists independently from the will of
the parties. As government organs necessary for an effective legal system, a quasi-judicial tribunal's
legal existence, continues beyond the resolution of a specific dispute. In other words, quasi-judicial
bodies are creatures of law.

As a contractual and consensual: body, the arbitral tribunal does not have any inherent powers over
the parties. It has no power to issue coercive writs or compulsory processes. Thus, there is a need
to resort to the regular courts for interim measures of protection   and for the recognition or
82

enforcement of the arbitral award.  83

The arbitral tribunal acquires jurisdiction over the parties and the subject matter through stipulation.
Upoh the rendition of the final award, the tribunal becomes functus officio and - save for a few
exceptions  - ceases to have any further jurisdiction over the dispute.  The tribunal's powers (or in
84 85

the case of ad hoc tribunals, their very existence) stem from the obligatory force of the arbitration
agreement and its ancillary stipulations.  Simply put, an arbitral tribunal is a creature of contract.
86

Deconstructing the view that arbitral

tribunals are quasi-judicial agencies

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

The ABS-CBN Case opined that a voluntary arbitrator is a "quasi-judicial instrumentality" of the

government   pursuant to Luzon Development Bank v. Association of Luzon Development Bank
88

Employees,   Sevilla Trading Company v. Sernana,   Manila Midtown Hotel v.

89 90

Borromeo,   and Nippon Paint Employees Union-Olalia v. Court of Appeals.   Hence, voluntary

91 92

arbitrators are included in the Rule 43 jurisdiction of the Court of Appeals:

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

Citing Insular Savings Bank v. Far East Bank and Trust Co.,   the ABS-CBN Case pronounced that
94

the losing party in an arbitration proceeding may avail of three alternative remedies: (1) a petition to
vacate the arbitral award before the RTC; (2) a petition for review with the CA under Rule 43 of the
Rules of Court raising questions of fact, of law, or of both; and (3) a I petition for certiorari under
Rule 65 should the arbitrator act beyond its jurisdiction or with grave abuse of discretion.  95

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

First, the pronouncements made in the ABS-CBN Case and in the Insular Savings Bank
Case (which served as the authority for the ABS-CBN Case) were both obiter dicta.

In the ABS-CBN Case, we sustained the CA's dismissal of the petition because it was filed as
an "alternative petition for review under Rule 43 or petition for certiorari under Rule 65."   We held
96

that it was an inappropriate mode of appeal because, a petition for review and a petition
for certiorari are mutually exclusive and not alternative or successive.

In the Insular Savings Bank case, the lis mota of the case was the RTC's jurisdiction over an
appeal from an arbitral award. The parties to the arbitration agreement agreed that the rules of the
arbitration provider  - which stipulated that the R TC shall have jurisdiction to review arbitral awards -
97

will govern the proceedings.98 The Court ultimately held that the RTC does not have jurisdiction to
review the merits of the award because legal jurisdiction is conferred by law, not by mere agreement
of the parties.

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

Second, even if we disregard the obiter dicta character of both pronouncements, a more careful

scrutiny deconstructs their legal authority.

The ABS-CBN Case committed the classic fallacy of equivocation. It equated the term "voluntary

arbitrator" used in Rule 43, Section 1 and in the cases of Luzon Development Bank v. Association of
Luzon Development Bank Employees, Sevilla Trading Company v. Semana, Manila Midtown Hotel
v. Borromeo, and Nippon Paint Employees Union-Olalia v. Court of Appeals with the term
"arbitrator/arbitration tribunal."

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

The term "Voluntary Arbitrator" does not refer to an ordinary "arbitrator" who voluntarily agreed to:

resolve a dispute. It is a technical term with a specific definition under the Labor Code:

Art. 212 Definitions. xxx

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

Voluntary Arbitrators resolve labor disputes and grievances arising from the interpretation of
Collective Bargaining Agreements.   These disputes were specifically excluded: from the coverage
102

of both the Arbitration Law  and the ADR Law. 

103 104

Unlike purely commercial relationships, the relationship between capital and labor are heavily
impressed with public interest.  Because of this, Voluntary Arbitrators authorized to resolve labor
105

disputes have been clothed with quasi-judicial authority.

On the other hand, commercial relationships covered by our commercial arbitration laws are purely
private and contractual in nature. Unlike labor relationships, they do not possess the same
compelling state interest that would justify state interference into the autonomy of contracts. Hence,
commercial arbitration is a purely private system of adjudication facilitated by private citizens instead
of government instrumentalities wielding quasi-judicial powers.

Moreover, judicial or quasi-judicial jurisdiction cannot be conferred upon a tribunal by the parties

alone. The Labor Code itself confers subject-matter jurisdiction to Voluntary Arbitrators.  106

Notably, the other arbitration body listed in Rule 43 - the Construction Industry Arbitration
Commission (CIAC) - is also a government agency  attached to the Department of Trade and
107

Industry.   Its jurisdiction is likewise conferred by statute.   By contrast, the subject-matter
108 109

jurisdiction of commercial arbitrators is stipulated by the parties.

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

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

However, arbitral tribunals and the RTC are not co-equal bodies because the RTC is authorized to
confirm or to vacate (but not reverse) arbitral awards.   If we were to deem arbitrators as included in
111

the scope of Rule 43, we would effectively place it' on equal footing with the RTC and remove
arbitral awards from the scope of RTC review.

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

What are remedies from a final domestic

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

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

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

The Court shall exercise the power of judicial review as provided by these Special ADR
Rules. Courts shall intervene only in the cases allowed by law or these Special ADR Rules.  113

xxxx

Rule 19.7. No appeal or certiorari on the merits of an arbitral award - An agreement to refer a
dispute to arbitration shall mean that the arbitral award shall be final and binding. Consequently, a
party to an arbitration is precluded from filing an appeal or a petition for certiorari questioning
the merits of an arbitral award.   (emphasis supplied)
114

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

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

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

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

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

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

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

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

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

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

(d) the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual,
final and definite award upon the subject matter submitted to them was not made.  117

The award may also be vacated if an arbitrator who was disqualified to act willfully refrained from
disclosing his disqualification to the parties.   Notably, none of these grounds pertain to the
118

correctness of the award but relate to the misconduct of arbitrators.

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

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

(aa) a party to the arbitration agreement was under some incapacity; or the said
agreement is not valid under the law to which the parties have subjected it or, failing
any indication thereon, under the law of the Philippines; or

(bb) the party making the application was not given proper notice of the appointment
of an arbitrator or of the arbitral proceedings or was otherwise unable to present his
case; or

(cc) the award deals with a dispute not contemplated by or not falling within the terms
of the submission to arbitration, or contains decisions on matters beyond the scope
of the submission to arbitration, provided that, if the decisions on matters submitted
to arbitration can be separated from those not so submitted, only the part of the
award which contains decisions on matters not submitted to arbitration may be set
aside; or

(dd) the composition of the arbitral tribunal or the arbitral procedure was not in
accordance with the agreement of the parties, unless such agreement was in conflict
with a provision of ADR Act from which the parties cannot derogate, or, failing such
agreement, was not in accordance with ADR Act; or

(ii) The Court finds that:

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

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

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

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

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

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

Consequently, the winning party can generally expect the enforcement of the award. This is a stricter
rule that makes Article 2044  of the Civil Code regarding the finality of an arbitral award redundant.
122

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

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

a. Where there was an evident miscalculation of figures or an evident mistake in the

description of any person, thing or property referred to in the award;

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

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

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

A losing party is likewise precluded from resorting to certiorari under Rule 65 of the Rules of
Court.   Certiorari is a prerogative writ designed to correct errors of jurisdiction committed by a
124

judicial or quasi-judicial body.   Because an arbitral tribunal is not a government organ exercising

125

judicial or quasi-judicial powers, it is removed from the ambit of Rule 65.

Not even the Court's expanded certiorari jurisdiction under the Constitution   can justify judicial
126

intrusion into the merits of arbitral awards. While the Constitution expanded the scope
of certiorari proceedings, this power remains limited to a review' of the acts of "any branch or
instrumentality of the Government." As a purely private creature of contract, an arbitral tribunal
remains outside the scope of certiorari.

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

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

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

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

In sum, the only remedy against; a final domestic arbitral award is to file petition to vacate or to
modify/correct the award not later than thirty (30) days from the receipt of the award.   Unless a
128

ground to vacate has been established, the RTC must confirm the arbitral award as a matter of
course.

The remedies against an order

Confirming, vacating, correcting, or
modifying an arbitral award

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

instead.

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

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

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

When the ADR Law was enacted in 2004, it specified that the appeal shall be made to the CA in
accordance with the rules of procedure to be promulgated by this Court.   The Special ADR Rules
131

provided that the mode of appeal from the RTC's order confirming, vacating, or correcting/modifying
a domestic arbitral award was through a petition for review with the CA.   However, the Special
132

ADR Rules only took effect on October 30, 2009.

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

for certiorari soon after.

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

The correctness or incorrectness

of the arbitral award

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

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

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

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

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

Assuming arguendo that the tribunal's interpretation of the contract was incorrect, the errors would
have been simple errors of law.  It was the tribunal - not the RTC or the CA - that had jurisdiction
1âwphi1

and authority over the issue by virtue of the parties' submissions; the CA's substitution of its own
judgment for the arbitral award cannot be more compelling than the overriding public policy to uphold
the autonomy of arbitral awards. Courts are precluded from disturbing an arbitral tribunal's factual
findings and interpretations of law.   The CA's ruling is an unjustified judicial intrusion in excess of
136

its jurisdiction - a judicial overreach. 

137

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

Whether or not the arbitral tribunal correctly passed upon the issues is irrelevant. Regardless of the
amount, of the sum involved in a case, a simple error of law remains a simple error of law. Courts
are precluded from revising the award in a particular way, revisiting the tribunal's findings of fact or
conclusions of law, or otherwise encroaching upon the independence of an arbitral tribunal.  At the
138

risk of redundancy, we emphasize Rule 19.10 of the Special ADR Rules promulgated by this
Court en banc:

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

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

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

In other words, simple errors of fact, of law, or of fact and law committed by the arbitral tribunal are
not justiciable errors in this jurisdiction. 139

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

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

SO ORDERED.

ARTURO D. BRION
Associate Justice